Might income inequality make structural adjustments more difficult? This column presents data from 50 countries in 2007, in 2009, and in 2011, and finds that higher income inequality in the country is associated with a lower tax base, less fiscal space, and higher sovereign spreads.
The EU summit produced a vaguely worded agreement that can and has been read in different ways in different nations. This column provides a quick reaction to what was and was not decided. It concludes that useful progress was made, but this was far from the decisive turn-around that many had hoped for. The crisis will continue to unfold in the months ahead.
It has long been argued that changes in the price of oil can help forecast US real GDP growth. This column addresses the common concern among many policymakers that the feedback from oil prices to the economy may become stronger once the price of oil reaches a certain level.
The global economy is still suffering. This column assesses the structural adjustments, monetary and fiscal policy measures, and financial reforms that are needed to break the vicious cycle of weak growth, impaired financial systems, risks to fiscal sustainability and being propped up by monetary policy.
Since its launch in June 2007, VoxEU.org has been propelled forwards by world-class economists writing research-based policy analysis and commentary on the world’s most pressing topics. This supply has been fortuitously met with a surging demand for more sophisticated analysis. Readership has tripled since Vox’s first birthday; now we regularly get over three million page views per month. As it turns out, economists around the world were looking for something more than what is usually found on blogs and newspapers.
Many economists believe that the austerity-first strategy currently pursued by EZ leaders is self-defeating. In this column, Richard Layard introduces a Manifesto for Economic Sense and invites economists across the world to add their name to it.
Solutions to the Eurozone crisis must balance the evils of austerity and moral hazard. This column argues that the blue/red Eurobonds proposal might just get this balance right.
Renewed calls are being made for a Marshall Plan for Greece. Yet this column argues that few people seem to understand what the Marshall Plan actually was. It suggests that repeating the 1940s’ recipe would mean a ‘structural adjustment programme’ targeting supply-side reforms and, as such, would probably appeal to Greeks even less than it would to Germans.
In the wake of the global crisis the IMF has increased its exposure and modified its lending approach. This column looks at IMF loan arrangements in developing countries since 2008 and suggests that the Fund has played a role in dampening contagion effects. However, its lending operations have also been influenced by political similarity between borrowers and G7 governments.
Ever since the recent mortgage crisis, calls for tighter regulation on lenders have been widespread. But would stricter supervision and regulation of lenders have been any use during the frenzied optimism of a boom? This column argues that it might. It shows that lending by the loosely regulated non-bank companies was associated with higher foreclosure during the housing downturn when compared with lending by the more tightly regulated banks.
The next meeting of the European Council takes place on 28 and 29 June amid growing fear and uncertainty over the Eurozone’s future. This column proposes a solution to the crisis – one that is bold and challenging, and that cannot wait.
If Greece defaults, what about Spain, what about the rest of the Eurozone, and what about the rest of Europe? “Contagion” has become a buzzword in international economics. This column asks whether markets are responding irrationally to the nightmare scenario or finally waking up to reality.
China, Japan, and South Korea are currently negotiating a free trade agreement (FTA) lending support to the possibility of an agreement for the South-East Asian region as a whole. This column calls for more of the same – and quickly.
Many view Eurobonds as the silver bullet to end the Eurozone’s crisis. But this column argues that Eurozone debt tail risks are worryingly high, with those of bailout countries rising despite the rescue packages. It urges Europe’s leaders to be cautious when pooling debt to create a Eurobond – adding that it is only advisable once tail risks are tamed.
It is not just the crisis that is intensifying; so too is the debate on the potential solutions. This column proposes what to do if Spain is next to fail.
It is a daunting reality for many advanced economies that even if they manage to cut public spending today, they will continue to have huge liabilities as their populations age. This column argues that healthcare reform, no matter how politically unpalatable, will have to be a part of countries’ financial adjustment plans.
After more than two years of efforts and innumerable emergency summits, the Eurozone crisis shows now signs of responding to treatment. This column argues that solving the Eurozone crisis requires policies that separate the banking and sovereign facets of the crisis. The losses incurred by Europe’s banks must be swiftly recognised by establishing a European Resolution Authority to identify weak banks and fix or liquidate them. Such an institution needs a fiscal backstop and the ESM should provide one. But this would not create Eurobonds – the very need for Eurobonds might to some extent disappear with a strong banking union.
October 2011 saw the latest draft of Solvency II, the European Union’s code for regulation of the insurance industry. This column argues that the latest proposals need to be drafted again, urgently.
If Greece leaves the euro, it can devalue its currency and start an export-led recovery – or so the popular argument goes. This column provides some hands-on insights from another small open economy, Barbados. It argues that for these economies that rely heavily on imports, devaluation will never be a viable option.
The French and Greek elections, together with a softer than expected Eurozone macroeconomy, are forcing a rethink of the austerity-only solutions embraced by political leaders across Europe. This column introduces an ‘eCollection’ that brings together analysis by a dozen leading thinkers on austerity. The book also launches ‘eCollection’ , a new VoxEU.org vehicle for disseminating research-based policy analysis by the world’s top economists.
€100 billion in fresh support to the Spanish government failed to calm markets; private investors asked for even higher risk premiums on Spanish bonds. Conventional wisdom is that this reaction reflects the way any new official debt – which gets paid off first in case of distress – harms private debt holders. This column challenges this subordination logic and argues that Spain’s latest bank bailout announcement actually increased the value of privately held Spanish sovereign debt..
Despite the recently-announced €100 billion European Financial Stability Facility loan to Spain and the recent Greek elections, this column argues that Eurozone periphery may soon need another large-scale rescue operation. But it fears that without reform at the ECB, the rescue package will be just yet another temporary plaster over the cracks.
Looking at the economic and business media over the past few months you can be forgiven for thinking there are no other problems with the world economy. This column argues that we need to remind ourselves of the need to reform the IMF, lest the ‘International’ part will lose all credibility.
Spain, needing a bailout for its banks, was granted a vague promise by EZ leaders for up to €100 billion. The details remain obscure, yet they matter enormously. This column argues that the so-called subordination effect of fresh official lending could put Spain on the slippery road to ruin. It argues that if sovereign bonds must be bought, this should be done in the secondary market which, would be pari passu with private investors and thus avoid the subordination trap.
The ‘shadow banking’ sector is a loose title given to the financial sector that exists outside the regulatory perimeter. This column argues that despite its unpleasant sounding name, and its crucial role in the credit boom that preceded the global crisis, it does have its benefits – something that the regulators should be aware of.
Is austerity in the Eurozone doomed to fail? This column argues that Eurozone governments have to acknowledge that their response to the sovereign crises has been wrong. Bringing budgets back to balance as quickly as possible and at any cost for growth is a recipe for disaster.
While all the talk of crisis in the Eurozone is nothing new, this column argues that the situation this summer is far more precarious than it was in 2011. It outlines a plan to bring the single currency back from the precipice.
One problem with the latest bailouts for Eurozone countries is that the markets may fear that the new loans are senior to existing private sector bonds. This column argues that the markets may be mistaken.
The on-then-off economic recovery in the US and Europe is one of the many mysteries of the post-crisis economy. This column provides some evidence that policymakers’ indecisiveness may be part of the cause. Because policymakers act decisively when things get bad and dither when things get better, corporate and consumer demand stalls just as the recovery gets going.
The EZ rescue strategy adopted in May 2010 failed to restore debt sustainability, avoid contagion, or reduce moral hazard. This column argues that a volte face is needed. The debt of Greece, Portugal and Italy – and perhaps Ireland, Spain and France as well – must be restructured to restore growth and end the crisis. All EZ nations should pay since their leaders’ decision to violate the Maastricht Treaty’s no-bail out clause is what brought us here.
“There are known unknowns; that is to say there are things that we now know we don’t know”. So said former US defence secretary Donald Rumsfeld. He was talking about the Iraq war but in the debate over fiscal policy, one ‘known unknown’ is the tax multiplier. This column tries to make it a known known.
The current economic crisis has called into question the role of monetary policy, particularly inflation targeting and its oversight of asset bubbles and supply side shocks. This column is an obituary to inflation targeting and call for nominal GDP targeting to replace it.
With Greek politics in a stalemate, the Eurozone enters yet another week of deep uncertainty over its future. This column argues that the Eurozone must set the appropriate policies now to secure its future lest it be trapped in a cycle of of falling growth and soaring debt.
The so-called trilemma of international finance maintains that a country cannot simultaneously peg an exchange rate, maintain an independent monetary policy, and permit free cross-border financial flows. At best, only two of the three are feasible. This column argues that despite their best efforts, countries are set to learn this lesson again and again.
A credible threat of failure is an integral part of any industry. But this does not always apply to banks as failure may result in unacceptable economic costs. As a result, unprecedented amounts of public money have been used to avert bank failure. This column explains why the subsidy arises, why it is a public policy concern, and how it can be quantified.
The defiant attitude that no crisis should go to waste has understandably become more popular in recent years. This column argues that the on-going financial crises provide an important incentive for new thinking on government competitiveness and industrial policy, particularly for what to do when the crises end.
Booming commodity prices generate large foreign currency inflows for exporting nations. This column argues that in countries with executive constraints and political competition windfalls from commodity booms lead to a significant reduction in external debt. In autocratic regimes, on the other hand, the windfalls are used to increase consumption expenditures.
Latvia was severely hit by the Global Crisis yet its adjustment has been remarkable. Four years after the hit it has one of the highest growth rates in Europe, its euro-peg has held, and the fiscal and current accounts are close to balance. This column outlines seven reasons why its adjustment has worked so well. It warns however that the lessons are not easily exportable.
Whether the Greek elections this weekend trigger the Eurozone’s first exit or not, the possibility of exit is now firmly on the table. But where are the plans for this highly complex operation that could, if mishandled, cause untold economic damage in Europe and beyond? This column, by a Wolfson Prize finalist and a Nobel Laureate, sketches the core elements of one such plan.
In the following column we investigate balance-sheet growth, capitalisation, and deleveraging of European banks since the end of 2008 and show that based on existing empirical evidence banks have so far reduced their leverage (i) markedly and (ii) mainly by raising capital rather than reducing exposure to the real economy. In doing so, banks were able to address two concerns at the same time: One related to their fundamental soundness (“banks are undercapitalised”), the other related to potential harm done to the economy at large (“banks are causing a credit crunch”). This is particularly important, as history has shown that deleveraging too slowly can lead to periods of stagnant growth.
In recent weeks official bodies such as the World Trade Organisation and the European Commission as well as leading private sector associations – the International Chamber of Commerce (ICC) and the so-called B20 group of business leaders – have made strong statements concerning rising protectionism in the run up to the G20 summit in Los Cabos, Mexico. On the basis of most extensive update to the Global Trade Alert (GTA) database, that was conducted in preparation for this, the eleventh GTA report, they were right to do so.
Will India’s rapid growth in the services sector lead to overcrowding of its cities? This column compares India’s experience to that of other countries.
Is Europe ready for a banking union? This column argues that the current debate is missing several key points. Chief among these is that much of what is needed for Europe’s financial system is already feasible within the existing set up.
Small- and medium-sized enterprises are a crucial part of trade-led growth in Asia. This column argues that tackling key constraints at firm and country level would help unlock the full potential of these companies as players in economic growth.
Charles Kindleberger’s classic book on the Great Depression was originally published 40 years ago. In the preface to a new edition, two leading economists argue that the lessons are as relevant as ever.
Do we need international rules for capital controls? This column looks at the different regimes in countries such as Brazil and China and argues that we do.
Global value chains are transforming world trade patterns. This column argues that the standard gravity formulation cannot be applied to trade flows where parts and components are important. This is because GDPs in origin and destination countries are poor proxies for supply and demand for parts and components. It shows that the standard model performs poorly on such flows and suggests an alternative specification.
As if the current debt problems for industrialised economies were not enough, many face the added challenge of ageing populations. This column argues that the biggest threat from an ageing population is the lack of cover for long-term care.
Why do trade negotiations take so long? The WTO’s Doha Round is into its 11th year and still far from completed. This column uses data on regional trade agreements to identify the determinants of how long it takes to conclude regional trade agreements. The findings are not good news for the chances of the Doha Round ending any time soon.
For many, the origin of the Eurozone crisis is a lack of competitiveness among the periphery countries. This column looks at Spain and Italy and argues that in order to emerge from crisis, they must rely less on domestic demand and more on their tradable sector.
How do firms go international? This column reviews evidence from industrialised and emerging economies, including Japan and China, with some surprising findings.
Does misinformation demobilise the electorate? Measuring the impact of alleged ‘robocalls’ on voter turnout in the 2011 Canadian federal election.
In Greece, the problem is an insolvent government bringing down the banks. In Spain, the problem is now insolvent banks bringing down the government. This column argues that despite their differences, the potential costs to the rest of Europe mean that both problems require a European solution.
The euro and the global crises: Finding the balance between short-term stabilisation and forward-looking reforms
The Eurozone crisis poses the single greatest downside risk to the global economic outlook. Were the founders of the euro hopelessly optimistic? This column argues that such crises present an opportunity for institutions to be put in place that prevent short-sightedness and increase the stability of the monetary union.
Might bank consolidation and the increasing reliance on external credit ratings harm access to credit for start-up firms, especially those in high-tech industries? This column examines how the availability of credit for start-ups in Germany is related to their external credit rating as well as the size and expertise of their main bank.
Is there a way of eliminating human smuggling? This column argues it can be done that by legalising migration through the sale of visas at a price that pushes smugglers out of business. The resulting trade-off between eliminating human smuggling and controlling migration flows can be dealt with the right policy mix of traditional repressive instruments and innovative pricing tools.
Recent research has argues that what a country produces and exports matters for growth. This column presents a new dataset on export sophistication and reveals that in many countries the importance of modern services, and the sophistication of manufactured and service exports, has increased over time. It adds that an educated workforce, external liberalisation, and good information flows are important prerequisites for developing sophisticated goods and services.
How do European economists assess the economic crisis in Europe? This column presents results of a survey of members of the Association of European Conjuncture Institutes on various issues related to the European economic crisis, such as the likelihood of Greece leaving the Eurozone, the likelihood of Europe falling back into recession, and the role of the European Central Bank.
According to the broadest measure, anyone who is not poor is part of the middle class – that could mean that anyone living on more than $2 a day. This column suggests a more sensible measure: anyone who owns a car. Based on this measure, the global middle class looks quite different.
There was a time when Greek exit from the Eurozone seemed implausible – now the prospect is so openly discussed that it even has its own word: Grexit. But amid the media frenzy, we should remind ourselves that single-country breakaway is not the same as a Eurozone breakup. This column discusses the steps to ensure that the former does not imply the latter. It urges leaders to take them quickly.
- The case for 4% inflationBall
- Helicopter money as a policy optionReichlin, Turner, Woodford
- The banking crisis as a giant carry trade gone wrongAcharya, Steffen
- Everything the IMF wanted to know about financial regulation and wasn’t afraid to askBair
- Rethinking macroeconomic policy: Getting granularBlanchard, Dell'Ariccia, Mauro
- A tale of two depressions: What do the new data tell us? February 2010 updateEichengreen, O’Rourke
- Educated in America: College graduates and high school dropoutsHeckman, LaFontaine
- Eurozone breakup would trigger the mother of all financial crisesEichengreen
- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji
- Debt, deleveraging, and the liquidity trap: A new modelKrugman
Baldwin, Kawai, Wignaraja, 11 June 2013
Giavazzi, Portes, Weder di Mauro, Wyplosz