While exploring more resilient indicators to assess sovereign risk after 2008, the Basel Institute of Commons and Economics focussed on enduring fiscal stability of countries. Within these indicators the willingness of government and society to reduce and to repay sovereign debt. The Basel Institute developed a qualitative method to measure the willingness to repay and other factors which is called „Social Capital Assessment“. As of today the Basel Institute conducts research in 88 countries, using a panel of dedicated experts from various backgrounds including universities, NGOs and other important research institutions.
Apart from the qualitative „Social Capital Assessment“, there is also a quantitative aspect:
the so called „Basel Criteria“ is composed by standardized data on sovereign debt and revenues. Silvia Pavoni from „The Banker“ calls it „a new way of quantifying the effective management of sovereign debt.“ Laura Frommberg from the Swiss „Handelszeitung“ regards the Basel Criteria as a fundamental critics of the Maastricht Criteria. Germany’s Spiegel used the Basel Criteria to proof that Italy’s fiscal policy was better than officially communicated.
„A desirable ‘Basel ratio’ should keep its
balance between debt and revenues or, even
better, decrease over time.“ (Silvia Pavoni, The Banker, January 2014)
The Basel Criteria is therefore a strong indicator of a country’s performance when it comes to managing state revenue and debt. Applying the Basel Criteria helps to benchmark countries and regions and to understand their resilience during recession and crisis.
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admin am April 19th 2013