Bank Of Greece Sa · ATHEX:TELL
Bank Of Greece Sa — Investor Presentation (September 2022)
44 slides from Bank Of Greece Sa's investor presentation, Sep 30, 2022
Slide 1: International Unions and Integration
International Unions and Integration Oğuzhan Çelebi MIT Elias Papaioannou LBS Bank of Greece, 30 September 2022 Çelebi and Papaioannou Unions and Integration Bank of Greece, 30 September 2022 1 / 33
Slide 2: Motivation. International Unions
Motivation. International Unions Economic and Political Globalization International unions (e.g. EU, NATO) play a chief role in world economy and politics. Trade policy (EU, WTO) Regulation (EU) Financial integration (Basel, G-7) Defense (NATO, Council of Europe) Understanding the composition of the
Slide 3: European Union
European Union Economic Integration in Europe 1 EU Integration [member states, initial integration and deepening] 2 Integration (and relations) with non-members Candidate countries: Turkey (1999, 2005), North Macedonia (2005, 2019), Montenegro (2008, 2010), Serbia (2009, 2012), and Albania (2009, 20
Slide 4: International Unions and the European Union
International Unions and the European Union Key Joint Considerations 1 Integration. Level and Areas Evolution of EU Integration 1950s. Steel and Iron 1960s. Agriculture 1980s. Single Market (Goods and Services), Regulation of Product Markets 1990s. Financial Integration 2000s. Monetary Union 2010s.
Slide 5: European Union Membership. Substitutes or Complements
European Union Membership. Substitutes or Complements Notes EU Budget Size. 148 billion. about 2% of the combined national budgets of all EU countries (€7,524 billion) Composition. about 37% in farming (CAP); in 1985, 70% was on farming. Limited amounts for ”classic public goods”, like defense, poli
Slide 6: European Union Membership. Substitutes or Complements. Dynamics
European Union Membership. Substitutes or Complements. Dynamics Facts and Dynamic Considerations Resilience The EU has proved very resilient despite political and economic crises “Europe will be forged in crises and will be the sum of the solutions adopted for those crises.” Jean Monnet The euro has
Slide 7: Stylized Facts about the EU
Stylized Facts about the EU Policy and Theoretical Explorations 1 Integration is more important than public goods provision. EU Budget Single market for goods, services, capital and labor, standardization of regulations and safety protocols, financial sector legislative harmonization, and legal conv
Slide 8: EU. Relationship with Non-Members
EU. Relationship with Non-Members EEA, Candidate Countries Relations with Non-Members 1994. European Economic Area. 2020. EU-UK Special Agreement. Relations with Potential Members Albania (2009), Montenegro (2008), Serbia (2009), North Macedonia (2004) Turkey (1987) Bosnia, Kosovo Çelebi and Papaio
Slide 9: Current European Union Issues
Current European Union Issues Integration in Europe. Looking Forward 1 Even Deeper Union. Integration is becoming deeper on services, banking, product markets, single market, insurance etc 2 New Integration Areas. Health, Environmental, Energy 3 Fiscal Union? Unemployment Insurance, Covid-19 Recover
Slide 10: Literature
Literature Strands Union and country size and scope Fiscal Federalism: Oates (1972) Country size: Bolton and Roland (1997), Alesina, Spolaore, and Wacziarg (1999), Alesina and Spolaore International trade: Gancia, Ponzetto and Ventura (2020) International unions: Casella (2001, 2005), Alesina et al.
Slide 11: Literature
Literature Earlier Theoretical Work Develops and gets insights from public goods models [Alesina, et al. (2005)] Member-country actions (investments to the public good) are strategic substitutes Free-riding emerges as the central consideration Neat insights of trade-offs and helpful analogy But not
Slide 12: This Paper
This Paper Results Unions facilitate integration and cooperation rather than centralized provision of public goods. Actions (integration levels) are strategic complements Fits better to the EU’ focus on single market, standardization of products, legislative harmonization, and common regulations Cha
Slide 13: Structure
Structure 1 Model 2 Comparison of Integration Protocols 3 Enlargement 4 Non-member Integration and Exit Çelebi and Papaioannou Unions and Integration Bank of Greece, 30 September 2022 13 / 33
Slide 14: Model
Model Çelebi and Papaioannou Unions and Integration Bank of Greece, 30 September 2022 13 / 33
Slide 15: Model. Preliminaries
Model. Preliminaries General Set-Up Countries, finite set U Types, γi P R` with γ1 ă γ2 ă ... ă γ|U| and γ “ tγi uiPU . Integration levels, ti P R` with t “ tti uiPU Utilities, ui pt, γq “ upti , t´i , γi q. Assumption 1 u satisfies the following conditions 1 [Complementarity] u is strictly increasi
Slide 16: Integration Protocols
Integration Protocols Non-Union, Rigid Union, Flexible Union 1 Non-Union Integration: Countries choose their level of integration without any explicit negotiation or centralized enforcement. An integration profile t ˚ is a non-union integration equilibrium if ti˚ P arg max upti , t´i ˚ , γi q, @i. (
Slide 17: Equilibrium Characterization
Equilibrium Characterization Propositions. Different Integration Protocols Proposition 1.A ˚ In non-union integration, there is a maximum and a minimum equilibria t pγq and t ˚ pγq that are ˚ increasing in γi for all i and t is the pareto dominant equilibrium. Proposition 1.B In rigid union, the mos
Slide 18: Comparison of Integration Protocols
Comparison of Integration Protocols Çelebi and Papaioannou Unions and Integration Bank of Greece, 30 September 2022 16 / 33
Slide 19: Comparison of Integration Policies (Examples)
Comparison of Integration Policies (Examples) Trade-Offs of Integration Types Example 1 There are five countries, U “ th, h1 , l, l 1 , l 2 u, with types γh “ γh1 “ 2.5, γl “ γl 1 “ γl 2 “ 1. The common utility function is: ÿ t3 upti , t´i , γi q “ γi ti tj ´ i (3) γi jPUztiu Çelebi and Papaioannou
Slide 20: Comparison of Integration Policies.
Comparison of Integration Policies. Example, cont. Integration Levels Utilities h,h’ l,l’,l” h,h’ l,l’,l” Rigid Union 2.7 2.7 63 9 Non-union Integration 5 2 65 15 Flexible Union 5.5 3 132 23 Table: Integration levels and utilities under different integration methods. Çelebi and Papaioannou Unions a
Slide 21: Comparison of Policies. Flexible Union vs Non-Union Integration
Comparison of Policies. Flexible Union vs Non-Union Integration Proposition 2 1 All countries choose a (weakly) higher integration level under flexible union as compared to non-union integration. 2 A majority of countries prefer flexible union. 3 There is a cut-off country - with type lower than the
Slide 22: Comparison of Integration Policies. Flexible Union vs Rigid Union
Comparison of Integration Policies. Flexible Union vs Rigid Union Proposition 3 The comparison between b ˚ and r ˚ is ambiguous. A majority of countries prefers flexible union to rigid union. If b ˚ ě r ˚ , then (at least) the median country and all countries with higher types prefer flexible union.
Slide 23: Comparison of Integration Policies, Summary
Comparison of Integration Policies, Summary Theoretical Results. Distinction with previous public goods models (e.g., Alesina et al. (2005)) Effect of flexibility 1 Fewer countries’ actions (directly) depend on the equilibrium policy Substitutes: indirect effect on high types is negative Complements
Slide 24: Enlargement
Enlargement Çelebi and Papaioannou Unions and Integration Bank of Greece, 30 September 2022 21 / 33
Slide 25: Enlargement
Enlargement I Ă N are initial members, C “ NzI are the candidate countries, where |C | ă |I | We study the SPE of the following game: 1 Candidate countries decide whether or not to apply for membership. 2 Each union member decides whether to admit or reject each candidate. 3 Equilibrium union U is t
Slide 26: Illustrative Example
Illustrative Example Enlargement Example 2 There are five members, I “ t2, 3, 4, 5, 6u, and two candidates, C “ t1, 0u. Integration policy is rigid union. The types of the countries are: γ6 “ 1.7 γ5 “ γ4 “ 1.37, γ3 “ γ2 “ 1.2, and γ1 “ γ0 “ 1.1. The utility function is ÿ γi ûpti , t´i , γi q “ pti
Slide 27: Discussion
Discussion Enlargement Example If C “ t1u, then enlargement is blocked The median moves from 4 to 3, the equilibrium policy decreases Country 6 is worse off under this new union If C “ t0, 1u, then enlargement happens in equilibrium Due to complementarities, accession of 2 countries offsets the decr
Slide 28: Non-member Integration and Exit
Non-member Integration and Exit Çelebi and Papaioannou Unions and Integration Bank of Greece, 30 September 2022 24 / 33
Slide 29: Union Integration with Non-Members
Union Integration with Non-Members Key Issues The relationship of international unions, like the EU, with non-members is important but understudied topic. [absent from Alesina et al. (2005) and Casella (2005).] Trade agreements with other countries. [EU-Canada (2016), EU-Japan (2018), EU-Vietnam (20
Slide 30: Union Formation and Integration with Non-member Countries
Union Formation and Integration with Non-member Countries Restrictions Assumption 2 ř ui pti , t´i , γq “ j‰i ũpmintti , tj u, γi q ´ cpti , γi q where ũ and c satisfy differentiability and supermodularity conditions. Conditions Integration as set of successive policies that countries decide to im
Slide 31: Non-member Integration Restriction and Effective Unions
Non-member Integration Restriction and Effective Unions Union U is ineffective if the integration levels and payoffs of all countries under non-union integration is weakly higher than their payoff under the union. Proposition 6 Let U be an equilibrium union under policy level b ˚ . If o ě b ˚ , then
Slide 32: Union Formation and Integration with Non-member Countries
Union Formation and Integration with Non-member Countries Efficiency In an equilibrium with non-member integration bound o and union U, membership incentive constraint binds if the lowest type member of U is indifferent between joining the union and integrating as a non-member. Proposition 7 Let U b
Slide 33: Exit
Exit Set-Up Let U denote a union with country types γ. e denotes the upper bound for integration of exiting counties. We analyze the following extensive form game: 1 The Union members vote over integration policy b and decide their integration levels ti ě b. 2 With probability , a country gets a sho
Slide 34: Exit, cont
Exit, cont Proposition 8 Let U denote a union under e with |U| ą 2. 1 There is a γ̃ such that if γl ă γ̃, then U is not robust under any e. 2 If γl ě γ̃, there exists epγl q where U is robust under e if and only if e ď epγl q, i.e., the exiting country is restricted to have an integration level belo
Slide 35: Exit, cont.
Exit, cont. epUq denotes the weakest exit restriction such that U is stable under epUq. A country prefers exit restriction if its expected utility is greater under epγl q ă epUq Proposition 9 If country i prefers exit restriction and γj ą γi , then j prefers exit restriction. Corollary 1 There is a
Slide 36: Extensions
Extensions 1 Enlargement of an initial union under majority and unanimity admission policies. ”Relaxing” admission requirements from unanimity to majority may result a smaller union. 2 Enlargement with non-member integration Characterize efficient non-member integration policies Additional mechanism
Slide 37: Conclusion
Conclusion Contribution and Next Steps Contribution International unions focusing on integration (complements) rather than public goods (substitutes) Explain/accommodate important aspects of EU’s enlargement and flexible protocols Integration with non-member countries Relationship between union comp
Slide 38: Motivation. The European Union
Motivation. The European Union Evolution of Integration 1 1949. Council of Europe. to promote democracy and protect human rights. 1957. 1950-1953. European Convention of Human Rights 1959. European Court of Human Rights 2 1952. European Coal and Steel Community. ”putting the war behind.” ”a first st
Slide 39: Motivation. The European Union.
Motivation. The European Union. Evolution of Integration, cont. 4 1986. Single European Act. ”basis for a vast six-year programme aimed at sorting out the problems with the free flow of trade across EU borders and thus creates the ‘Single Market’. 5 1992. Maastricht Treaty. Completion of the ‘Single
Slide 40: Motivation. EU. Enlargement and Exit
Motivation. EU. Enlargement and Exit Evolution of EU 1952-57, EU 6. Union Formation. France, Netherlands, Germany, Belgium, Luxembourg, and Italy. 1973. EU 9. Denmark, Ireland and the United Kingdom 1981. EU 10. Greece 1982 (1985). Greenland leaves the EC 1986, EU 12. Spain and Portugal 1995, EU 15.
Slide 41: Flexible Union with Non-member Integration
Flexible Union with Non-member Integration In flexible union U with policy b and non-member integration bound o, an integration vector T pb, oq is an equilibrium if # arg maxti Prb,8s ui pti , T´i pb, oq, γi q @i P U. Ti pb, oq P (5) arg maxti Pr0,os ui pti , T´i pb, oq, γi q @i R U. Corollary 2 For
Slide 42: Same Median, No Enlargement
Same Median, No Enlargement Back Example 3 I “ t2, 3, 4, 5u and C “ t1u. The types are γ5 “ γ4 “ 1.6, γ3 “ 1.5, γ2 “ 1.38 and γ1 “ 1.37. The utility function is ÿ γi ûpti , t´i , γi q “ pti tj q 2 ´ ti2 (6) j‰i Union Equilibrium Policy u5 u4 u3 u2 u1 t2, 3, 4, 5u 5.06 2.5 t1, 2, 3, 4, 5u 9 1.96 0.1
Slide 43: Conditions for u
Conditions for u Assumption 3 ũ is concave, differentiable and satisfies increasing differences, strictly increasing in both arguments and upti , t´i , 0q “ 0 for all t. c is strictly convex, differentiable, satisfies strictly decreasing differences and strictly increasing in ti and strictly decrea
Slide 44: Back
Back Çelebi and Papaioannou Unions and Integration Bank of Greece, 30 September 2022 40 / 33
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