European policymakers are confronting a heightened crisis characterised by a perverse and seemingly intractable interplay between sovereign debt pressures and financial-sector fragilities. This column argues that the payoffs from strengthening banks’ balance-sheets can still be large and, therefore, fiscal support is merited. But a more resolute strategy for winding down banks is also needed.
Damiano Sandri, Ashoka Mody, 23 November 2011
Viral Acharya, Dirk Schoenmaker, Sascha Steffen, 22 November 2011
The lack of market confidence in European banks is fed by the uncertainty about Eurozone sovereign debt. This column argues governments and banking supervisors should agree a recapitalisation package well before Christmas. It adds that the required amount to be raised by each bank should be presented as a euro amount and not as a ratio so as not to tempt banks to cut down assets instead of raising capital.
Cezary Wójcik, Christian Fahrholz , 31 October 2011
With the sovereign debt crisis spreading across Europe, there is no shortage of suggestions on how to save the Eurozone. This column says exit rules are the silver bullet. It argues that exit rules would decrease the probability of a breakup of the Eurozone by enhancing market discipline, increasing the political bargaining power of EZ members vis-à-vis the profligate countries, enhancing internal discipline in the profligate countries, and reducing market uncertainty.
Guntram Wolff, 30 October 2011
Stress in the interbank market has increased dramatically since July 2011, and bank stock market valuations have fallen by 22% on average for 60 of the most important banks subject to stress tests. This column argues that bank stock valuation has been affected by the banks’ exposure to Greek debt and that Greek banks were particularly affected. Holdings of debt of the other four periphery countries does not, however, appear to be a strong determinant of stock price movements.
Charles Wyplosz, 25 October 2011
A series of policy mistakes have put Europe on the wrong path. This column says that the current plan to enlarge the EFSF and recapitalise banks through markets will fail. The twin crises linking sovereign debts and banking turmoil need to be addressed simultaneously for Europe to avoid economic disaster.
The Undersigned, 25 October 2011
How can Europe fix its sovereign-debt crisis? Many favour euro bonds, but those seem politically impractical because they would require supranational fiscal policies. This column proposes creating safe European assets without requiring additional funding by having a European debt agency repackage members’ debts into `euro-safe-bonds’.
Charles Wyplosz, 19 December 2010
Lorenzo Bini-Smaghi – Member of the ECB's Executive Board – has produced a brilliant defence of the no-default strategy currently pursued by the Eurozone authorities. This column argues that instead of ruling out highly plausible outcomes, the ECB should explain how it will react if defaults happen. By not making adequate preparations, it may be raising the odds of a very bad scenario.
Barry Eichengreen, 03 December 2010
Irish interest spreads did not fall and contagion continues. Here one of the world’s leading international economists explains why. Short-sighted, wishful thinking by EU and German leadership designed a package that is not economically feasible in the long run (it would trigger a vicious debt deflation spiral) and it is not politically sustainable in the short run. The Eurozone had better have a Plan B for when the new Irish government rejects the package next year and imposes a haircut on Irish bank bondholders.
Willem Buiter, Ebrahim Rahbari, 12 October 2010
CEPR Policy Insight No.51 explains how and why the fiscal crisis in the Eurozone came about and how it is likely to evolve during the rest of this decade.
The Editors, 12 October 2010
The saga of Greece’s public finances continues, and it is not the only country whose fiscal sustainability is in doubt. This column introduces a new Policy Insight by Willem Buiter and Ebrahim Rahbari that analyses the sovereign debt crisis in the Eurozone and the response of the national authorities, EU institutions, and IMF.
Harald Uhlig, 04 October 2010
Identifying recessions is crucial to guiding policymaking. This column reports the findings of the CEPR Business Cycle Dating Committee for the Eurozone for the last recession. It reports that the trough in economic activity occurred in the second quarter of 2009, marking the end of the recession that began in the first quarter of 2008. The recession lasted 6 quarters and the total decline in output from peak to trough was 5.5%. April 2009 marked a clear trough in industrial production, following the peak in January 2008.
Charles Wyplosz, 04 October 2010
Can the Eurozone’s Stability and Growth Pact be made to work? This column argues that the European Commission’s reform proposals for the pact include some good ideas but many bad ones. If adopted, it says the pact will not significantly advance fiscal discipline in the Eurozone but it could turn out to be a transition to an effective framework.
Daniel Gros, 02 July 2010
Daniel Gros of CEPS talks to Viv Davies about Vox's latest eBook, which brings together the views of leading economists on what more needs to be done to rescue the Eurozone. While not excluding the possibility of a breakup of the eurozone, Gros discusses a potential solution for Greece and the key role of the proposed stress tests on European banks, warning that the "devil is in the detail". The interview was recorded in late June 2010.
Dalia Marin , 20 June 2010
Discussions about the current-account imbalance within the Eurozone have focused on the under-competitive periphery and super-competitive Germany. This column suggests that the argument ignores one powerful way that Germany lowered its relative unit labour costs. German firms offshored parts of their production to the new member states in Eastern Europe, Russia, and the Ukraine.
Richard S. Grossman, 21 May 2010
Richard Grossman of Wesleyan University talks to Romesh Vaitilingam about the role of gold standard in propagating the Great Depression – and what we might learn for the crisis in the world’s most important fixed exchange rate system of today, the eurozone. The interview was recorded at a conference on ‘Lessons from the Great Depression for the Making of Economic Policy’ in London in April 2010.
Paul van den Noord, Ralph Setzer, Guntram Wolff, 15 May 2010
The monetary policy framework in the Eurozone emphasises the role of monetary aggregates, but less so their differences across member countries. This column argues that the surveillance of national monetary developments may prove useful, as they may have been masking diverging trends at the country level which had systemic financial stability implications for the Eurozone.
Charles Wyplosz, 12 May 2010
Markets liked the European Stabilisation Mechanism but a closer look shows that the money is announced but not available. When markets realise this, they may do to Portugal and Spain what they did to Greece. Worse still, crucial principles have been sacrificed for the sake of unconvincing announcements. The debt crisis is unlikely to go away and the monetary union will have to be reconstructed to re-establish the principle of collective fiscal discipline.
Michael Burda, Stefan Gerlach, 11 May 2010
This weekend’s plan has been received positively by the markets, but it is too early to call it a success. Future monetary historians may judge it either a brilliant move or the first step on a slippery slope to ruin. The EU needs to set up an independent institution to vet fiscal plans of Eurozone governments and apply a sliding scale of sanctions. If the euro is to survive the current decade, Greece cannot happen again.
Daniel Gros, Thomas Mayer, 11 May 2010
The European Stabilisation Mechanism is a major initiative, but is it enough? This column argues that more is needed. All EU bank supervisors should conduct stress tests to gauge their banks’ exposure to risky sovereign debt; those who fail should be re-capitalised or closed to ring-fence the problem. The ‘Mechanism’ should also be transformed into an institution that manages the Eurozone’s rescue contributions, supervises conditionality, and sets up mechanisms for orderly debt rescheduling should austerity programmes fail.
Giancarlo Corsetti, 09 May 2010
Eurozone membership seemed to shield economies with structural problems from the “original sin” – the obligation to borrow in foreign currency while the ability to pay is in domestic currency. This column argues that the sin is still with Greece and other Eurozone nations with weak institutions. Reforms that boost the nation’s competitiveness or the government’s fiscal positions reduce short-term government revenue directly or via a recession. Solving the problem will require coordinated Eurozone intervention to correct internal imbalances