Current-account surpluses in the Eurozone: Should they be reduced?
Alexandr Hobza, Stefan Zeugner 26 April 2013
Current-account deficits have caused problems in several Eurozone countries, but surpluses are also an issue. This column argues that surpluses are detrimental to the welfare of the population to the extent they are driven by structural weaknesses affecting demand. Addressing these issues through structural reforms, while letting wages and prices respond flexibly to market signals, would be welfare-enhancing for the surplus countries.
Current-account deficits are widely acknowledged to have posed significant policy problems in several Eurozone countries.1 Since the onset of the crisis, their adjustment has been associated with sharp contractions in consumption and investment, entailing high economic and social costs. But a deficit in any country requires a surplus in another to finance it. The high deficits in the Eurozone periphery prior to the crisis were matched by high surpluses in 'core' countries, most notably Germany.
Europe's nations and regions
imbalances, Eurozone crisis
Job placement and displacement: Evidence from a randomised experiment
Bruno Crépon, Esther Duflo, Marc Gurgand, Roland Rathelot, Philippe Zamora 24 April 2013
Youth unemployment in Europe seems to be sticking around. This column assesses youth unemployment policy in France using data from a controlled experiment. ‘Job counselling’ – a key French policy that prepares some job seekers for the recruitment process, and connects them with potential employers – seems to only marginally improve graduate’s chances of employment. Moreover, the evidence suggests that what’s good for one graduate may be bad for another: the beneficiaries of intensive job counselling are more likely to find employment simply at the expense of other job seekers.
Youth unemployment is a growing concern in many countries, including France where more than a quarter of recent graduates cannot find stable work. Some of these young graduates do not benefit from resources like unemployment benefits because they lack a sufficient employment history.
unemployment, Eurozone crisis, youth unemployment, graduates
Fighting financial protectionism
Dirk Schoenmaker 18 April 2013
International banking is under threat in the aftermath of the Global Crisis Supervisors across the world are pushing for a split of international banks into national subsidiaries. This column discusses ‘financial protectionism’, offering some governance solutions that may help to international banks. These solutions boil down to burden sharing. In Europe, the first step is banking union.
International cooperation between national supervisors broke down during the Global Financial Crisis. The collapse of Lehman and Fortis provide vivid illustrations that national supervisors ultimately choose for their national interest in crisis management. Reform of global governance, guided by the G20 and executed by the Financial Stability Board, has so far focused on soft law solutions (Arner and Taylor 2009). Regulators adopt a consensual approach towards the setting of international standards.
Global crisis International finance
protectionism, Eurozone crisis
Augmented inflation targeting: Le roi est mort, vive le roi
Richard Baldwin, Daniel Gros 17 April 2013
The Bank of Japan has now joined the club of central banks practising a new, post-Crisis form of inflation targeting. This column discusses the new goals, new tools and new challenges of ‘augmented inflation targeting’. Despite economists’ worries and the many unknowns ahead, there really is no alternative in a post-Crisis world. Augmented inflation targeting is here to stay.
The Bank of Japan recently embraced inflation targeting – a decade and a half after academics recommended it (Krugman 2013). But this is not inflation targeting as conceived before the Global Crisis. Inflation targeting didn’t die, it evolved (as shown by the recent Vox eBook, Is inflation targeting dead? Central Banking After the Crisis.
Global crisis Monetary policy
Japan, Eurozone crisis, augmented inflation targeting
The much-needed EU pivot to east Asia
Patrick A Messerlin 16 April 2013
Mega-regional trade arrangements are being negotiated in Asia. This column asks how Europe should respond and assesses which Asian trade deals would provide the biggest boost and the best insurance against discriminatory effects. The evidence tentatively suggests Europe’s best bets are Japan and Taiwan.
The EU is facing formidable challenges. The economic crisis is far from over in many Eurozone and non-Eurozone member states. The EU’s current macroeconomic and budgetary policies are not politically sustainable at the EU’s current anaemic growth rate. Less visible, but much more pernicious and damaging, is the lessening of competition in many sectors due to the past several years of crisis, a trend that is evident to varying degrees across all EU member states.
EU, Japan, Eurozone crisis, Taiwan
Are Germans really poorer than Spaniards, Italians and Greeks?
Paul De Grauwe, Yuemei Ji 16 April 2013
A recent ECB household-wealth survey was interpreted by the media as evidence that poor Germans shouldn’t have to pay for southern Europe. This column takes a look at the numbers. Whilst it’s true that median German households are poor compared to their southern European counterparts, Germany itself is wealthy. Importantly, this wealth is very unequally distributed, but the issue of unequal distribution doesn’t feature much in the press. The debate in Germany creates an inaccurate perception among less wealthy Germans that transfers are unfair.
Rarely have statistics been misused so much for political purposes as when recently the ECB published the results of a survey of household wealth in the Eurozone countries (2013a).1 From this survey it appeared that the median German household had the lowest wealth of all Eurozone countries. Figure 1 summarises the main results for the most significant Eurozone countries.
Figure 1. Net wealth of median households (1000€)
Europe's nations and regions
Germany, Eurozone crisis
How the EZ crisis is permanently changing EU institutions
CEPR Policy Insight no. 65 analyses the changes and shifts of power among the EU’s institutions, arguing that further reforms are needed in order to safely and accountably underpin new executive power.
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CEPR Policy Insight is available to download free of charge here.
Measuring the credit crunch
Michiel Bijlsma, Andrei Dubovik, Bas Straathof 15 April 2013
The Global Crisis hit firms hard, making the terms of getting credit worse and thus amplifying the recession. This column discusses new research that isolates the ‘credit crunch’ element from other outcomes of recession. Crisis-linked credit drops caused a 5.5 percentage-point reduction in industrial growth in 2008, with a stronger effect in countries with more highly leveraged banks. The evidence clearly suggests that more attention should be paid to credit supplies to firms at the onset of financial crises.
How do we estimate the impact of a credit crunch during a crisis? Comparing the value of production before and after the crisis may be misleading. A firm might have produced less because it could not obtain credit, but it might also have produced less because the demand for its products dropped or was expected to do so in the near future. This means that we have to disentangle the effects on production of the reduction in credit supply from the effects that are due to a decline in credit demand.
Global crisis International finance
The Eurozone crisis and EU institutional change: A new CEPR Policy Insight
Stefano Micossi 15 April 2013
The Eurozone crisis has produced rapid institutional change with executive powers over national economic policies shifting to the EU. This column introduces a new CEPR Policy Insight that analyses the changes and shifts of power among the EU’s institutions. What is clear is that further reforms are needed in order to safely and accountably underpin new executive power.
Since the Eurozone crisis blew up in 2010, a series of decisions taken at crisis summits have massively centralised at EU level executive powers over national economic policies.
EU institutions Europe's nations and regions
Balance-sheet repairs in European banks
Nadege Jassaud, Heiko Hesse 13 April 2013
The recent IMF assessment of Europe’s financial sector found that much has been achieved to address the recent financial crisis in Europe, but vulnerabilities remain, and intensified efforts are needed across a wide front, one of which being bank balance sheet repair. This column looks at progress with bank restructuring in Europe.
Much has been achieved to address the EU financial crisis.1 Since 2011, EU banks have boosted their capital adequacy ratios, partly due to the second EU-wide stress-testing and recapitalisation exercise led by the European Banking Authority. Over two years, the tier 1 ratio of European banks (sample of 57 EU banks) increased by 1.2%, from 9% in December 2010 to 10.2% in June 2012.
Europe's nations and regions Global governance
Banking crisis, Eurozone crisis, balance sheets