Some view the improvements in current accounts for Greece, Italy, Portugal, and Spain as short-lived – the result of a temporary compression of import demand that is likely to be reversed as the recession eases. This column argues the contrary, based on the fact that their improving trade balances reflect better export performance. This development points toward a fundamental stabilisation of the competitiveness of these economies.
Raphael Auer, Friday, April 11, 2014
Marco Buti, Maria Demertzis, João Nogueira Martins, Sunday, March 30, 2014
Although progress has been made on resolving the Eurozone crisis – vulnerable countries have reduced their current-account deficits and implemented some reforms – more still needs to be done. This column argues for a ‘consistent trinity’ of policies: structural reforms within countries, more symmetric macroeconomic adjustment across countries, and a banking union for the Eurozone.
Agnès Benassy-Quéré, Shahin Vallee, Thursday, March 27, 2014
The recent crisis has highlighted some problems in the current structure of the Eurozone, such as the lack of political integration. This column introduces the Eiffel group – a group of French experts – and its call for a ‘political community of the euro’. The economic and political rationales behind the proposal are discussed in detail. This proposal (also shared by experts in other countries) calls for a debate about the architecture and institutions underpinning the European Monetary Union.
Charles W Calomiris, Friday, March 21, 2014
Charles Calomiris talks to Romesh Vaitilingam about his recent book, co-authored with Stephen Haber, ‘Fragile by Design: The Political Origins of Banking Crises and Scarce Credit’. They discuss how politics inevitably intrudes into bank regulation and why banking systems are unstable in some countries but not in others. Calomiris also presents his analysis of the political and banking history of the UK and how the well-being of banking systems depends on complex bargains and coalitions between politicians, bankers and other stakeholders. The interview was recorded in London in February 2014.
Michael Bordo, Friday, March 21, 2014
Since 2007, there has been a buildup of TARGET imbalances within the Eurosystem – growing liabilities of national central banks in the periphery matched by growing claims of central banks in the core. This column argues that, rather than signalling the collapse of the monetary system – as was the case for Bretton Woods between 1968 and 1971 – these TARGET imbalances represent a successful institutional innovation that prevented a repeat of the US payments crisis of 1933.
Daniel Gros, Wednesday, March 19, 2014
Since the onset of the sovereign debt crisis, the argument for a system of fiscal transfers to offset idiosyncratic shocks in the Eurozone has gained adherents. This column argues that what the Eurozone really needs is not a system which offsets all shocks by some small fraction, but a system which protects against shocks which are rare, but potentially catastrophic. A system of fiscal insurance with a fixed deductible would therefore be preferable to a fiscal shock absorber that offsets a certain percentage of all fiscal shocks.
Viral Acharya, Friday, March 14, 2014
Viral Acharya talks to Viv Davies about his recent work with Sascha Steffen that, using publicly available data and a series of shortfall measures, estimates the capital shortfalls of EZ banks that will be stress-tested under the proposed Asset Quality Review. They also discuss the difference in accounting rules between US and EZ banks and the future potential for banking union in the Eurozone. The interview was recorded by phone on 25 February 2014.
Viral Acharya, Sascha Steffen, Friday, January 17, 2014
The Single Supervisory Mechanism – a key pillar of the Eurozone banking union – will transfer supervision of Europe’s largest banks to the ECB. Before taking over this role, the ECB will conduct an Asset Quality Review to identify these banks’ capital shortfalls. This column discusses recent estimates of these shortfalls based on publicly available data. Estimates such as these can defend against political efforts to blunt the AQR’s effectiveness. The results suggest that many banks’ capital needs can be met with common equity issuance and bail-ins, but that public backstops might still be necessary in some cases.
Willem Buiter, Friday, January 10, 2014
Fiscal sustainability has become a hot topic as a result of the European sovereign debt crisis, but it matters in normal times, too. This column argues that financial sector reforms are essential to ensure fiscal sustainability in the future. Although emerging market reforms undertaken in the aftermath of the financial crises of the 1990s were beneficial, complacency is not warranted. In the US, political gridlock must be overcome to reform entitlements and the tax system. In the Eurozone, creating a sovereign debt restructuring mechanism should be a priority.
Ashoka Mody, Tuesday, January 7, 2014
On 19 October 2010, Angela Merkel and Nicolas Sarkozy agreed that in future, sovereign bailouts from the European Stability Mechanism would require that losses be imposed on private creditors. This agreement was blamed for the increase in sovereign spreads in late 2010 and early 2011. This column discusses recent research on the market reaction to the surprise announcement at Deauville. With the exception of Greece, the rise in spreads was within the range of variability established in the previous 20 days.
Kaushik Basu, Joseph Stiglitz, Thursday, January 2, 2014
The Eurozone crisis exposed weaknesses in the Eurozone’s design. This column – by Nobelist Joe Stiglitz and World Bank Chief Economist Kaushik Basu – argues that the Eurozone’s financial architecture can be improved by amending the Treaty of Lisbon to permit appropriately structured cross-country liability for sovereign debt incurred by EZ members.
Kyle Handley, Nuno Limão, Saturday, November 23, 2013
The impact of policy uncertainty on economic activity is potentially important, but controversial because it is hard to identify and quantify. Recent research provides a framework to identify the impacts of policy uncertainty on firm decisions, and finds it has strong effects in the context of international trade. China’s WTO accession secured its most-favoured nation status in the US, and the evidence shows this reduction in uncertainty can explain a significant fraction of its export boom to the US.
Isabella Rota Baldini, Paolo Manasse, Monday, November 4, 2013
Unlike the US, Europe is struggling to recover from the crisis. This is especially the case in certain European countries. This column discusses why the process of convergence in the Eurozone has slowed down. It proposes a way for European institutions to cope with the structural problems-- by individual country-level reforms and a federal budget. Otherwise, the alternative could be a disintegration of the Eurozone.
Isabella Rota Baldini, Paolo Manasse, Monday, November 4, 2013
Unlike the US, Europe is struggling to recover from the crisis. This is especially the case in certain European countries. This column discusses why the process of convergence in the Eurozone has slowed down. It proposes a way for European institutions to cope with the structural problems – with individual country-level reforms and a federal budget. Otherwise, the alternative could be a disintegration of the Eurozone.
Mike Wickens, Vito Polito, Wednesday, October 30, 2013
A good credit rating has become a key fiscal objective, even if it requires austerity when unemployment is high. Recent experience has raised doubts about the sovereign ratings provided by the credit-rating agencies. This column suggests a new way to measure credit ratings based on a country’s ability to meet its liabilities using fiscal policy. This measure would have identified and signalled to market participants signs of the impending European sovereign-debt crisis well before 2010, when the rating agencies first reacted to the crisis.
Harold James, Tuesday, October 8, 2013
The global nature of the recent financial crisis required a coordinated response from central banks. After the fall of Lehman Brothers, several of them simultaneously reduced their policy rates, and the Fed extended dollar swap lines to its overseas counterparts. However, the second phase of the crisis has put increasing strain on international cooperation. This column presents two explanations. First, the Eurozone crisis threatens the solvency of governments, thus creating conflict over who will pay the costs of maintaining financial stability. Second, unconventional monetary policy has had spillover effects in developing countries.
Norbert Gaillard, Monday, September 9, 2013
Credit rating agencies didn’t anticipate the Eurozone Crisis and their ratings have been procyclical ever since. This column discusses research on the agencies' recent performance. Since 2009, credit ratings have persistently lagged behind market spreads, suggesting that ratings have been more lenient with respect to Eurozone countries than generally believed. Bond spreads may be too volatile for regulatory purposes.
Christiane Nickel, Andreas Tudyka, Saturday, September 7, 2013
Fiscal stimulus can either be a boon for an economy or its bane. This column discusses new empirical research on how the effects of fiscal stimuli interact with public debt-to-GDP ratios. Using data on real GDP, private investment and the trade balance, evidence suggests that the cumulative effect on real GDP is positive at moderate debt-to-GDP ratios but turns negative as the ratio increases. The evidence also suggests that the cumulative trade-balance effect is negative at first but switches sign at higher degrees of indebtedness.
Harald Uhlig, Thursday, September 5, 2013
EZ banks are more exposed to their own nation’s government bonds than ever. This column argues that Eurozone members can now afford to tell their banks to diversify, but pressure from Germany, Austria, France and the ECB might be necessary. Defusing the pernicious entanglement between the Eurozone’s weak banks and weak sovereigns would reduce the cost of any new crisis and reduce the likelihood of such a crisis occurring.
Luis AV Catão, Gian Maria Milesi-Ferretti, Wednesday, September 4, 2013
Debt seems to be a lightning rod for crises. This column presents new research showing that the ratio of net foreign liabilities to GDP, and in particular its net external debt component, is indeed a significant crisis predictor for both advanced economies and emerging markets. Large current-account deficits and real exchange rate appreciation – the standard predictors – still matter, but we should be thinking more about net external debt.