Global Energy After the Crisis
Christof Rühl (Foreign Affairs) Mar/Apr 2010
The economic crisis did not alter the deep structural changes already in global energy markets -- rising energy demand in the developing world and growing concerns about carbon emissions -- and it revealed how the oil, coal, and natural gas markets could help address the major energy challenges ahead.
IMF changes its mantra
Bretton Woods Update No. 70 Mar/Apr 2010
After four decades of promoting policies of targeting very low inflation rates and unfettered capital flows, the global financial crisis has prompted new debate over IMF ideology. Plus: IMF loans: still pinching vulnerable countries where it hurts most; Bank voting remains unbalanced; Education strategy review: has the Bank learned its lessons?; World Bank energy lending causes uproar; and more.
Invitation to an Energy Crisis
A. F. Alhajji (Project Syndicate) Apr 2010
One has only to examine the recent past to see why market fundamentals matter in determining oil prcies. And, as OPEC’s crude oil exports decline, rising consumption in the oil-producing countries forces international oil companies to invest in high-cost areas with small reserves, and global demand continues to grow, we could be witnessing an energy crisis in the making.
Taking Hope in the Long View
J. Bradford DeLong (Project Syndicate) Apr 2010
If all goes well in China and India in the next generation – and if nothing goes catastrophically wrong in the North Atlantic core of the global economy – the next generation will reach a milestone. For the first time, more than half of the world's people will have enough food, shelter, clothing, and medical care that their chief concern will be avoiding boredom.
Walking with Giants
Patrick Messerlin (Project Syndicate) Apr 2010
In the aftermath of the G-20 Pittsburgh Summit last year, European and American officials invited policymakers from the emerging giants like China, India, and Brazil to become more involved in designing a new global economic framework – implicitly suggesting that this has not been the case so far. Yet the evidence indicates that the emerging giants have been very active indeed.
What Asian Century?
Guy Sorman (Project Syndicate) Apr 2010
It is almost taken for granted nowadays that this is to be the “Asian Century,” marking an irreversible political/economic shift in global power from West to East. But the Asian Century is a myth: we have entered the first Global Century, which is such a new phenomenon that we cling to old concepts in order to describe our emerging world.
The IMF Does Europe
Kenneth Rogoff (Project Syndicate) Apr 2010
With the IMF playing a central role in the eurozone’s blueprint for a bailout of Greece - and presumably in other distressed European countries - the Fund has come full circle. Once upon a time, in its early days after World War II, the IMF had scores of programs across the Continent, and now that it has landed again, the key question is whether it has a plausible exit strategy.
A Trans-Atlantic Transition
Robert Hutchings (Project Syndicate) Apr 2010
Despite many calls for a “new Atlanticism” or a “new transatlantic bargain,” the US-European relationship remains imprisoned by old habits. After all, the emerging re-distribution of power roughly from West to East is unlikely to permit any new global order to be managed by a US-European condominium.
No Time for a Trade War
Joseph E. Stiglitz (Project Syndicate) Apr 2010
The battle over China’s exchange rate is heating up again, with the US Treasury soon to assess whether China is a “currency manipulator.” But the concept itself is flawed – all governments take actions that directly or indirectly affect the exchange rate – and China's multilateral trade surplus is significantly smaller than that of Saudi Arabia or the combined total for Japan and Germany.
Will China Lead?
Jamie F. Metzl (Project Syndicate) Apr 2010
China’s willingness to join negotiations on potential sanctions against Iran and to send Premier Hu Jintao to a nuclear security summit in Washington this month is an encouraging sign. But, given its growing profile, China must do far more to demonstrate its bona fides as a responsible international leader or risk undermining the system that has enabled its own miraculous rise.
The Return of Industrial Policy
Dani Rodrik (Project Syndicate) Apr 2010
Industrial policy is back, openly embraced by governments in countries like Britain and France, and by prestigious organizations like the Word Bank and McKinsey. The standard rap against industrial policy – that governments cannot pick winners – is largely irrelevant: what determines success in industrial policy is the much less demanding capacity to let losers go.
A Pig’s Breakfast
Howard Davies (Project Syndicate) Apr 2010
In the wake of the Greek debt crisis, some, like the French, have called for a European economic government, while others, like German Finance Minister Wolfgang Schauble, have called for an IMF-style European Monetary Fund. But saving the euro really requires a return to the fiscal discipline demanded by the EU's Stability and Growth Pact before the French and Germans abandoned it.
India’s Wary Rise
Dominique Moisi (Project Syndicate) Apr 2010
Some countries – for example seventeenth-century France or China today – are naturally at ease with the concept and the reality of strategic power. India, by contrast, is clearly in a different category - a rapidly rising economy that regards the exercise of global political power with the trepidation of America in 1920.
Eyes Wide Open
Manny A. Alas, David Jansen, and Laura Laybourn (PWC View, Issue 12) Apr 2010
Bribery used to be thought of as necessary to doing business in certain markets. Now, at home and overseas, governments are undertaking corruption crackdowns—with serious consequences for both companies and executives. Yet there’s more at stake than just liability under the Foreign Corrupt Practices Act and other global laws. Anticorruption specialists in PwC’s Forensic Services practice believe that how companies develop and implement their anticorruption strategies will be the key to seizing global opportunities.
Why the Greek Rescue Isn't Going According to Plan
Mohamed El-Erian (PIMCO) Apr 2010
It is likely that things will get worse for Greece before they get better.
New PPP-Based Estimates of Renminbi Undervaluation and Policy Implications
Arvind Subramanian (PIIE) Apr 2010
New estimates for the undervaluation of the Chinese currency based on the purchasing power parity (PPP) approach find that the renminbi is undervalued by approximately 30 percent rather than the 12 percent widely reported. Subramanian applies new insights about the way PPP data are compiled, uses new data that have become available, and corrects existing estimates for the biases in the data in order to attain a more accurate estimation of China's currency undervaluation. Corrective action must be taken not primarily to help China, but to prevent its currency undervaluation from harming the rest of the world. The real victims of China's currency policies, argues Subramanian, are other emerging-market and developing countries because they compete more closely with China. It is crucial that the subject be broached delicately and with humility and that a multilateral approach be taken with China, most likely by going through the World Trade Organization.
The Debt Death Trap
Nouriel Roubini (Project Syndicate) Apr 2010
The Greek financial saga is the tip of an iceberg of problems of public-debt sustainability for many advanced economies. All successful financial rescues require the country’s credible willingness to impose fiscal austerity and structural reforms, as well as massive front-loaded official support to avoid a rollover crisis of maturing public and/or private short-term debts.
Exchange Rate Disorder
Jose Antonio Ocampo (Project Syndicate) Apr 2010
Export-led growth by major economies – China, Germany, Japan, and the US – is becoming a threat to the world economy. And, to the extent that major emerging-market countries will continue to lead the global recovery, they should reduce their current-account surpluses or even generate deficits to help, through increased imports, spread the benefits of their growth worldwide.
Complex Structural Changes in China and the Global Economy
Michael Spence (PIMCO) Apr 2010
The world’s interest in China is a recognition of the country’s systemic importance.
The Bankrupt Theology of Financial Deregulation
Hector R. Torres (Project Syndicate) Apr 2010
The IMF is, or should be, the world's financial watchdog, and many believe that it failed to foresee the recent crisis because it was distracted or looking in the wrong places. But the real problem is that the IMF was too ideologically blinkered to be able to interpret the evidence sitting right under its nose.
Credit Default Swaps on Trial
Luigi Zingales (Project Syndicate) Apr 2010
Credit default swaps, once an esoteric product known only to a small number of sophisticated investors and specialized academics, are now widely blamed as one of the main causes of the financial crisis. That odious reputation is jeopardizing their survival, but to ban them would merely sow the seeds of the next financial bubble.
Connectivity for All
Jeffrey D. Sachs (Project Syndicate) Apr 2010
The information-and-communications-technology revolution is surely the most powerful single force for economic development in the world today. In particular, universal connectivity can mobilize the powerful links between education and reduced fertility, faster economic development, and lower environmental degradation.
The Road to Post-Crisis Growth
Michael Spence (Project Syndicate) Apr 2010
Although economic recovery in advanced countries remains fragile 18 months after the global financial crisis erupted, developing countries appear to have weathered the storm. Reasons for this remarkable resilience abound, and they offer guidance for advanced and developing countries alike.
Why China is Right on the Renminbi
Barry Eichengreen (Project Syndicate) Apr 2010
Chinese officials have been on the receiving end of a lot of gratuitous advice when it comes to the renminbi – and they have been wise to disregard it. In managing their exchange rate - including the recent decision to resume gradual appreciation against the dollar – they have gotten it exactly right.
The Making of China’s Trade Deficit
Fan Gang (Project Syndicate) Apr 2010
The US Congress recently issued its loudest call ever to classify China as an exchange-rate manipulator, accusing Chinese leaders of maintaining the renminbi’s peg to the dollar in order to guarantee a permanent bilateral trade surplus. And yet, at around the same time, in March, China recorded its first monthly trade deficit in six years.
Adjust and Reschedule or Delay and Default
Daniel Gros (Project Syndicate) Apr 2010
Unless Greece reschedules its massive debt, it is unlikely to be able to roll over the approximately €30 billion maturing annually for the next few years. But if Greece reschedules its debt in the absence of a credible fiscal-adjustment program, financial markets would view the delay as merely a prelude to eventual default, which would drive the risk premium on Greek debt even higher.
Reining in Europe’s Debtor Nations
Hans-Werner Sinn (Project Syndicate) Apr 2010
With international investors no longer willing to finance Greece's external deficit, and even shying away from refinancing its existing debt, only three options remain, all of them bad: permanent EU subsidies, a Greek depression, or a Greek exit from the euro. The lesson is that a currency union needs ironclad budget discipline to avert a boom-and-bust cycle in the first place.
The Forgotten Sick
David Molyneux (Project Syndicate) Apr 2010
The developed countries' view of the diseases of the developing world is that only three are important: AIDS, tuberculosis, and malaria. But other infections, with names that most Westerners do not know – and often cannot even pronounce – kill, blind, deform, and disable far greater numbers of people.
Planting the Seeds of Africa’s Growth
William A. Masters (Project Syndicate) Apr 2010
After decades of bad news, at least three major trends are turning Africa’s way: agricultural policies, rural demography, and farm productivity all promise improved opportunities across the continent. These trends move too slowly to make headlines, but cumulatively they promise bigger payoffs from public and private investment in agriculture and rural development.
Why Greece Will Default
Martin Feldstein (Project Syndicate) Apr 2010
There simply is no way around the arithmetic implied by the scale of deficit reduction that Greece must undertake, and by the accompanying economic decline: sovereign default is inevitable. If Greece were not part of the euro system, it might not have gotten into its current predicament, and, even if it had, it could have avoided the need to default.
Change Africa from Within
Kanayo F. Nwanze (Project Syndicate) Apr 2010
Agriculture, predominantly on a small scale, accounts for about 30% of sub-Saharan Africa’s GDP and at least 40% of export value. In some small countries, it plays an even greater role, representing 80% or more of export earnings. But the potential in these numbers will remain untapped unless the right policies are put in place to help agriculture to develop and flourish.
All for One Tax and One Tax for All?
Kenneth Rogoff (Project Syndicate) Apr 2010
The IMF recently proposed a new global tax on financial institutions loosely in proportion to their size, as well as a tax on banks’ profits and bonuses. The proposal has been greeted with predictable disdain and derision by the financial industry, but, as a diagnosis of the problem that needs to be fixed, the Fund gets more right than it does wrong.
Global Disparity Presents Post-Crisis Risks, Opportunities
Scott Mather (PIMCO) Apr 2010
Differences between countries are likely to intensify, with sovereign risk rising.
West provokes China's 'hardened' stance
Jian Junbo (AT) Apr 1, 2010
China's rejection of Western demands over issues such as Google censorship, the Rio Tinto trial and Western leaders meeting the Dalai Lama has been called a "hardening" of its foreign policy. But the People's Republic has reacted similarly to such issues of national security since its founding, only the West is now taking more notice.
Foreign banks and small and medium enterprises: Are they really estranged?
Thorsten Beck, Asli Demirgüç-Kunt & Maria Soledad Martinez Peria (VoxEU) Apr 1, 2010
Small and medium enterprises are engines of economic growth. But what kind of market structure is more conducive to financing these enterprises? This column argues that different types of bank, applying different types of lending technology and organisational structures can all play a vital role in financing them.
China's Not-So-Fair Trade
Nouriel Roubini (Forbes) Apr 1, 2010
The risks of rising economic tensions between U.S. and China.
Global: Debtflation Temptation
Spyros Andreopoulos (MS GEF) Apr 1, 2010
The temptation to inflate away debt – debtflation temptation – depends on several factors. On the basis of the metrics used, we find the temptation to inflate to be higher in the US and the UK than in the euro-zone – if monetary policy is conducted for the ‘average’ euro-zone member – and lowest in Japan.
The IMF's new wisdom
Mark Weisbrot (Guardian) Apr 1, 2010
How much change can we expect from the IMF while Wall Street and European banks still get to have their say?
A Protestant View of Globalization (Part I)
Max Stackhouse (Globalist) Apr 2, 2010
Are today's Christians able to address globalization? In the first installment of this five-part essay, here are three positions that seem to be particularly perilous to a profound theological perspective on the world — and thus to a viable global future.
Which Countries Are in Shape for Europe’s Lean Years?
Jacob Funk Kirkegaard (PIIE) Apr 2, 2010
No matter what the outcome of Greek austerity, Irish bank bailouts, Spanish housing busts, or German export collapses will be, the broader medium-term economic outlook for Europe is clear: Lean years lie ahead for Europeans, as their governments struggle with the effects of the Great Recession and accelerating demographic decline.
International reserves and swap lines: substitutes or complements?
Joshua Aizenman, Yothin Jinjarak & Donghyun Park (VoxEU) Apr 3, 2010
The global crisis has been associated with an unprecedented rise of swap agreements between central banks of larger economies and their counterparts in smaller economies. This column explores whether such swap lines can reduce the need for reserve accumulation. The evidence suggests that there is only a limited scope for swaps to substitute for foreign-exchange reserves.
US must not gamble on the renminbi
Clive Crook (FT) Apr 4, 2010
Sacrificing agreements in areas such as global nuclear security for an empty gesture on China’s currency policy would be mad.
Greece will default, but not this year
Wolfgang Münchau (FT) Apr 4, 2010
If you do the maths on the public debt dynamics, it would be hard to arrive at any other scenario than an eventual default.
Demographics and stock market fluctuations
Carlo Favero, Arie Gozluklu & Andrea Tamoni (VoxEU) Apr 5, 2010
Are long run stock market returns predictable? This column shows that a forecasting model that uses a demographic variable – the ratio of middle-aged to young adults – as well as the dividend price ratio, performs “very well” in forecasting long-horizon stock market returns.
Building a Green Economy
Paul Krugman (NYT) Apr 5, 2010
If you listen to climate scientists — and despite the relentless campaign to discredit their work, you should — it is long past time to do something about emissions of carbon dioxide and other greenhouse gases. If we continue with business as usual, they say, we are facing a rise in global temperatures that will be little short of apocalyptic. And to avoid that apocalypse, we have to wean our economy from the use of fossil fuels, coal above all. But is it possible to make drastic cuts in greenhouse-gas emissions without destroying our economy?
Curb Your Enthusiasm for Brazil
Mary Anastasia O'Grady (WSJ) Apr 5, 2010
The best thing the new government has done is leave its predecessor's reforms alone.
A Daring Proposal to Rescue Greece
Edward Hadas (NYT) Apr 5, 2010
Greece has a huge debt burden, but perhaps a limited default with modest write-downs would ease its predicament.
Globalization as a Massive Civilizational Shift (Part II)
Max Stackhouse (Globalist) Apr 5, 2010
For centuries, people have thought about the world in terms of the organization of nation states. But, thanks to globalization, nation states are now becoming units within broader clusters that are sometimes called civilizations. As Max Stackhouse explains in part two of his five-part series, this shift creates new patterns of diversity that foster innovative global patterns of life and more-complex identities.
The determinants of state fragility
Graziella Bertocchi (VoxEU) Apr 6, 2010
The causes and implications of state fragility – also known as state failure – are not yet well understood. This column explores the determinants of state fragility in sub-Saharan Africa and finds that institutions – as measured by civil liberties and the number of revolutions – are the main drivers. It says institutions trump economic, geographic, and historical factors.
When Corporations Get Religion (Part III)
Max Stackhouse (Globalist) Apr 6, 2010
In examining globalization, what is truly vexing to many people is the increased power of transnational and multinational corporations. What they do not realize is that it actually is an old institutional form that was once under the control of either family (or clan or tribe) — or state (or king or empire), argues Max Stackhouse in part three of his five-part series.
Evaluating the renminbi manipulation
Martin Wolf (FT) Apr 6, 2010
Is China a currency manipulator? Yes. China has intervened on a gigantic scale to keep its exchange rate down and it is also protectionist. The Chinese pot is calling the US kettle black.
Of cows, communities and credit default swaps
John Kay (FT) Apr 6, 2010
There is an increasingly widely held view that CDS transactions should be permitted if they are insurance but not if they are gambling.
A race that ultimately might not be worth winning
John Plender (FT) Apr 6, 2010
How is the financial crisis affecting the race for global pre-eminence between New York and London?
Greece and the Fatal Flaw in an IMF Rescue
Simon Johnson and Peter Boone (PIIE) Apr 6, 2010
In 2003 the International Monetary Fund published yet another internal review with an impressively dull title "The IMF and Argentina, 1991&nash;2001." But hidden in that text is explosive language and great clarity of thought—in essence, the IMF staff belatedly recognized that their decision to repeatedly bailout Argentina from the mid-1990s through 2002 was wrong.
Macro-prudential councils: How to avoid future crises
Enrico Perotti (VoxEU) Apr 7, 2010
What should an effective macro-prudential policy framework look like? This column argues that financial stability and macroeconomic stability should be dealt with differently. One requires prompt corrective action; the other requires more gradual policy intervention. Systemic levies offer a policy that can tighten financial discipline without the need for a large increase in interest rates across the whole economy.
Dow 11000 Is Only the Beginning
Zachary Karabell (WSJ) Apr 7, 2010
Companies go where the global growth is, and with leaner inventories and more efficient work forces, they can make profits even when national economies sputter.
Greece: Caught Between the Scylla of Austerity and the Charybdis of Credibility
Carlo Bastasin (PIIE) Apr 7, 2010
The emergency loan package offered to Greece in March from the International Monetary Fund (IMF) and Greece's European partners was conceived as a "bridge" over troubled financial waters, buying time for the Athens government to carry out a severe fiscal correction. In order to receive this help, the Greek government has committed itself to reducing its deficit by 10 percent of GDP in three years. It is understandable that the urgency of the liquidity crisis has dictated that time frame. But three years to accomplish such a huge fiscal adjustment is an impossible request.
China: Renminbi Exit from USD Peg: Whether, Why, When, How
Qing Wang (MS GEF) Apr 7, 2010
We believe the Renminbi will exit from the hard peg against the USD, which has been in place since July 2008, in the coming months. The cumulative appreciation for the year could be 4-5%.
Eastern Europe won’t pay what it can’t pay
Michael Hudson (FT) Apr 7, 2010
So who will bear the cost as debts go into default or are written down, to be paid in sharply depreciated currencies? In the end, governments must represent their own home electorates.
Bubbles lurk in government debt
Kenneth Rogoff (FT) Apr 7, 2010
As the global economy reflates, many people are asking: 'Is the next bubble in gold? Is it in Chinese real estate? Emerging market stocks? Or something else?'
Financial constraints and innovation: Why poor countries don't catch up
Yuriy Gorodnichenko & Monika Schnitzer (VoxEU) Apr 8, 2010
How can poor countries stop playing catch up? The question continues to puzzle economists. This column argues that the innovative and productive activities of domestic firms in emerging markets are inhibited by financial frictions. Financial reform policies will be most effective if they target the vulnerable small and young domestic firms, and those in the service sector.
Religion as a Globalizing Force (Part IV)
Max Stackhouse (Globalist) Apr 7, 2010
While today's globalization is a transnational dynamic that is only now reaching the whole known world, something like this has happened before, as becomes clear if we take a macroscopic view of the matter. That is exactly what a theologically based ethical perspective must do, argues Max Stackhouse in part four of his five-part series.
Max Weber: A Modern-Day Globalization Guru? (Part V)
Max Stackhouse (Globalist) Apr 8, 2010
Can one understand the way India or China are developing without any reference to Hinduism, Buddhism or Confucianism? The predominant political and economic modes of interpretation, capitalist or socialist, try to do just that. In the final installment in his five-part series, Max Stackhouse explains why this won't work — and argues that Max Weber has much to teach us about modern-day globalization.
Protecting banks is best done by market discipline
Julie Dickson (FT) Apr 8, 2010
Every bank must be forced to issue subordinated debt that would convert to common equity if it got into trouble, replenishing its capital base and diluting the existing shareholders.
Singapore's lesson from Harvard model
Gillian Tett (FT) Apr 8, 2010
Sovereign funds have discovered that the long-term mantra provides far less protection than previously thought because they are exposed to the vagaries of their co-investors
The wax melts
Economist Apr 8, 2010
Worries about Greece’s ability to roll over its maturing debt are giving way to bigger fears.
Over to you, China
Economist Apr 8, 2010
America has dampened a currency row with China. Now Beijing must let the yuan rise.
Renminbi Undervaluation: Any Way You Look at It
Arvind Subramanian (PIIE) Apr 9, 2010
Intellectually, there are two ways of being in denial about renminbi undervaluation. The first is to succumb to what John Williamson has called the doctrine of immaculate transfer. Paul Krugman, in his recent blog posts, has been taking Stephen Roach and Joe Stiglitz to task for doing so.
What China’s Currency Shift Could Mean
Various (NYT) Apr 8, 2010
China is expected to announce that it will allow the renminbi or yuan, to appreciate against the dollar in the coming days. The currency’s value would fluctuate day to day and any increase in value could be gradual and limited. Even so, the move would be good news for the Obama administration, because an undervalued renminbi keeps China’s exports cheap and makes American exports more costly by comparison. Will a somewhat more flexible exchange rate benefit the American economy significantly? What kind of effect will it have on the changing Chinese economy and other Asian economies?
Learning From Greece
Paul Krugman (NYT) Apr 8, 2010
The Greek debt crisis is a terrible, tragic story. It's an object lesson for the rest of us, but what does it say?
Free trade agreements: Do they help keep the peace?
Philippe Martin, Thierry Mayer & Mathias Thoenig (VoxEU) Apr 9, 2010
What role can free trade agreements play in an increasingly globalised world? This column argues that both economics and politics matter. Because they involve trade gains, trade agreements reduce the risk of dispute by increasing the opportunity cost of war. But with globalisation, this cost decreases, making such agreements more, not less, important to keep the peace.
Greece--Austerity Will Not Be Enough but Other Reforms Can Help
Jacob Funk Kirkegaard (PIIE) Apr 9, 2010
This week Greek bond spreads have widened to record levels— 407 basis points over German bonds—not seen since before it became apparent that Greece would join the eurozone in 2001. Clearly, financial markets are signaling their skepticism about Greece's prospects. For this, eurozone leaders share a lot of the blame. First, markets have predictably not been fooled by the announcement of "the Greek deal" on March 25 alone and the deal has therefore not by itself lowered Greece's cost of capital. The text of the agreement is simply too vague, uncertain, and too much of a political compromise to impress the notoriously "uncertainty averse" financial markets. For example, there are no details about what precisely triggers financial aid (what does "insufficient market financing" mean?) and what conditions would be attached to it (how high is a "non-concessional interest rate, containing no subsidy element"?).
Let traders call the next bubble
Sebastian Mallaby (WP) Apr 9, 2010
We can't wait on regulators to preempt the next financial crisis.
World Tariff Wars
WSJ Apr 9, 2010
U.S. protectionism is hurting American exports.
Global: On Different Sides of ‘Neutral'
Manoj Pradhan (MS GEF) Apr 9, 2010
The central banks of Australia and New Zealand have chalked out very different exit strategies due to different experiences during the Great Recession. The RBA is likely to raise rates 1-2 times this year, taking its policy rate into slightly restrictive territory. The RBNZ, on the other hand, is in no hurry to breach restrictive territory for its policy.
Brazil: Poster Boy of Globalization Charts Own Course
Kevin Casas-Zamora (YaleGlobal) Apr 9, 2010
Lula's independent policy plays well among supporters wary of his free market embrace
The “limits of arbitrage” agenda
Denis Gromb & Dimitri Vayanos (VoxEU) Apr 10, 2010
Why does arbitrage not always take place? This column reviews the “limits of arbitrage“ literature – whereby arbitrageurs cannot always raise the capital they need. It argues that regulation incentivising or even forcing arbitrageurs to take less risk could make everyone better off, arbitrageurs included. How best to do this remains an unanswered question.
Why China's exchange rate is a red herring
Avinash Persaud (VoxEU) Apr 10, 2010
The US obsession with the Chinese exchange rate is a classic example of blaming foreigners for domestic woes. This column argues that we’ve been here before. In the 1980s, the US government – reacting to political pressure from ailing US manufacturers – engineered a massive yen appreciation. That did as little to save US manufacturing jobs then as a rise in the yuan would do today.
A Greek bail-out at last but no real solution
Wolfgang Münchau (FT) Apr 11, 2010
I am still sticking with my prediction that Greece will eventually default. The numbers simply look too bad.
Renminbi adjustment will not cure trade imbalance
Yang Yao (FT) Apr 11, 2010
If the Treasury was really serious about China’s currency intervention, it would have taken real action already. The fact that it has not suggests it cares more about financing the budget deficit.
The skies brighten over Greece
Economist Apr 11, 2010
The EU-led aid package is huge—but more will be needed.
A stitch in time saves twenty-seven: The need for political will in the Eurozone
Giancarlo Corsetti & Harold James (VoxEU) Apr 12, 2010
The fiscal crises in some EU countries have put considerable strain on the region. This column argues that the solution requires a credible demonstration of political will from its political leaders. It suggests a voluntary commitment to support struggling governments with financial means provided at a penalty rate and against a clearly defined spending reduction programme.
US recovery: A new “Phoenix Miracle”?
Guillermo Calvo & Rudy Loo-Kung (VoxEU) Apr 12, 2010
The causes and consequences of the current global crisis have been compared with the Great Depression as well as crises in emerging markets. This column argues that the main difference between emerging market crises and the global crisis is that the former relied on an export recovery while the recent recovery has been fuelled by far less sustainable government expenditure.
Korea's hand, extended and waiting
Fred Hiatt (WP) Apr 12, 2010
Will the U.S. commit to free trade with South Korea?
Poland should not rush to sign up to the euro
Slawomir Skrzypek (FT) Apr 12, 2010
As a non-member of the euro, Poland has profited from the flexibility of the zloty exchange rate, helping growth and lowering the current account deficit without importing inflation.
Courting China
Gary Clyde Hufbauer (PIIE) Apr 12, 2010
To get more Chinese cooperation on currency revaluation and Iran, Obama should refrain from criticizing Beijing's greenhouse gas problem and signal that provocations over Tibet and Taiwan aren't part of his diplomatic agenda.
The debunking of fear signals further stock market rallies
Jim Paulsen (FT) Apr 12, 2010
Fear has played a dominant role in the current crisis.
Regulating Financial System Risk Key Issue in Reforms, says IMF
IMF Survey Apr 13, 2010
Reforms to the global financial system should prevent any one firm from becoming too important to fail, the IMF said in its latest analysis in the Global Financial Stability Report, released on April 13.
The crisis of wealth destruction
Henry CK Liu (AT) Apr 13, 2010
The financial crisis destroyed more wealth than the 2008 combined GDP of the United States, the European Union and Japan. Two years on, and after huge amounts of government aid around the world, global credit markets remain dangerously anemic and economies are still operating on intensive care.
Banks in crisis: 1929 and 2007
Henry CK Liu (AT) Apr 14, 2010
The 1929 banking crisis, which led to the Great Depression, and the financial implosion that started to envelop the world in 2007 have the same root cause (excess debt) and show similar distortions of the function of the stock market. But telling differences are also instructive.
Greece Won’t Beat Debt Hydra With Rescue Packages
Matthew Lynn (Bloomberg) Apr 13, 2010
Another day, another episode in the Greek rescue saga. Over the weekend, after five days during which Greek debt took a battering on the markets, the euro area’s governments met, talked, sweated, and then came up with their traditional solution. They dipped their fists into a big pot of euros and threw money at the problem.
Mr. Obama and Mr. Hu
NYT Apr 13, 2010
President Obama's best hope for persuading China to stop undervaluing its currency is with sustained pressure from many countries.
The bankers need to fight back
Robert Sloan (FT) Apr 13, 2010
If Wall Street wants to know what its future holds, it should look to the past.
Bismarck’s lessons for Beijing
Wen Liao (FT) Apr 13, 2010
China must accept that it is a global power with new responsibilities.
Capital Surges Can Be Difficult For Recipient Countries
IMF Survey Apr 13, 2010
The IMF released new analysis about the global crisis and its aftermath, including how unprecedented liquidity can fuel capital flows to countries with higher interest rates, the need for stronger financial regulation, and how risks in trading derivatives could be reduced through a central clearing house.
Can the “China Miracle” Last? (Part I)
Stephen Roach (Globalist) Apr 13, 2010
As impressive as the past 30 years have been, there are no guarantees that the Chinese formula for economic development will work as well in the years ahead. The reasons why China's booming economic growth may not last forever.
China’s Global Role (Part II)
Stephen Roach (Globalist) Apr 14, 2010
In an era of globalization, all nations have responsibility for stewardship of the global economy. That’s true of developed and developing economies alike. As one of the greatest beneficiaries of the globalization of trade flows, China is hardly an exception to that core principle.
Politics hampers effort to reform the $450 trillion derivatives market
WP Apr 14, 2010
"Derivatives" is the financial industry's fancy term for contracts that market participants make with one another to profit from, and protect against, various kinds of risk. A grain futures contract helps a farmer hedge against an unexpected drop in the price of his crop; a credit default swap enables a bond buyer to insure against a corporate failure. Derivatives, therefore, are wonderful; they grease the wheels of capitalism by promoting economically rational risk-taking. And derivatives can be terrible; they induce investors to take too much risk by giving them a false sense of security. A major cause of the recent financial crisis was AIG's sale of credit default swaps to big banks, without enough collateral to back them.
The global crisis hits home: New evidence from Europe and Central Asia
Naotaka Sugawara, Victor Sulla, Ashley Taylor & Erwin R. Tiongson (VoxEU) Apr 14, 2010
The global crisis threatens the welfare of over 160 million people living around the poverty line in Europe and Central Asia. This column reports the findings of a recent World Bank analysis in the region. It estimates that the crisis will result in close to 35 million more people living around the poverty line.
Moving Toward a More Balanced Global Economy
IMF Survey Apr 14, 2010
Global economic imbalances narrowed during the world financial crisis, but a strong and balanced recovery requires this narrowing be made more durable, the IMF says. The IMF's flagship World Economic Outlook examines how surplus countries can reduce their large positive current account balances.
US, Brazil Agree to Negotiate End to Cotton Dispute
Bridges Weekly Trade News Digest, Volume 14, Number 13 Apr 14, 2010
Defusing a long-running trade dispute over American cotton subsidies, the United States and Brazil agreed last week to begin negotiating a compromise deal that could prevent the implementation of Brazilian trade sanctions on a wide range of US goods and intellectual property.
Only Athens can rescue Greece
Daniel Gros (FT) Apr 14, 2010
With the offer of EU financing now agreed, the country might save about €900m a year – a tiny fraction of its deficit.
Beijing Is Key to Creating More US Jobs
C. Fred Bergsten (PIIE/FP) Apr 14, 2010
China has apparently decided to let its currency start rising again. There are two objectives. Domestically, a stronger renminbi will help counter inflationary pressure and dampen the excessive growth that is fueling it. Internationally, appreciation will start curbing China's huge current account surplus and thus counter the pressures that are building in the United States and elsewhere to retaliate against China's massive currency undervaluation by installing new barriers against its exports. The overriding issue is whether China will move quickly enough and substantially enough to achieve these goals.
Greece: Is the End Game a Sovereign Default?
Jacob Funk Kirkegaard (PIIE) Apr 14, 2010
In Europe, bond markets are more powerful than voters in intimidating politicians to make faster and different decisions. So, in a manner uncomfortably close to the chaotic Lehman Brothers meetings over a single weekend last year at the NY Federal Reserve, the eurozone last weekend finally offered more clarity to financial markets about its earlier commitment to take "determined and coordinated action, if needed."
China’s property bubble
Takatoshi Ito (VoxEU) Apr 15, 2010
One objection to the calls for China to let its currency appreciate argues that the yen's appreciation during the 1980s was a cause of Japan’s “lost decade”. This column instead blames policymakers for not dealing with Japan’s property bubble early enough. China should learn from these mistakes with its own property bubble and let the renminbi appreciate.
Argentina: Managing Through
Daniel Volberg (MS GEF) Apr 15, 2010
In our view, Argentina may be on the verge of regaining access to international capital markets, helping it to manage through the next two years despite fiscal slippage and rising debt service obligations.
Mathematicians must get out of their ivory towers
Gillian Tett (FT) Apr 15, 2010
Bad maths are to blame for the financial crisis, not the discipline itself.
Islamic finance: Sukuk it up
Economist Apr 15, 2010
Sharia-compliant finance is not broken, but it is dented.
Small-business finance: Markets for minnows
Economist Apr 15, 2010
New financing markets offer a ray of hope to credit-starved small firms.
Soros's gamble: Twin peaks
Economist Apr 15, 2010
George Soros has left his mark on many economies. Can he do the same for economics?
Greece's sovereign-debt crisis: Still in a spin
Economist Apr 15, 2010
A rescue by the European Union and the IMF has given Greece some breathing space. But much more may need to be done to avert eventual default.
Is China a Currency Manipulator?
Various (CFR) Apr 15, 2010
A debate whether the Obama administration's approach to China's currency policy is the right one, and why.
Globalization in Higher Education
Ben Wildavsky (Brookings/YaleGlobal) Apr 15, 2010
China’s efforts to improve its universities via partnerships with Western institutions represent an international trend toward bettering higher education. Singapore, South Korea, and Saudi Arabia have all engaged in similar partnerships intended to grow a strong national university system and thus mitigate the effects of the brain-drain. In Western Europe, nations such as France and Germany are trying to use the contest for government funding as a way to make their universities competitive on a global scale. While some universities in the US and UK view the rise of foreign world-class universities as a threat to their own national academic preeminence, they fail to recognize the opportunities afforded by a global academic community with an unprecedented breadth of publicly available knowledge. The ensuing global competition for research will only accelerate progress toward innovation and economic development from which all nations stand to benefit.
How Quickly Will China Move?
C. Fred Bergsten (PIIE) Apr 16, 2010
If China does let its currency start rising again, as widely speculated, the overriding issue is whether it will move quickly and substantially enough. The renminbi is undervalued by about 25 percent on a trade-weighted average basis and by about 40 percent against the dollar. No one expects China to curtail this huge misalignment in a single step. But it needs to both make a sufficient "down payment" to be credible and assure that appreciation will continue until the undervaluation has been eliminated.
Zoellick sees end of 'Third World'
Jim Lobe (AT) Apr 16, 2010
World Bank president Robert Zoellick wants recognition of a new world order that is emerging from the global financial crisis, one in which the old views of a "Third World" and a "North-South" divide are no longer relevant. Critics say the World Bank itself should start reflecting such a changed perspective.
Climate change and the pattern of trade: Historical evidence
Benjamin Jones & Benjamin Olken (VoxEU) Apr 16, 2010
What are the likely economic effects of climate change? This column examines the impact of changes in climate on detailed export data. If a poor country is one degree Celsius warmer in a given year, its exports are lower, by as much as 5.7%. While there is no effect on rich countries’ exports, their consumers will still suffer from reduced imports at higher prices.
Which banking resolution authority for Europe?
Gregory Nguyen & Peter Praet (VoxEU) Apr 16, 2010
The global crisis has called into question the efficacy of regulation in all affected markets – none more so than the EU. This column argues that the time when each European country can have a different resolution framework has come to an end and the EU’s resolution framework is still in need of major reform.
The US-Sino currency dispute: Introducing a new eBook
Simon J Evenett (VoxEU) Apr 16, 2010
Today Vox posts a new eBook “The US-Sino currency dispute: New insights from economics, politics, and law” that gathers 28 short essays written by 33 authors from around the world. The eBook provides the best available economic, legal, political, and geopolitical thinking on the confrontation, as well as on the causes and likely consequences of the dispute.
Trade Protectionism Could Slow Global Recovery, says IMF
IMF Survey Apr 16, 2010
Restrictions on trade imposed by countries trying to protect their economies facing tough times could make it harder for them to recover from the global economic crisis, according to new findings by IMF staff.
Opinion: Africa Reboots
Bono (NYT) Apr 17, 2010
A new alliance of activists and entrepreneurs is rewriting the rules on the continent.
What are the costs of reducing a large current-account surplus?
Abdul Abiad, Daniel Leigh & Marco E. Terrones (VoxEU) Apr 17, 2010
As the debate over whether China should reduce its current-account surplus continues, this column examines 28 such surplus reversals in advanced and emerging market economies over the past 50 years. Surplus reversals were not associated with lower growth in output or employment. Moreover, there are better balances between external and domestic demand and between growth in the tradables and non-tradables sectors.
Securitisation failings: Market failure or missing market?
Harald Hau (VoxEU) Apr 17, 2010
What good can come from the global crisis? This column argues that a major cause of the crisis was the lack of exchange trading for derivatives, which prevented market prices from signalling their inherent risk – more "missing market" than "market failure". The use of exchange trading for Greek sovereign debt, for example, marks a new and improved era in modern finance.
Global safety nets: The IMF as a swap clearing house
Tito Cordella & Eduardo Levy-Yeyati (VoxEU) Apr 18, 2010
Is the international-lender-of-last-resort IMF agenda passé? This column argues that the IMF could act as a “central bank swap clearing house” – an independent entity that manages existing and enhanced central bank swap agreements in one liquidity network for eligible countries and stands ready to step in with traditional programmes if liquidity fails.
Bankers' conflicts of interest in the interwar years: New lessons for today
Marc Flandreau, Norbert Gaillard & Ugo Panizza (VoxEU) Apr 18, 2010
The global crisis is frequently compared to the Great Depression and the interwar debt crises. This column argues that, contrary to prevailing opinion, the interwar debt crisis had little to do with bankers’ conflicts of interest – intermediaries were in fact careful in selecting and placing sovereign bonds. Then, as now, public opinion may not be the best guide to policy.
Greece’s bail-out only delays the inevitable
Wolfgang Münchau (FT) Apr 18, 2010
By my calculations, we should focus not on whether we can avoid a Greek default but on how best to manage it.
The impact of the financial crisis on poverty and income distributions
Bilal Habib, Ambar Narayan, Sergio Olivieri & Carolina Sanchez-Paramo (VoxEU) Apr 19, 2010
A shortage of real-time data hinders evaluations of the impact of the global crisis on developing countries. This column uses a “microsimulation” approach to assess the poverty and distributional effects in Bangladesh, Mexico, and the Philippines. It finds that poverty will increase by well over a million, and that the crisis has been hardest for middle-income households.
Greece and the Eurozone--Now Gambling with Europe's Future
Jacob Funk Kirkegaard (PIIE) Apr 19, 2010
The news that Greek 10-year bond yields are now above 7.5 percent—significantly above the rate just before the announcement of a joint eurozone/IMF rescue of at least €30 billion—deals a new blow to eurozone leaders. Financial markets are basically telling them that in rescuing Greece, they may be wasting their money! Ironically, Greece's misfortunes may include some good news for the region, in that there has been a clear divergence on rates between Greece and the other so-called PIIGS countries (Portugal, Ireland, Italy, Greece, and Spain). This trend suggests relatively limited immediate contagion risk to Italy or Spain, perhaps reflecting their somewhat healthier economic fundamentals. Nevertheless, the governments in Lisbon and Madrid cannot afford to be complacent. They need to change their ways soon if they want to avoid the fate of Athens.
America’s disastrous debt is Obama’s biggest test
Roger Altman (FT) Apr 19, 2010
The country’s fiscal picture is even worse than it looks. It will be political and financial factors that determine which of three budget paths America now follows.
Beware the impact of a resurgent greenback on other worldwide currencies
Mansoor Mohi-uddin (FT) Apr 19, 2010
A spell of greenback strength, when policymakers are lulled by a global economy recovery, may spark future crises in the currency markets
Do public guarantees influence bank risk taking? Evidence from a natural experiment
Reint Gropp, Christian Gründl & Andre Güttler (VoxEU) Apr 20, 2010
Public guarantees in the wake of the global crisis have been wide-spread. This column presents recent research on the effects of a 2001 law to remove government guarantees for German banks. It finds that such guarantees were associated with significant moral hazards and removing them reduced the risk taking of banks, their average loan size and their overall lending volumes.
International business travel and innovation: Face-to-face is crucial
Nune Hovhannisyan & Wolfgang Keller (VoxEU) Apr 20, 2010
Volcano-linked flight restrictions have brought Europe’s business travel to a halt; does it matter? This column describes recent research that demonstrates that short-term cross-border travel is critical to technology transfer and innovation – crucial factors behind economic growth.
Government Borrowing Is Rising Risk to World Financial System
IMF Survey Apr 20, 2010
The global financial system and world economy are slowly regaining health, thanks largely to unprecedented interventions by governments, but the sharp rise in already elevated government debt during the economic crisis helped create growing sovereign risk, the IMF says.
The challenge of halting the financial doomsday machine
Martin Wolf (FT) Apr 20, 2010
There is much more to effective reform of the financial system than tackling “too big to fail”. The big issues are the credit cycle and panics.
China is the key to unwinding global imbalances
Arvind Subramanian (FT) Apr 20, 2010
A new, more worrying set of global imbalances is now emerging and there is an urgent need for co-ordination among emerging economies on managing capital flows and exchange rates.
When clever insiders are pitted against naive outsiders
John Plender (FT) Apr 20, 2010
Financial history has nothing to compare in sophistication and complexity with the collateralised debt obligation.
The Rise and Fall of Goldman Sachs
Globalist Apr 20, 2010
Do recent civil fraud charges leveled by the U.S. Securities and Exchange Commission against Goldman Sachs indicate that the firm is becoming a victim of its own success?
Germany’s trade surplus and investments in southern Europe
Francesco Giavazzi (VoxEU) Apr 21, 2010
Should Germany keep running a trade surplus? This column argues that any decision should be based on Germany’s interests alone. But new data suggests that its investments in southern Europe may be at risk of being wasted because the euro has removed the need for these countries to pay risk premiums. Germany might therefore consider cutting its surplus and boosting domestic consumption.
Asia sunny, Europe cloudy
Economist Apr 21, 2010
The IMF becomes more optimistic about the outlook for GDP growth this year and next.
Concluding Doha is 'Top Priority': Cairns Ministers
Bridges Weekly Trade News Digest, Volume 14, Number 14 Apr 21, 2010
An ambitious and balanced outcome to farm trade talks in the WTO's troubled Doha Round must be "top priority" for the organisation's members, said trade ministers from the Cairns Group of countries, a 19-member bloc that supports far-reaching farm trade reform.
The IMF and taxing the banks
Economist Apr 22, 2010
Proposals to tax the world's financial firms will be popular, but are incomplete.
IKB, credit-crunch chump: The bigger fools
Economist Apr 22, 2010
The bank left holding the can.
Fraud accusations at Goldman Sachs: Vampire squished?
Economist Apr 22, 2010
What is bad for Goldman is bad for Wall Street, but good for regulatory reformers.
Reversing current-account surpluses: Surplus ça change
Economist Apr 22, 2010
What would happen if China revalued the yuan? The past offers some clues.
Sub-Saharan Africa and the great trade collapse
Nicolas Berman & Philippe Martin (VoxEU) Apr 22, 2010
Sub-Saharan Africa’s low level of financial development meant that African banks were not directly involved in the credit crunch. But this column warns against rejoicing. If the cost of such low development is that African exporters are very dependent on external trade finance, then the real cost of the global crisis on Africa may actually be higher.
Is Greece different? Adjustment difficulties in southern Europe
Alcidi Cinzia & Daniel Gros (VoxEU) Apr 22, 2010
The fiscal crises faced by countries in southern Europe have led many commentators to group them together in their analysis. This column argues that the causes of these overvalued currencies and twin deficits are different. For Greece and Portugal the problem is insolvency; for Ireland and Spain, illiquidity. Italy has a higher savings rate and its foreign imbalances are much smaller.
Bad loans could take their toll on China’s growth
Michael Pettis (FT) Apr 22, 2010
The danger is that the cost of cleaning up the banking system will fall, as in the past, on the household sector.
Why we need a resolution authority for Europe's banks
Marek Belka (FT) Apr 22, 2010
The global economic crisis has exposed serious gaps in the EU's ability to act when a bank runs into trouble and its problems threaten to spill across borders.
'Region of Reverse Command:' Consequences of the Industrialized Country Debt Explosion
Ramin Toloui (PIMCO) Apr 23, 2010
Investors are only beginning to enumerate and understand the full consequences of the debt explosion in industrial countries.
Bankruptcy Reform Will Limit Bailouts
Thomas Jackson and David Skeel (WSJ) Apr 22, 2010
If Bear Stearns or AIG had been able to keep their derivatives creditors at bay, there would have been much less justification for a taxpayer rescue.
Clearinghouses Are the Answer
Gary Gensler (WSJ) Apr 22, 2010
Complex derivatives should be regulated like commodity futures.
America must face up to the dangers of derivatives
George Soros
(FT) Apr 22, 2010
Credit default swaps can be used to mount bear raids; in addition to insurance they also provide a licence to kill.
Greece and Who's Next?
NYT Apr 23, 2010
The economic turmoil in Greece is spreading, but many European leaders are in denial. Speed is essential in putting together a bailout plan.
Will Chinese revaluation create American jobs?
Simon J Evenett & Joseph Francois (VoxEU) Apr 23, 2010
Many in the US are pushing China to revalue the renminbi. Will that create US jobs? Traditional Keynesian analysis associates higher exports and lower imports with more jobs, but today’s world is more complex. Chinese parts and components feed into US firms’ global competitiveness. This column says a dearer renembi would boost the competitiveness of US exports to China but reduce US competitiveness everywhere else. A revaluation may be the right policy for other reasons, but its impact on US jobs is far from clear.
Estimating the effect of renminbi appreciation on US jobs
William R. Cline (VoxEU) Apr 23, 2010
Would appreciation of the renminbi actually destroy US jobs? This column discusses recent estimates that find that making intermediate inputs from China more expensive would hurt US global competitiveness. It argues that the direct effect of an improvement in the US trade balance would create far more jobs than might be lost to more expensive intermediate inputs.
Thinking clearly about offshoring
Richard Baldwin (VoxEU) Apr 23, 2010
Offshoring is one of the most controversial outcomes of globalisation. This column asks whether economists need a new analytic framework to understand it. New research argues that all you need is good old-fashioned trade theory to keep your thinking straight.
Debt and Unemployment: Is Global Capitalism Responsible? - Part I
Jeffrey E. Garten (YaleGlobal) Apr 23, 2010
Politicians propose reforms but it’s the global market that disposes.
Back to Basics on Financial Reform
Niall Ferguson and Ted Forstmann (WSJ) Apr 24, 2010
The case for limiting leverage and regulating derivatives is overwhelming, but that doesn't require a new 1,300-page law.
The next imbalance
Arvind Subramanian (VoxEU) Apr 24, 2010
Global imbalances have been central to the recent debate of China’s exchange-rate policy and its effect on US jobs. This column argues that global imbalances are not going away. The policy solution is clear. Coordination is needed among emerging economies on managing capital flows and exchange rates. Swift and substantially policy from China can help bring this about.
For Greece’s Economy, Geography Was Destiny
Robert D. Kaplan (NYT) Apr 24, 2010
Northern Europe has much to gain by bailing out Greece, Italy and its other southern cousins.
Can China save the world by consuming more?
Hans Genberg & Wenlang Zhang (VoxEU) Apr 25, 2010
Would an increase in Chinese domestic demand meaningfully reduce global imbalances and improve US and European employment prospects? This column says that Chinese policy has a relatively small impact on developed economies' macroeconomic circumstances. It estimates that major reduction in Chinese saving would improve US employment by less than one quarter of a percentage point.
Greece is Europe’s very own subprime crisis
Wolfgang Münchau (FT) Apr 25, 2010
Just as unhappy families are unhappy in their own distinct ways, Portugal is different from Greece. But its problems are no less severe.
Time to take Wall Street out of Washington
Robert Reich (FT) Apr 25, 2010
Even as Congress debates legislation to tame it, Wall Street is conducting a bidding war between the parties for its continued beneficence.
Berating the Raters
Paul Krugman (NYT) Apr 25, 2010
The Goldman Sachs e-mail messages we should be focusing on are the ones from employees at the rating agencies, which reveal huge conflicts of interest.
What happened to US interbank lending in the financial crisis?
Gara Afonso, Anna Kovner & Antoinette Schoar (VoxEU) Apr 26, 2010
Many commentators have argued that interbank lending froze following the collapse of Lehman Brothers. This column presents evidence from the fed funds market that, while rates spiked and loan terms became more sensitive to borrower risk, mean borrowing amounts remained stable on aggregate. It seems likely that the market did not expand to meet additional demand for funds.
World Bank gives more clout to a rising China
WP Apr 26, 2010
The World Bank recognized China's growing economic influence and agreed Sunday to elevate Beijing's voting power, placing it behind only the United States and Japan in the 186-nation lending organization.
The Misguided Attack on Derivatives
L. Gordon Crovitz (WSJ) Apr 26, 2010
Short-selling warns markets that an asset bubble is about to burst.
Global: Hot Economies Need Policy Cooling
Manoj Pradhan & Chetan Ahya (MS GEF) Apr 26, 2010
AXJ central banks are balancing the upside risks from their domestic growth stories against the persistent downside risks to sustainable recoveries in the G10 world. This delicate balancing act is most likely the reason why AXJ central banks are acting slower than markets have expected.
New Basel rules must address past shortfalls
Hugo Bänziger (FT) Apr 26, 2010
Ignoring the warning signs of history will make the next financial crisis even more severe.
Debt and Unemployment: Is Global Capitalism Responsible? - Part II
David Dapice (YaleGlobal) Apr 26, 2010
Lingering high joblessness in US threatens global prosperity.
How Italy, France, and Germany Diverged in 2004
Carlo Bastasin (PIIE) Apr 27, 2010
The eurozone’s divergences can be traced back to a moment in the last decade when political behavior in Italy, France, and Germany took very different paths. I use Real Effective Exchange Rate (REER) data in both their forms (consumer price index [CPI]-based and unit labor cost [ULC]-based, as provided by the European Central Bank) to underscore the more divergent behavior of national labor costs relative to national prices. For each country these two indicators are seen to have been closely related when national currencies were in place, i.e., before the advent of the euro. After 2000, instead of following a “common” path, the two indicators diverged in all three countries, and most importantly within each of them.
CEEMEA: A Survey of FX Intervention Policy
CEEMEA Economics Team (MS GEF) Apr 27, 2010
We look at the various forms, nature and impact of FX interventions that are being practiced by the central banks in the region.
Picking the winning way: The right policy to support entrepreneurs
William Kerr & Ramana Nanda (VoxEU) Apr 27, 2010
How should a government promote entrepreneurship? This column argues that providing support programmes for targeted sectors or companies is akin to “picking winners ex ante”. A far better approach is to encourage competition in the financial sector that facilitates experimentation in the real economy. Governments should forget about picking winners and focus on picking the right system.
The Biggest Losers: Who Gets Hurt from a Greek Default or Restructuring
Jacob Funk Kirkegaard (PIIE) Apr 27, 2010
As the European Union dithers and the Germans temporize at least until their May 9 election, financial markets (and belatedly even Standard and Poors) have awarded junk bond status to Greek debt and made a Greek default their central forecast scenario. Europe appears headed down the road of an abrupt, chaotic default proceeding or a more organized debt restructuring agreement in which creditors take a haircut on their Greek debt, possibly in return for further austerity measures by the Greeks.
Why cautious reform is the risky option
Martin Wolf (FT) Apr 27, 2010
A financial system in which intermediaries assume risks on their own books is inherently unstable. It is too likely that they will make the same mistakes together, thereby creating a panic and threatening the system. This is the Achilles heel of market economies.
Greek crisis begets a German backlash
David Marsh (FT) Apr 27, 2010
Leading German figures never explained that large deficits in countries such as Greece would eventually impinge on Germany’s own finances.
Will the real Adam Smith stand up
Hossein Askari and Noureddine Krichene (AT) Apr 28, 2010
The International Monetary Fund and Group of 20 meetings last weekend underlined how little should be expected from such beholden institutions and politicians. Leaders (and students) in the United States and elsewhere need to restore a sense of decency to the public and private sectors. Reading Adam Smith's "other" book would be a start.
Would freeing up world agricultural trade reduce or increase poverty?
Kym Anderson, John Cockburn & Will Martin (VoxEU) Apr 28, 2010
Many economists argue that removing trade barriers such as the EU’s Common Agricultural Policy will be globally welfare-improving. This column presents findings from simulations that estimate the welfare effects depending on the extent of trade reform and possible policy responses. It suggests that removing the world’s price and trade distortions would reduce the number of poor people worldwide by 3%.
Time to rein in the ratings agencies
John Gapper (FT) Apr 28, 2010
If the crisis proves anything, it is that the agencies enjoy too much authority among investors and regulators. Any reform that would loosen their grip on bond markets deserves a shot.
Europe needs a framework for debt crises
Jean Pisani-Ferry and André Sapir (FT) Apr 28, 2010
The EU needs to design a European Debt Resolution Mechanism so that members with unsustainable debt can resolve it with creditors in an orderly way.
Greek crisis endangers private sector
Mohamed El-Erian (FT) Apr 28, 2010
What started out as a public finance issue is quickly turning into a banking problem too; and, what started out as a Greek issue has become a full- blown crisis for Europe.
Greek distress could stimulate divergent costs of capital
David Bowers (FT) Apr 28, 2010
Politicisation of the allocation of capital, and the re-regionalisation of its cost, are themes we are going to hear a lot more about.
Earth to Europe--Get Real! And Why the IMF Should Now Focus on Portugal and Spain
Jacob Funk Kirkegaard (PIIE) Apr 28, 2010
On the day that the Greek debt starts to spread to Portugal and Spain, and Standard and Poor's predicts a 50 to 70 percent haircut on Greek debt, what is the official response in Europe? Simply disastrous!
Spain, the holder of the European Union's rotating presidency—in time-tested EU fashion—calls an EU Summit to discuss the issue—on May 10, two weeks from now. Considering that Greek bond spreads have risen 15 percent in a matter days, it is hard to take such a proposal seriously. Moreover, pushing the date to one day after the May 9 German regional election once again illustrates the failure of EU policymakers to grasp the situation, which they mistakenly still see as less important than placating domestic political concerns in Germany. Hopefully today's downgrading of Spain itself to AA by Standard and Poor's will focus minds in Madrid!
ACTA Text, Finally Unveiled, Reflects Differences on Key Provisions
Bridges Weekly Trade News Digest Volume 14, Number 15 Apr 28, 2010
The veil of official secrecy that has shrouded talks on an "Anti-Counterfeiting Trade Agreement" for the past two years was finally lifted last week, with the release of a comprehensive draft negotiating text.
The G-20, Power, and Ideas
Arvind Subramanian (PIIE) Apr 28, 2010
The wobbly West and the rising rest. That is now the context to all gatherings of the world's economic policymakers. The monopoly on power and influence wielded by the hegemon (the United States) and by the other advanced economies is being broken for real and for good. Key decisions will emanate less from conversations amongst a few and more from a wider group. It is difficult to predict whether the theater of real action will be the G-20 or some other collectivity. But we can be increasingly sure that the "halcyon" days of the G-1 or the G-7 are behind us.
The Riskiest Financial Firms In America
Thomas F. Cooley (Forbes) Apr 28, 2010
New measurements identify the institutions that pose the greatest risk.
Yuan-linked inflation ahead
Axel Merk and Kieran Osborne (AT) Apr 29, 2010
China policymakers will allow the yuan to strengthen when they deem it in their country's interests, not because the United States demands it. When Beijing does permit the currency to appreciate, politicians in Washington can expect their constituents to face rising prices in the aftermath.
Global Bank Heist
WSJ Apr 29, 2010
A world bailout tax is a revenue grab that won't reduce risks.
Household debt and macroeconomic fluctuations
Atif Mian & Amir Sufi (VoxEU) Apr 29, 2010
US Congressional committees are now grilling bankers on the complex instruments that provided subprime mortgages with a veil of security. This column presents new evidence that subprime mortgages had more serious consequences – they were a key factor in the US housing-price boom. When house prices faltered, subprime mortgage holders defaulted en masse, eventually leading to the global crisis.
Rising Debt, Deficits Are Long-Run Threats, Economists Say
IMF Survey Apr 29, 2010
Advanced economies must take steps soon to address high and growing government debt and deficits even as many have to maintain stimulus programs for the next year or so to deal with lingering effects of the recent global recession, a panel of leading economists agreed at an IMF-sponsored forum.
Europe unravels in a tangle of national interests
Philip Stephens (FT) Apr 29, 2010
The European Union no longer carries the stamp of inevitability. Quite suddenly, it has become easy to foresee a future in which it fractures. The risk is not so much a great rupture – but of the atrophy that flows from the absence of political leadership.
The crisis will spread without a Plan B
Nouriel Roubini and Arnab Das (FT) Apr 29, 2010
Much time has been lost in denial, but if the following steps are taken it might not be too late to avoid a disorderly outcome.
The Euro Trap
Paul Krugman (NYT) Apr 29, 2010
When Greece, Portugal and Spain joined the euro zone, they put themselves in a policy straitjacket. Now they face a debt crisis. There is a lesson here.
Resentment in Germany and Greece over a bail-out
Economist Apr 29, 2010
The prospect of a bail-out is causing resentment in both Germany and Greece.
The euro zone's debt crisis: The cracks spread and widen
Economist Apr 29, 2010
Panic about the Greek government's ability to repay its creditors is infecting other euro-area countries' sovereign debt. Where will it end?
Solving Europe's debt crisis: Acropolis now
Economist Apr 29, 2010
The Greek debt crisis is spreading. Europe needs a bolder, broader solution—and quickly.
The financial markets and Greece: Going for markets
Economist Apr 29, 2010
The Greek crisis has unleashed more misguided attacks on the financial markets.
Is an undervalued renmimbi the source of global imbalances?
Charles Wyplosz (VoxEU) Apr 30, 2010
The current debate in the US over Chinese exchange-rate policy can be viewed as a rerun of the 1970s and ‘80s, with China taking Japan’s role. This column, which first appeared in the Vox's latest eBook, argues that while there is a relationship between current-account deficits and surpluses, causality is difficult to establish. Politics aside, even if China does not choose to appreciate its currency, inflation will eventually finish the job.
What should the US and China learn from the past US-Japan conflict?
Jenny Corbett & Takatoshi Ito (VoxEU) Apr 30, 2010
Amongst other reasons, Chinese authorities hesitate to let the renminbi appreciate because they believe that a prime cause of Japan’s 20-year stagnation was its caving in to US demand for an appreciation of the yen. This column, which first appeared in Vox's latest eBook, argues that it was not caving to US pressure but resisting it that made Japanese monetary policy too lax and contributed to its asset bubble.
Iceland’s special investigation: The plot thickens
Thorvaldur Gylfason (VoxEU) Apr 30, 2010
What brought down Iceland’s banks? This column examines the revelations from the latest report from the Icelandic parliament, raising the possibility that the collapse of Iceland’s three largest banks is the result of “control fraud” where shareholders stole from their own bank in the same way as those convicted of looting from the American saving and loan banks in the late 1980s.
So, yuan to fight about it?
Joel P. Trachtman (VoxEU) Apr 30, 2010
Does the US have a legal case against China’s exchange-rate regime? This column, which first appeared in Vox's latest eBook, argues that any claim against China at the WTO would face substantial hurdles, and would be unlikely to add pressure on China any time soon. If a claim does go ahead, it is more likely than not to fail.
Emerging markets and the crisis: How have they coped?
Reza Moghadam (VoxEU) Apr 30, 2010
How have emerging markets been affected by the global crisis? This column presents evidence that countries that improved their policy fundamentals and reduced their vulnerabilities in the pre-crisis period generally came out ahead during the crisis. They experienced smaller growth collapses, had more “space” to take countercyclical policy measures, and are recovering faster.
Europe's Other Crisis
Matthew Kaminski (WSJ) Apr 30, 2010
The bailout of Greece threatens the very integrity of the European Union.
The Price of Greek Debt
WSJ Apr 30, 2010
The euro-zone will pay dearly in credibility.
Global: Concerning Conditional Commitments
Manoj Pradhan (MS GEF) Apr 30, 2010
The time-commitment tool has served its purpose in three ways. We believe that it is likely to retain an important role even once central banks start hiking rates. Given its success, we believe that central banks could employ similar strategies should they need to signal a pause in their hiking cycle or sell QE assets in a moderated manner.
Global Rebalancing Favors US Net Exports
Richard Berner (MS GEF) Apr 30, 2010
We think that strong global growth will boost US net exports and add materially to growth in US output in 2010 and 2011. Domestic demand in the fast-growing economies is driving growth, and US exporters should be increasingly leveraged to that rapidly growing pie.
Wake Up to the Dangers of Greece
Simon Johnson (PIIE) Apr 30, 2010
Most days we can coast along, confident that tomorrow will be much like yesterday. On a very few days we need to look hard at the news headlines, click through to read the whole story, and then completely change a large chunk of how we thought the world worked. April 28 was such a day.