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.
Charles Wyplosz, 04 January 2013
Roel Beetsma, Konstantinos Mavromatis, 21 December 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, 20 December 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, 17 December 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, 07 December 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 Auerbach, Yuriy Gorodnichenko, 10 December 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, 09 December 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, 07 December 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, 30 November 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, 26 November 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, 12 November 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.
Michael Lamla, Jan-Egbert Sturm, 09 November 2012
The Swiss National Bank (SNB) is again the focus of much debate, accused as it is of currency manipulation. This column outlines the effects of the SNB’s minimum exchange rate. On balance, the authors argue that the move is a boon, effectively enacting a much-needed relaxation of monetary policy within the Eurozone.
Mathias Hoffmann, Bent Sørensen, 09 November 2012
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.
Petra Gerlach-Kristen, Robert McCauley, Kazuo Ueda, 07 November 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, 06 November 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, 05 November 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, 05 November 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, 01 November 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, 30 October 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, 17 October 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.