European imbalances

Hans-Werner Sinn, Akos Valentinyi, 9 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.

Topics: Europe's nations and regions
Tags: competitiveness, devaluation, Eurozone crisis, imbalances

Periphery economies: National governments must be prepared to provide stimulus

Richard Wood, 4 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.

Topics: Europe's nations and regions, Global crisis, Macroeconomic policy
Tags: austerity, Eurozone crisis

Incentives for avoiding delayed sovereign defaults

Ugo Panizza, 3 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.

Topics: Europe's nations and regions, International finance
Tags: Eurozone crisis, lender of last resort, sovereign debt restructuring

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

Alfonso Arpaia, Alessandro Turrini, 2 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).

Topics: Europe's nations and regions, Labour markets
Tags: Eurozone crisis, jobs

Another look at Ricardian equivalence: The case of the European Union

Thomas Grennes, Andris Strazds, 28 February 2013

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The so-called Ricardian equivalence suggests that a government will have the same effect on private spending whether it raises taxes or takes on additional debt to finance higher government spending. The logic behind it is that as the government gets more indebted, people would put aside more money in expectation of higher taxes in the future.

Topics: Europe's nations and regions
Tags: Eurozone crisis, Germany, Greece, Ricardian equivalence, Spain, UK

Winners of a European banking union

Dirk Schoenmaker, Arjen Siegmann, 27 February 2013

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The aim of the prospective banking union is to foster financial stability in Europe. The euro sovereign debt crisis has shown that financial stability cannot be managed effectively at the national level, because of the diabolic loop between national governments and banks (Alter and Schüler 2012).

Topics: EU institutions, EU policies, Europe's nations and regions
Tags: Bailouts, banking union, Eurozone crisis, Netherlands, Spain, Sweden, UK

Investigating the effect of exchange-rate changes in Japan, China, east Asia, and Europe

Willem Thorbecke, 26 February 2013

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Policymakers are concerned about currency wars and competitive devaluations. Many complain that trading partners are artificially lowering their exchange rates through quantitative easing and managed exchange rates in order to gain price competitiveness for their exporters.

Topics: Exchange rates
Tags: China, Europe, Eurozone crisis, Japan, US

IMF lending and banking crises

Luca Papi, Andrea F Presbitero, Alberto Zazzaro, 25 February 2013

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During the 1990s, the IMF’s lending policy has been blamed for imposing the economic recipes of the Washington Consensus on recipient countries.

Topics: Global governance, International finance
Tags: banking crises, conditionality, Eurozone crisis, IMF

Mutualisation and constitutionalisation

Harold James, Hans-Werner Sinn, 26 February 2013

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It is often claimed – especially but not only by US economists – that the travails of the euro show that it is impossible to have a monetary union in the absence of a political union.

Topics: Economic history, Politics and economics
Tags: banking union, Eurozone crisis, mutualisation, US

Why do large movements in exchange rates have small effects on international prices?

Mary Amiti, Oleg Itskhoki, Jozef Konings, 19 February 2013

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Exchange rate moves have surprisingly small effects on prices. This apparent ‘disconnect’ is one of the central puzzles in international macroeconomics. It is also a continual headache for policymakers who rely on exchange rates to accommodate the adjustment of global (current account) imbalances.

Topics: Exchange rates
Tags: competitiveness, euro, Eurozone crisis, exports, imports

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