Walking back from Cyprus

Mitu Gulati, Lee C. Buchheit 20 March 2013

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On Friday 15 March 2013, European leaders trespassed on consecrated ground. They insisted that Cyprus impose losses – euphemistically dubbed a 'solidarity levy' – on insured depositors with Cypriot banks as a condition to receiving EZ/IMF bailout assistance. Entering Friday’s meeting, the leaders had four options on the table:

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Topics:  Macroeconomic policy

Tags:  bailout, Eurozone crisis, EZ crisis, Cyprus

Realism, austerity or demagogy? Evidence from Italy

Maurizio Bovi 20 March 2013

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Before it was contested, there were two interesting – but different – views about the recent political election in Italy. The Economist (2012) had defined the elections as a test of the maturity and realism of Italian voters. The advice was that Italians should vote for Monti. On the other hand, the Paul Krugman in The New York Times (2013) had suggested that the Italian elections could be seen as a test for the impact of failed austerity policies: should Italians not vote for Monti, then failure would be guaranteed.

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Topics:  Europe's nations and regions Politics and economics

Tags:  Italy, Eurozone crisis

Professor Monti and the bubble

Paolo Manasse, Giulio Trigilia, Luca Zavalloni 19 March 2013

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The recent Italian elections yielded a hung parliament. Votes were shared almost equally between the centre-left coalition of Bersani, the centre-right coalition of Berlusconi, and the new Five Star Movement of Grillo. Monti's Civic Choice party appealed to only one in ten voters.

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Topics:  Europe's nations and regions Politics and economics

Tags:  Italy, Eurozone crisis

The case for policy change: Democratic legitimacy of EMU cannot be an afterthought in solving the crisis

Geoffrey R D Underhill, Jasper Blom 19 March 2013

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The fallout of the original market crash has generated continuing public and private debt problems, while global and intra-regional payments imbalances remain unresolved. Serious and persistent policy mistakes dressed up as reform have compounded the difficulties while economic growth remains subdued in the major western economies. It is time for policy change drawing on a better historical understanding of the lessons to be drawn from previous episodes of financial instability.

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Topics:  Europe's nations and regions Financial markets Global crisis

Tags:  Eurozone crisis

Fiscal policy in Europe: Searching for the right balance

Marco Buti, Nicolas Carnot 14 March 2013

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The debate on the fiscal strategy in Europe seems at times like a war of religions. This is unfortunate because the objective disagreements in substance (e.g. see VoxEU debate: Has austerity gone too far? ) are in our view less pronounced than is sometimes depicted.

In this column we lay out the main tenets of the EU approach to current fiscal adjustments. It is not a dogmatic call for austerity at all costs. Rather, it is a delicate balancing act between implementing credible adjustments, keeping flexibility against shocks, and factoring in institutional constraints. 

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Topics:  Macroeconomic policy

Tags:  European Commission, Eurozone crisis, austerity

The leaderless global economy: Can economic history suggest lessons?

Peter Temin, David Vines 13 March 2013

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We all want to sustain the global recovery — and are not sure how (Kose and Terrones 2012). The closing years of the last two centuries present two examples of international cooperation that may give us hope.

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Topics:  Economic history Global crisis Global economy

Tags:  Eurozone crisis

European imbalances

Hans-Werner Sinn, Akos Valentinyi 09 March 2013

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Europe is in the grip of three interrelated crises: a balance-of-payments crisis, a sovereign-debt crisis and a banking crisis. Policymakers have primarily focused on the sovereign-debt and banking crises. However, a credible strategy for getting the Eurozone back on track needs to address the problem of its large internal imbalances. Rebalancing will require countries with current-account deficits to devalue. The crucial question is how: internally without exiting the euro or externally after exiting the euro.

Imbalances in the euro area

Figure 1.

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Topics:  Europe's nations and regions

Tags:  competitiveness, imbalances, devaluation, Eurozone crisis

Periphery economies: National governments must be prepared to provide stimulus

Richard Wood 04 March 2013

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Periphery countries are continuing to face deepening impoverishment for no good reason. With real incomes falling and unemployment already approaching 20 or 30%, further austerity is unnecessary and unconscionable. The crisis is spreading. France, a country near the centre, is increasingly in difficulty, and now even Germany’s growth is faltering.

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Topics:  Europe's nations and regions Global crisis Macroeconomic policy

Tags:  Eurozone crisis, austerity

Incentives for avoiding delayed sovereign defaults

Ugo Panizza 03 March 2013

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The international financial architecture needs a structured mechanism for dealing with sovereign defaults. The main problem with the status quo is that countries tend to sub-optimally delay necessary defaults, leading to substantial loss of value for debtors and creditors alike. Opponents and supporters of a structured mechanism for dealing with sovereign insolvency agree on the fact that this is a difficult endeavour.

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Topics:  Europe's nations and regions International finance

Tags:  lender of last resort, Eurozone crisis, sovereign debt restructuring

Policy-related uncertainty: At the root of the lost resilience of Eurozone labour markets?

Alfonso Arpaia, Alessandro Turrini 02 March 2013

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The Eurozone, in contrast to the US, exhibited remarkable labour market resilience in the aftermath of the Lehman shock that lead to the Great Recession. Conversely, as the debt crisis developed, labour markets in the Eurozone weakened and unemployment started growing above what was predicted on the basis of GDP growth (Figure 1).

Figure 1 Unemployment changes, actual and predicted on the basis of the Okun law, Eurozone

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Topics:  Europe's nations and regions Labour markets

Tags:  jobs, Eurozone crisis

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