Economists infamously disagree about more or less everything. Luckily, this doesn't hold for CEPR Fellows. This chapter introduces the eBook – delving into the fundamentals that we agree on, and the nuances that we don’t.
Richard Baldwin, Francesco Giavazzi, Monday, September 7, 2015
Paolo Pesenti, Monday, September 7, 2015
Proposed remedies for the Eurozone crisis abound. But proven, working solutions are hard to come by, especially when traditional solutions – structural adjustment and monetary policy – are seen as causing problems. This column concentrates on the policy recipes prescribed on both supply-side and demand-side to jump-start economic recovery and reduce the extent and spillovers of the crisis itself. It finds that there is no easy and straightforward strategy and that there are no obvious answers. That doesn’t mean, however, that there are absolutely no answers. The alternative option to finding a way out – that is, continuing reliance on deflationary adjustment in a currency union stuck at the zero lower bound – is probably unlikely to convince anyone that structural reforms and monetary policy are back to being part of the solution.
Lars P Feld, Christoph M Schmidt, Isabel Schnabel, Volker Wieland, Monday, September 7, 2015
The Eurozone is weak. This column presents an analysis of its two prime weaknesses – the lack of economic and fiscal policy discipline leading to the build-up of huge public and private debt levels and a loss of competitiveness, and the lack of credible mechanisms for crisis response that would reign in moral hazard problems and establish market discipline. Completing the currency union’s architecture and achieving credibility for its rules are key, given the heterogeneity and rigidity of its member countries' economies.
Stefano Micossi, Monday, September 7, 2015
The sovereign debt and banking crises of 2010-12 have led to significant changes in the institutions of the Eurozone. The credibility of common policies regarding budgetary discipline and economic convergence remains weak. This chapter proposes that the way forward is to gradually bring common economic policies under the oversight of the European Parliament and to strengthen the role of the Commission. The picture must be completed with getting national parliaments more involved in the European policy process. The present state of the Eurozone could be seen as a sort of political equilibrium, likely to be economically unstable.
Daniel Gros, Monday, September 7, 2015
The Eurozone crisis started as a sudden stop to cross-border capital inflows. This chapter suggests that countries with current-account surpluses did not endure lasting financial stress. The balance of payments crisis then became a public debt crisis, where the public debt which mattered was that owed to foreigners. Overall, the crisis proved much more difficult to deal with given the predominance of bank financing, thinly capitalised banks, the absence of a common mechanism to deal with failing banks, and the absence of a common lender of last resort.
Jeffrey Frankel, Monday, September 7, 2015
No-one is optimistic about the Eurozone’s prospects. This column highlights the major causes of the Eurozone crisis, highlighting that many US economists thought the euro a bad idea from the outset. Previous emerging market crises have important lessons for Europe – if Alexis Tsipras were able to shift gears in the way that Kim dae Jung did in Korea and Lula did in Brazil, he would better serve his country.
Agnès Benassy-Quéré, Monday, September 7, 2015
The problems in the Eurozone are not a side effect of the Global Crisis but rather date back to the Maastricht treaty. This chapter proposes a few possible remedies. First, it is necessary to make debt restructuring possible within the Eurozone. In particular, the risk loop between sovereigns and banks needs to be stopped through more diversified balance sheets. The second suggestion involves more shared sovereignty, not only for debtor countries, but also for creditors. At a minimum, the Eurozone needs a fiscal backstop for its banking union.
William R. Cline, Monday, August 24, 2015
Economists continue to debate whether – and to what extent – Greek debts should be relieved. This column takes through the details of Greek debt, what relief options are open to Greece, and what the likely consequences of relief might be for all parties. Yet again, there are no easy choices – but that doesn’t mean economists and policymakers shouldn’t try.
Fabio Ghironi, Saturday, July 18, 2015
Success of the German-inspired solution for the latest Greek crisis is far from assured. If it fails, the Eurozone may be changed forever. This column argues that the failure would lead to an outcome that has been favoured for decades by Germany’s Finance Minister, Wolfgang Schäuble. Perhaps the package the Eurozone agreed is just a backdoor way of getting to the ‘variable geometry’ and monetary unification for the core that the Maastricht criteria had failed to achieve.
Paul De Grauwe, Yuemei Ji, Thursday, July 16, 2015
When the ECB buys a Eurozone member’s bonds, the government pays interest to the ECB but the ECB rebates it to the government. If Greece repays its ECB-held bonds, it loses this ‘free borrowing’. This column argues that repayment is like ‘reverse QE’. To maintain its QE targets, more bonds from other EZ members must be bought – thus shifting the free borrowing from Greece to other EZ members. To avoid this perverse outcome, the ECB could extend the maturity of the Greek bonds.
Jeffrey N. Gordon, Georg Ringe, Friday, July 17, 2015
The Greek Crisis is a crisis rather than a problem due to the vulnerability of Greek banks. While the banks have deep problems, this column argues that these would have been mitigated if a fully operational banking union were in place. A full banking union requires joint banking supervision, joint bank resolution, and joint deposit insurance. The EZ only has the first so far. Completing the banking union must be part of any long-term solution.
Thorsten Beck, Wednesday, July 15, 2015
Monday’s deal was a political compromise consistent with the political constraints of Greece and its creditors. It is doubtful, however, that it will provide a long-term solution to Greece’s economic crisis. At a minimum, the momentum should be used to eliminate the option of Grexit once and for all. The bank-sovereign ties should be cut to turn Greek banks from a source of crises into a growth-supporting sector.
Charles Wyplosz, Tuesday, July 14, 2015
The new bailout deal for Greece was not easy. This column argues that it was also a failure. It will not be enough to recapitalise banks, it asks for structural reform that exceeds Greek capacities, and it raises the Greek debt-to-GDP ratio to unsustainable levels. In a few months or quarters, the programme will fail and the Grexit question will flare up again.
Julian Schumacher, Beatrice Weder di Mauro, Sunday, July 12, 2015
The sustainability of Greek debt is central to the negotiations. To date the sustainability calculations have been based on the IMF’s standard models for calculating sustainability for countries with market access. This column argues that these are not appropriate for Greece – a middle-income country with highly concessionary financing. The ESM should develop a new, appropriate analytic tool to reflect Greece’s special situation.
Olivier Blanchard, Friday, July 10, 2015
The Greek crisis is in a critical phase. This column, by the IMF’s Chief Economist, reflects on the various critiques of the handling to date of Greece’s problems.
Francesco Caselli, Camille Landais, Christopher Pissarides, Silvana Tenreyro, Wouter den Haan, Thursday, July 9, 2015
Greek exit from the Eurozone has uncertain and potentially dangerous implications for all involved. This column, signed by 25 LSE economists, urges the Greek government and its creditors to act more responsibly. The first priority is to get Greece on a path of sustainable growth by relaxing austerity in the near term and linking debt restructuring to essential structural improvements.
Paul De Grauwe, Friday, July 3, 2015
Greece’s debt is 180% of GDP, which seems to make it insolvent without large primary surpluses. This column argues that since restructuring lowered the interest burden to just 2% of GDP, Greece is solvent – or would be with nominal GDP growth of just 2%. The ECB’s misdiagnosis has caused an unnecessary banking crisis. The solution is to accept that Greek debt is sustainable, so the austerity programme can be relaxed and liquidity support provided to the Greek banking sector.
Barry Eichengreen, Wednesday, July 1, 2015
Barry Eichengreen’s VoxEU column arguing that the euro was irreversible has been viewed over 230,000 times. Now it appears to be wrong. In this column, originally posted on the website ‘The Conversation’, he looks to see where his predictions went wrong. Basically the economic analysis – which focused on bank runs – was right. He went wrong in overestimating the political competence of Greece and its creditors.
Domingo Cavallo, Tuesday, June 30, 2015
Grexit and the reintroduction of the drachma would have severe consequences for the Greek people. This column argues, based on Argentina's experience, that this would produce a sharp devaluation of the drachma, inflation, and a severe reduction in real wages and pensions. The effects would be far worse than the reductions that could have occurred as a consequence of the policies proposed by the Troika. By resuming negotiations, continuing with measures to achieve fiscal consolidation and carrying out adequate structural reforms, Greece could reverse the current situation in a sustainable way. It has the great advantage that the ECB, most European governments and the IMF are willing to resume negotiations.
Charles Wyplosz, Monday, June 29, 2015
This weekend’s dramatic events saw the ECB capping emergency assistance to Greece. This column argues that the ECB’s decision is the last of a long string of ECB mistakes in this crisis. Beyond triggering Greece’s Eurozone exit – thus revoking the euro’s irrevocability – it has shattered Eurozone governance and brought the politicisation of the ECB to new heights. Bound to follow are chaos in Greece and agitation of financial markets – both with unknown consequences.