Global crisis

Nauro F. Campos, Fabrizio Coricelli, 17 July 2015

Greece’s reluctance to implement ‘the structural reforms required for debt sustainability’ is a recurrent theme in the debate on the EZ Crisis. This column qualifies this conventional wisdom by reassessing the relationship between Greece and the EU over the past four decades. Although Greece has implemented structural reforms that were substantial enough to bring about a turning point in its relationship with the EU, these reforms have been overly localised, badly sequenced and implemented by short-sighted political elites. The role that structural reforms can play in solving the current crisis should not be overestimated.

Stephen Kinsella, Hamid Raza, Gylfi Zoega, 04 July 2015

Iceland and Ireland were both rocked by the fallout of the Global Crisis. This column argues that differences in currency arrangements affected the mechanisms of the boom and the collapse. Iceland’s banks collapsed because they did not have a lender of last resort in euros. Ireland did. But Iceland’s collapse and ensuing capital controls shifted the burden of debt restructuring onto foreign creditors to a much greater extent than in Ireland.

Daniel Gros, 03 July 2015

Two financial crises at the ‘sub federal’ are currently taking place – one in the Commonwealth of Puerto Rico, and the second one in Greece. This column highlights some surprising similarities between them, as well as the main differences. The Eurozone is a voluntary union of states which remain sovereign. But if Greece were part of the US, it could not hold a referendum, and its budget would be drawn up by a federal bankruptcy court. The key political difference is not austerity, but the fact that Greece’s debt is mainly to official creditors, who are ideal targets for political pressure. 

Jonathan D Ostry, Atish R Ghosh, Raphael Espinoza, 22 June 2015

High public debt ratios dominate today's fiscal policy discussions. This column argues that paying down the debt involves a trade-off that balances the gains from the insurance value of low debt against the costs of an insurance premium – higher distortionary taxation. When countries have fiscal space and no real prospect of a sovereign crisis, the cost of bringing down the debt is likely to exceed the crisis-insurance benefit. The best policy might be to simply live with higher debt.

Fernando Ferreira, Joseph Gyourko, 19 June 2015

The recent housing bust has been among the most notable economic events of recent years. This column argues that the foreclosure crisis was something much more than a subprime sector issue. Though the housing crisis started as a subprime sector event, it was quickly dominated by prime borrowers losing their homes. The findings also indicate that the main predictor of home loss, regardless of borrower’s type, has been the current loan-to-value ratio.

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