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Online seminar – Debt Sustainability Analysis in Normal and Crisis Times

The first online seminar of 2019 organised by the Florence School of Banking and Finance took place on 17 January and focused on the topic of ‘Debt Sustainability Analysis in Normal and Crisis Times’. This seminar was organised in cooperation with the Brussels-based think tank Center for European Policy Studies (CEPS) and featured as speakers Cinzia Alcidi, Senior Research Fellow and Head of Economic Policy Unit at CEPS, and Daniel Gros, CEPS Director.

In this seminar, the speakers discussed what constitutes state-of-the-art DSA, on the basis of a recent study requested by the European Parliament to review and compare the modules and assumptions of the DSAs by the IMF, the European Commission, the ECB and the ESM. After having discussed the rationale for debt sustainability analysis, its different functions in normal and crisis times, and the different methodological approaches, the speakers highlighted the differences between the approach of the IMF and that of the European Commission, which resulted in different assessments in the case of the Greek debt.

Then, speakers highlighted the importance of the Gross Financing Needs (GFNs), an indicator that has become to the forefront in recent times and increasingly used as complement in the standard DSA by the IMF and the Commission, among others. It is used as indicator of vulnerability in regular surveillance exercises but, above all, in turbulent times when changes in liquidity conditions can affect sustainability.

Engaged in a series of questions, a thin majority of the participants stated that the DSA should not become a key metric of the SGP (55%), while almost all of them (94%) agreed that the DSA can be the sole criterion of policy decision making in times of crisis. The seminar was closed by an analysis of debt sustainability applied to the real-life cases of Italy and Greece.

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