Labour mobility is one of the keys to a successful currency union – be it within or across nations. This column discusses new evidence showing that the shock-absorbing role of migration has increased in Europe and declined in the US. During the Great Recession, European migration remained high – although not high enough given the vast differences across the Eurozone. Overall, Europe has strengthened this essential adjustment mechanism.
Mai Dao, Davide Furceri, Prakash Loungani, Sunday, December 1, 2013
Alberto Cavallo, Brent Neiman, Roberto Rigobon, Friday, November 29, 2013
During the recent turmoil in the Eurozone, little attention has been paid to one of the euro’s founding objectives – price convergence. This column argues that the euro has in fact been very successful in this regard. In a study of the pricing behaviour of Apple, IKEA, H&M, and Zara, the authors find that price dispersion is 30–50% lower for countries in a currency union than for those with a fixed exchange rate.
Casper van Ewijk, Jasper Lukkezen, Hugo Rojas-Romagosa, Thursday, November 28, 2013
The sustainability of government debt cannot be determined with certainty. This column presents an early warning indicator to predict sovereign debt crises using a stochastic simulation framework. What counts is the risk of a significant rise in public debt, more so than the expected evolution of the debt level. A key determinant of the indicator is the quality of budgetary policies in controlling the government budget in the event of adverse shocks.
Jens Nordvig, Monday, November 25, 2013
Having promised to do ‘whatever it takes’ to ensure the survival of the euro, the ECB now faces the problem of record high unemployment combined with a strong currency. There is accumulating evidence that the ECB is more willing to fight currency appreciation than the Bundesbank would have been. Capital inflows have been a key source of recent upward pressure on the euro. Should this continue, the ECB may need to intervene more aggressively in order to promote economic recovery in the Eurozone.
Sascha Bützer, Christina Jordan, Livio Stracca, Saturday, November 23, 2013
Since the advent of the Eurozone sovereign-debt crisis, economic commentators have drawn attention to macroeconomic imbalances within the Eurozone. This column presents evidence on the link between macroeconomic imbalances and differences in culture – or more specifically, interpersonal trust. A conservative estimatation suggests that a one standard-deviation increase in trust reduces macroeconomic imbalances by about a quarter of a standard deviation. Moreover, differences in interpersonal trust can explain a fifth of the variation in intra-Eurozone imbalances.
Thorsten Beck, Christoph Trebesch, Monday, November 18, 2013
Many Eurozone banks are still in a fragile state following the Global Crisis. This vulnerability will be highlighted as the ECB takes charge of bank supervision, and the EZ moves towards a banking union. This column proposes a Eurozone bank restructuring agency as a way to speed up the crisis resolution. This temporary, centralised agency would be in charge of restructuring viable and non-viable banks throughout the Eurozone. Solving the problem of legacy assets is a necessary step towards a banking union.
Lee C. Buchheit , Beatrice Weder di Mauro, Anna Gelpern, Mitu Gulati, Ugo Panizza, Jeromin Zettelmeyer, Tuesday, November 12, 2013
Sovereign bankruptcies occur regularly and violently. The nature of sovereign-debt problems has changed in comparison to ten years ago. This column discusses policy proposals to better resolve debt crises and prevent them from happening in the future. Such proposals are given both for the Eurozone, and at a global level.
Vasiliki Fouka, Hans-Joachim Voth, Wednesday, October 23, 2013
The EZ crisis increased north-south conflicts between bailout providers and recipients – especially between Germany and Greece. This column shows evidence that political conflict directly translated into losses of market share for German car producers in Greece – especially in areas where German armed forces committed massacres during World War II. Six decades later, memories of conflict are never far from the surface in Europe.
Thorsten Beck, Wednesday, October 23, 2013
Much has happened since VoxEU published an eBook on the banking union in Europe one year ago. In this column, the editor of the eBook reviews the developments and plans of the past year. Many of the issues flagged by eBook contributors are still relevant and have not yet been addressed. While immediate pressures seemed to have receded, the crisis is still very much with us and is still awaiting resolution.
Alexander Popov, Neeltje van Horen, Saturday, July 6, 2013
The European sovereign-debt crisis has raised many questions regarding the link between sovereigns and banks. This column goes to the heart of one and shows that tensions in Eurozone government-bond markets were transmitted internationally through the bank lending channel. Lending by European banks with sizeable exposures to sovereign debt from the troubled Eurozone countries became impaired after the start of the crisis, resulting in a reallocation away from foreign (especially US) markets.
Michael Bordo, Angela Redish, Thursday, June 20, 2013
The Eurozone has been going through an existential crisis since 2010. The column discusses research that draws an analogy between the careful planning in the 1980s leading to the creation of the euro and the planning that led to the Bretton Woods system. The outcome for the Eurozone, as in the earlier creation of a man-made international system, may be similar – collapse or at least major reworking.
Daniel Gros, Friday, June 14, 2013
The doom-loop between banks and the national governments played a dominant role in the Eurozone crisis for Ireland and Cyprus. A Eurozone banking union is usually viewed as the solution. This column argues that the doom-loop cannot be undone as long as banks hold oversized amounts of their government’s debt. A simple solution would be to apply the general rule that banks are prohibited from holding more than a quarter of their capital in government bonds of any single sovereign.
Paul De Grauwe, Yuemei Ji, Thursday, February 21, 2013
Eurozone policy seems driven by market sentiment. This column argues that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north. The resulting deflation bias produced the double-dip recession and perhaps more dire consequences. As it becomes obvious that austerity produces unnecessary suffering, millions may seek liberation from ‘euro shackles’.
Philippe Weil, Monday, November 19, 2012
Philippe Weil, newly appointed Chair of CEPR’s Euro Area Business Cycle Dating Committee, talks to Viv Davies about the Committee’s recent announcement of a peak in economic activity in the Eurozone in the third quarter of 2011 and that the Eurozone has been in recession since then. They discuss the issue of heterogeneity of business cycles of Eurozone countries, the likely impact of subsequent data revisions, and future plans for the Dating Committee. The interview was recorded on 16 November 2012. [Also read the transcript]
Peter Bofinger, Claudia M. Buch, Lars P Feld, Wolfgang Franz, Christoph M Schmidt, Monday, November 12, 2012
The sovereign debt crisis has revealed severe flaws in the EU internal market. Common monetary policy has not been accompanied by the transfer of authority to supervise banks and risks of banks and states have become dangerously intertwined. This column summarises the proposal of the German Council of Economic Experts for a full banking union which aim at correcting these deficits.
Simon Johnson, Peter Boone, Friday, September 21, 2012
Industrialised countries today face serious risks – for their financial sectors, for their public finances, and for their growth prospects. This column explains how, through our financial systems, we have created enormous, complex financial structures that can inflict tragic consequences with failure and yet are inherently difficult to regulate and control. It explains how this has happened and why there are more and worse crises to come.
Jon Danielsson, Hermann Oskarsson, Tuesday, September 11, 2012
The current EZ crisis is not Europe’s first sovereign-debt crisis. This column shows parallels can be drawn from an all-but-forgotten episode, i.e. the 1990 Faroese crisis. Just like Greece, the Faroes got into difficulty because of excess borrowing facilitated by a currency union with an AAA-rated partner undeterred as the sovereign debt spiralled upwards. In the Faroese case, the crisis was eventually resolved when political necessities outweighed the cost of the bailout.
Morris Goldstein, Sunday, May 27, 2012
Europe’s banks are in bad shape. Slowing growth and rising capital adequacy ratios would stretch any bank. Doubts about sovereign debt and the Eurozone’s future may push some EU banks over the edge. Now the EU has decided how to implement the principles of the latest round of globally coordinated banking regulations – Basel III. This column argues that the EU has got it wrong.
Nicolas Véron, Friday, May 4, 2012
Europe’s finance ministers are currently deciding on the legislation intended to implement the Basel III international agreement on bank capital, leverage, liquidity, and risk management. This column argues that many officials, within Europe and beyond, severely underestimate the importance of this debate for reaching a global standard for financial regulation.
Charles Wyplosz, Wednesday, May 2, 2012
Mindless austerity is losing policy credibility in some Eurozone nations. This column suggests governments shouldn’t mix long-term growth and fiscal discipline nor produce another Lisbon strategy. Instead, they should adopt a framework for fiscal policy cooperation, restructure debts, and remember that fiscal discipline is for the long run.