Redistribution policies at the root of the Eurozone Crisis

Giuseppe Bertola 28 June 2013

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Not only the founding fathers of the EU, but also financial market participants appear to have believed that participation in common markets and adoption of common institutions should lead to cultural and economic convergence.

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Topics:  Europe's nations and regions

Tags:  Eurozone crisis

Financial imbalances and cycles: Do they matter for the general public?

Livio Stracca 25 June 2013

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Boom and busts in asset prices and credit and, more generally, ‘financial imbalances’ have been the subject of a lot of public attention in the wake of the global financial crisis and the Eurozone crisis. All major jurisdictions have been establishing macroprudential authorities and there is a lively discussion on whether financial stability should be an objective for central banks alongside price stability. However, nobody seems to have asked the person in the street whether they care about financial imbalances at all.

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Topics:  Global crisis International finance

Tags:  Eurozone crisis

Spillovers: Why macro-fiscal policy should be coordinated in economic unions

Gerald A. Carlino, Robert P Inman 24 June 2013

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The recent Great Recession in the US and Europe has generated renewed interest in the management of macro-stabilisation fiscal policy in economic unions. The received wisdom among economists is that such fiscal policies can only be managed efficiently by an overarching central government. Oates, in his classic treatise on fiscal federalism, concludes:

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  fiscal policy, Eurozone crisis

The roots of the Italian stagnation

Paolo Manasse 19 June 2013

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Italy is currently facing its worst recession in recent history, having lost about 8.5% of GDP between 2007 and 2013. The current situation is, to a large extent, the result of the Eurozone crisis and of the tough fiscal-austerity measures introduced across Europe, and particularly in Italy. Since 2007, the Italian primary balance improved by 3.3 points of potential GDP according to the OECD, almost exclusively through tax increases.

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Topics:  Europe's nations and regions

Tags:  Italy, competitiveness, Eurozone crisis

The wisdom of Karlsruhe: The OMT Court case should be dismissed

Francesco Giavazzi, Richard Portes, Beatrice Weder di Mauro, Charles Wyplosz 12 June 2013

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This week the German Constitutional Court in Karlsruhe is considering a case in which the plaintiffs oppose the Outright Monetary Transactions (OMT) programme announced last September by the ECB. The court will consider whether the ECB overstepped its mandate and thus imposed undue risks on German taxpayers. The court would be wise to dismiss the case, if it does not want to risk becoming a threat to Eurozone stability and to taxpayers in Germany and beyond.

Since the court itself has invited economists to testify in the case, in this column we consider only economic reasoning.

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Topics:  Europe's nations and regions

Tags:  Eurozone crisis, OMT, Outright Monetary Transactions

Exit strategies: Time to think ahead

Charles Wyplosz 14 October 2013

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Update

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Topics:  Monetary policy

Tags:  liquidity trap, quantitative easing, Eurozone crisis, zero lower bound, Vox Views

Regional transfers in Europe: Do we need fewer of them or different ones?

Sascha O Becker, Peter Egger, Maximilian von Ehrlich 06 June 2013

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The EU encourages regional cohesion through transfers for structural changes and development. This column presents new research suggesting that some poorer countries don't benefit as well as we might expect. This is likely to be because of worse technological and institutional absorptive capacity. Structural transfers need reform, and policymakers would do well to focus on recipients’ absorptive capacity.

The results provoke three broad sets of policy conclusions: one for transfer pessimists, one for transfer pragmatists, and one for transfer reformists.

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Topics:  Europe's nations and regions

Tags:  Eurozone crisis, regional transfers

The urgent need to recapitalise Europe’s banks

Harald Benink, Harry Huizinga 05 June 2013

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Unlike the US, Europe failed to recapitalise its biggest banks following the financial crisis of 2007-09. Instead, policymakers gambled that economic recovery would lift the profitability of financial institutions, enabling them to increase their capital buffers over time. It is now clear that this strategy has failed. The Eurozone is in a new recession and the depressed share prices of many banks signal that they are in dismal health.

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Topics:  Europe's nations and regions

Tags:  Eurozone crisis

Is the euro a foreign currency to member states?

Giancarlo Corsetti, Luca Dedola 05 June 2013

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Analysts and policymakers have recently put forth the view that Eurozone nations have, in essence, issued sovereign debt in a ‘foreign’ currency – foreign in the sense that national authorities don’t control the printing presses (see De Grauwe 2011, among many others).

The importance of this point is that nations with high and increasing debt levels but without a currency of their own are inherently vulnerable to self-fulfilling, disruptive, debt crises. As put by Krugman (2011):

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Topics:  Europe's nations and regions

Tags:  Eurozone crisis

Small isn’t always beautiful: The cost of French regulation

Luis Garicano, John Van Reenen 30 May 2013

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Slow growth in Europe has led to a debate over whether structural reforms can be used to raise productivity (see Costello et al. 2009, Crafts 2012). Many countries have tough labour regulations which may be a barrier to growth. Quantifying the welfare costs of such regulations has proven elusive, however, and policymakers are reluctant to spend scarce political capital reforming labour laws when the benefits are uncertain and vociferous opposition is assured.

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Topics:  Europe's nations and regions Labour markets

Tags:  France, Labour Markets, Eurozone crisis

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