Europe's nations and regions

A ‘crowding out’ theory of the Eurozone crisis

Fernando A Broner, Aitor Erce, Alberto Martin, Jaume Ventura, 23 July 2014

Since 2010, Eurozone periphery countries have faced severe debt problems and falling credit to the private sector. This column interprets these events with a theory that has three main ingredients. First governments can favour domestic creditors. Second, public debt trades in secondary markets so debt holdings shift from foreign to domestic residents. Third, due to private financial frictions, this shift crowds out private investment and growth.

Revisiting the pain in Spain

Paul De Grauwe, 7 July 2014

There has been a stark contrast between the experiences of Spain and the UK since the Global Crisis. This column argues that although the ECB’s Outright Monetary Transactions policy has been instrumental in reducing Spanish government bond yields, it has not made the Spanish fiscal position sustainable. Although the UK has implemented less austerity than Spain since the start of the crisis, a large currency depreciation has helped to reduce its debt-to-GDP ratio

Monetary policy with quantitative controls

Eric Monnet, 5 July 2014

The Global Crisis has raised the interest of banks in using quantitative controls, such as credit controls. This column discusses a relatively recent historical episode of credit controls in France. During this episode the role of interest rates was almost eliminated. Quantitative controls effectively decreased output and prices in the short-run. The difficulty for the Central Bank stemmed from the fact that it had to change its instruments constantly. This historical episode demonstrates that macroprudential tools can have substantial effects on monetary policy.

Lessons from history for the Eurozone Crisis

Selin Sayek, Fatma Taskin, 5 July 2014

The European Monetary Union is unprecedented, but the Eurozone Crisis is not. This column draws upon the experiences of previous banking crises, and compares the Eurozone Crisis countries. Like Japan before the 1992 crisis, Spain and Ireland had property bubbles fuelled by domestic credit. The Greek crisis is very distinct from crises in other Eurozone countries, so a one-size-fits-all policy would be inappropriate. The duration and severity of past crises suggest the road ahead will continue to be very rough.

The UK productivity and job puzzle

João Paulo Pessoa, John Van Reenen, 28 June 2014

The fall in productivity in the UK following the Great Recession was particularly bad, whereas the hit to jobs was less severe. This column discusses recent research exploring this puzzle. Although the mystery has not been fully solved, an important part of the explanation lies in the flexibility of wages combined with very low investment.

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