How do members of existing monetary unions share risk? Drawing on a decade of research, this column argues that fiscal transfers in fact make a limited contribution to economic coherence. In the context of Europe’s current crisis, the evidence suggests that unfinished capital market integration must be completed if we wish to see adequate and effective risk sharing.
Mathias Hoffmann, Bent E. Sørensen, Friday, November 9, 2012
Petra Gerlach-Kristen, Robert McCauley, Kazuo Ueda, Wednesday, November 7, 2012
Do incidental large-scale bond purchases have a global portfolio balance effect? This column argues that one country’s bond purchases can ease monetary conditions abroad. Whether this effect is welcome depends on the phase of the business cycle, but the authors emphasise that it is of paramount importance for resolving the current crisis that Eurozone policymakers closely consider the effects of large-scale bond buying.
Jens Nordvig, Tuesday, November 6, 2012
Conversations about the breakup of the Eurozone are changing. This column argues that an 'avoid breakup at all costs' dogmatism may not be a prudent view. Getting good data may well be difficult, but any arguments about the cost of a Eurozone breakup must be compared to the ongoing cost of the status quo.
Felix Roth, Lars Jonung, Felicitas Nowak-Lehmann, Monday, November 5, 2012
The Eurozone crisis has meant slow growth, rising unemployment, and social unrest. This column gauges the impact of all this on European citizens‘ opinions about the euro and EU institutions. Using Eurobarometer surveys, the authors find that, within the Eurozone, the crisis has only marginally lowered support for the euro but has led to a sharp fall in public trust in the ECB.
Aoife Hanley, Joaquín Monreal-Pérez, Monday, November 5, 2012
How can Spanish firms innovate to overcome strong economic headwinds? This column presents empirical evidence to show that, in a time of economic crisis, Spanish firms would do well to orient themselves toward foreign markets. The authors propose that there could well be mutiple – and durable – benefits to both the firms and the Spanish economy.
Dawn Holland, Jonathan Portes, Thursday, November 1, 2012
EU governments have individually embraced severe austerity programmes in an effort to avoid becoming the next Portugal. This column presents results from the National Institute Global Econometric Model suggesting that these individually rational polices are leading to collective folly. Keynes’ 'paradox of thrift' is in full swing since EU nations continue to act like small open economies while in fact they are a large closed economy.
Michael McMahon, Udara Peiris, Herakles Polemarchakis, Tuesday, October 30, 2012
‘Sterilisation’ - where purchases of assets by a central bank are offset by withdrawals - may help the ECB to control inflation. This column discusses how the ECB’s current approach may be fraught with danger, however. In a world where sovereign default risk is perceived to be likely, the ECB’s only real hope is that its approach makes a Eurozone default impossible.
Eduardo Cavallo, Eduardo Fernandez-Arias, Wednesday, October 17, 2012
The Eurozone body politic seems to be slowly learning the lessons for crisis management. This column argues that Latin America’s decades of financial crisis can provide key insights for Europe.
Christopher Sims, Friday, October 12, 2012
Nobel laureate, Christopher Sims, talks to Viv Davies about the institutional restructuring needed to put the Eurozone on a path to sustainable recovery. Sims contrasts the structural differences of the US, Japan and the UK with the Eurozone; they discuss the role of the ECB, eurobonds, a common fiscal commitment, and the rationale for country-level default. They also discuss Sims' prophetic paper on "The Precarious Fiscal Foundations of EMU" (1999), in which he wrote about the risks of a euro crisis.The interview was recorded in Brussels on 21 September 2012.
Indermit Gill, Martin Raiser, Tuesday, October 9, 2012
It is common these days to read and hear Europeans calling for a ‘new growth model.' This column argues that the end of complacency in Europe is a good thing, but this loss of confidence could be dangerous. It also discusses what needs to be done to make the European economic model different.
Jacob Funk Kirkegaard, Monday, October 8, 2012
Political pressures are rising again in Europe. This column argues that reactions in parliaments, central banks and on the street are well within the bounds of predictable reactions to hard times. These developments change nothing of significance in the calculus concerning the eventual success of the Eurozone crisis response.
Sebnem Kalemli-Ozcan, Elias Papaioannou, Wednesday, September 26, 2012
Is a banking union the answer to Europe’s woes? This column argues that banking union is no panacea – and it may actually make monetary policy harder. It urges Europe’s policymakers to re-evaluate their proposals.
Martin Flodén, Tuesday, September 25, 2012
As is well known among economists, Sweden had its own financial crisis in the early 1990s and their public finances were quickly consolidated. This column asks whether the Swedish policy measures serve as a role model for how to handle the current crisis?
Pradumna B. Rana, Saturday, September 22, 2012
The Asian financial crisis of the late 1990s shows what can happen when economists misdiagnose a crisis. This column argues the Eurozone crisis may have been made worse by over-simplifying it as a debt crisis. The author suggests that the large institutional changes now afoot – the shift from Eurozone I to Eurozone II – are finally addressing the root causes, but they may be too little too late.
Stephanie Schmitt-Grohe, Martín Uribe, Sunday, September 16, 2012
Since the onset of the great recession in peripheral Europe, nominal hourly wages have not fallen much from the high levels they had reached during the boom years in spite of widespread increases in unemployment. This paper analyses a number of national and supranational policy options for alleviating the unemployment problem, arguing that it is unlikely that a solution will come from within national borders.
Paul De Grauwe, Yuemei Ji, Tuesday, September 18, 2012
Germany’s large accumulation of TARGET2 claims has created fear that Germany stands to lose vast amounts of wealth if the Eurozone were to break down. After clarifying the issues using basic economic principles, this column shows that Germany could avoid large wealth losses by restricting euro-to-mark conversions to German residents.
Giovanni Cespa, Xavier Vives, Tuesday, September 18, 2012
Is the ECB right to buy up sovereign bonds in southern Europe? This column argues that the answer depends on who is right: Keynes or Hayek.
Harald Hau, Ulrich Hege, Saturday, September 8, 2012
The recent announcement by the ECB that it will start to buy Spanish and Italian sovereign debt has been warmly welcomed throughout Europe. But this column argues that by doing so the ECB is digging the euro’s grave. It says the solution is default, either through inflation or debt restructuring – and that debt restructuring has many advantages if it is done early enough.
Zsolt Darvas, Wednesday, September 5, 2012
The need to rebalance the debts of several Eurozone members is a major root of the current crisis. This column argues that a purely intra-euro rebalancing strategy has its limits and that a weaker euro would help. It urges the European Central Bank to adopt looser monetary policy, which is anyway justified in a highly recessionary environment.
Monica Eaton, Michael J Ferrantino, Tuesday, September 4, 2012
The Eurozone debt crisis is not simply a problem for industrialised countries. This column shows how its effects are being felt throughout Africa.