Can the euro exist without fiscal or political union? This column draws on the history of the US – especially its assumption of states’ debt after the War of Independence – to investigate which path might best serve the Eurozone. History tells us that unions require a well-constitutionalised system of restraint on fiscal behaviour, both at the federal level and at that of individual states.
Harold James, Hans-Werner Sinn, Tuesday, February 26, 2013
Mary Amiti, Oleg Itskhoki, Jozef Konings, Tuesday, February 19, 2013
Why is it that large movements in exchange rates have small effects on international prices? What does this mean for a crisis-stricken Eurozone? Using firm-level data, this column presents new research that investigates this exchange rate ‘disconnect’. Evidence suggests that the prices of the largest firms – with their disproportionately large share of trade – are insulated from exchange rate movements. The international competitiveness effects of a euro devaluation are therefore likely to be modest, given major exporters’ reliance on global supply chains.
Harold James, Monday, February 18, 2013
Do economists and policymakers know how to design a federal bank for Europe? Is there a template? This column explores the history of the US Federal Reserve, gleaning lessons for the future of the European banking system. Getting to grips with the historical and empirical details shows how different the two really are. Overall, evidence suggests that the mechanism of the TARGET system might well create demand for Europe to move further towards fiscal federalism.
Harold James, Sunday, February 17, 2013
Recent policy and academic debates have begun to influence Eurozone reform. But how sound is the advice we give out? This column argues that calls for a Eurozone or full-fledged EU superstate are overstated. Yes, developing an adequate system of European banking supervision is a matter of urgency if we hope to tackle the threat posed by an overdeveloped and opaque financial system. But calling for a superstate misunderstands the reasons politicians introduced the euro in the first place.
Olivier Blanchard, Wednesday, February 13, 2013
The new year has provided cheer for macroeconomic optimists. This column by Olivier Blanchard, one of the world’s leading economists, argues that important progress has been made in putting the crisis behind us, but that recovery continues to be hampered by the need for fiscal consolidation and a weak financial system.
Ester Faia, Wolfgang Lechthaler, Christian Merkl, Saturday, February 9, 2013
Eurozone labour markets are under stress. This column explores the connections between labour-market reform and macroeconomic policy, arguing that with its large differences in firing costs, normal Eurozone monetary policy is inappropriate for several Eurozone countries. If the efficacy of the ECB’s policy is impaired because there is no harmonisation of firing costs, tensions will continue to rise within the Eurozone.
Giancarlo Corsetti, Philippe Martin, Paolo Pesenti, Thursday, January 31, 2013
Current-account imbalances in Europe are at the heart of the crisis .This column argues that relative price adjustment need not be as dramatic as some observers claim. In order to foster rebalancing, policy should target obstacles to firms' entry, startup costs, and the incentives for product differentiation, letting relative prices and wages adjust in equilibrium. Setting up firms and new production lines is costly and in the current circumstances, policy should also address tight credit constraints on investment and firms’ activity.
Giorgio Basevi, Wednesday, January 23, 2013
Is European economic recovery being delayed by political procrastination? Are electoral cycles hindering a return to growth? This column argues that by synchronising European nations’ electoral cycles (along with those of the European Parliament), Europe can avoid its current slow and jittery approach. Creating a synchronised Europe-wide voting period would do away with overlapping national electoral cycles. A common national and European voting period would reduce political uncertainty, ensuring quicker policymaking response times for a smoother, quicker route to recovery.
Paolo Manasse, Thursday, January 17, 2013
All G7 economies are struggling in the post-crisis climate, but US GDP has recovered to pre-crisis levels, while the Eurozone simply hasn’t. This column portrays the global crisis as a transitory shock for the US, but as a quasi-permanent shock for Europe. The policies that are needed get the Eurozone back on track do not seem to be politically feasible. As tension rises with every quarter of stagnation, prospects for the survival of the euro are not only not improving, they are actually getting worse.
Charles Wyplosz, Friday, January 4, 2013
Financial market quiescence has removed pressure for immediate policy action on the Eurozone crisis. This column argues that while important repairs were made in 2012, the most difficult ones still lie ahead. Much remains to be done by unwilling politicians. Things will have to get worse before they get better. The best hope is that this happens in 2013 rather than in 2014.
Roel Beetsma, Konstantinos Mavromatis, Friday, December 21, 2012
Are Eurobonds a desirable solution to Eurozone members’ debt crises? Unhappily, it’s difficult to say. This column argues it very much depends on how the system is designed. However, looking at the most prominent proposals, it seems a cleverly designed Eurobonds system may well provide governments with the right incentives to encourage both issuing less debt and pursuing meaningful structural reform.
Markus K Brunnermeier, Hans Gersbach, Thursday, December 20, 2012
As governments and the EU wring their hands over banking reform, a fragile system remains in place. This column argues that the ECB’s current role undermines its independence. What the Eurozone needs to reduce undue forbearance - while preserving the ECB's independence - is a ‘diarchy’ in which both a newly built Restructuring Authority and the ECB have the power to trigger bank-restructuring.
Jens Nordvig, Monday, December 17, 2012
Fears of an imminent Greek exit from the Eurozone have subsided, for now. This column attempts to measure the probability of a Greek exit, finding that the changing fortunes of Greek political parties, and the possibility of an early election, mean that the risk of a Greek exit may actually be quite high. It suggests that, despite investors' efforts to measure political risk, a persistent sense of unease about the Eurozone’s future is set to continue into 2013 and that Eurozone financial assets will thus continue to embed significant risk premiums in the coming years.
Vicky Pryce, Friday, December 7, 2012
Vicky Pryce talks to Romesh Vaitilingam about her book, "Greekonomics: The euro crisis and why politicians don’t get it". They discuss the flaws in the original conception of the single currency, Greece’s dire recent economic experiences and how Greek and European policymakers have responded to the crisis. The interview was recorded at the Bristol Festival of Economics in late November 2012.
Alan J Auerbach, Yuriy Gorodnichenko, Monday, December 10, 2012
It's tough out there for policymakers seeking to stabilise economies, and shocks from abroad aren't helping. This column argues that for countries hit by recession, fiscal stimulus in another country might significantly stimulate demand back at home, softening the worse effects of the current crisis. The evidence suggests that transnational coordination of fiscal policy may well be more valuable than previously thought.
Dirk Schoenmaker, Sunday, December 9, 2012
Eurozone banking union discussions are full of questions about the scope of Eurozone microprudential bank supervision. Yet, this column argues that there is surprisingly little debate on the macroprudential supervision that is necessary to safeguard the wider European financial system. After all it is macro developments, such as fast rising housing prices, that lie at the heart of the ongoing crisis in Europe. To safeguard the financial system, Eurozone macroprudential tools should be under the ECB, separate from microprudential functions, with input from national central banks when differentiation is necessary.
Stefano Scalera, Riccardo Pacini, Friday, December 7, 2012
What mechanisms are necessary for the euro to survive? This column argues that recently proposed EU policy might have the answer. Having adopted a roadmap for enhanced economic policy coordination, a growth facility and a framework for enhanced debt issuance, the EU might now stave off the threat of Eurozone breakup. However, the road ahead will certainly be tough, the first crucial stumbling block being the design of a European Redemption Fund.
Alberto Alesina, Friday, November 30, 2012
Should debt-ridden and economically struggling Western governments be doing everything possible to reduce their deficits? Should we cut spending or hike taxes to reduce our debt-to-GDP ratios? This column argues that the answer is obvious: the cheapest, most effective and confidence-inspiring route is to cut spending. Coupled with other pro-growth policies, the evidence suggests that it is only really spending cuts that will spur private investment and economic recovery in Europe.
Charles Wyplosz, Monday, November 26, 2012
For the euro to survive, the recession must be halted without piling on more debt. This column argues that the unpalatable conclusion is that public debts must be written down. The massive moral hazard problem this will cause must be dealt with by making sure that public debts will never again be allowed to grow to unsustainable levels. To this end, decentralised US-style fiscal discipline is needed.
Marco Buti, Alessandro Turrini, Monday, November 12, 2012
Why aren’t Eurozone imbalances adjusting? This column argues that there is heartening evidence that they are. Labour markets are beginning to be reformed across Europe, thereby increasing countries’ competitiveness. However, the road ahead will surely long and hard; for external adjustment to really work, it is crucial that financial markets start to take a lead supportive role.