A consistent trinity for the Eurozone

Marco Buti 08 January 2014

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While it would be premature to declare victory, owing to sustained policy efforts at all institutional levels, major progress has been made in the past two years that has put Economic and Monetary Union (EMU) on much firmer ground. All strands of economic policymaking have been working together to overhaul economic governance, to ensure the efficient transmission of monetary policy, and to create effective financial firewalls. What made this possible was the clear political determination to safeguard the integrity and future of EMU.

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Topics:  EU policies Macroeconomic policy

Tags:  eurozone, consistent trinity, Eurozone challenges

The ghost of Deauville

Ashoka Mody 07 January 2014

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The aversion to debt restructuring in the Eurozone has been remarkable, even though public debt ratios in several countries are well above the IMF-identified critical debt overhang threshold of 100% of GDP (IMF 2012). By early 2010, some recognised the urgency of restructuring Greek public debt (Calomiris 2010). But the official position between late 2009 and early 2011 deemed even Greek debt to be sustainable. Beyond the particularities of Greece, general principles were invoked. In the words of Cottarelli et al.

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Topics:  Financial markets International finance

Tags:  eurozone, sovereign debt, Eurozone crisis, sovereign debt restructuring, financial contagion, Deauville

Joint liability in international lending: A proposal for amending the Treaty of Lisbon

Kaushik Basu, Joseph Stiglitz 02 January 2014

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The sovereign debt crisis exposed weaknesses in the Eurozone’s financial architecture that may not have been fully anticipated when the founding treaties of the Eurozone were drafted. Key among these weak spots are the provisions of the Treaty of Lisbon which regulate intergovernmental debt obligations and preclude direct financing of sovereigns by the ECB.

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Topics:  EU institutions International finance

Tags:  eurozone, Maastricht Treaty, sovereign debt, moral hazard, Lisbon Treaty, Eurozone crisis, no-bailout clause

The Eurozone: If only it were the 1930s

Nicholas Crafts 13 December 2013

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The 1930s deservedly have a bad name. It is hard to imagine that a decade that included the Great Depression and a major de-globalisation of the world economy, and culminated in WWII could be other than notorious. And yet, compared with struggling Eurozone economies today, the economic situation in Europe in the later 1930s was in many ways more promising. This is particularly true of the aftermath of public debt and the difficulty of dealing with it.

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Topics:  Economic history Macroeconomic policy

Tags:  ECB, eurozone, fiscal consolidation, public debt, gold standard, financial repression, debt monetisation

Moving closer? Changing patterns of labour mobility in Europe and the US

Mai Dao, Davide Furceri, Prakash Loungani 01 December 2013

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On 21 September 1992, four famous professors – Olivier Blanchard, Rudi Dornbusch, Stan Fischer, and Paul Krugman – took part in a panel discussion at MIT on the merits of the proposed European currency union. Echoing a view common among US-based academics at the time, all four agreed, according to a record of the event, that “a common European currency would have unfavourable economic repercussions.” Blanchard noted that “currency unification works in the US because labour can move between states. The labour mobility in Europe is negligible.”

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Topics:  Labour markets

Tags:  eurozone, euro, currency union, labour mobility

The euro and price convergence: You wanted it … you got it!

Alberto Cavallo, Brent Neiman, Roberto Rigobon 29 November 2013

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Remember some of the objectives of the creation of the euro? A single currency area within Europe would carry with it:

  • Enhanced factor mobility
  • Greater productivity growth
  • Acceleration of financial development; and
  • Improved macroeconomic policies.

Or, at least, that was the hope (Wyplosz 1997).

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Topics:  Exchange rates International trade

Tags:  eurozone, euro, real exchange rates, price convergence

An early-warning indicator for debt sustainability

Casper van Ewijk, Jasper Lukkezen, Hugo Rojas-Romagosa 28 November 2013

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Insight into the sustainability of public finances is critical to European policymakers and financial markets alike. It informs decisions concerning the need for reform and the determination of the appropriate risk premium on government debt. Furthermore, unsustainable public finances may cause significant spillovers, highlighting the need for international fiscal surveillance. Recent experiences in Europe underscore how hard it is to foresee sovereign debt crises, with regard to both occurrence and depth; assessment of public finances is no easy task.

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Topics:  EU institutions Global crisis

Tags:  eurozone, sovereign debt crisis

Currency wars and the euro

Jens Nordvig 25 November 2013

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A new battle for the ECB to fight

Last year, the ECB entered an existential battle for the euro. By promising to do ‘whatever it takes’ to safeguard the euro, the ECB managed to calm sovereign debt markets and engineer a much-needed easing of overall credit conditions in the Eurozone.

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Topics:  EU institutions Exchange rates Monetary policy

Tags:  ECB, eurozone, euro, unemployment, Bundesbank, Currency wars

Global and Eurozone imbalances: A question of civic capital?

Sascha Bützer, Christina Jordan, Livio Stracca 23 November 2013

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Macroeconomic imbalances have been the subject of much debate in recent years, and are still in the spotlight. Before and during the financial crisis, a lot of attention was devoted to global imbalances – in particular to the persistent current-account deficits of some countries (such as the US) and the persistent surpluses of others (such as China). With the advent of the Eurozone sovereign-debt crisis, the attention has shifted to imbalances within the Eurozone.

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Topics:  Europe's nations and regions International trade

Tags:  eurozone, global imbalances, trust, World Values Survey, civic capital

A bank restructuring agency for the Eurozone – cleaning up the legacy losses

Thorsten Beck, Christoph Trebesch 18 November 2013

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At the core of the Eurozone crisis is the deadly embrace between banks and governments. Sovereign fragility has led to pressure on banks’ balance sheets. The weak fiscal position of governments in many periphery countries, on the other hand, has led to delays in recognising bank problems and addressing them (Acharya et al., 2012). The situation, however, also has a political dimension, as regulators in many European countries have become too close to the regulated entities.

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Topics:  EU institutions Financial markets

Tags:  eurozone, banking crises, bank restructuring agency

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