Hume on hold?
Michael Burda 17 May 2012
The EZ crisis reveals critical flaws in the Eurozone’s design. This column argues that failing to abolish national central banks left the door open for national interests to interfere with the natural workings of the financial system and Hume’s adjustment mechanism. This flaw – and the omission of a European Banking Authority with real teeth – will come back to haunt Europe in the months and years to come.
The great Scottish philosopher and economist David Hume understood all too well how national boundaries and balance-of-payment statistics affect and even determine flows of international trade. Where national boundaries exist, customs offices and government bureaucracies assiduously monitor the flow of goods and assets between countries. Surpluses and deficits are seen by politicians as a sign of national pride or shame. Hume criticised the mercantilist view but was optimistic that trading patterns would ultimately right themselves. In 1752 he wrote:
EU institutions International finance
Central Banks, balance of payments, David Hume
The Eurozone crisis: Fiscal fragility, external imbalances, or both?
Pietro Alessandrini, Andrew Hughes Hallett, Andrea F Presbitero, Michele Fratianni 16 May 2012
Unsustainable debt along Europe’s periphery is bringing the euro to breaking point. But this column argues that this is not simply the result of fiscal ill-discipline. After 2010, the Eurozone crisis went from a fiscal crisis to a balance-of-payments crisis – with different prescriptions for policy.
The speculative attack against Eurozone sovereign debt, reflected in the extraordinary rise in the yields of government bonds for Greece, Ireland, Italy, Portugal, and Spain (known affectionately as the GIIPS) since the start of 2010, has sparked a heated policy debate on how best to stabilise the Eurozone (see the Vox debate moderated by Corsetti 2012). Two main views have emerged:
Fiscal crisis, Eurozone crisis, balance of payments
Sudden stops in the Eurozone
Jean Pisani-Ferry, Silvia Merler 02 April 2012
Many analysts and observers have put forward that the euro crisis is a balance-of-payments crisis at least as much as a fiscal crisis. This column provides evidence of capital-flow reversals in Greece, Ireland, Portugal, Spain, and Italy. It argues that the fostering of a pan-European banking industry and the creation of a banking union with centralised supervision and access to resources to recapitalise weak financial institutions should feature high on the policy agenda.
Many analysts and observers have put forward that the euro crisis is a balance-of-payments crisis at least as much as a fiscal crisis (e.g. Carney 2012, Giavazzi and Spaventa 2011, Sinn 2012, Wolf 2011). The issue has gained further relevance with the widening of imbalances among EZ central banks within the Target2 settlement system and has important implications for both the short- and the long-term policy responses (Bornhorst and Mody 2012).
capital flows, current account, sudden stops, balance of payments