Delivering the Eurozone ‘Consistent Trinity’

Marco Buti, Maria Demertzis, João Nogueira Martins 30 March 2014

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As argued in an earlier commentary, the financial crisis exposed important economic inconsistencies in the way that EMU operated.1 Although progress has been made, the reality is that more needs to be done. A number of countries still need to consolidate their public finances further, and also implement structural reforms to promote growth and sustain satisfactory welfare systems. At the same time, there is a need for vulnerable countries to ensure consistency between regaining competitiveness and the sustainability of private and public debts.

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Topics:  Europe's nations and regions Macroeconomic policy

Tags:  eurozone, euro, EMU, imbalances, fiscal policy, structural reforms, fiscal consolidation, debt, Eurozone crisis, Stability and Growth Pact, banking union, internal devaluation

The Eiffel group: A political community to rebuild the architecture of the euro

Agnès Benassy-Quéré, Shahin Vallee 27 March 2014

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The idea that the European Monetary Union can only exist with some form of political integration and a proper budget is not new. In 1977, the MacDougall report suggested that a budget of the order of 5-7% of GDP was necessary, and in the run-up of the Maastricht treaty, Jacques Delors was insistent on the needs for political integration (see, e.g., Delors 1991). Yet, for lack of political consensus, it was decided to proceed with monetary union alone in the hope that monetary and financial integration would eventually precipitate both fiscal and political integration over time.

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Topics:  EU institutions EU policies

Tags:  eurozone, Eurozone crisis, Eiffel group

TARGET balances, Bretton Woods, and the Great Depression

Michael Bordo 21 March 2014

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During the Eurozone crisis, an analogy was made between the events in Europe between 2007 and 2012 and the collapse of the Bretton Woods System between 1968 and 1971. There has been a build-up of TARGET liabilities since 2007 by some central banks (notably Greece, Ireland, Portugal, and Spain, or the ‘GIPS’), and of TARGET assets by Germany and others.

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Topics:  Economic history International finance

Tags:  ECB, eurozone, euro, global imbalances, Central Banks, financial crisis, Great Depression, Eurosystem, Eurozone crisis, Bretton Woods, TARGET

A fiscal shock absorber for the Eurozone? Lessons from the economics of insurance

Daniel Gros 19 March 2014

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Even before the euro crisis started, it had been widely argued that the Eurozone needed a mechanism to help countries overcome idiosyncratic shocks. The experience of the crisis itself seemed to make this case overwhelming, and throughout the EU institutions it is now taken for granted that the Eurozone needs a system of fiscal shock absorbers. For example, The Report of the President of the European Council calls for:

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Topics:  EU institutions Macroeconomic policy Welfare state and social Europe

Tags:  eurozone, euro, insurance, fiscal policy, Eurozone crisis, fiscal union, fiscal shocks, fiscal shock absorbers

How much is enough? The case of the Resolution Fund in Europe

Thomas Huertas, María J Nieto 18 March 2014

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During the crisis, individual institutions such as Hypo Real Estate required public assistance of €100 billion or more.1 So how can a European Resolution Fund of only €55 billion possibly suffice for all banks in the Eurozone?

It could, provided the Fund is part of a well-designed architecture for regulation, supervision, and resolution, that makes banks not only less likely to fail but also safe to fail – meaning that they can be resolved without cost to the taxpayer and without significant disruption to financial markets or the economy at large.

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Topics:  EU institutions Financial markets International finance

Tags:  eurozone, regulation, banking, systemic risk, microprudential regulation, bank resolution, Macroprudential policy, bail-in, European Resolution Fund

Clarifying the debate about deflation concerns

Mickey Levy 21 February 2014

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A common theme among many economic policymakers, financial market participants, and the media is that rich industrialised nations face a high risk of deflation, and that deflation always harms economic performance and so must be combatted with aggressive macroeconomic stimulus. Such broad assessments are misleading, and under certain circumstances may lead to misguided policies. More clarity on the topic is required.

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Topics:  Global crisis Monetary policy

Tags:  eurozone, US, Europe, Japan, deflation, disinflation, quantitative easing

Tracking the causes of Eurozone external imbalances: New evidence

Jose Luis Diaz Sanchez, Aristomene Varoudakis 06 February 2014

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The Eurozone sovereign debt crisis, triggered by the 2008–09 global financial crisis, exposed macroeconomic imbalances in member countries that had accrued gradually following the advent of the euro in 1999. The growing current-account deficits in the Eurozone periphery and surpluses in the core were a main symptom of these imbalances (Figure 1).1 These patterns of intra-Eurozone current-account imbalances led to the accumulation of large external debts in the Eurozone periphery, matched by growing claims held by commercial banks in the core.

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Topics:  International finance

Tags:  competitiveness, eurozone, global imbalances, global financial crisis, European sovereign debt crisis

How the euro synchronised EZ cycles

Ayako Saiki, Sunghyun Henry Kim 02 February 2014

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Prior to the introduction of the euro, the topic of whether the Eurozone fulfils the conditions for an optimum currency area was highly debated (e.g. Bayoumi and Eichengreen 1992).

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Topics:  EU institutions International finance International trade

Tags:  eurozone, euro, trade, business cycles, East Asia, supply chains, optimum currency area

The unpleasant legacy of the crisis: public debt and low trend growth in the Eurozone

Nicholas Crafts interviewed by Viv Davies,

Date Published

Tue, 01/21/2014

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See Also

Crafts, N (2013b), “Saving the Euro: a Pyrrhic Victory?”, CAGE-Chatham House Policy Briefing Paper No. 11.

Buiter, W and E Rahbari (2013), “Why Do Governments Default and Why Don’t They Default More Often?”, CEPR Discussion Paper 9492.

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Topics

Economic history Macroeconomic policy
Tags
ECB, eurozone, fiscal consolidation, public debt, gold standard, financial repression, debt monetisation

Date Weighting

-1

Related Article(s)

The Eurozone: If only it were the 1930s Escaping liquidity traps: Lessons from the UK’s 1930s escape To end the Eurozone crisis, bury the debt forever A consistent trinity for the Eurozone Why fiscal sustainability matters
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Why fiscal sustainability matters

Willem Buiter 10 January 2014

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Does fiscal sustainability matter only when there is a fiscal house on fire, as was the case with the Greek sovereign insolvency in 2011–12? Far from it.

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Topics:  Financial markets Global crisis International finance Macroeconomic policy

Tags:  eurozone, sovereign debt, capital flows, financial crisis, credit booms, fiscal policy, emerging markets, global financial crisis, banking, banks, Eurozone crisis, Currency wars, fiscal sustainability, banking union, sovereign debt restructuring, balance-sheet recession

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