E-encyclopedia of banking, stock exchange and finance

Selected letter: E

  • ECOFIN COUNCIL

    It is commonly known as the Ecofin Council, or simply "Ecofin" and it is composed of the Economics and Finance Ministers of the Member States, as well as Budget Ministers when budgetary issues are discussed. It meets once a month.
    The Ecofin Council covers different areas such as: economic policy coordination, economic surveillance, monitoring of Member States' budgetary policy and public finances, the euro, financial markets and capital movements and economic relations with third countries. It decides mainly by qualified majority, in consultation or co-decision with the European Parliament, with the exception of fiscal matters, which are decided by unanimity.
    The Ecofin Council also prepares and adopts every year, together with the European Parliament, the budget of the European Union.


    Link: www.consilium.europa.eu
    © 2011 ASSONEBB

  • ECONOMIC ANALYSIS OF ITALIAN INTER-COUNTRY CHILDREN ADOPTIONS

    Abstract

    In 2013, Italy had the world’s highest international adoption rate among Western countries. Do adoption costs vary on the basis of characteristics of the adopted children? To answer this question, in 2015, 280 adoptive families took part in a detailed survey-the first of its kind in Italy-on their adoption experience. We describe the main results of the survey and draw first policy implications.

    Introduction and research design

    Adopting a child satisfies a desire for parenting and therefore affects the well-being of a family. As it has been noted, “International adoptive parents and children meet across lines of difference involving not just biology but also socio-economic class, race, ethnic and cultural heritage, and nationality” (Bartholet 2006, p.107). Italian families adopted 37,680 children between 2003 and 2013, with a rate of 6.7 international adoptions per 100,000 inhabitants in 2013, the highest among all Western nations. The US, the first receiving country in the world, welcomed over 170,000 children in the same period corresponding to 3.0 inter-country adoptions per 100,000 inhabitants in 2013 (CAI 2014).

    Italian parents adopt children abroad because of the lack of a sufficient number of adoptable children domestically; in 2011, similarly to previous years, over 5,000 families applied for adoption but less than 1,100 children have been adopted domestically according to the Internal Affairs Minister (2012). The openness of Italian families toward adoption coincides with one of the lowest birth rates in the world (as reported in the last Italian census by ISTAT 2011).

    Most of the empirical analyses available in the economic literature refer to the United States, which has not adopted the guidelines of the UN Convention on the Rights of the Child (1989), but ratified The Hague Convention on the international adoption of children in 2014. Its adoption procedure is composed largely of private agreements involving little state intervention. Thus, profoundly different procedures are followed among countries that have ratified The Hague Convention, as Italy has. The socioeconomic consequences of adoption in these countries are significant and deserve greater attention. Bennet Woodhouse (2014) has explored the differences and highlighted the unexpected similarities between adoption philosophies and procedures in Italy and the US. In the US, adoption is managed privately, while in Italy it is heavily state-controlled; Italian law focuses on children’s rights, while American law considers adults’ rights first. Americans choose the ethnicity and age of their adopted children, while by law Italians are not supposed to; however, “neither system is colour blind in operations” (Bennet Woodhouse 2014, p.9), and in fact Italian parents can choose the ethnicity of the adoptee by choosing to adopt through an accredited body operating in their area of interest. So in the end, Italian “adoptive parents can find ways to achieve individualistic and market driven results that we see in the US” (Bennet Woodhouse 2014, p.9).

    The Italian adoption authority does not disclose information on either adoptive families or unsuccessful adoptions, so the data were gathered through a survey of Italian adoptive families. We describe the costs associated with the adoption procedure (accredited body fees, health care, and travel costs), the characteristics of the adopted children (age, continent of origin, disability, and gender), and the characteristics of the adoptive parents (age, education, and income).

    Given the lack of cooperation by the Italian authorities in the research, the anonymous questionnaire, which was conducted from 15 December, 2014, to 10 August, 2015, was posted on Survey Monkey and advertised through adoption newsletters, blogs, forums, press articles, a Facebook marketing campaign and two interviews on national TV with the principal investigator. Interested parents were directed to a secure URL, where they were supplied with details regarding the survey.

    The questionnaire was formulated on the basis of existing literature, is similar to the questionnaire submitted by the CAI to Italian adoptive families after entering the country with their adoptee, and comprised 59 questions divided into seven sections, beginning with a filter question: “Have you adopted one or more children abroad?” The questionnaire’s seven sections are outlined in Table 1.

    Table 1. Questionnaire structure
    Section Issues
    I. Adoptive family data age, education, income, number of adoptees, adoption duration
    II. Information and support information and support from social services, accredited bodies
    III. Characteristics of the adoptive child child age, country of origin, presence of needs
    IV. Period spent abroad duration and satisfaction, parental leave after returning to Italy
    V. Post-adoption period support from social services and accredited bodies
    VI. Current family situation satisfaction with the adoption, child’s requests and needs
    VII. Adoption costs accredited body, travel, information, health care

    In the first section of the questionnaire, families were asked to provide socio-demographic information (age, level of education, income, and number of adopted children) and the duration of their adoption. The second section addressed the support provided by public social services and accredited bodies as well as the perceived satisfaction before the child arrived in the family. The third section was devoted to the adopted child and the child’s characteristics (age, gender, special needs, birth country). The fourth section asked about the time spent abroad with the child (duration and satisfaction) and the parental leave taken after returning to Italy (how long parents were away from work after returning to Italy). The fifth section asked about the support provided by public social services and accredited bodies as well as the satisfaction with this support after the child joined the family. The sixth section examined the current family situation and asked about the satisfaction of the adoptive experience, the extent to which parents felt that the child was aware of his/her story, and his/her relationship with other family members (aunts, grandparents) and school. In the final section, families were asked about cost of their adoption (fee for the accredited body, health-care treatments, and other expenses) and whether these expenses were as expected.

    Parents and children

    Among the 280 respondent families, 63% had adopted one child, 34% had adopted two, 3% had adopted three, only one family had adopted four and no family had adopted 5 or more children; 66% of children were male, and over 60% of the adoptions reported had taken place after 2010. The survey confirmed that adoptive families are self-selecting in terms of their education and income; over 50% of families had a monthly net income over €3,000, whereas the national average is €2,500. The adoptive families in the survey came mostly from northern and central Italy.

    The adopted children in the survey came from Asia (32%), Africa (27%), Europe (22%) and Latin America (19%). The ages of the children proposed to families depended on the laws in the home countries and any limitations in the Juvenile Court’s decision for the adoptive parents. Indeed, age distribution is correlated with the continent of origin: Asian and African children were younger than their European and Latin American counterparts. 47% of the children in our survey were younger than the age of 3 at the time of the adoption, 20% were 3-5 years of age, 30% were 5-9 years of age and only 4% were older than 9 years of age. able 2 shows the descriptive statistics of selected variables.

    Table 2. Summary statistics of variables
    Variables Obs. Mean S.D. Min Max
    Number of adoptees 244 1.377 0.606 1 4
    Child gender 238 0.655 0.476 0 1
    Adoption duration 237 3.330 1.620 1 8
    Mother's age 237 40.721 4.999 27 56
    Father's age 237 42.139 5.125 26 61
    Satisfaction with adoption 200 9.380 1.201 1 10
    Note: Child gender is =1 if male; is =0 if female; adoption duration is the waiting period expressed in years (from 1 to 8); mother's and father's age when the adoption took place; satisfaction ranges from 10 (max) to 1 (min).

    Adoptions’ costs

    In contrast with procedures in the US, adoption in Italy takes several years. The wait endured by the adoptive families in our study after they had obtained the positive decision of the Juvenile Tribunal was less than two years in only 35% of cases. An additional 30% waited for three years, 15% waited for four years, 10% waited for five years, 4% waited for six or seven years and 3% waited for eight years or more. During this waiting period, families mostly looked for information on adoption, on the country of their prospective child, and joined volunteer groups for adoptive families. Among these activities, families reported that it was helpful to get information about the country and meet adoptive families with children from the same nation as their prospective child.

    Contrary to The Hague’s recommendation, the CAI does not provide updated data on the adoption costs incurred by Italian families. In our survey the families were asked to evaluate the costs associated with their adoptions, which are accredited body fees, travel, information (including language tuition and translation), health care expenses in Italy and health care expenses abroad. Families referred that the most significant cost was the fee of the accredited adoption body, followed by travel expenses. Families spent less than €7,000 on accredited body fees in only less than 35% of cases, while they spent less than €7,000 on travel expenses in 75% of cases. The expenses incurred for information, health care costs in Italy and health care abroad amounted to less than €3,000 in 90% of cases. Over 80% of families reported not being surprised by the overall adoption costs. These results further confirm that adoption is expensive for a family, so that adoptive families are self-selected.

    Respondent families travelled abroad for their adoption for a period between 8 and 22 days in 40% of cases; in 47% of cases, the families travelled for a period between 23 days and 2 months. Most importantly, over 70% of respondent families were very happy with the overall experience, rating their satisfaction between 8 and 10.

    Table 3 Adoption's Costs

    Up to €3,000

    €3,000-€7,000

    €7,000-€15,000

    €15,000-€30,000

    Over €30,000

    Accredited body

    11.83%

    27.96%

    46.24%

    11.83%

    2.15%

    Travel

    26.76%

    46.67%

    21.67%

    4.44%

    0.56%

    Children health care (foreign country)

    97.93%

    1.38%

    0%

    0.69%

    0%

    Parnets' health care

    94.89%

    3.65%

    0.73%

    0.73%

    0%

    Children health care (Italy)

    83.27%

    13.42%

    1.34%

    2.01%

    0%

    Home, car and other expenses

    64.85%

    24.85%

    7.88%

    1.82%

    0.61%

    Information (language, guide)

    96%

    3.33%

    0%

    0.67%

    0%

    Source: Survey data (2002-2014).

    Conclusion

    Despite the self-selection of the sample and the resulting impossibility of generalizing the results, the survey on the inter-country adoption of children by parents in Italy provides useful indications on this specific-research topic. The reduction of health care and social services public spending limits the number of children with special needs that can be treated in the country, increasing the risks of adoptions’ disruption; for this reason, the number of children with special needs available for adoption, that increased steadily after 2010, should be reduced by accredited bodies.

    Families wishing to adopt a child should be adequately informed about the challenges and risks of this parenting experience. The Italian adoption system is complex and slow, but has achieved to form an incredible number of happy families; the selection process and the screening by the social services and the Juvenile Courts seem to work well. Today adoption in Italy is limited to same-sex married couples, leaving out single parents, same-sex and un-married couples. Policy makers should consider the opening of adoptions to these other forms of (happy) families, following the experience of other European countries (e.g. France and Sweden) since there is no evidence in the literature of a different or reduced ability to welcome a child.

    References

    Bartholet E (2006) International adoption. In: Lori Askeland (ed.) Children and youth in adoption, orphanages, and foster care. Westport (CT): Greenwood Publishing Group Inc.

    Bennet Woodhouse B (2014) Inter-country adoption in Italy and the United States: divergent approaches to privatization, discrimination and subsidiarity, Legal Studies Research Paper Series n. 12-233, Emory University School of Law.

    Commissione per le Adozioni Internazionali (CAI) (2014, 2013, 2012, 2011) Data and perspectives in inter-country adoptions … Report on files from January 1 to December 31, 2013, 2012, 2011, 2010. Florence: Istituto degli Innocenti.

    European Parliament (2009) International adoption in the European Union. Brussels.

    ISTAT (2011) 15th Italian Population and Housing Census. Rome.

    Skidmore M, Anderson G, and Eiswert M (2014) ‘The child adoption marketplace: parental preferences and adoption outcomes’, Public Finance Review. DOI: 10.1177/1091142114547412

    The Hague Conference on Private International Law (2014) Notes on the financial aspects of inter-country adoption. The Hague.

    United Nations (1989) Convention on the Rights of the Child. Washington D.C.

  • ECONOMIC ANALYSIS OF ITALIAN INTER-COUNTRY CHILDREN ADOPTIONS (ENCYCLOPEDIA)

    Abstract

    In 2013, Italy had the world’s highest international adoption rate among Western countries. Do adoption costs vary on the basis of characteristics of the adopted children? To answer this question, in 2015, 280 adoptive families took part in a detailed survey-the first of its kind in Italy-on their adoption experience. Econometric results showed that Italian families are willing to choose expensive accredited bodies to facilitate adoptions of children younger than 5 years of age.

    Introduction and research design

    Adopting a child satisfies a desire for parenting and therefore affects the well-being of a family. As has been noted, “International adoptive parents and children meet across lines of difference involving not just biology but also socio-economic class, race, ethnic and cultural heritage, and nationality” (Bartholet 2006, p.107). Italian families adopted 37,680 children between 2003 and 2013, with a rate of 6.7 international adoptions per 100,000 inhabitants in 2013, the highest among all Western nations. The US, the first receiving country in the world, welcomed over 170,000 children in the same period corresponding to 3.0 inter-country adoptions per 100,000 inhabitants in 2013 (CAI 2014).

    Italian parents adopt children abroad because of the lack of a sufficient number of adoptable children domestically; in 2011, similarly to previous years, over 5,000 families applied for adoption but less than 1,100 children have been adopted domestically according to the Internal Affairs Minister (2012). The openness of Italian families toward adoption coincides with one of lowest birth rates in the world (as reported in the last Italian census by ISTAT 2011).

    Most of the empirical analyses available in the economic literature refer to the United States, which has not adopted the guidelines of the UN Convention on the Rights of the Child (1989), but ratified The Hague Convention on the international adoption of children in 2014. Its adoption procedure is composed largely of private agreements involving little state intervention. Thus, profoundly different procedures are followed among countries that have ratified The Hague Convention, as Italy has. The socioeconomic consequences of adoption in these countries are significant and deserve greater attention. Bennet Woodhouse (2014) has explored the differences and highlighted the unexpected similarities between adoption philosophies and procedures in Italy and the US.

    The Italian adoption authority does not disclose information on either adoptive families or unsuccessful adoptions, so the data were gathered through a survey of Italian adoptive families. We describe the costs associated with the adoption procedure (accredited body fees, health care, and travel costs), the characteristics of the adopted children (age, continent of origin, disability, and gender), and the characteristics of the adoptive parents (age, education, and income).

    Given the lack of cooperation by the Italian authorities in the research, the anonymous questionnaire, which was conducted from 15 December, 2014, to 10 August, 2015, was posted on Survey Monkey and advertised through adoption newsletters, blogs, forums, press articles, a Facebook marketing campaign and two interviews on national TV with the principal investigator. Interested parents were directed to a secure URL, where they were supplied with details regarding the survey.

    The questionnaire was formulated on the basis of existing literature, is similar to the questionnaire submitted by the CAI to Italian adoptive families after entering the country with their adoptee, and comprised 59 questions divided into seven sections, beginning with a filter question: “Have you adopted one or more children abroad?” The questionnaire’s seven sections are outlined in Table 1.

    TABLE 1

    Questionnaire Structure

    In the first section of the questionnaire, families were asked to provide socio-demographic information (age, level of education, income, and number of adopted children) and the duration of their adoption. The second section addressed the support provided by public social services and accredited bodies as well as the perceived satisfaction before the child arrived in the family. The third section was devoted to the adopted child and the child’s characteristics (age, gender, special needs, birth country). The fourth section asked about the time spent abroad with the child (duration and satisfaction) and the parental leave taken after returning to Italy (how long parents were away from work after returning to Italy). The fifth section asked about the support provided by public social services and accredited bodies as well as the satisfaction with this support after the child joined the family. The sixth section examined the current family situation and asked about the satisfaction of the adoptive experience, the extent to which parents felt that the child was aware of his/her story, and his/her relationship with other family members (aunts, grandparents) and school. In the final section, families were asked about cost of their adoption (fee for the accredited body, health-care treatments, and other expenses) and whether these expenses were as expected.

    Parents and children

    Among the 280 respondent families, 63% had adopted one child, 34% had adopted two, 3% had adopted three, only one family had adopted four and no family had adopted 5 or more children; 66% of children were male, and over 60% of the adoptions reported had taken place after 2010. The survey confirmed that adoptive families are self-selecting in terms of their education and income; over 50% of families had a monthly net income over €3,000, whereas the national average is €2,500. The adoptive families in the survey came mostly from northern and central Italy.

    The adopted children in the survey came from Asia (32%), Africa (27%), Europe (22%) and Latin America (19%). The ages of the children proposed to families depended on the laws in the home countries and any limitations in the Juvenile Court’s decision for the adoptive parents. Indeed, age distribution correlated with the continent of origin: Asian and African children were younger than their European and Latin American counterparts. 47% of the children in our survey were younger than the age of 3 at the time of the adoption, 20% were 3-5 years of age, 30% were 5-9 years of age and only 4% were older than 9 years of age. able 2 shows the descriptive statistics of selected variables.

    TABLE 2

    Summary Statistics of Variables

    Adoptions’ costs

    Families noted that the most significant cost was the fee of the accredited adoption body, followed by travel expenses. Only in 35% of cases did families spend less than €7,000 on accredited body fees, whereas they spent less than €7,000 on travel expenses in 75% of cases. The expenses incurred for information and health care both in Italy and abroad amounted to less than €3,000 in 90% of cases. Over 80% of families reported not being surprised by the overall adoption costs. These results further confirmed that adoptive families are self-selecting, given their awareness that adoption is expensive.

    We investigated the (econometric) relationships among accredited body fees, child characteristics (child age, gender, special needs, continent of origin) and family characteristics (mother’s age and waiting period). In fact, Skidmore at al. (2014) have found that adoptee characteristics explain up to 74% of variations in fees. Similarly, to the US experience (Skidmore et al 2014), we expect that the presence of needs, the male gender and the child age negatively correlate with adoption’s costs, while the European origin should positively correlate.

    TABLE 3

    Result of adoption costs’ regressions

    Note: SE in parenthesis; *, **, *** is significant at 10%, 5% and 1% respectively. Accredited body fees are a dummy = 1 if below €7,000; = 0 if above €7,000. Child gender is = 1 if male; is = 0 if female. Special needs are a dummy = 1 if reported; = 0 otherwise. Child’s age is a dummy = 1 if child is aged below 5 years; is = 0 is older.

    In all specifications (Table 3) the child age had a negative and statistically significant effect on fees; in some specifications, the adoption duration and the child gender significantly correlated with accredited body fees. Neither the mother’s age, the European origin, nor the presence of special needs were significantly correlated with accredited body fees. These results represent a departure from the US experience, where Caucasian children without special needs are associated to higher adoption fees (Skidmore et al 2014). The statistical significance of these results was confirmed by the very low probability of the likelihood ratio statistics.

    Interestingly, accredited body fees were statistically significant and negatively correlated with child age, thus suggesting that the adoption of younger children is more expensive (the younger, the more expensive). This result is consistent with empirical evidence in the US, but has never been reported on in the literature on Italian adoptions, because the Italian system theoretically does not allow adoption fees to vary according to a child’s age (the younger, the more expensive). This result reflects Italian parents’ willingness to choose expensive accredited bodies if they can facilitate the adoption of children younger than 5 years of age. In Italy, in contrast to the US, child ethnicity is not statistically correlated with fees.

    Despite the self-selection of the sample and the resulting impossibility of generalizing the results, the survey on the inter-country adoption of children by parents in Italy provides useful indications on this little-researched topic.

    Editors: Barbara Pancino and Chiara Oldani

    References

    Bartholet E (2006) International adoption. In: Lori Askeland (ed.) Children and youth in adoption, orphanages, and foster care. Westport (CT): Greenwood Publishing Group Inc.

    Bennet Woodhouse B (2014) Inter-country adoption in Italy and the United States: divergent approaches to privatization, discrimination and subsidiarity, Legal Studies Research Paper Series n. 12-233, Emory University School of Law.

    Commissione per le Adozioni Internazionali (CAI) (2014, 2013, 2012, 2011) Data and perspectives in inter-country adoptions … Report on files from January 1 to December 31, 2013, 2012, 2011, 2010. Florence: Istituto degli Innocenti.

    European Parliament (2009) International adoption in the European Union. Brussels.

    ISTAT (2011) 15th Italian Population and Housing Census. Rome.

    Skidmore M, Anderson G, and Eiswert M (2014) ‘The child adoption marketplace: parental preferences and adoption outcomes’, Public Finance Review. DOI: 10.1177/1091142114547412

    The Hague Conference on Private International Law (2014) Notes on the financial aspects of inter-country adoption. The Hague.

    United Nations (1989) Convention on the Rights of the Child. Washington D.C.

  • ECONOMIC ANALYSIS OF THE CRISIS

    According to the US Federal Reserve (2004) subprime credits represent a natural evolution of the credit system. Only in 2007, the US Federal Reserve started considering the risks connected to these financial tools. Subprime credits rose thanks to the real estate market boom, to very low short-term interest rates, and because of their high returns due to predatory practices. By means of securitisation, subprime credits were incorporated into investment funds and sold outside the US. The favourable rating of these funds allowed the spread of risks outside the US market, and this dramatically reduced the confidence in rating agencies and in their ability to assess the creditworthiness of borrowers, funds and banks. According to many analyses, the roots of the subprime crisis are both congiuntural (real estate boom, wrong evaluation of risks, expansionary monetary policies), and structural (deregulation, speculation and risk loving) (Gorton, 2009 and Oldani, 2008).
    After the dot-com bubble burst (2001) and the corporate scandals (2002-03, Enron among others), financial wealth moved to the real estate market, a cheap money tank, and Over The Counter fuelled by deregulation and the free market philosophy.
    The credit risk assessment had become fundamental to let resources flow in the global financial system; rating agencies determined, sometimes in a position of conflict of interests, methodologies for the evaluation of creditworthiness and transparency had been always guaranteed. On this issue see Mazzoni and Masera.
    Over the period 2001-06, monetary policy was expansionary, with respect to the needs of the financial system, it provided abundant liquidity and sustained the credit growth. Interest rates in most currencies were particularly low, sometimes zero, like the Federal Fund rate in the period 2008-09 in the US.
    The result of expansionary monetary policy was the loss of control over wide money aggregates (like M3), but this was perceived to be the cost of growth. In 2006, the Fed decided to cease the measurement of M3 because “it lost the relationship with the underlying economic activity”, which was the hypothesis at the base of its use. Financial deregulation allowed financial proliferation and the creation of a shadow banking system, which operated parallel to the traditional raising funds, in absence of vigilance and control (i.e. hedge fund, private equity, sovereign wealth fund).
    The faith on free and efficient markets and their ability to autocorrect is at the root of deregulation; it allowed the continuous creation of innovative securities, tailored on customers’ needs, which attracted huge amounts of resources. These deregulated financial tools entered the financial system by means of securitisation, which represents a large share of financial and banking intermediaries’ assets. During 2008-09, the US central bank together with the European, Japanese and British ones injected enormous amounts of liquidity to avoid the credit crunch. They also bought bonds, which had no marketability. This monetary policy pushed interest rates toward zero, and probably succeeded in the soft landing. Because of massive public spending, and excessive debt two European countries have almost bankrupted in 2010 (Greece and Ireland), and the EU and the International Monetary Fund (www.imf.org) intervened to save them. In 2011, central banks will have to figure out what is the exit strategy, to avoid soaring inflation, which will finally hit the productive system that has already paid the cost of banks and countries' rescue.


    BIBLIOGRAPHY
    Bernanke B. (2007), The subprime mortgage market, speech at the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition, Chicago, Illinois, May 17.
    González-Páramo José Manuel (2008), Sub-prime crisis, liquidity tensions and central banks: One year on, Member of the Executive Board of the ECB,2nd Spanish Capital Markets Forum Madrid, 30 September.
    Gorton Gary (2009), The subprime panic, European Financial Management, Vol. 15, No. 1, pp. 10-46, January 2009.
    Gramlich Edward M. (2004), Subprime Mortgage Lending: Benefits, Costs, and Challenges, The Financial Services Roundtable Annual Housing Policy Meeting, Chicago, Illinois, May 21.
    Oldani C. (2008), Governing Global Derivatives, Ashgate, London.
    US Federal Reserve (2006),
    Discontinuance of M3, Federal Reserve Statistics Release.
    Editor: Chiara OLDANI
    © 2010 ASSONEBB

  • ECONOMIC PRICE

    Synonymous with efficient price, this price fixes the relative value that should be assigned to input and output if the target of the economic system is the maximization of production. It does not consider the distribution of incomes, nor other targets except efficiency.
    Editor: Carmen NOTARO
    © 2010 ASSONEBB

  • EDUCATIONAL FARM

    Farm that offers hospitality and education to groups of students, so that they can learn about the activities of the company.
    The qualification of educational farm is usually assigned by the regional council to a farm based on the fulfilment of several standards defined in a "quality charter". In particular, on the one hand, the company must bind itself to respect the safety rules, which include that all dangerous materials and substances must be kept in a safe place, the insurance coverage of visitors, the presence of a trained first-aid staff, the correct signalling of a possible limited entry area; on the other hand, the company must present an educational/formative proposal tied to the actual animal or agricultural production.
    The educational farm offers an active educational program by using laboratories where typical products are made, and themed learning activities (e.g. the different smells of plants, the process of transformation from milk to cheese, from wheat to bread, etc.).
    Editor: Barbara PANCINO
    © 2009 ASSONEBB

  • Effective Spread

    It's a measure of trading costs, defined as the difference between the price at which a market order executes and the mid-quote on the market the instant before.

    Formally we have:

    Se? d(p-m)

    where: Se is the absolute effective spread, d is the order directionindicetor (1 for buyer-initiated and -1 for seller-initiated trades), m is the mid-quote on the market prior to the transaction executed at price p.

    Editor: Maria Francesca NUZZO

  • Effects of Options on Financial Stability

    The PKE Forum published a policy paper on the effect of options on financial stability from a Minskian perspectives, by Chiara Oldani, Director of Research of Assonebb.

    http://pke-forum.com/2013/02/21/the-effects-of-options-on-financial-instability/

  • EFFICIENT FRONTIER

    Portofolio of financial assets that minimises the risks, given the return.

  • EIB GROUP

    The EIB Group was established in 2000 to finance investment, giving practical expression to the European Union objectives. It consists of the European Investment Bank (EIB) and the European Investment Fund (EIF). The two institutions share their expertise to support and promote small and medium-sized enterprises (SMEs). Within the Group, the EIB provides long and medium-term bank loans to large capital investment projects. In addition, the Bank promotes SMEs through medium and long-term credit lines to intermediaries in the banking sector, and venture capital activities in Facility for Euro-Mediterranean Investment and Partnership (FEMIP), in Sub-Saharan Africa, the Caribbean and the Pacific (ACP). The EIF concentrates on investments in innovative SMEs in the EU and the Enlargement area, through venture capital funds and SME guarantee operations involving its own resources or those of the EU budget. The benefits of the cooperation between the two European institutions at an operative level are the availability of large amounts over long terms at favourable financing cost, which is established not only on a market basis but also on a non-profit-making basis. The Group operates not only in the EU, but also in over 150 countries outside the Union, in particular in the candidate countries, in the Balkans and in Africa, in the Caribbean and in the Pacific.

    Link:http://www.eib.org/about/group/index.htm
    Editor: Bianca GIANNINI
    © 2010 ASSONEB

  • ELECTRICITY EXCHANGE

    It is a computerized market where the energy price is determined by the supply and demand between producers and consumers. It became effective on 31 March 2004 with the legislative decree n.79/1999.
    The Electricity Exchange comprises the Day-Ahead Market (DAM), the Adjustment Market (AM), and the Ancillary Service Market (ASM). Among these, the DAM is the most important in terms of volume and transactions. It is an auction market and energy transactions take place in one session during the day after the auction. Participants in the auction can be producers, traders, the Acquirente Unico and Gestore della Rete Trasmissione Nazionale. The AM is an auction market aimed at modifying the outcomes resulting from the DAM. Finally, in the ASM, energy transactions are pursued through the selection, made on the basis of economic merit, of offers/bids, which will be introduced into and/or withdrawn from the market.
    Since 2005, all eligible clients (everyone having the right to bargain energy supply conditions freely) have the permission to buy electrical energy directly through the commodity exchange. Among the most important supporters of this initiative are the Ministry of the Development Economics, the Regulatory Authority for Electricity and Gas, Terna, the Gestore dei Mercati Energetici S.p.A. (GME), and the Exclusive Purchaser. Currently, the idea of introducing a pay as bid mechanism (maybe from 2012) is being considered in order to give new flexibility to the existing electricity exchange.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB

  • ELECTRONIC VENUE

    Trading venues in which transactions are executed by means of electronic inputs from investors or their agents.

    ©2012 Editor: Camera dei Lords

  • EMISSIONS TRADING MARKET

    Directive 2003/87/EC established a scheme for greenhouse gas emission allowance trading within the Community, with a view to promoting emission reductions in a cost-effective and economically efficient manner. The scheme, called EU Emissions Trading Scheme (EU-ETS), is part of the mechanisms that the Kyoto Protocol identified for reducing greenhouse gas (GHG) emissions by at least 5.2%, from the levels recorded in 1990 (base-year), within the 2008-2012 period. The EU ETS, which came into force on 1 January 2005, is the most important emission permit trading system in the world.
    The GME’s Emissions Trading Market - i.e. a venue for trading GHG emission units - provides Italian and foreign operators with a useful operational instrument for marketing and managing their emission units.
    Operators that have a holding account in the National Registry (held by APAT, which took on the name of ISPRA, “Istituto Superiore per la Protezione e la Ricerca Ambientale” - environmental protection and research institute - under law 133/2008) or in other European Registries may find their trading counterparties in the GME’s Market and negotiate emission permits under certain and predefined rules. These rules guarantee:
    • competition between operators,
    • anonymity of trades;
    • transparency of transactions;
    • efficiency in price formation;
    • security of transactions.
    The GME’s electronic platform manages spot-delivery trades of EUAs (European Unit Allowances) for the Kyoto Protocol Phase I (2005-2007) and Phase II (2008-2012). The platform is also designed for the trading of credits accrued from the CDM (Clean Development Mechanism) and JI (Joint Implementation) projects, i.e. CERs (Certified Emission Reductions) and ERUs (Emission Reduction Units), respectively, as per Directive 2004/101/EC (or Linking Directive).
    © 2009 ASSONEBB

  • EMISSIONS TRADING SCHEME (EU-ETS) (Encyclopedia)

    With the aim of preventing irremediable disasters and limiting the increasing cost of climate mitigation and adaptation (European Commission, 2007), the European Commission set, for the Kyoto period, a limit or cap on the amount of CO2 that each member can emit, in order to control the concentration of this greenhouse gas in the atmosphere and to limit the rise in the mean global surface temperature to 2°C.

    The EU-ETS is one of the flexibility mechanisms (along with CDM and JI) provided by the Kyoto Protocol to contain GHGs emissions from pollutants. By signing the Kyoto Protocol, the parties (Annex B) accept the emissions reduction targets of the European Commission and are given a certain number of Assigned Amount Units (AAUs) that represent the right to emit a specific amount of GHGs.

    The EU-ETS was approved with the Directive 2003/87/2003 EU-ETS and it came into force on 1 January 2005. The Directive divides the scheme into two phases. The first one, the pilot phase, started in 2005 and ended in 2007. The second one covers the period that goes from 2008 to 2012. After the decision of the European Union to reduce its emissions by 20% (as compared to the 1990 values) by the year 2020, a third phase will begin in 2013 and will last until 2020 (post-Kyoto). While the Kyoto Protocol assigns to the European Union (EU), 8% of the general emissions reduction target, distributed among its 15 members, for the EU-ETS no common target was provided. For this reason, the Directive 2003/87 requires, in order to develop the EU-ETS, the implementation of the National Allocation Plans (NAPs).

    With NAPs, each participating government is asked to determine a national cap, namely the maximum quantity of emissions allowed, to be distributed among all the possible national sources of emission within different sectors. NAPs, which base the emission computation on the analysis of past emissions, must also take into account emissions from sectors not considered, or partially considered, by the EU-ETS. In the pilot phase, the total amount of quotas for each country was calculated by adjusting the projections of past emissions in the different sectors considered. These emissions were distributed within the three year period of the phase I.

    Every country, in the pilot phase, presented its own NAP to the European Commission for approval.

    The EU-ETS is defined by the Kyoto Protocol in the Art. 17, which states that under this trading scheme countries that use only a part of the emissions permitted are allowed to sell the extra units to those that are over their targets. There is a number of emissions trading programs (regional and national) for several pollutants, but their markets are generally smaller and more localized then the ones of the GHGs (Stern, 2008). For GHGs, the largest active trading program in the world is the European Union ETS.

    Emission units and removals can then be traded with:

    - Allowance-based transactions, in which the buyer purchases emission allowances (AAUs) created and allocated by regulators under the cap-and-trade ETS (Kyoto Protocol, Art. 17). This mechanism allows countries that need to increase their right to emit to buy credits from those who do not "use" their emissions.

    - Project-based transactions, in which the buyer purchases emission credits (in the form of CERs, ERUs, and RMUs) that result from a project under the CDM, JI mechanisms and the land use, land-use change and forestry (LULUCF) activities (see the Kyoto Protocol, Art. 6 for the JI, Art. 12 for the CDM, and see the IPCC GPG for LULUCF). Once the emission credits are issued, they work as allowances. Because they are project-based credits, they involve significantly higher transaction costs and embody risks (related with regulation, project performance, etc.) that are reflected in their transaction value. Furthermore, sometimes project-based schemes may generate negative impacts outside the project boundaries.

    All these transactions have created a market of allowances also called "carbon market" (as carbon dioxide is the principal greenhouse gas), where the buyer is charged for polluting, while the seller is being rewarded for having reduced emissions, or created removals.

    The introduction of a wide range of possibilities, in terms of credits and projects to be implemented, has the aim of reducing marginal costs of mitigation measures. Investing in emissions reduction policies in developing countries, as well as in Economies in Transition, possibly requires a lower economic effort and could support essential technology transfers towards them. Summarizing, by providing
    economic incentives, the EU-ETS approach allows emissions reduction at the lowest possible cost for society.

    In January 2008, the European Commission proposed several changes to the EU-ETS, e.g. the
    substitution of the national allocation plans, with a centralized allocation by a European Authority, the inclusion of all GHGs, the extension of emissions reduction targets to the air transport industry, etc. The revisions are likely to become effective only starting from January 2013 (Third Phase).

    There is an open debate about which one, between an emission cap program (quantity target based system), rather than a tax on carbon or a hybrid scheme (price target based mechanisms), offers greater benefits in terms of achieving the reduction targets at the lowest cost for society.

    Under a pure emissions trading scheme, or a hybrid scheme (McKibbin W., 2008), there would be certainty on the achievement of the level of emissions reduction provided by the target, but uncertainty about the price of emissions, which could eventually reach very high values. On the contrary, with a tax, or with a mixed scheme where the emissions price is capped, the price would be certain while the amount of emissions reduced uncertain. Both mechanisms aim at the same goal but they seem to differ in more than one feature.

    In some aspects, the carbon trading approach can be better than a direct carbon tax or regulation.

    Indeed, it can be politically preferable since the initial allocation of allowances is provided by a European centralized authority on the basis of historical emissions. Moreover, the investment directed to environmental
    sustainable projects (CDM, JI) in developing countries can contribute to achieving the Millennium Development Goals. Nevertheless, several criticisms have been made about the carbon emissions trading, regarding complexity, monitoring, enforcement, and partiality in the initial allocation methods and caps. Furthermore, a massive use of credits may discourage investments in clean technology and energy efficiency in developed countries. With respect to the transmission of economic disturbances among regions, the global cap and trade regime would probably spread the shocks more than the tax or hybrid scheme. Furthermore, in a context of financial slowdown a price based mechanism allows cost-efficient reductions in emissions, while in the cap regime, which is counter-cyclical, carbon prices fall, as a result of the world economy slowdown, reducing the economic deceleration (McKibbin W. and P. Wilcoxen, 1997, 2002).

    Bibliography

    Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.

    European Commission (2007). Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions - Limiting global climate change to 2 degrees Celsius - The way ahead for 2020 and beyond. Brussels, Belgium.

    http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52007DC0002:EN:NOT

    McKibbin W. and P. Wilcoxen (1997). A Better Way to Slow Global Climate Change. Brookings Policy Brief no 17, June, The Brookings Institution, Washington D.C.

    McKibbin, W. J. and P. J. Wilcoxen (2002). Climate Change Policy After Kyoto: A Blueprint for a Realistic Approach . Washington: The Brookings Institution.

    McKibbin, W., Morris, A. and P. Wilcoxen (2008). Expecting the Unexpected: Macroeconomic Volatility and Climate Policy. Lowy Institute Working Paper in International Economics 4.08

    Stern, N. (2008). Key elements of a global deal on climate change. LSE.

    The Kyoto Protocol. Downloadable at: http://unfccc.int/kyoto_protocol/items/2830.php

    Editor: Melania MICHETTI

    © 2009 ASSONEBB

  • ENERGY EFFICIENT CERTIFICATES - (TEE)

    Energy Efficiency Certificates (Italian acronym TEE, also called ‘white certificates’) have been established by the Decrees issued by the Ministry of Productive Activities jointly with the Ministry of the Environment and Land Protection on 20 July 2004 (Ministerial Decree of 20 July 2004 on electricity, Ministerial Decree of 20 July 2004 on gas), as amended and supplemented by the Ministerial Decree of 21 Dec. 2007 specifying national quantitative targets of energy efficiency improvement.
    The Electricity Market Authority (in Italy GME) issues TEEs to distributors, companies controlled by the same distributors and companies operating in the sector of energy services (Energy Service Companies … ESCOs). The TEEs certify the reduction of consumption achieved through measures and projects of energy efficiency improvement.
    TEEs, which have a value of one toe, may be of three types:
    1) Type I, certifying the achievement of primary energy savings through projects reducing final electricity consumption;
    2) Type II, certifying the achievement of primary energy savings through projects reducing natural gas consumption;
    3) Type III, certifying the achievement of primary energy savings through projects other than those mentioned in point 1) and 2).
    Electricity and natural gas distributors may achieve their energy efficiency improvement targets both by implementing energy efficiency projects (and gaining TEEs) and by purchasing TEEs from other parties.
    GME organises and manages the venue for the trading of TEEs and, jointly with AEEG (AEEG’s decision no. 67 of 14 Apr. 2005), it formulated the rules of operation of the Energy Efficiency Certificates Market.
    In the Energy Efficiency Certificates Market:
    - distributors may purchase certificates, if the savings achieved through their projects lie below their yearly target and thus they purchase the missing certificates on the market in order to fulfil their obligation;
    - distributors may sell certificates, if the savings achieved through their projects exceed their yearly target and they may thus make a profit by selling their surplus certificates on the market;
    - ESCOs may sell the certificates that they have obtained through independent projects, as they are not required to fulfil any obligation and may thus make a profit by selling their certificates on the market.
    © 2009 ASSONEBB

  • ENERGY INTENSITY

    It is a macroeconomic measure of the energy efficiency within the economic system of a country. It is calculated as energy units per gross domestic units (GDP). Its reduction means a better environmental performance because it measures the tendency of an economy to consume principally renewable resources (keeping constant the level of pollution). This indicator does not provide a measure of the pressure on the environment coming from intermediate and final energetic uses, nor does it give any information on the type of energy consumed or about the combustible used for its production. The unit of measure of the energy intensity, widely used by research institutes, is the TEP (tons of oil equivalent) per million euros.

    Editor: Claudio DICEMBRINO

    © 2009 ASSONEBB

  • ENERGY SERVICES (Encyclopedia)

    The term ‘Energy services’ term makes reference to a series of services about to the development, evaluation and management of the energy supply in several forms. This definition includes the analysis of energy needs, the technical and economic feasibility of interventions linked to energy saving and efficiency; the definition of the financial structure of the project, the realization of intervention for the energetic realization, the management of the service supply.
    On 3 July 2008, the "Implementation of the guideline 2006/32/CE about the efficiency of the final uses of the energy and energy services and abrogation of the guideline 93/76/CEE" was published on the Gazzetta Ufficiale (Dlgs 30 may 2008 n.115)
    The Directive defines as "energy": "Any kind of energy available on the market, including electricity, natural gas (included liquefied natural gas), the liquefied oil gas, any heat and cold fuel, including district heating and cooling, coal and lignite, peat, diesel fuel (excluding the fuel for aviation and ocean use) and the biomass defined as in the directive 2001/77/Ce, about electricity energy promotion produced by renewable resources". The aim of the directive is the improvement of the mechanisms and incentives of the institutional, financial and law framework, that are able to delete any barriers and existing obstacles in the market in order to achieve more efficient renewable energy uses, and to establish at the same time conditions for developing and promoting an energy services market.
    The "energy service" (art. 1, par. 1, point E) is defined as the "material work, utility or advantage coming from the mix of energies with technologies or with operations that use the energy efficiently, and that can include operating and maintaining activities necessary for a service where the supply is provided by a contract and that in normal circumstances it has showed to achieve energy efficient improvements and primary energy savings verifiable and measurable or assessable".
    Technically, ESCO means (art 1, par. 1, point I) a "physical or legal person able to provide energy services and/or other measures of energy efficiency improvement through physical installations or in user spaces and, implementing this, it accepts a certain margin of financial risk. The payment of the provided service is based (totally or partially) on the improvement of the energy efficient achieved and other rending criteria previously established".
    A further energy service is the "energy rending contract" that implies an agreement between the beneficiary and the provider (usually an ESCO) regarding a measure of energy efficiency improvement, where the payments forehead by investments in this measure are made in function of the level of improvement level of the energy efficiency contractually established.
    The energetic certificate is a further piece of news in the energy services field. "This certificate is issued by an independent organization of certification able to affirm the truthfulness of the affirmations by market operators that announce energy savings thanks to measures of improvements of the energy efficiency".
    In this scenario, the sector that mainly cares about the implementation of the directive is the public sector, by guaranteeing that the public administrations involved adopt measures and law initiatives and/or voluntary agreements.
    In order to promote energy efficiency and to provide energy services, the directive foresees dispositions regarding energy distributors, distribution system administrators and firms selling energy; it also takes into consideration the spreading of information about mechanisms of energy efficiency in the financial and legal framework, dispositions relative to the measurement and to the billing of the energy consume, the establishment of funds and funds mechanisms to finance programs thought for the energy efficiency improvement. These funds must be accessible to the providers, ESCO, independent consultants, and firms of energy sellers and installers.
    Bibliography
    Gazzetta Ufficiale il DLgs 30 maggio 2008.
    Editor: Claudio DICEMBRINO
    © 2009 ASSONEBB

  • ENERGY SERVICES DIRECTIVE, 2006/32/CE

    The aim of this directive is to ensure the enhancement of the end-use efficiency of energy, in the Member States of the EU under the cost-effective aspect. The improvement concerns the ratio between the output of the production, services or energy and the input of the energy itself. The States must guarantee that public sector adopts national, regional and local measures, producing the largest energy savings in the shortest amount of time by respecting at least two of the following requirements: use of financial instruments for energy saving, including energy performance contracting; purchase of equipment and vehicles based on lists of energy-efficient product specifications of different classes of equipment and vehicles; purchase of equipment with lower energy consumptions; substitution or updating of the equipment in order to render them more energy-efficient.; use of energy audits; purchase of building with low energy consumptions.
    Energy distributors, distribution system supervisors and retail energy sales companies, after the indication of the States on the selection of restrictions, must promote an energy end-use efficiency program and competitive energy services, develop energy audits with competitive prices, actively contribute to the funds and to financial instruments.
    Valid horizontal measures include regulations, taxes and information campaigns.
    Member States are also responsible for the conclusion of voluntary agreements and other market- oriented measures. The directive also contains indicative list of examples of eligible energy efficiency improvement measures to be carried out in residential and tertiary sectors, (such as wall cavity and roof insulation), industrial sector (such as more efficient use of compressed aria in products making process), transport sector (such as promotion of
    energy-efficient vehicles), cross - sectoral measures (such as energy-labeling regimes).

    Editor: Valeria CHIOMA


  • EONIA

    Acronym for ‘Euro Over Night Index Average’, it is an effective overnight reference rate for the eurozone interbank market. It is computed by the European Central Bank (ECB) as a weighted average of all overnight unsecured lending transactions undertaken in the interbank market, as reported by the same panel of banks contributing to Euribor. The Panel of Banks is made up of the most important banks in terms of volume of business in the eurozone. Each panel bank reports to the ECB, on each day that the TARGET (Trans-European Automated Real-Time Gross-Settlement Express Transfer system) is open, the total volume of specified transactions in millions of euros and the relative weighted average lending rate. The banks shall provide these data before 6.00 p.m., that is to say the closing time of RTGS (real-time gross settlement systems). Eonia was launched on the evening of 4 January 1999 and rates are published by THOMSON REUTERS on the EONIA page.

    Link: Eonia official website: www.euribor.org
    © 2010 ASSONEBB

  • EPSAS

    According to the EU EPSAS is a system that could yield the benefits is currently being discussed on EU level with the development accrual-based "European Public Sector Accounting Standards" (EPSAS). A suitable starting point for EPSAS are the so-called "International Public Sector Accounting Standards" (IPSAS). The IPSAS are a set of accrual-based accounting standards issued by the IPSAS for use by public sector entities around the world in the preparation of financial statements. The IPSAS in general can function as a basis for harmonised accrual-based accounting standards in the EU. It, however, needs to be discussed, how IPSAS are actually to be transformed into EPSAS (i.e.: Which standards need to be changed and how? Are there standards that need to be newly developed? etc.). Furthermore, it will be interesting to observe to which degree the EU (or at least the individual Member States) also develop(s) corresponding budgeting standards.

  • EQUITY

    Shares in companies.

    ©2012 Editor: Camera dei Lords

  • EQUIVALENT ANNUAL ANNUITY

    It's a choice criterion when comparing investments with different time horizons. It is the Net Present Value - NPV averaged over the life of the investment from time t=1 to T using the formula:



    Where i is the investment discount rate and T is the length of the time horizon. The investment with higher equivalent annual annuity will be preferred.

    Editor: Giuliano DI TOMMASO

  • ESAs

    European Supervisory Authorities.

    ©2012 Editor: Camera dei Lords

  • ESMA

    European Securities and Markets Authority.

    ©2012 Editor: Camera dei Lords

  • ETHICAL BANK

    By operating in the financial market according to the principles of ethically oriented finance, an ethical bank is characterized by its offer of an investment portfolio coherent with its mission, carried out through direct investments in sustainable environment, renewable energy, social housing … housing scheme direct to subjects unable to incur costs of free trade …, social enterprise and microcredit. In microcredit, an ethical bank carries out its primary function to bear on allocation, that is to say it directs financing in favour of those normally discriminated against by traditional banks. Leaning on the willingness of consumers and savers to pay more depending on the social and environmental value of the offered financial products, the institution succeeds in establishing lower than market value interest rates. The clients’ faith is repaid by the institution's guarantee of absolute transparency of their management and investment of the savings. Indeed, those who deposit their savings in an ethical bank provide the bank with a specific proxy in terms of their choices for supplying credit. That proxy can then stick with the selection criteria of the borrowers (where, for example, attention is given to the ethical use of finance, or where one indicates an ensemble of product sectors towards which they converge) or with specific procedures to follow for the utilization of the credit.
    The Ethical Bank was inspired by Grameen Bank, the first Banking for the Poor institution founded in Bangladesh in 1976 by Muhammad Yunus (Nobel Peace Prize Winner, 2006). The most significant experiences of ethical banking in Europe include those of Triodos Bank, Okobank, and Banca Popolare Etica in Italy.
    Bibliography
    Baranes, A., Becchetti, L. (2008), Banche e Finanza: da una Crisi Sistemica ad Alcune Possibili Soluzioni, Consumatori, Diritti e Mercato No. 39.
    Locatelli, R. (2003), Economia, Finanza e Solidarietà, Università degli Studi dell'Insubria, Marzo.
    Passini, M., La Banca Etica, Fundacion FIARE. (http://www.fiare.org/privado/gestorarchivos/biblioteca/banca%20%C3%A9tica/La%20Banca%20Etica,%20Matteo%20Passini.pdf).
    Editor: Federica ALFANI
    © 2009 ASSONEBB

  • EURO (Encyclopedia)

    The euro (ISO CODE = EUR) is the official currency of the European Union. The euro sign € is the letter E crossed by two lines which indicate the stability of the euro. This euro symbol is inspired by the Greek epsilon, pointing back to the cradle of European civilisation and the first letter of "Europe" (COM/97/0418).
    The launch of the single currency, on 1 January 1999, marked the beginning of the third stage of economic and monetary union (EMU). The Council Decision of 3 May 1998 (98/317/EC) declared that 11 of the then 15 EU Member States (Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal and Finland) had fulfilled the necessary conditions for the adoption of the single currency, while Monaco, San Marino and the Vatican City (non-EU Member States) were allowed to adopt the euro on the ground of monetary agreements with the EU. The Council Regulation 2866/98/EC defined that one euro was equal to: 13.7603 Austrian schillings, 40.3399 Belgian francs, 2.20371 Dutch guilders, 5.94573 Finnish markkas, 6.55957 French francs, 1.95583 German marks, 0.787564 Irish pounds, 1,936.27 Italian lire, 40.3399 Luxembourgian francs, 6.55957 Monegasque francs, 200.482 Portuguese escudos, 166.386 Spanish pesetas.
    Two years later, on 19 June 2000, the Council decided (2000/427/EC) that Greece could join the euro area in January 2001 (1 EUR = 340.75 Greek drachmas). After the EU enlargement to 27 States in 2004, also the new EU members were required to fulfil the condition for the euro adoption. This commitment was considered a necessary step in order to maintain the potential benefits of a currency union such as a strong policy discipline, an economic and financial integration of the economy with the euro area, a reduction of transaction costs and a decrease in the interest rates via the elimination of the exchange rate risk premium. Slovenia was the first of the EU-10, in January 2007, to abandon the national currency and to introduce the euro (1 EUR = 239.64 Slovenian tolars), followed by Cyprus and Malta in 2008 (1 EUR = 0.585274 Cypriot pounds and 0.4293 Maltese liri), and Slovakia in 2009 (1 EUR =30.126 Slovak korunas).
    1.Conditions for the euro adoption
    According to article 140 of the Treaty on the Functioning of the European Union (ex art.121 of the EC Treaty), Member States have to meet two basic conditions to join the EMU. First, the Member State's national legislation, including its national central bank regulation, must be compatible with the acquis communautaire. The second requirement entails the achievement of a high degree of sustainable convergence, whose assessment is based on the following criteria:
    -Price stability
    Article 140(1), first indent, of the Treaty requires: "the achievement of a high degree of price stability; this will be apparent from a rate of inflation which is close to that of, at most, the three best performing Member States in terms of price stability". This means that, as explained by article 1 of Protocol on convergence criteria (No 13), a Member State should perform an average rate of inflation, observed over a period of one year before the examination, that does not exceed by more than 1.5 percentage points that of, at most, the three best performing Member States in terms of price stability. Inflation is measured on a comparable basis, using the Harmonised Index of Consumer Prices (HICP).
    -Government budgetary position
    Article 140(1), second indent, of the Treaty requires: "the sustainability of the government financial position; this will be apparent from having achieved a government budgetary position without a deficit that is excessive [...] ".
    According to Article 126 of the Treaty, Member States present an excessive deficit if:
    (a) the ratio of the planned or actual government deficit to GDP exceeds a reference value unless:
    … either the ratio has declined substantially and continuously and reached a level that comes close to the reference value; or, alternatively,
    … the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value;
    (b) the ratio of government debt to GDP exceeds a reference value, unless the ratio is sufficiently diminishing and approaching the reference value at a satisfactory pace. The reference values are set in the Protocol on the excessive deficit procedure respectively as 3 and 60 percent of GDP.
    - Exchange rate stability
    Article 140(1), third indent, of the Treaty requires: "the observance of the normal fluctuation margins provided for by the exchange-rate mechanism of the European Monetary System, for at least two years, without devaluing against the euro".
    With regard to the participation in the Exchange Rate mechanism of the European Monetary System (from January 1999, the Exchange-rate mechanism (ERM) has been substituted by the Exchange-rate mechanism II (ERM II)), as also specified in article 3 of Protocol (No 13), it is aimed to ensure that a Member State has respected the normal fluctuation margins without severe tensions for at least the last two years before the examination. For the same period the Member State is also required not to have devalued its currency’s bilateral central rate against the euro on its own initiative. In particular, the absence of "severe tensions" is generally assessed by analysing the degree of deviation of exchange rates from the ERM II central rates against the euro and by using other indicators, such as short-term interest rate differentials vis-à-vis the euro area, and other variables, as well as international financial assistance in stabilising the currency.
    -Convergence of long-term interest rates
    Article 140(1), fourth indent, of the Treaty requires: "the durability of convergence achieved by the Member State with a derogation and of its participation in the exchange-rate mechanism being reflected in the long-term interest-rate levels".
    In particular, article 4 of Protocol (No 13) on the convergence stipulates that: "a Member State has had an average nominal long-term interest rate that does not exceed by more than two percentage points that of, at most, the three best performing Member States in terms of price stability. Interest rates shall be measured on the basis of long-term government bonds or comparable securities, taking into account differences in national definitions". In case no harmonised long-term interest rate is available, a broad analysis of financial markets is conducted, taking into account the level of government debt, the level of spreads directly derived from monetary and financial statistics, sovereign credit ratings and other relevant indicators, with a view to assessing the durability of the convergence achieved by the Member State and of its participation in the ERM II1.
    The European Commission and, in parallel, the ECB (according to art. 140 of the Treaty) report to the Council of the European Union (the Council) at least once every two years … or at the request of a Member State with a derogation … "on the progress made in the fulfilment by the Member States of their obligations regarding the achievement of economic and monetary union". The "convergence report" is the final document issued that contains a preliminary assessment for each member state. Then, the Council of EU finance ministers (ECOFIN) takes the final decision, after receiving the opinion of the Parliament.
    2.Coins and banknotes
    Euro banknotes and coins were introduced as the sole legal tender for the first time on 1 January 2002. Since then, four more cash changeovers have been pursued following the euro adoption in Slovenia, Cyprus, Malta and Slovakia. Euro coins exist in eight different denominations: 1, 2, 5, 10, 20 and 50 cents, €1, €2. They present a common side and a national side. For the selection of the design of the first common sides, a competition was organised at European level, and on 16 June 1997 the Amsterdam European Council decided and made public the winning series. The €2 and €1, 50, 20 and 10 cent common side designs have been modified on 7 June 2005 by the Council. Indeed, the original design was the European Union before it was enlarged from 15 to 25 Member States in 2004, so since 2005, also the new entrants have been represented. The remaining denominations, showing Europe in relation to Africa and Asia on a globe, remained unchanged overtime. Euro coins incorporate sophisticated features that protect them against counterfeiting. Banknotes series also comprise different denominations, that is €5, €10, €20, €50, €100, €200 and €500, and they present uniform designs inspired to architectural styles from different periods in Europe's history. The banknotes as well incorporate sophisticated security features preventing the production of counterfeits.
    3. The process of euro adoption
    The origins of the introduction of a single currency date back to the Barre report of February 1969. Raymond Barre, the Vice-President of the Commission with special responsibility for monetary affairs, expressed the need for greater coordination of Member States’ economic policies to limit the scope for speculative attacks against the European currencies. Indeed, since November 1968, the United States economic imbalances undermined the international credibility of the dollar and, consequently, the European money market was affected by strong instability. The plan launched by Raymond Barre resulted, at the Hague summit in December of the same year, in the official decision to realize an economic and monetary union by stages. In accordance with the directives issued by the Conference of Heads of State or Government, in October 1970 the Group presided by Pierre Werner proposed a plan. The achievement of the EMU should have been realized in a decade following three main phases: the liberalization of capital movements, the irrevocable fixing of parities, and the replacement of national currencies with a single currency. However, the proposal of irrevocably fixing parities soon came in contrast with the collapse of the Bretton Woods Agreements in 1971, and the subsequent first oil crisis. The attempts to limit the international economic crisis delayed the full realization of the plan and led to the creation of the so-called "snake", which allowed currencies to move within a fluctuation band. In accordance with this experiment, in March 1979, the European Exchange Rate Mechanism (ERM) was officially introduced as part of the European Monetary System (EMS). The central rate value was determined as a weighted average of the participating currencies, the European Currency Unit (ECU). The monetary integration process experimented a revival seven years later. In 1986, the Single European Act was adopted with the aim of conceaving a European single internal market on both the economic and monetary ground. The decisive step toward the single currency adoption was taken in 1992, when the Maastricht Treaty defined the three stages of the EMU and set out the economic and legal conditions member states had to meet to join it. In September of the same year, all currencies participating in the EMS came under strong speculative attacks that marked the renewal of a need for monetary stability. In the second stage of the EMU, the European Monetary Institute (EMI) was established, anticipating the institution of as the European Central Bank (ECB), and the general term ECU was replaced by the "Euro"at the Madrid summit in 1995. In June 1997, the European Council in Amsterdam agreed to the Stability and Growth Pact and set up the ERM II, which would succeed the European Monetary System and the ERM after the launch of the euro. The second stage was concluded with the council regulation (EC) No 974/98 of 3 May 1998 on the introduction of the euro.
    France, Germany, Austria, Belgium, the Netherlands, Luxembourg, Finland, Ireland, Italy, Spain, and Portugal were declared ready to adopt the euro in 1999 and the European Central Bank (ECB) was founded. The regulation was amended in occasion of the enlargement of the euro area, by regulation (EC) No 2596/2000 on the introduction of the euro in Greece as from 1 January 2001, by regulation (EC) No 1647/2006 on the introduction of the euro in Slovenia as from 1 January 2007, and by regulation (EC) No 835/2007 and No 836/2007 on the introduction of the euro in Cyprus and Malta respectively as from 1 January 2008.
    4.Final remarks
    The adoption of the single currency as legal tender in the euro area since 2002 has affected the international money market, gradually changing the trade invoicing and asset denomination in world transactions, as well as the international reserves composition.

    1.Source: European Central Bank Statistics, http://www.ecb.int/stats/exchange/eurofxref/html/index.en.html

    The euro has limited the dollar hegemony and the euro dollar exchange rate is generally used to evaluate its performance. After an initial appreciation on its first trading (1.1819 USD per euro on 5 January 1999) a strong downtrend started, which culminated on 25 October 2000, when the euro slumped to its weakest level of 1 EUR = 0.8272 USD. Since the end of 2002, the euro climbed on an uptrend that picked up to 1.3668 USD on 30 December 2004. After a flat phase, the euro appreciated against the dollar in 2006 to 1.2958 USD. The incidence of the sub-prime crisis, with a weakened dollar, led the single currency to break the psychological barrier of 1.50 in February 2008, offset in 2009, in the presence of portfolio flows towards some US economic segments and a closing gap between the interest rates of the two world economies2. When the financial market tensions seemed vanishing, the euro came under severe pressure and slumped to 1.2424$, as a consequence of the unsustainability of the Greek public finance3.
    Updated data and charts on USD/EUR exchange rates can be found at http://uk.finance.yahoo.com/q?s=EURUSD=X. On the European Central Bank (ECB) website (http://www.ecb.int/stats/exchange/eurofxref/html/index.en.html), data on all the currencies quoted against the euro (base currency) and the nominal effective exchange rates of the euro, based on weighted averages of bilateral euro exchange rates against 21 major trading partners of the euro area (http://www.ecb.int/stats/exchange/effective/html/index.en.html), are available.
    Links :
    Council of the European Union (The euro and the economic policy)
    www.consilium.europa.eu
    Official Euro Website:
    http://www.ecb.int/euro/html/index.en.html
    ______________________
    1ECB Convergence Report 2010.
    2ECB Annual Report 2009.
    3For a snapshot of the euro's performance against the U.S. dollar since its launch in January 1999, read also "Timeline: Milestones in euro's history since 1999", http://www.reuters.com/article/idUSTRE64G2KP20100517
    Bibliography
    European Central Bank, Special edition of the Monthly Bulletin, May 2008
    European Central Bank, ECB Annual Report 2009, April 2010
    European Central Bank, ECB Convergence Report 2010, May 2010.

    © 2010 ASSONEBB

  • EUROBOND

    Eurobonds are interest-bearing securities issued in the Eurobond market. The Eurobond market constitutes with the foreign bond market the international bond market. The basic feature of Eurobonds is that they are generally issued in a currency (commonly the U.S. dollar or Yen) other than that of the issuer's home country (i.e. bonds issued and/or traded in the UK denominated in euros). Eurobonds are underwritten by an international syndicate and issued simultaneously to investors outside the national jurisdiction. The syndicate companies and their investor clients are considered the primary market for Eurobonds, whereas, in the secondary market, Eurobonds are traded over-the-counter. In general, a firm may raise funds in the Eurobond market by exploiting opportunities that are not available in the domestic market. They are typically unsecured and interest rate payments are free of any withholding taxes. Eurobonds are issued by several entities. These include nonfinancial corporations, multinational companies, international agencies and governments (sovereign governments, provinces, municipalities, cities...), supranational entities (such as the Word Bank or the European Investment Bank). There are many types of Eurobonds with different specific features. Indeed, there are Eurobonds characterized by annual coupon payments and there are also zero-coupon bonds, deferred-coupon bonds and step-up issues. A large part of the Eurobond market is made of bonds with attached warrants of different kinds like equity warrants, debt warrants or currency warrants. They can also include floating rate structures that carry a variable interest rate often based on the London Interbank Offered Rate (LIBOR), the bid on LIBOR (LIBID) or the arithmetic average of the two. Collared Eurobonds own a minimum (floor) and a maximum (cap) coupon rate.

    Bibliography
    Fabozzi F., Modigliani F., Jones F. (2010), Foundation of Financial Markets and Institutions, Pearson International Edition.
    Editor: Bianca GIANNINI
    © 2010 ASSONEBB

  • EUROPE 2020 STRATEGY (Encyclopedia)

    A strategy for a smart, sustainable and inclusive growth, as defined by the European Commission’s communication, COM(2010) 2020 March, 3rd, 2010. During the public consultation hold by the Commission in order to outline the 2020 Strategy, the most significant issues were included in three main priorities to which the strategy itself should refer to, working through a thematic approach: smart growth, which means developing an economy based on growth and innovation; sustainable growth, for a more resource-efficient, greener and more competitive economy; inclusive growth, which could foster a high-employment economy together with an economic, social and territorial cohesion.
    The strategy was adopted, under the form of integrated guidelines, during the European Council on June, 17th, 2010, (cordis.europa.eu).

    Targets

    The action of the European Union and of Member States must contribute to raise “the employment rate of women and men aged 20 … 64 to 75%, even throughout a higher participation of young people, elder and less qualified workers and a better integration of legal immigrants”; to get to more favorable conditions for research and development (R&D) in order to “reach 3% of the GDP with public and private combined investments”; to reduce by 20% greenhouse gas emissions compared to 1990 levels and at the same time by raising to 20% “the rate of renewable energy sources within the overall energy consumption” in order to get at the same time a 20% improvement in the energy efficiency (20-20-20 targets concerning climate/energy).
    As for education, the chief aim is to lower the school dropout rate to below 10% and to raise the number of people aged 30 - 34 with a tertiary degree or diploma to at least 40%. As for social inclusion, the EU efforts focus on saving about 20 million of people from poverty and exclusion.
    These targets must be nationally delivered by the National Reform Programs (NRP), a key national instrument in the strategy coordination, whose the political supervisor in Italy, for example, is the Minister of European Policies.

    The European Commission’s Flagship Initiatives

    National measures of the Member States must integrate with the so-called Flagship Initiatives of the EU, which have been presented by the Commission within the three main priorities.
    Smart growth:
    “Digital Agenda for Europe”, launched by the Commission on May, 22nd, 2010. It aims at stimulating the diffusion of the Information and Communication Technologies (ICT) so that families and businesses can benefit from a digital single market within 2020.
    The Digital Agenda contains initiatives and actions useful to reach a digital single market promoting a free access to online services and contents; to improve the interoperability of ICT throughout the promotion of a better use of standards; to build a digital confidence by enhancing European citizens’ privacy in the use of ICT; to guarantee the citizens widespread broadband coverage with increasing speeds; to increase investments for a continuous research in ICT; to promote the knowledge of ICT in order to encourage the use of it among the citizens; to boost a smart use of ICT to face the incoming challenges of society like the reduction in the energy consumptions.
    Member States have to elaborate operating strategies for a faster internet access and to
    arrange a legislative framework which would allow a limited upgrading cost of the networks.
    “Youth on the move”, launched on September, 16th, 2010, aims at assisting young people in the pursuit of the first work experience, helping them to develop new skills, key competencies and qualifications. This initiative can be summarized in different actions: the launching of a dedicated Youth on the Move website providing useful information; the development of a pilot project: ‘Your first EURES job’, which offers advisory and assistance in the job searching as well as financial support. This instrument is managed by EURES, a framework network which evaluates the free mobility of workers. Furthermore, the initiative aims at creating a student lending facility in cooperation with the European Investment Bank; adopting an alternative global and multi-dimensional university ranking system; promoting a Youth on the Move card which will ensure young people discounts and services; creating an “European Vacancy Monitor” which provides information about available jobs all across Europe; a new European Progress Micro-finance facility to encourage young entrepreneurs; a Member States’ guarantee assuring that all young people are in a job or further education within six months after leaving school; an European Skills Passport, based on the existing elements of Europass, the online European resume.
    Member States must set up in their own country National Qualifications Framework making at the same time recommendations, orienteering and traineeships.
    “The Innovation Union”, launched on October, 6th, 2010, is the first integrated strategy to strengthen European Research and Development thorough specific public investments, supporting private sector and removing obstacles to the mobility of researchers’ ideas by reinforcing each constituent parts of the innovation process: from the early researches to the sale of the results. The Europe 2020 target aims at raising investment in Research and Development up to 3% of GDP in order to create 3.700 million jobs and increase annual GDP by up to €795 bn by 2025. In order to reach this target it is necessary to employ up to 1 million researchers .
    The target of this Flagship Initiative contains some key elements: the European Partnerships for innovation; an Innovation Union evaluating framework and a control list containing innovative and effective systems; a proposal of a cross-border regime for the capital at risk and the cooperation with EIB; the removal of any obstacles to the mobility of researchers; a wider access to the results of the public fund financed researches; the institution of an European Design Leadership Board regarding design and European trademark of excellence; the development of a pilot program on social innovation to obtain new working skills in different work-related fields; new governmental incentives and funds for public procurements and innovating services; the modernization of the framework of copyright through an agreement on the EU Patent; the creation of a Specialized Patent Court; the definition of interoperable standards as well as easy access to capital and a structural fund regime mainly focused on innovation.
    At National Level, Member States have to carry out a combined programming; to enhance cross-border co-operation in areas with EU value added.
    "An integrated industrial policy for the globalization era", launched by the European Commission on October, 27th, 2010, underlines the importance of small and medium-size industries as well as the achievement of an Industrial European Governance. Better conditions will be reached thank to a smart regulation, easy access to financial support for businesses, the development of single market; the protection of the intellectual property rights and reinforcement in infrastructures.
    In order to compete on the international markets, EU needs a better trade and international regulations along with a wider access to raw materials and critical products. At national level, Member States have to improve the business environment, for example, by applying public sector procurements to support innovation incentives and to enhance the conditions to enforce intellectual property rights. Besides, it is necessary to reduce administrative burdens and to establish a closer cooperation between different sectors in order to speed up the whole industrial development.
    “Resource Efficient Europe”, launched by the Commission on January, 26th, 2011. It aims to draw Government, Public Opinion and Stakeholders’ interests in the support of a long-term European strategy for an efficient usage of resources, which is essential in order to achieve some of the European targets: from the reduction of greenhouse gas emission by 85% to 90% within 2050, to the agricultural and fishery reform, from the reduction of food insecurity in developing countries to a more efficient European solution to the rise of energy and raw materials prices.
    For this reason there also is an energetic efficiency plan to be met by 2020 and an energetic action plan to be fulfilled by 2050. Specific targets deal with different proposals to modernise and decarbonise the transport sector and to complete the internal energy market by carrying out strategic energy technologies, SET, plan. Another important project deals with the initiative to upgrade European Networks, including the Trans European Networks, towards an European supergrid, which is a combination of smart grids and interconnections, in particular the one of renewable energy sources to the grid, thank to structural funds and the support of EIB.
    At national level, Member States must gradually bring down environmentally harmful subsidies, employ market-based instruments, develop smart infrastructures and work out coordinated infrastructure projects.
    “An Agenda for new skills and jobs”, launched by the Commission on November,23rd, 2010, aims at modernizing labour market through the acquisition of new skills and the upgrade to new working conditions and tendencies.
    The Commission proposes a variety of useful actions which will contribute to get a satisfying job market, to boost the labour market reform in order to improve the flexibility along with the security of the labour market itself, the so-called flexicurity; to provide people and businesses with incentives and to invest in training; to ensure better working conditions through a better quality of labour legislation; to improve the conditions for job creation and mobility including lower taxes on labour and the reduction of administrative burdens.
    At national level, Member States must effort to identify their own national pathways for flexicurity, regularly monitoring the efficiency of tax and benefit systems. Furthermore, they aim at developing a National Qualifications Framework, acquiring and recognizing competences in a significant variety of the learning systems, along with the partnerships between the worlds of training, education and work.
    “European Platform against Poverty", launched by the Commission on December, 16th , 2010, in order to guarantee economic, social and territorial inclusion, enabling the victims of poverty to stand a decent life and to take active part in society. The EU works coordinately, indentifying the best practices and promoting exchange of experiences; defying EU-wide rules and making funds available. The key actions focus on the following fields: easy access to work, smart usage of European funds to support inclusion and fight against discrimination; identification of innovative solutions in post-crisis Europe especially in order to outline more effective and efficient social supports; research of new kinds of partnerships between public and private sector.
    At National level, Member States must promote both collective and individual responsibilities in the fight against poverty and social exclusion, defining and carrying out measures concerning classes at particular risk. In order to meet this target, it is also necessary to fully employ their benefit and retirement systems, to ensure an adequate support to the income and a sufficient access to health care.

    BIBLIOGRAPHY
    COM(2010)2020, Bruxelles, 3 marzo 2010, EUROPA 2020 Una strategia per una crescita intelligente, sostenibile e inclusiva (http://ec.europa.eu/eu2020/pdf/COMPLET%20IT%20BARROSO%20-%20Europe%202020%20-%20IT%20version.pdf)
    Paul Zagamé (2010) (paper) "The costs of a non-innovative Europe: what can we learn and what can we expect from the simulation works" (http://ec.europa.eu/research/social-sciences/pdf/demeter-costs-non-innovative-europe-zagame_en.pdf)
    COM 2011(144) "LIBRO BIANCO Tabella di marcia verso uno spazio unico europeo dei trasporti - Per una politica dei trasporti competitiva e sostenibile" (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0144:FIN:IT:PDF)

    Link:
    http://ec.europa.eu/europe2020/index_en.htm
    ec.europa.eu
    cordis.europa.eu
    www.politichecomunitarie.it

    Redattore: Valeria CHIOMA

  • EUROPEAN BANKING AUTHORITY - EBA

    The European Banking Authority was established by Regulation (EC) No. 1093/2010 of the European Parliament and of the Council of 24 November 2010. Official website is this for further info.

    The EBA has officially come into being as of 1 January 2011 and has taken over all existing and ongoing tasks and responsibilities from the Committee of European Banking Supervisors (CEBS).

    The EBA acts as a hub and spoke network of EU and national bodies safeguarding public values such as the stability of the financial system, the transparency of markets and financial products and the protection of depositors and investors.

    The EBA has some quite broad competences, including preventing regulatory arbitrage, guaranteeing a level playing field, strengthening international supervisory coordination, promoting supervisory convergence and providing advice to the EU institutions in the areas of banking, payments and e-money regulation as well as on issues related to corporate governance, auditing and financial reporting.

  • EUROPEAN CENTRAL BANK - ECB

    The European Central Bank and the national central banks together constitute the Eurosystem, the central banking system of the euro area. The main objective of the Eurosystem is to maintain price stability: safeguarding the value of the euro. We at the European Central Bank are committed to performing all central bank tasks entrusted to us effectively. In so doing, we strive for the highest level of integrity, competence, efficiency and transparency. The ECB is independent from the political authority, both national and supranational and the Statute can be found here .

    1. Organisation

    Since 1 January 1999 the European Central Bank (ECB) has been responsible for conducting monetary policy for the euro area - the world’s largest economy after the United States. The euro area came into being when responsibility for monetary policy was transferred from the national central banks of 11 EU Member States to the ECB in January 1999. Greece joined in 2001, Slovenia in 2007, Cyprus and Malta in 2008, Slovakia in 2009 and Estonia in 2011. The creation of the euro area and of a new supranational institution, the ECB, was a milestone in the long and complex process of European integration. To join the euro area, the 17 countries had to fulfil the convergence criteria, as will other EU Member States prior to adopting the euro. The criteria set out the economic and legal preconditions for countries to participate successfully in Economic and Monetary Union.

    1.1 European Central Bank

    The legal basis for the single monetary policy is the Treaty establishing the European Community and the Statute of the European System of Central Banks and of the European Central Bank. The Statute established both the ECB and the European System of Central Banks (ESCB) as from 1 June 1998. The ECB was established as the core of the Eurosystem and the ESCB. The ECB and the national central banks together perform the tasks they have been entrusted with. The ECB has legal personality under public international law.

    1.2 European System of Central Banks

    The ESCB comprises the ECB and the national central banks (NCBs) of all EU Member States whether they have adopted the euro or not.

    1.3 Eurosystem

    The Eurosystem comprises the ECB and the NCBs of those countries that have adopted the euro. The Eurosystem and the ESCB will co-exist as long as there are EU Member States outside the euro area.

    1.4 Euro area

    The euro area consists of the EU countries that have adopted the euro.

    2. The Governing Council

    Governing Council (Jul. 2012)

    The Governing Council meets once a fortnight

    The Governing Council is the main decision-making body of the ECB. It consists of
    - the six members of the Executive Board, plus
    - the governors of the national central banks of the 17 euro area countries.

    2.1 Responsibilities


    - to adopt the guidelines and take the decisions necessary to ensure the performance of the tasks entrusted to the Eurosystem;
    - to formulate monetary policy for the euro area. This includes decisions relating to monetary objectives, key interest rates, the supply of reserves in the Eurosystem, and the establishment of guidelines for the implementation of those decisions.

    2.2 Meetings and decisions


    The Governing Council usually meets twice a month at the Eurotower in Frankfurt am Main, Germany.
    At its first meeting each month, the Governing Council assesses economic and monetary developments and takes its monthly monetary policy decision. At its second meeting, the Council discusses mainly issues related to other tasks and responsibilities of the ECB and the Eurosystem.
    While the minutes of the meetings are not published, the monetary policy decision is explained in detail at a press conference held shortly after the first meeting each month. The President, assisted by the Vice-President, chairs the press conference.


    For further information, visit the ECB website

    Editor: ASSONEBB

  • EUROPEAN COMMISSION

    The European Commission (in French, Commission européenne) “promotes the general interest of the Union and takes appropriate initiatives to that end” (art. 17 TEU), it is the Executive body of the European Union and is in charge for implementing the decisions of the Parliament and the Council.
    It is currently composed of 27 members states (as well as a Chairman and two Vice Presidents), appointed by mutual agreement), representing the governments of each Member State for a period of 5 years. Beginning on 1 November 2014, the composition will be profoundly modified.
    Indeed, the Treaty of Lisbon establishes a number of members corresponding to two thirds of the Member States (unless the European Council, acting unanimously, decides otherwise).
    The Members will be chosen according to a rotation system in order to ensure absolute equality between the Member States with respect to the determination of, and the time spent by their national within the Commission. Under no circumstances may the Commission include two Members of the same nationality (art. 244 TFEU).
    As a matter of fact, the European Council in December 2008, as an exception to this rule, planned to adopt a decision whereby the Commission will continue to include one national from each Member after 2014.
    The appointment of the President of the Commission is proposed by the EU Council, acting by a qualified majority, and is then approved by the Parliament.
    The Treaty of Lisbon, however, has introduced a direct link between the results of the European elections and the choice of the candidate as president of the Commission, as the Council should consider the results of the elections to propose to the Parliament a candidate for that office.
    The President-designate, in agreement with the Member States governments, chooses the other members of the Commission; the Council adopts by qualified majority the list of candidates and shall inform the European Parliament for approval of each candidate. The President, the High Representative for Foreign Affairs and Security Policy and other members of the Commission shall be submitted collectively to a vote of approval by the Parliament. Following this approval, the Commission shall be appointed by the Council.
    Its office is in Brussels and it is in charge for five years. The mandate is renewable. The Commission members are appointed "on the basis of their general competence, work full time and carry out their tasks independently (Art. 17 TEU) and cannot seek or accept instructions from any government”.
    The Commission has the right of initiative in the legislative process, i.e. the right to present legislative proposals on which the European Parliament and the Council of the EU then decide. The Commission looks after the application of Treaties and EU laws, under the supervision of the Court of Justice of the European Union. It shall execute the budget and manage programmes. It shall exercise, coordinating executive and management functions, as laid down by the Treaties. It ensures the external representation of the Union, except for the Common Foreign and Security Policy and other cases provided for in the treaties, negotiates (according to the powers conferred by the EU Council) agreements between the Union and international organizations and Third countries, including agreements of accession of new member states; it represents the Community before the national courts and, sometimes together with the EU Council, before the European Court of Justice of the European Union.
    Of particular note are the powers of the Commission in the field of competition (where it takes the form of an administrative authority concerning monitoring and control: it examines the facts, granting approval or issuing bans and imposing sanctions) and in the management of structural funds and the budget.
    Link: ec.europa.eu
    Redattore: Cristiana MENE’
    © 2011 ASSONEBB

  • EUROPEAN COUNCIL

    The European Council was created in 1974 with the intention of establishing an informal forum for discussion between Heads of State or Government. It acquired a formal status in the Treaty of Maastricht (1992), which defined its function as providing the impetus and general political guidelines for the Union's development. On 1 December 2009, with the entry into force of the Treaty of Lisbon, it became one of the seven institutions of the Union (art. 15 TEU).
    The European Council defines the general political direction and the priorities of the European Union. The European Council consists of the Heads of State or Government of the Member States, together with its President and the President of the Commission. The High Representative of the Union for Foreign Affairs and Security Policy takes part in its work.
    When the agenda requires it, each members of the European Council may decide each to be assisted by a minister and, in the case of the President of the Commission, by a member of the Commission. The European Council meets twice every six months, in Brussels, convened by its President. When the situation requires it, the President will convene a special meeting of the European Council.
    The European Council elects its President by qualified majority. The President's term of office is two and a half years, renewable once. Except where the Treaties provide otherwise, the decisions of the European Council are taken by consensus. In some cases, it adopts decisions by unanimity or by qualified majority (art.236 TEU), depending on what the Treaty provides for.
    Link: http://www.european-council.europa.eu/the-institution.aspx?lang=en
    Editor: Cristiana MENE’
    © 2011 ASSONEBB

  • EUROPEAN DIRECTIVE

    A directive is a legislative act of the European Union addressed to the Member States, adopted by the Council in conjunction with the European Parliament or by the Commission alone. According to Article 288 of the Treaty on the Functioning of the European Union (formerly Article 249 TEC), which represents its legal basis, "the Directive binds Members States to certain objectives to be achieved, leaving them free to decide the right means to achieve that result". The main purpose is to align national legislations, so the Directives need the intervention of the national legislation to be implemented within a determined period of time. The national legislator is free to choose the proper means to implement the directive, even by imposing more restrictive prescriptions, but in any case it must be ensured that all elements included in the Directive are covered by the national legislative act. This is also in line with the provision of article 10 of the Treaty of Rome that prescribes that Member States shall take all appropriate measures, whether general or particular, to ensure the fulfillment of the obligations arising from the Treaties or resulting from actions taken by the institutions of the Community. In particular, Member States shall facilitate the achievement of the Community's tasks and abstain from any measure that could jeopardise the attainment of the objectives of the Treaty. By reason of this particular feature, the directive is considered as the opposite of regulations, which are self-executing in nature, and the procedure by which it is emanated is articulated into two ideal and practical steps. Firstly, the directive is binding on the Member States as to the result to be achieved. Secondly, the Member State can choose the form in which it will realize the directive’s objectives within the framework of the national legal order. If a Member State fails to transpose the directive into the national legislation or if it has been transposed incompletely within the predetermined time period, the Commission can intervene asking the European Court of Justice (ECJ) to impose a fine to the Member State because this misbehaviour is considered as an infringement of the Treaty. Sometimes, under certain conditions, citizens are allowed to directly invoke the directive in question before the national courts. This happens if the Court of Justice considers that a directive has vertical (individual against institutions not against another individual) direct effect. The conditions that must be satisfied to invoke the direct effect of a European directive when a national measure has not been taken before the prescribed deadline are the following: the provision must be sufficiently clear and precisely stated; it must be unconditional and not dependent on any other legal provision; it must confer a specific right upon which a citizen can base a claim. These conditions were firstly introduced in the EU law by the European Court of Justice (ECJ) in the case of NV Algemene Transporten Expeditie Onderneming van Gend en Loos v. Nederlandse Administratie der Belastingen, Case 26/62 [1963].

    Editor: Bianca GIANNINI
    © 2010 ASSONEB

  • EUROPEAN ECONOMIC AREA -? EEA

    The Agreement signed in Oporto on 2 May 1992, as adjusted by the Protocol signed in Brussels on 17 March 1993 creating the European Economic Area (EEA), entered into force on 1 January 1994. The agreement was aimed to ensure the application of the four fundamental pillars of the Internal Market ("the four freedoms") by the contracting parties, but also of the related policies, such as social policy, consumer protection, and environment policy (with the exemption of agriculture and fisheries legislation applying only to EU Member States) with a view to creating a homogeneous European Economic Area. The EEA includes all EU current member states plus the EFTA States (Norway, Iceland and Liechtenstein).

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB

  • EUROPEAN FINANCIAL STABILISATION MECHANISM

    Temporary fund which provisions financial assistance to those Member States of the Eurozone who are facing crises due to extraordinary circumstances out of the state control. The mechanism was established by the regulation (EU) 407/2010, stayng within the European Union and it is going to be absorbed by the EMS. The assistance can take the form of a loan or a credit line granted to Member States. To benefit from the mechanism, the state shall submit an economic and financial adjustment programme. The fund is compatible with the facility providing medium-term financial assistance for balances of payments. The total maximum amount is fixed at 60 billions Euro.

    Source: europa.eu/legislation

  • EUROPEAN FINANCIAL STABILITY FACILITY

    Temporary rescue mechanism based in Luxembourg, created on 10 June 2010 by the Euro area Member States following the decisions taken on 9 May 2010 within the framework of the Ecofin Council. The mandate is to safeguard financial stability in Europe by providing financial assistance to Euro area Member States within the framework of a macro-economic adjustment programme. To fulfill its mission, the EFSF issues bonds or other debt instruments on the capital markets. The proceeds of these issues are then lent to countries under a programme. The EFSF may also intervene in the primary and secondary bond markets, act on the basis of a precautionary programme and finance recapitalisations of financial institutions in non-programme countries through loans to governments. On 8 October 2012 the European Stability Mechanism (ESM), the permanent rescue mechanism, entered into force and due to this reason the EFSF will not represent the main instrument to finance new programmes, but the fund will continue with the ongoing programmes for Greece, Portugual and Ireland. The financial assistance for the recapitalisation of the Spanish banking sector will be transferred from EFSF to ESM.

    Source: www.efsf.europa.eu

  • EUROPEAN FINANCIAL STABILITY FACILITY (EFSF)

    The European Financial Stability Facility (EFSF) is a company, set up on 9 May 2010 within the framework of the Ecofin Council to safeguard financial stability in Europe, and incorporated in Luxembourg on 7 June 2010. The company is owned by the sixteen euro area Member States, and it is headed by Klaus Regling, former Director-General for economic and financial affairs of the European Commission. As part of a comprehensive package of measures to preserve financial stability within Europe1, the EFSF is responsible for providing temporary financial assistance to euro area Member States in difficulty. The EFSF, with the support of the German Debt Management Office (DMO), issues bonds, notes, commercial paper, debt securities or other financing arrangements on the market, which are backed by irrevocable and unconditional guarantees of the euro area Member States. The guarantees amount to € 440 billion on a pro rata basis, in accordance with the Member State share in the paid-up capital of the European Central Bank (ECB). The lending is subject to the conditions negotiated with the European Commission in liaison with the European Central Bank and International Monetary Fund and approved by the Eurogroup. The total resources of the EFSF are combined with loans of up to € 60 billion coming from the European Financial Stabilisation Mechanism (EFSM).

    THE EFSF has been replaced by the EUROPEAN STABILITY MECHANISM (ESM) in 2013.

    Link: http://www.efsf.europa.eu/index.htm
    ____________________________
    1
    On 9 May 2010, the Council Regulation establishing the European Financial Stabilisation Mechanism ("EFSM") has also been approved.

    Editor: Bianca GIANNINI
    © 2010 ASSONEB

  • EUROPEAN INVESTMENT BANK - EIB

    The European Investment Bank (EIB) is the European Union's financing institution. The Bank is responsible for enhancing the European integration and development, the economic and social cohesion and the innovation in the less-favoured regions of the EU. According to Protocol No 8 on the location of the seats of the institutions (accompanying the Treaty of Amsterdam and annexed to the Treaty establishing the European Community and the Treaty on European Union), the EIB is settled in Luxembourg. Since its institution in 1958 (Treaty of Rome), the EIB has been an autonomous institution with its legal personality, financial autonomy and its own decision-making structure. Given to its independence, the Bank is allowed to take lending decisions solely on the basis of a project’s merits. Articles 9, 266 and 267 of the Treaty on the Functioning of the European Union (TFUE) lay down the mission and tasks of the bank; the objectives, structure, capital, membership, financial resources, means of intervention and auditing arrangements of the EIB are contained in the EIB's Statute (set out in Protocol No 10 annexed to the Treaty establishing the European Community).

    1.Structure and Governance

    The EIB is owned by the 27 Member States of the European Union. These shareholders have subscribed an amount of the Bank's capital according to the economic weight (in terms of GDP) within the European Union that they showed at the time of the EU accession. Since the entry into force of the Accession Treaty in May 2004, the EIB capital has been more than EUR 163.6 billion. Following the decision of the EIB's Board of Governors of 30 March 2009, the Bank’s subscribed capital has been increased by EUR 67 billion, bringing it to EUR 232, 392 billion as at 1 April 2009. Under its Statute, the Bank is allowed to grant loans not exceeding in value two and a half times this amount. The EIB's capital is subscribed by the Member States in accordance with their economic weight.

    Source: EIB website

    The Bank administrative bodies are: the Board of Governors, the Board of Directors and the Management Committee. In addition to this, there is an Audit Committee supervising the operations of the Bank. The Member States are the EIB shareholders, so they are represented in the Bank's main independent decision-making bodies, the Board of Governors and the Board of Directors. In particular, the Board of Governors consists of Ministers appointed by the Member States (generally the finance ministers), it lays down general directives for the Bank's credit policy, approves the annual balance sheet and the annual report, it decides whether to increase the subscribed capital and whether to finance projects or to grant loans to a Member State outside the European Union. All the Board of Governors' decisions are taken by majority (50% or more of the subscribed capital). The Board of Directors is chaired by the President of the Bank and consists of twenty-eight directors and eighteen alternate directors. The directors shall be appointed by the Board of Governors for five years, one nominated by each Member State. It takes decisions with respect to granting finance and fixing the interest rates on loans granted (whereas the commission does on guarantees). The Board of Directors is also responsible for the supervision on the management of the Bank, which must be coherent with the provisions of the Treaties and of the EIB’s Statute and with the general directives laid down by the Board of Governors. Each director has one vote and the decisions of the Board of Directors are taken by a majority of at least one third of the members representing 50% or more of the subscribed capital. The Management Committee consists of a president and eight vice-presidents appointed for a period of six years by the Board of Governors on a proposal from the Board of Directors. It has the following tasks: it manages the current business of the EIB, under the authority of the President and the supervision of the Board of Directors; it prepares and ensures the relative implementation of the decisions of the Board of Directors; it acts by majority when delivering opinions on proposals for raising loans or granting loans and guarantees. Finally, the Audit Committee is an independent body that supervises the operations of the Bank, and it reports directly to the Board of Governors. The Governors appoint the three members and three observers composing the Audit Committee.

    2. Mission and operation

    The EIB's main task is to provide long-term finance in support of the EU policy objectives in the areas of small and medium-sized enterprises,cohesion and convergence,the fight against climate change, environmental protection and sustainable communities, sustainable, competitive and secure energy, the knowledge economy and trans-European networks. In particular, in 2009, 89% of the total EIB financing was devoted to these aims. The EIB is also particularly active outside the EU in order to foster the EU external cooperation and development covering over 150 countries (the pre-accession countries of South-Eastern Europe, the Mediterranean partner countries, the African, Caribbean and Pacific countries, Asia and Latin America, and Russia and other neighbours to the East). There is a strategic document, approved by the Board of Directors, for defining medium-term policy and setting operational priorities in the light of the objectives assigned to the Bank by its Governors. For the 2006-2008 period, the lending activity, as resulted from the Bank's Corporate Operational Plan (COP), was focused on six priorities: economic and social cohesion in the enlarged EU; implementation of the Innovation 2010 Initiative (i2i); development of Trans-European and Access Networks; support for EU development and cooperation policies in partner countries; environmental protection and improvement, including climate change and renewable energy; support for small and medium-sized enterprises, as well as mid-cap companies of intermediate size. Information on the projects financed, the borrowings undertaken and the financial statements of the EIB Group and the EIB, are available in the Annual Report published on the EIB official web site. The lending activity is financed by borrowing on the capital markets. The EIB generally issues mainly public bonds with AAA credit rating.

    3. EIB Group

    The EIB Group was created in 2000, consisting of the EIB and the EIF. The EIB, owning 61.2% of the shares, is the EIF majority shareholder (the European Commission owns 25% and the remaining is owned by other European Financing Institutions).Within the Group, the EIB supports small and medium-sized enterprises (SMEs) by providing medium- and long-term bank loans to large capital investment projects.

    Link: http://www.eib.org/
    Editor: Bianca GIANNINI
    © 2010 ASSONEB

  • EUROPEAN MARKET INFRASTRUCTURE REGULATION - EMIR

    Adoption of the regulatory and implementing technical standards for the Regulation on OTC derivatives, central counterparties and trade repositories
    Derivatives play an important role in the economy but are associated with certain risks. The crisis has highlighted that these risks are not sufficiently mitigated in the over-the-counter (OTC) part of the market, especially as regards Credit Default Swaps (CDS). Since the beginning of the financial crisis, the Commission has been working to address these risks.
    On 19 December 2012, the European Commission has adopted nine regulatory and implementing technical standards to complement the obligations defined under the Regulation on OTC derivatives, Central Counterparties (CCPs) and trade. They were developed by the European Supervisory Authorities and have been endorsed by the European Commission without modification. The adoption of these technical standards finalises requirements for the mandatory clearing and reporting of transactions, in line with the EU's G20 commitment made in Pittsburgh in September 2009.
    On 9 February 2012, the European Parliament and the Council reached an important agreement on a Regulation for more stability, transparency and efficiency in derivatives markets. It was a key step in the effort to establish a safer and sounder regulatory framework for European financial markets.
    On 4 July 2012, the Regulation on OTC Derivatives, Central Counterparties and Trade Repositories (known as "EMIR" - European Market Infrastructure Regulation) was adopted and entered into force on 16 August 2012. . This was a major development which enables the European Union to deliver the G20 commitments on OTC derivatives agreed in Pittsburgh in September 2009.
    The Regulation ensures that information on all European derivative transactions will be reported to trade repositories and be accessible to supervisory authorities, including the European Securities and Markets Authority (ESMA), to give policy makers and supervisors a clear overview of what is going on in the markets.
    The Regulation also requires standard derivative contracts to be cleared through Central Counterparties (CCPs) as well as margins for uncleared trades and establishes stringent organisational, business conduct and prudential requirements for these CCPs.

    Webpage for further info:
    http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm

    ESMA webpage with further info.

  • EUROPEAN REGULATION

    A regulation is a legislative act of the European Union jointly adopted by the European Parliament and the Council according to the ordinary legislative procedure defined in Article 294 of the TFEU, or by the Commission alone. Article 288 of the Treaty on the Functioning of the European Union (formerly Article 249 TEC) represents its legal basis providing that "a regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States". This implies that national governments do not have to take action themselves to implement EU regulations. Therefore, as they are adopted by the European Institutions, EU regulations take immediate effect in all the Member States, on a par with national laws. In this respect, EU regulations differ from EU directives, which are addressed to the Member States and need the intervention of the national legislation to be implemented within a determined period of time.

    Editor: Bianca GIANNINI
    © 2010 ASSONEB

  • European Research Area

    A unified research area open to the world, based on the Internal market and on the 27 national research systems of the Member States funded from national tax revenues. The Lisbon Treaty at the article 179 defines the area as a space"in which researchers, scientific knowledge and technology circulate freely and through which the Union and its Member States strengthen their scientific and technological bases, their competitiveness and their capacity to collectively address grand challenges". The development of the ERA should overcome the fragmentation of research in Europe along national and institutional barriers. The ERA priorities, as mentioned in the Communication of the European Commission COM(2012) 392 final and to be reached by 2014, are: more effective national research systems, optimal transnational cooperation and competition, an open labour market for researchers, gender equality and gender mainstream in research, optimal circulation, access to and transfer of scientific knowledge including via digital ERA. ERA activities, programmes and policies are designed and operated at regional, national and European level. Examples of progression in building ERA come from: European Commission initiatives, as the European Research Council, ERA-NETs and Marie Curie Actions; Member State initiatives, as the sitting up of the European Strategy Forum on Research Infrastructures (ESFRI), Joint Programming and European Partnership for Researchers. European Institute for Technology and Competitive and Innovation Framework programme also play a relevant role as instruments at European level.

  • EUROPEAN STABILITY MECHANISM (ESM)

    The European Stability Mechanism (ESM) is an important component of the comprehensive EU strategy designed to safeguard financial stability within the euro area. Like its predecessor … the temporary European Financial Stability Facility (EFSF) set up in 2010 … the ESM provides financial assistance to euro area Member States experiencing or threatened by financing difficulties. The two institutions functioned concurrently from October 2012 (when the ESM was inaugurated) until June 2013. As of 1 July 2013 the EFSF cannot enter into any new financial assistance programmes but will continue the management and repayment of any outstanding debt. The ESM is now the sole and permanent mechanism for responding to new requests for financial assistance by euro area Member States. The EFSF will cease to exist once all loans outstanding under EFSF assistance programmes have been reimbursed and all funding instruments issued by the EFSF and any reimbursement amounts due to Guarantors have been repaid in full.

    To fulfill its purpose, the ESM raises funds by issuing 3- and 6-month bills as well as medium and long-term debt issued with maturities limited to the lowest of 45 years or the maximum maturity of financial assistance granted by the ESM. ESM issuance is backed by a paid-in capital of €80 billion, in accordance with the contribution key annexed to the ESM Treaty. The ESM cooperates very closely with the International Monetary Fund (IMF). A euro area Member State requesting financial assistance from the ESM is expected to address, wherever possible, a similar request to the IMF.

    The establishment of the ESM should not be regarded as a stand-alone response to the sovereign debt crisis, but rather as complementary to a series of measures undertaken at national and EU level. The efforts taken by EU Member States with respect to fiscal consolidation and structural reforms, along with EU initiatives such as the strengthened Stability and Growth Pact, the Treaty on Stability, Coordination and Governance in the EMU (fiscal compact), European Semester, the Euro Plus Pact and the new European system of financial supervision are all crucial for addressing the roots of the crisis and creating conditions that are conducive to economic growth, job creation and improved competitiveness. If, however, a euro area Member State does require financial assistance, the European Stability Mechanism has the capacity and resources to act as a financial backstop and apply a lending instrument that will stabilise the financing needs of that country.

    For further information go the ESM web site by clicking here

  • EXCHANGE

    Organised trading venues for financial instruments.

    ©2012 Editor: Camera dei Lords

  • EXCHANGE RATE (Encyclopedia)

    1. The nominal exchange rate (NER)

    The nominal exchange rate (NER) is the relative price of a domestic currency in terms of foreign currency. For instance, if the dollar/euro exchange is equal to 1.4, it means that to buy one unit of the European currency it takes 1.4 dollars (or alternatively, to buy one dollar, 0.71 euros are needed). The graph in Figure 1 shows the evolution of the dollar/euro exchange.
    The NER can be left free to vary in currency markets (flexible exchange rates), or it can be fixed by the monetary policy to a given value in terms of another currency or group of currencies (fixed exchange rates). In the latter case, the central bank is committed to intervening in markets to defend the equal stability (endogenous monetary policy).

    The use of the NER is essential for the comparison between goods and services produced in different countries, as it allows us to express prices in a common currency. The NER can be listed in two ways. It can express the number of units of domestic currency required to purchase a unit of foreign currency (uncertain for certain). Or, alternatively, it defines the number of units of foreign currency needed to purchase a unit of domestic currency (certain for uncertain). Here we will refer to the first quotation. Thus, a positive variation of S will indicate a nominal depreciation; conversely, a negative variation of S will indicate a nominal appreciation.

    2. The real exchange rate (RER)

    The real exchange rate (RER) is the relative price of goods and services produced within the domestic country in terms of goods and services produced abroad.
    The economic literature provides three different definitions of the RER.
    1. The first definition comes directly from PPP and states that it is possible to define the RER as the ratio between the index of foreign prices (expressed in domestic currency) and the index of domestic prices. Thus, it constitutes a measure of the consumption basket of all goods required for the purchase of a basket of products abroad. In formulas:
    (1)
    where:
    - is the price index of the basket of goods produced in the foreign country and is the weight of the i-th good in the foreign representative basket of consumption;
    - is the price index of the basket of goods produced in the domestic country and is the weight of the j-th good in the domestic representative basket of consumption;
    - St is the nominal exchange rate (NER) and it expresses the number of units of domestic currency required to purchase a unit of foreign currency.
    On the basis of equation (1) then, the RER can be seen as a nominal exchange rate deflated by the domestic prices and the foreign prices.
    2. The second definition of RER relies on the assumption that all goods are traded internationally. Under this assumption P can be seen as the price index of exported goods and as the price index of imported goods. The RER can be defined then as:
    (2)
    where the ratio indicates the terms of trade. Hence, if all goods are traded on international markets, the RER may be defined as the inverse of the terms of trade. In this case, a real appreciation corresponds to an improvement in terms of trade, and, vice versa, a real depreciation corresponds to a deterioration in terms of trade.
    3. The third definition of RER is based on the evidence that not all goods are traded on international markets. The distinction between tradable goods and non-tradable goods is very important since it is obvious that only the prices of the first group of goods are affected by the international competition. Labelling with the price index of the tradable goods and with the price index of the non-tradable goods, it is possible to define the general level of prices Pt as the following geometric average: where is the weight of the non-tradable goods.
    (3)
    Equation (3) states that the RER is proportional to the ratio between the price index of tradable goods and the price index of non-tradable goods. In other words, equation (3) defines an “internal terms of trade”. When non-tradable goods become more expensive in terms of tradable goods, then a real appreciation occurs (a fall in Q). On the contrary, when non-tradable goods become cheaper in terms of tradable goods, then the economy experiences a real depreciation (an increase in Q).
    From the foregoing, it is clear that, regardless of the approach chosen for the formal definition of the RER, it is in fact a relative price. A depreciated real exchange rate indicates, ceteris paribus, that the domestic goods are more convenient as compared to the goods produced abroad. This means that an increase in Q should imply an increase in the demand for goods produced by the household, and therefore a contraction of imports and an expansion of exports. In other words, ceteris paribus, a real depreciation implies an improvement in the trade balance (TBt). In formulas:

    3. NER, Trade Balance (TB) and the J-curve

    In more rigorous terms, it is possible to define the relationship between TB and RER using the elasticity of aggregate demand to price, thus leading to the definition of the so-called Marshall-Lerner (or Marshall-Lerner-Harberger) conditions. The idea is that a devaluation can exert a positive impact on trade balance if the sum of the price elasticity of exports and imports (in absolute value) is greater than 1.
    To analyse the effects of a devaluation of the exchange, the expression of TB is rewritten in terms of value:
    (4)
    where:
    - EXt are the exports, whose value is equal to the product of the price index of the exported goods and the quantity of exported goods ;
    -
    IMt are the imports, whose value is equal to the product of the price index of the imported goods, expressed in domestic currency, and the quantity of imported goods ;
    -
    the price indexes PIM and PEX are assumed be constant.
    Let's sssume also that:
    - PEX = PIM = 1;
    - the national income does not vary;
    - at the beginning of the period TBt = 0.
    Differentiating equation (4) with respect to S yields:
    (5)
    Equation (5) can be rewritten as follows:
    (5’)
    Recalling that the elasticity of exports () and the elasticity of imports () are defined as:

    Equation (5’) becomes :
    (6)
    Recalling that the equilibrium of the trade balance implies that , equation (6) can be rewritten as:

    (6’)
    From equation (6’) emerges that:
    (7)
    The net effect of a devaluation of the exchange rate on the balance of trade depends on the elasticities of demand to prices. The Marshall-Lerner conditions state that, starting from a situation of equilibrium in the balance of trade, the impact will be positive if and only if the sum of the price elasticity on () is greater than 1. This is because the devaluation produces two distinct effects: a price effect (EP) and a quantity effect (EQ). The nominal depreciation entails on the one hand a reduction in the value of exports (by reducing the prices that consumers pay for foreign goods exported), and an increase in the value of imports (because it increases the price of domestic currency imported). Thus, the EP has a negative impact on the trade balance. Conversely, reducing the foreign currency price of the exported goods should help to increase the volume of exports, as well as the increase in the price of imported goods should lead to a decline in import volumes (quantity effect). We can therefore conclude that the EQ always exerts a positive effect on trade balance.
    In symbols:

    The Marshall-Lerner conditions determine which of the two effects is predominant. If (7) is satisfied, then EQ dominates EP and the trade balance benefits from the depreciation.
    There is a vast empirical literature that analyses the effects of the exchange rate fluctuations on trade balance. The results of the econometric analyses that estimate the equations of imports and exports and the relative elasticities have essentially corroborated the predictions of the Marshall-Lerner theory. In particular, studies conducted on data from advanced economies show that the exchange rate depreciation tends to deteriorate the trade balance in the short term (the so-called J-curve effect), but it exerts a positive impact on TB in the long term.
    In the short term, it is likely to have a prevalence of EP due to the fact that operators employ a certain amount of time to change their decisions and therefore, in spite of price changes, they do not alter the volumes exchanged. In the long run however, the improvement of the TB would be due to the EQ that prevails over time. Figure 2 describes the time course of the balance of trade in the periods following the depreciation.

    Bibliography
    Dornbusch, R., (1976), "Expectations and Exchange Rate Dynamics", Journal of Political Economy, Vol. 84(6), pp. 1161-76
    Frankel J. and Rose A., (1995), ""Empirical research on nominal exchange rates", Handbook of International Economics, G. M. Grossman & K. Rogoff (ed.), Vol. 3, chapter 33, pages 1689-1729 Elsevier
    Gala
    P., (2007), "Real Exchange Rate Levels and Economic Development: Theoretical Analysis and Empirical Evidence," Sao Paulo Business Administration School, Getulio Vargas Foundation
    Harberger A.C (1950), "Currency Depreciation, Income and the Balance of Trade", Journal of Political Economy, Vol. 58, pp. 47-60.
    Hooper P., Johnson K. and Marquez J. (2000) "Trade elasticities for G-7 countries", Princeton Studies in International Economics, Vol. 87.
    Lerner A.P. (1936), "The Symmetry Between Export and Import Taxes", Economica, Vol. 3, pp. 306-313.
    Marshall A. (1923), Money, Credit and Commerce, London, MacMillan.
    Mussa M. (1976), "The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy Under a Regime of Controlled Floating", Scandinavian Journal of Economics, Vol. 78, pp. 229-248.
    Rodrik D., (2008), "The purchasing-power parity doctrine: A reappraisal" Brookings Papers on Economic Activity, Fall 2008, Vol 2, pp. 365-412.
    Samuelson P.A. (1964), "Theoretical notes on trade problems", The Review of Economics and Statistics, Vol 46, pp.145-154.
    Sarno L. and Taylor M.P. (2002), The Economics of exchange rate, Cambridge University Press, Cambridge, UK.
    Editor: Lorenzo CARBONARI
    © 2009 ASSONEBB

  • EXCHANGE RATE MECHANISM II - ERM II (Encyclopedia)

    The exchange rate mechanism II replaced the old European monetary system (EMS) after the introduction of the euro in the third stage of economic and monetary union (begun on 1 January 1999). The purpose of the ERM II is to maintain stable exchange rates between the euro and the participating national currencies so as to avoid excessive exchange rate fluctuations on the internal market. The currencies of the Member States included in the ERM II and the respectively central parities against the euro and the fluctuation bands observed are:
    Denmark: the Danish kroner joined the ERM II on 1 January 1999. The central rate (1 EUR) observed is 7.46038 with a narrow fluctuation band of ±2.25%;
    Greece: the Greek drachma joined the ERM II on 1 January 1999. The central rate (1 EUR) observed is 353.109 with a standard fluctuation band of ±15%. On 17 January 2000, the central rate was revalued to 340.750. Greece adopted the euro on 1 January 2001 and left the ERM II;
    Estonia: the Estonian kroon joined the ERM II on 28 June 2004, and observes a central rate of 15.6466 to the euro with a standard fluctuation band of ±15%;
    Lithuania: the Lithuanian litas joined the ERM II on 28 June 2004, and observes a central rate of 3.45280 to the euro with a standard fluctuation band of ±15%.
    Slovenia: the Slovenian tolar joined the ERM II on 28 June 2004, and observed a central rate of 239.640 to the euro with a fluctuation band of ±15%. Slovenia adopted the euro on 1 January 2007 2001 and left the ERM II;
    Cyprus: the Cyprus pound joined the ERM II on 2 May 2005, and observed a central rate of 0.585274 to the euro with a fluctuation band of ±15%. Cyprus left the ERM II when the country adopted the euro on 1 January 2008;
    Latvia: the Latvian lats joined the ERM II on 2 May 2005, and observes a central rate of 0.702804 to the euro with a fluctuation band of ±15%. Latvia unilaterally maintains a 1% fluctuation band around the central rate;
    Malta: the Maltese lira joined the ERM II on 2 May 2005, and observed a central rate of 0.429300 to the euro with a fluctuation band of ±15%. Malta unilaterally maintained the exchange rate of the lira at the central rate without fluctuation. Malta left the ERM II when the country adopted the euro on 1 January 2008;
    Slovakia: the Slovak koruna joined the ERM II on 28 November 2005, and observed a central rate of 38.4550 to the euro.
    The central rate was revalued to 35.4424 on 19 March 2007 and to 30.1260 on 29 May 2008. Slovakia left the ERM II when the country adopted the euro on 1 January 2009.

    The deliberations on the establishment of a new Exchange rate mechanism (ERM) in the third stage of the European Monetary Union (EMU) began in autumn 1995.
    The ECOFIN Council first discussed the new exchange rate arrangement at its informal meeting of 12/13 April 1996 in Verona and progress reports were provided to the Florence European Council on 21/22 June 1996 by the ECOFIN Council, the EMU and the European Commission (EC). The main elements of a new Exchange rate mechanism - based on the existing exchange rate mechanism - had been previously set by the ECOFIN Council at its informal meeting in Dublin on 20 - 21 September 1996. Given the absence of treaty provisions indicating institutional arrangements regarding internal exchange rate regimes, there was uncertainty about a specific authority and legal basis in the treaty, on how to regulate the new ERM. Hence, the new framework was developed gradually through further deliberations based also on the opinion of the EC monetary committee, as well as in other important informal ECOFIN meetings1 between central bank governors and finance ministers until 1997. The basic legal basis of the ERM II is the Treaty on European Union, in its provisions on the exchange-rate convergence criterion and the Resolution of the European council of 16 June 1997, which, by building on the agreements reached at its meetings in Florence and Dublin, laid down the guidelines for the establishment of the ERM II. The following agreement of 1 September 1998 between the European Central Bank (ECB) and the National Central Banks of the member states outside the euro area (OJ C 345 of 13 November 1998) laid down the operating procedures for the exchange rate mechanism. The agreement of 1 September 1998 was last amended by the agreement of 16 March 2006 (2006/C 73/08). As regards the participation in the ERM II, the European Council in its Resolution declared: "Participation in the exchange-rate mechanism will be voluntary for the Member States outside the euro area. Nevertheless, Member States with a derogation can be expected to join the mechanism. A Member State which does not participate from the outset in the exchange-rate mechanism may participate at a later date". Therefore, the participation was in principle voluntary but expected2. More precisely, the voluntary participation in the ERM II is in practice mandatory in that it is a pre-condition for the participation in the eurozone imposed to new member states. Consequently, the voluntary participation in the exchange rate mechanism must be interpreted as the freedom for each member state to decide the optimal timing for this interim exchange rate arrangement with a duration of at least two years, and not as the freedom to decide whether to apply or maintain a different exchange rate arrangement. In summary, the exchange rate convergence criterion to meet in order to adopt the euro comprises the participation in the ERM II and the maintenance of exchange-rate stability3. Thus, the maintenance of exchange-rate stability is closely linked to the ERM II, but the two terms are not interchangeable, as it is possible for a country to participate in the ERM II and yet not to fulfill the exchange-rate convergence criterion. Before the introduction of the ERM II, the main issue debated regarded the fundamental arrangement of the system. In line with the original ERM, one proposal was to create a similar system of parity grid with the fixing of central parities and fluctuation bands between all participating currencies. In such a system, the fluctuations of each currency against the other currencies would be limited. The second option, that ultimately prevailed, was to define central parities for the non-euro currencies vis-à-vis the euro by fixing only the allowed fluctuations bands relative to the euro. The euro would thus be the hub of the system, while the non-euro currencies would constitute the spokes4. The latest period in the ERM with relatively broad bands of ±15%, that replaced the ±2, 5% fluctuation margins around the central parities, secured a certain degree of stability. For this reason, new accession countries opted for this greater flexibility. Hence, their currencies were allowed to fluctuate considerably more against each other’s, thus making interventions at the margins probably less frequent. Furthermore, many advocates of gretaer flexibility argued that narrower bands could have led to speculative attacks against the currencies involved in the system, invoking the risk of reminiscence of the ERM currency crisis in 1992. The possibility to commit to a narrower band, however, was not completely dismissed in order to best meet the convergence need of accession countries, considering that the participation in the ERM II should have been the shortest possible and uniquely aimed at adopting the euro. The agreement on narrower fluctuations bands, made on request of an accession country, was allowed on one condition, that is to say, not to influence the interpretation of the exchange rate criterion creating discriminations among member states5. According to the European Council Resolution of Amsterdam (16 June 1997), decisions on central parities and the band are taken by mutual accord of the ministers of the eurozone, the European Central Bank (ECB) and the minister and central bank governor of the accession country intending to participate in the ERM II, while the European Commission and Economic and Financial Committee are only consulted. The issue of interventions on the margins was treated similarly to the original ERM, by providing mandatory unlimited intervention from both sides, the ECB and the central bank of the country in question, in order to keep the market exchange rate within the selected fluctuation margins. It must be noted, however, that the Resolution of Amsterdam (1997) poses the price stability objective of central banks as explicitly superior to the obligations on intervention. As a result, the ECB has some discretion in deciding the appropriateness of the intervention. There is also the possibility of intra-marginal interventions on the basis of mutual agreement. The main difference with the previous ERM is the possibility for all parties to initiate a confidential procedure if central rates are deemed to need realignment. Ideally, this procedure enables to reconsider central rates before they deviate too much from real equilibrium exchange rates and currency crises become inevitable. The multilateral approach in this crucial aspect of the strategies toward the euro adoption provoked some concerns in that it created uncertainty about the effective adoption of all necessary measures to ensure the exchange rate stability. In defence of this architecture, as the ECB Board Member Padoa Schioppa (2003) noted, the multilateral character of the ERM II was instead found to provide further credibility to the framework. Indeed, the ERM II, by entailing coordinated actions, including the activation of foreign exchange interventions or the call of realignment and the ultimate exit into the euro area, escaped the criticism usually attributed to the so-called intermediate regimes. In his opinion, the ERM II can be labelled as an intermediate exchange rate regime only in the sense that it is intermediate to the adoption of the euro. In summary, the main features of this new exchange rate arrangement were the multilateral procedure to commit to central rates and fluctuation bands (involving Finance Ministers, the ECB, national central bank governors and the European Commission); the broad fluctuation band set at 15% while giving the chance to opt for narrower margins; marginal interventions, in principle unlimited and automatic, with the support of the ECB to the national central banks (NCBs), and finally discretionary and intra-marginal interventions supported by the ECB - according to the priority of maintaining the price stability objective. The realignments of central parity are made by the common procedure, which both the ECB and the Member States have the right to initiate. Even if some questions about the regulative framework of the ERM II remained unsolved, as the use of the discretionary power by the ECB in according realignments and the actual limit to the intervention at the margins, the main issues faced by new member states in the ERM participation were centred on the choice of the central parity against the euro and the exchange rate arrangement to be chosen before joining the EMU. The implications of the accession process upon the exchange rate arrangements in the candidate countries were treated in details by the European Council Statements of 2000/2003 on Exchange Rate Policy and the ERM II. In particular, the Report by the ECOFIN Council to the European Council in Nice on the Exchange rate Aspects of Enlargement (2000) presented an overview on exchange rate strategies for the new accession countries. Accordingly, the choice of an exchange rate regime on the path from pre-accession to accession was extremely important for the success of the economic transformation process. The main economic goals to be achieved were macroeconomic stability, and a facilitated transition, growth and real convergence preparing for the integration into the EU and the participation in the single market, by adjusting to real shocks, maintaining external balance, and dealing with capital flows. Furthermore, the individual responsibility of each Member State with respect to the exchange rate management was stressed. The EU played an important role in monitoring the economic situation and the characteristics of the country concerned, and the state of transition. Moreover, in accordance with Article 124.2 of the Treaty, exchange-rate policy was dealt with as a matter of common interest, so different incentive structures of alternative exchange-rate regimes became a crucial issue from an EMU prospective. In other terms, the existence of some successful experiences with fixed exchange rate regimes, including Currency Board arrangements (CBAs) prior to the EU accession needed to be revisited, even if compatible with the ERM II, in order to assess their sustainability in the medium-long term, also taking into account the evolution of the macroeconomic environment following the EU membership. The general economic theory on fixed exchange rate regimes provided suggestions also on the sustainability of currency board arrangements in small and open economies with sufficient wage and price flexibility, strict fiscal discipline and sound financial systems. Instead, concerns arose if considering the high speed of the catching…up process linked to the EU accession that, by fostering economic activity, could have led to a real exchange rate appreciation. With a limited action of the monetary policy, this could have directly resulted in an uncontrolled increase in the price level, creating serious obstacles to the nominal convergence. In addition, increasing capital inflow boosted by the capital movement liberalization would have also entailed the need for some exchange rate flexibility, in order to avoid the creation of excessive external imbalances.
    For these reasons, the decision on the compatibility of a Currency Board arrangement with the participation in the ERM II was taken on the basis of a careful assessment of its sustainability in the country in question.
    In any case, the ECB refrained from considering currency board arrangements to be a substitute for the participation in the ERM II. Instead they could form, in specific cases, a unilateral commitment within the ERM II, thus placing no additional obligations on the ECB.
    __________________________________
    1Communication from the Commission to the Council "Reinforced convergence procedures and a new exchange rate mechanism in stage three of EMU", 16/10/96
    2 See the Common Statement on Acceding Countries and ERM II adopted by ECOFIN, ECB President, NCBs Governors and European Commissioners, in Athens, on 5 April 2003.
    3With regard to exchange rate stability, the criterion refers to the participation in the ERM II for a period of at least two years prior to the convergence assessment without severe tensions, in particular without devaluation against the euro. The assessment of exchange rate stability against the euro will focus on the exchange rate being close to the central rate while also taking into account factors that may have led to an appreciation, which is in line with what was done in the past. In this respect, the width of the fluctuation band within the ERM II shall not prejudice the assessment of the exchange rate stability criterion. Moreover, the issue of the absence of "severe tensions" is generally addressed by examining the degree of deviation of exchange rates from the ERM II central rates against the euro; by using indicators such as short-term interest rate differentials vis-à-vis the euro area and their evolution; and by considering the role played by foreign exchange interventions.
    4This solution resembled that of the Bretton Woods system, in which the dollar acted as the hub.
    5 In practice, this principle implies that competitive devaluations should be avoided, as they are harmful for the overall EMU stability.

    Bibliography
    Padoa Schioppa T. (2003), "Trajectories Towards the Euro and the Role of ERM II", International Finance, Volume 6, Issue 1, pp. 129 … 144
    ECB International Relations Committee, Task Force Enlargement (2006), Macroeconomic and financial stability challenges for accession and candidate countries, Occasional Paper No. 48
    JulyAdam Bennett (1994), "Currency Boards: Issues and Experiences", IMF Policy Discussion Papers No. 94/18, International Monetary Fund
    Backé P. (1999), "Exchange Rate Regimes in Central and Eastern Europe: A Brief Review of Recent Changes, Current Issues and Future Challenges", Focus in Transition, No. 2, pp. 47-67

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB

  • EXCHANGE RATE OVERSHOOTING

    The term overshooting indicates the excessive fluctuation of the nominal exchange rate in response to a change in the monetary supply. This phenomenon, first defined by Dornbusch (1976) and due to price stickiness, contributes to explaining the high volatility displayed by nominal exchange rates. The Dornbusch’s model assumes price stickiness (a reasonable assumption in the short run) and helps to explain why exchange rates move so sharply from day to day. Since prices do not adjust immediately, a monetary shock affects the real balances and the nominal interest rate. Let's consider, for example, a rise (decrease) in money supply. The Uncovered interest parity (UIP) implies a nominal depreciation (appreciation) to compensate for the negative (positive) spread between the domestic and the foreign nominal interest rate. Thus, the exchange rate adjusts instantaneously to equate supply with demand for foreign exchange, overshooting (undershooting) its long run equilibrium level. In the medium run, prices adjust according to the money supply and the exchange rate moves downward (upward). Hence, in the long run, the principle of neutrality is satisfied.


    Bibliography

    Dornbusch R. (1976), "Expectations and Exchange Rate Dynamics", The Journal of Political Economy, Vol. 84, pp. 1161-76


    Editor: Lorenzo CARBONARI

    © 2009 ASSONEBB

  • EXECUTION

    The process by which client orders are carried out by investment firms.

    ©2012 Editor: Camera dei Lords

  • EXECUTION OF ORDERS ON BEHALF OF CLIENTS

    Directive 2004/39/EC-MiFID defines the “execution of orders on behalf of clients” as the “[…] activity to conclude agreements to buy or sell one or more financial instruments on behalf of clients (article 4, paragraph 1, number 5)”.
    Editor: Maria Giovanna CERINI
    © 2010 ASSONEBB

  • EXECUTION-ONLY

    Transactions executed by a firm upon the specific instructions of the client where the firm does not give advice on investments relating to the merits of the transaction.

    ©2012 Editor: Camera dei Lords

  • Expected Default Frequency - EDF

    EDF stands for Expected Default Frequency: it is the probability that a firm will default within a given time horizon by failing to make an interest or principal payment.

    Moody's trade mark for probability of default.

  • Exponential Smoothing (ES)

    It is a forecast method used in technical analisys of price time series (without Stagionality and Trend) and derived from Exponential Moving Average. The forecast is obtained as a weighted average of all available observations:

    The weights of the linear combination are chosen in order to give greater weight to more recent observations and less weight to the observations in the distant past. The weights are defined by the exponential sequence:



    and therefore:

    The value of the expected price in T+1 (given the information in T) is obtained from the expected value in T (given the information in T-1), correct the error committed in the prediction of T (also called surprise ) weighted by a factor ? (called smoothing parameter).

    The exponential smoothing is, therefore, a rule for updating the prediction based on the expected value at the previous time, adjusted by a term proportional to the error of prediction fulfilled. The smoothing parameter give maximum weight to surprise with value equal to one and no weight with a value equal to zero. The new forecast can be thought as the weighted average between the last available observation and the old forecast. The ? value determines how much of the current observation influence the future value. As near to zero is ? less the current value affects the prediction (so the new forecast will be very similar to the old) and vice versa (for ? tending to one the new forecast will be very close to the last value of the series ).

    Considering backwards the entire time axis, we can generalize the above formula as:


    Note that, for a given ?, any prediction with a horizon k greater than one is equal to the value of the prediction in T +1. In fact:


    and substituting:

    and so on for a generic k horizon. The expression, as a function of k, is a function of prediction constant from T.

    Editor: Giuliano DI TOMMASO

  • EXPORT CREDIT AGENCY - ECA

    ECA: Abbreviation for Export Credit Agencies. ECAs are institutions dealing with export credit that can be public or operating on behalf of government, sometimes under a privatisation process (i.e. the Italian SACE S.p.A.). ECAs provide insurance or guarantees to national private corporations in the form of direct credits/financing, refinancing, interest-rate support (where the government supports a fixed interest rate for the life of the credit), and financial aid (credits and grants); moreover, they assume credit and country risks for their business abroad. Export credits are generally divided into short-term (usually under two years), medium-term (usually two to five years), and long-term (usually over five years) credits. The most important official ECAs are the Compagnie française d'Assurance pour le commerce extérieur (COFACE) in France, Euler Hermes Kreditversicherungs-AG (EULER HERMES) in Germany, the Export Credits Guarantee Department (ECGD) in the UK, the Nippon Export and Investment Insurance (NEXI) in Japan, and the Export Development Canada (EDC) in Canada. In the USA, the official export credit agency is the Export-Import Bank of the United States (EX IM BANK), which provides working capital guarantees (pre-export financing), export credit insurance, loan guarantees and direct loans (buyer financing). Industrialized countries participate in the OECD Export Credit Group (ECG) to define export credit policies. The OECD's Export Credit Division provides coordination for national practices promoting agreements between the participants.
    Links
    http://www.exim.gov/about/mission.cfm
    http://ec.europa.eu/trade/creating-opportunities/trade-topics/export-credits/
    http://www.oecd.org/document/24/0,3343,en_2649_34169_1844760_1_1_1_1,00.html

    Editor: Bianca GIANNINI
    © 2010 ASSONEBB

  • EXTERNAL CREDIT ASSESSMENT INSTITUTION

    The External Credit Assessment Institutions have been introduced by the Basel II Framework for the International Convergence of Capital Measurement and Capital Standards (Basel II). The New Accord provides that banks may use assessments by external credit assessment institutions recognized by national supervisors as eligible to determine the risk weights in the standardized approach for capital purposes. Paragraphs 90 to 108 of the Basel Framework include the criteria for recognizing rating agencies, the usability of external ratings and the mapping process. These criteria have been implemented in the EU in the provisions of the Capital Requirements Directive (CRD), whose interpretation has been latterly clarified by the Guidelines on the recognition of External Credit Assessment Institutions (ECAIs) issued on 20 January 2006 by the Committee of European Banking Supervisors (CEBS). In particular, the CRD allows Member States to recognise an ECAI as eligible in two ways: direct recognition, in which the competent authority carries out its own assessment of the ECAI’s compliance with the CRD’s eligibility criteria? and indirect recognition, in which the competent authority recognizes the ECAI without carrying out its own evaluation, but by relying instead on the recognition of the ECAI by the competent authority of another Member State. In Italy, the criteria for the recognition of ECAIs are set out by the "New regulations for the prudential supervision of banks" (Circular no. 263 of 27 December 2006). Since 2010, the following institutions have obtained the ECAI status in Italy: Fitch Ratings, Moody's Investors Service Ltd., Standard & Poor's Rating Services and Cerved Group (formerly Lince).
    Link:http://www.bancaditalia.it/
    Editor: Bianca GIANNINI
    © 2010 ASSONEBB

  • EXTREME WEATHER EVENT

    Extreme events may refer either to socio-economic or to physical and biological systems. There are several ways to define an extreme event in climate. It can be generally described as a very large or very small meteorological value occurring rarely. According to IPCC (2001), within the statistical reference distribution, it is rarer than the 10th or 90th percentile, and it is normally associated with important socio-economic damage (Easterling et al., 2000). Examples of extreme weather events are important droughts and heat waves, hurricanes, wind storms, etc. Even if their intensity and frequency have increased over time (Wisner et al., 2004), they remain hard to study and to predict due to their rarity.
    Bibliography
    Easterling, G. A. Meehl, C. Parmesan, S. A. Changnon, T. R. Karl, and L. O. Mearns, (2000). Climate extremes: Observations, modeling and impacts. Science, 289:2068…2074.
    Wisner, B., P. Blaikie, T. Cannon, and I. Davis.
    (2004). At risk: natural hazards, people’s vulnerability and disasters. 2nd edition. New York: Routledge.
    IPCC, 2001: Climate Change 2001: The Scientific Basis. Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Edited by J. T. Houghton et al. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA
    Editor: Melania MICHETTI
    © 2009 ASSONEBB

Selected letter: E English version

  • Privacy Policy
  • Cookie Policy
  • Publication Ethics and Malpractice

Copyright © 2019 ASSONEBB. All Rights reserved.

Menu
×