What caused the great recession in the Eurozone? What could have avoided it?

Philippe Martin, Thomas Philippon 11 November 2014

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There is a wide disagreement about the nature and cause of the Eurozone crisis. Some see it as driven by fiscal indiscipline, some emphasise excessive private leverage, while others focus on external imbalances, sudden stops, or competitiveness divergence due to fixed exchange rates, as these quotes illustrate:

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Topics:  Global crisis Macroeconomic policy

Tags:  EZ crisis, Macroprudential policy, peripheral countries

Revisiting the pain in Spain

Paul De Grauwe 07 July 2014

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The different macroeconomic adjustment dynamics in Spain – a member of a monetary union – and the UK – a stand-alone country – is stark. Paul Krugman popularised this contrast in his New York Times blog with the title “The Pain in Spain” (Krugman 2009, 2011), and commented on my own analysis in De Grauwe (2011).

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

Tags:  ECB, monetary policy, euro, EMU, Spain, monetary union, fiscal policy, UK, government debt, austerity, EZ crisis, Outright Monetary Transactions, currency depreciation

Lessons from history for the European Financial Crisis

Selin Sayek, Fatma Taskin 05 July 2014

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As of July 2014, we continue to debate whether the European economy is out of the woods. The effectiveness of policies and the prospects of full recovery are under scrutiny. The unique nature of Europe’s monetary union begets further questions of whether policies should be designed to resolve a single euro crisis, or whether they should be designed to resolve multiple European crises occurring simultaneously. A discussion of whether the sui generis European project has led to a sui generis set of financial crises would provide a framework for these policy discussions.

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Topics:  Economic history Europe's nations and regions Global crisis

Tags:  eurozone, financial crisis, EZ crisis, GIIPS

Orderly debt reduction rather than permanent mutualisation is the way to go

Vesa Vihriälä, Beatrice Weder di Mauro 02 April 2014

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High levels of public debt have been at the centre of the euro crisis. Perceived unsustainability of individual member states’ public debt resulted in high interest rates and the threat of exclusion from the bond market. This prompted emergency financial assistance, the establishment of institutions for assistance, and ultimately the Outright Monetary Transactions (OMT) promise by the ECB. The effective partial mutualisation of sovereign risk has been important in calming down market turbulence and allowing a modest recovery to take hold.

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Topics:  EU institutions International finance

Tags:  EZ crisis, EZ debt restructuring mechanism, EZ debt crisis, debt mutualisation

The European crisis in the context of historical trilemmas

Michael Bordo, Harold James 19 October 2013

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The European financial crisis has often produced comparisons with the historical problems of the classical gold standard. Many of the key political figures who drove forward European monetary integration admired the discipline and certainty of the gold standard. Both Valéry Giscard d’Estaing and Helmut Schmidt shared this view. But recently, the comparison is more usually a negative or hostile one.

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Topics:  International finance

Tags:  EZ crisis, trilemmas

Unemployment, labour-market flexibility and IMF advice: Moving beyond mantras

Olivier Blanchard, Florence Jaumotte, Prakash Loungani 18 October 2013

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Growth in advanced economies is gaining some speed. The IMF projects these economies will grow 2% next year, up from an expected 1.2% this year. The average unemployment rate in advanced economies is expected to inch down from its peak of 8.3% in 2010 to 8% next year. This is progress, but it is clearly not enough. The state of labour markets remains dismal for a number of reasons.

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Topics:  Labour markets Welfare state and social Europe

Tags:  unemployment, institutions, IMF, trust, Unemployment insurance, labour-market flexibility, EZ crisis, collective bargaining

The IMF and the legacy of the euro crisis

Susan Schadler 15 October 2013

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The IMF will live with the legacy of its role in the European debt crisis for years — if not decades.

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Topics:  Global governance International finance

Tags:  IMF, debt, EZ crisis

Cyprus: What are the alternatives?

Thorsten Beck 22 March 2013

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The Cypriot banking system is insolvent; it needs a large capital injection. As in several other peripheral states of the Eurozone, Cyprus cannot resolve the crisis alone. Given an already high debt-to-GDP ratio and an oversized banking system, recapitalising the banks via sovereign debt would produce unsustainable sovereign-debt levels and, ultimately, sovereign default. In short, Cyprus’s banks are too big to fail, and too big to save.

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Topics:  EU institutions Macroeconomic policy

Tags:  EZ crisis, Cyprus, European Recapitalisation Agency

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

Why the rush? Short-term crisis resolution and long-term bank stability

Thorsten Beck 16 October 2012

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The recent crisis has exposed a critical gap in financial safety nets across Europe and many other developed countries, i.e. a deficient if not absent bank resolution framework. This gap in the financial safety net has become even more critical in the case of cross-border banks. The crisis has shown that the traditional approach of home-host country supervisory cooperation in the form of Memorandums of Understanding and Colleges of Supervisors falls short in case of bank failures. Memorandums of Understanding are non-binding documents and have turned out to be very patient paper.

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Topics:  EU institutions Europe's nations and regions

Tags:  banking stability, EZ crisis, EZ banking union

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