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

Public and private saving and the long shadow of macroeconomic shocks

Joshua Aizenman, Ilan Noy 29 May 2013

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The Global Financial Crisis of 2008-09 and the evolving crisis in Europe raise many intriguing questions regarding the long-term response to crises. Households that lost access to credit, were forced to adjust and increase saving. It is not clear, however, whether that forced transition will last; will households remain bigger savers than they would have been had the global financial meltdown not occurred? For how long will this increased saving last? Will it have a perceptible impact in the decades to come?

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Topics:  Global crisis

Tags:  macroeconomics, Eurozone crisis, savings rate

The banking crisis as a giant carry trade gone wrong

Viral Acharya, Sascha Steffen 23 May 2013

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The health of the European financial system is intimately tied to the health of European sovereigns through the holdings of the sovereign debt (Angeloni and Wolff 2012; Acharya, Drechsler and Schnabl 2013). Traditionally, banks have been major holders of domestic sovereign debt, but in Europe there are substantial cross-country sovereign holdings.

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Topics:  Europe's nations and regions

Tags:  banking, Eurozone crisis

Iceland’s post-Crisis economy: A myth or a miracle?

Jon Danielsson 21 May 2013

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When the Global Crisis struck in September 2008, all eyes were on the US (Eichengreen and Baldwin 2008). Iceland, however, was the first country to really suffer. Its three major banks collapsed in the same week in October 2008, and it became the first developed country to request assistance from the IMF in 30 years. GDP fell 65% in euro terms, many companies went bankrupt and others moved abroad. At the time, a third of the population considered emigration as a good option (Danielsson 2008).

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Topics:  Global crisis

Tags:  Iceland, Eurozone crisis

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