Prize or Penalty: When Sports Help Economies Score
Finance and Development Mar/May 2010
A look at why countries vie to host the world's most costly sporting events. And, in a series of articles on "After the Crisis," we discuss why some countries were hit harder than others; how were shocks transmitted round the world, and whether protectionist pressures might intensify in 2010. As usual, we take on a number of hot topics, including housing prices, bankers' bonuses, Ponzi schemes, and inflation targeting. In "Picture This" we see that the number of hungry is on the rise, topping 1 billion. Our regular "People in Economics" column profiles Daron Acemoglu, the Turkish-born intellectual who won the American Economic Association's award in 2005 for the most influential U.S. economist under the age of 40. "Back to Basics" explains inflation; and "Data Spotlight" looks at how dollarization is declining in Latin America.
Reining in Europe’s Debtor Nations
Hans-Werner Sinn (Project Syndicate) May 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.
Balancing the State and the Market
Josef Ackermann (Project Syndicate) May 2010
The financial and economic crisis that erupted in 2008 has dented faith in the market, while trust in government and regulation is increasing. But we must resist the temptation to believe that a meddling, paternalistic state is the way of the future.
Europe’s Dominos of Doom
Janis A. Emmanouilidis (Project Syndicate) May 2010
Many see Greece as the potential first domino to fall in a scenario that runs as follows: the Greek austerity measures do not suffice, the debt crisis deepens, and the risk of a sovereign default spreads to other European economies. But this domino theory is incomplete, because it overlooks social and the political spillover effects – that is, effects that go well beyond the economic realm.
Henry I. Miller (Project Syndicate) May 2010
The Bill and Melinda Gates Foundation's approach to malaria focuses on bed nets, which are only modestly effective intervention, and on the development of a vaccine, which has eluded intensive efforts for decades. Gates could do a lot more good by helping to de-stigmatize an old, cheap, and safe way to control the mosquitoes that spread the disease: the chemical DDT.
Can the Euro be Saved?
Joseph Stiglitz (Project Syndicate) May 2010
It is not too late for the EU to implement the institutional reforms needed to make the euro work, and thus live up to the ideals, based on solidarity, that underlay the common currency's creation. But if Europe cannot do so, then perhaps it is better to admit failure and move on than to extract a high price in unemployment and human suffering in the name of a flawed economic model.
Brazilian Lessons for Industrial Policy
Tarun Khanna and Santiago Mingo (Project Syndicate) May 2010
Few economic ideas are more lauded and reviled than that of industrial policy. As industrial policy undergoes a renaissance worldwide, Brazil’s experience in promoting renewable fuels, beginning in the 1970’s, is directly relevant to the debate over its merits, and suggests that the key to success is the timely withdrawal of subsidies and protective measures.
Understanding the Greek Aftershocks
Mohamed El-Erian (PIMCO) May 2010
In our highly interconnected world, previously unthinkable phenomena can become reality in a surprising and highly disruptive manner.
What’s in a BRIC?
Joseph Nye (Project Syndicate) May 2010
Brazil, Russia, India, and China recently held their second annual summit in Brasilia. Journalists have continued to lavish attention on the “BRICs” since Goldman Sachs coined the term in 2001, but the category still makes little sense for long-term assessments of global power relations.
A More Perfect Monetary Union
Leszek Balcerowicz (Project Syndicate) May 2010
The eurozone is often considered an experiment: a monetary union without political unification. But such monetary unions have existed – the gold standard being the most notable example – and they offer some important lessons about how to make the eurozone work.
Greek Lessons for the World Economy
Dani Rodrik (Project Syndicate) May 2010
The Greek crisis is yet another manifestation of the political trilemma of the world economy: economic globalization, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time.
Return to the Abyss
Nouriel Roubini (Project Syndicate) May 2010
A practical definition of a financial crisis is an event that forces policy officials to spend a long weekend trying desperately to announce a new bailout package in order to avoid national and global panic before the markets open on Monday. By that standard, the global crisis is far from over; On the contrary, we have now reached its most dangerous stage.
Using Behavioral Finance to Better Understand the Psychology of Investors
Charles Wallace (II) May 2010
Over the past 15 years, there has been a steady increase in the number of fund managers that are using behavioral finance concepts to select stocks and construct portfolios.
Europe’s Historic Gamble
Barry Eichengreen (Project Syndicate) May 2010
The last few weeks have been the most amazing – and important – period of the euro’s 11-year existence. Having doubled their bets on the euro, European leaders now must make their monetary union work.
George Akerlof (Project Syndicate) May 2010
A great strength of economics is its ability to examine how decisions are made from the point of view of decision makers. But in most economic analysis, the decision makers’ point of view is quite narrow, for it ignores the key role of people's identities and social norms in shaping motivations.
The End of Fiscal Sovereignty in Europe
Michael Spence (Project Syndicate) May 2010
The current crisis in the eurozone vividly underscores the importance of fiscal discipline – a point that the common currency's creators understood well. Today, EU leaders and member states must recognize that achieving the combination of discipline and flexibility needed to protect the collective interest and sustain the eurozone implies a loss of full fiscal sovereignty.
Are the Barbarians at the EU Gates?
Daniel Gros (Project Syndicate) May 2010
The Greek crisis poses an almost existential challenge – and has required such huge sums – because it poses the key question of European governance: can a member state of the EU be allowed to fail? As long as EU leaders cannot answer that question, financial markets will continue to harbor doubts about the euro’s long-term stability.
Return of the Nervous Weekend
Mohamed El-Erian (PIMCO) May 2010
What started as a Greek debt problem has gone regional and now global.
Corruption gets an unfair rap
Walden Bello (AT) May 1, 2010
Corruption, particularly in developing countries, is often associated with and held at least partially responsible for poverty. Yet it is the vocal middle-classes and global financial institutions whose voice is heard loudest in this debate - and they impose policies that are far more damaging to low-paid people and struggling economies.
The crisis and the developing countries
Fabrizio Coricelli (VoxEU) May 1, 2010
Why have emerging economies weathered the crisis better than advanced countries? This column summarises a session given by Alan Winters, Saul Estrin, Thorsten Beck, and organised by Nauro Campos at the Royal Economic Society annual conference in March 2010. The contributions argue that the crisis may have long-lasting effects on migration, foreign direct investment, and financial development in Africa.
Underappreciated benefits of the Eurozone
Francesco Paolo Mongelli (VoxEU) May 1, 2010
Why would countries share a single currenty? This column introduces a new CEPR Policy Insight and argues that some aspects are missing in the current debate on the merits of the EMU. Benefiting from monetary union is a matter of time, perseverance, and seizing opportunities.
Eurozone: Time for reform? A proposal
Jacques Melitz (VoxEU) May 2, 2010
How should the Eurozone deal with the Greek fiscal crisis? This column introduces a Policy Insight that attributes the Greek-linked difficulty largely to the claim by the ECB and government officials that the Eurozone is founded on fiscal discipline and the Stability and Growth Pact. To guarantee a long-run future for the Eurozone, a change of doctrine is critical.
The “real” causes of China’s trade surplus
Zheng Song, Kjetil Storesletten & Fabrizio Zilibotti (VoxEU) May 2, 2010
China has amassed $2.4 trillion of foreign reserves over the last two decades. This column argues that it is wrong, and even dangerous, to blame this on a manipulation of the exchange rate. Instead it proposes a structural theory emphasising that credit market imperfections require private firms to build up internal savings which have been channelled into foreign bonds.
What About the Raters?
NYT May 1, 2010
The agencies that bestowed triple-A ratings on noxious financial products bear as much responsibility for the financial crisis as the banks that put the investments together.
Europe’s choice is to integrate or disintegrate
Wolfgang Münchau (FT) May 2, 2010
The experiment of a monetary union without political union has failed. The EU is thus about to confront a historic choice.
Deflation Could Stall Efforts to Revive Greece in Debt Crisis
Steven Erlanger (NYT) May 2, 2010
There are serious questions about whether the harsh austerity measures Greece committed to are sustainable.
Bankers’ bonuses: Claw-back clauses are critical
Brian Bell & John Van Reenen (VoxEU) May 3, 2010
The global crisis has sharpened the media spotlight and political debate on bankers’ bonuses. Focusing on evidence from the UK, this column argues that to avoid excessive risk-taking in the financial sector and exploitation of moral hazard, bankers’ bonuses should be based on risk-adjusted long-run performance or be subject to “clawback” if future performance declines.
The Greek package: Eurozone rescue or seeds of an unravelled monetary union?
Charles Wyplosz (VoxEU) May 3, 2010
Eurozone members, the IMF, and the ECB have announced significant commitments to assist debt-laden Greece. This column outlines a dark scenario in which the plan fails and contagion spreads, necessitating further assistance to other indebted Eurozone governments. That could risk high inflation or debt problems for the entire Eurozone.
Europe's Huge €120 Billion Gamble
Jacob Funk Kirkegaard (PIIE) May 3, 2010
Financial markets seem to have steadied themselves after the International Monetary Fund and eurozone owned up this week to the fact that Greece will need more than the originally envisioned sum of up to €45 billion in financing aid for the year 2010. Details are beginning to emerge about the likely contents of a multi-year package of up to €120 billion in assistance to Greece.
Eggheads set their minds on the futures
Haig Simonian (FT) May 3, 2010
The number gazers have revealed the results of a six-month exercise to see whether their mathematical models had real predictive power regarding four different asset classes.
Many more chapters left in the Greece drama
Mohamed El-Erian (FT) May 3, 2010
Sunday's loans announcements on Greece were bold and unprecedented. But will they mark a turning point in the debt crisis that is contaminating other European economies.
In Greek Debt Crisis, a Window to the German Psyche
Katrin Bennhold (NYT) May 3, 2010
An instinctive frugality shaped Germany's response to the Greek crisis, a trait that separates the nation from most of its European neighbors.
World Trade and the American Economy
C. Fred Bergsten (PIIE) May 3, 2010
I am delighted to help launch this 84th annual World Trade Week in Los Angeles, which is truly the "capital of the Pacific Rim" as last year's keynote speaker suggested. I congratulate the ports of Los Angeles and Long Beach, the city of Los Angeles, and the state of California for their leadership in promoting an active and constructive trade policy in the United States. I am particularly pleased to be here today because the trade picture is so much brighter than when you met a year ago. At that time, both exports and imports were plummeting due to the global recession. US trade was dropping by annual rates of 25 to 30 percent and trade of some other major countries was falling even faster. World trade was falling even faster than in the early years of the Great Depression of the 1930s.
Tax Havens' Days Are Numbered
Robert Olsen (Forbes) May 3, 2010
The era of banking secrecy is coming to an end.
A Tale of Three Cities
Brian M. Carney (WSJ) May 4, 2010
Athens, London and Washington each respond to looming insolvency in telling ways.
Financial regulation: Can we avoid another great recession?
John Van Reenen (VoxEU) May 4, 2010
How can financial regulation be fixed to avoid another global crisis? This column argues that the “heads, I win; tails, society loses” moral hazard in the financial sector has to stop. To do this, policymakers must make bankruptcy credible. If a company has too much debt and becomes insolvent, it should suspend payments and its shareholders and creditors should lose their money.
Greece Bailout Plan Represents Triumph Of The Euro
Brian S. Wesbury and Robert Stein (Forbes) May 4, 2010
The bailout plan for Greece is the currency's finest moment, that is, if the ECB does not squander this victory.
Euroland: Our First Assessment of Greece's Loan and Austerity Package
Danielle Antonucci & Elga Bartsch (MS GEF) May 4, 2010
We provide our first assessment of Greece’s €110 billion financial aid package. Effectively, Greece will not need to issue for quite some time, but the fiscal consolidation programme is a lot tougher than expected.
The Greek Stabilization Program Does not Appear Credible
Anders Aslund (PIIE) May 4, 2010
On May 2 the International Monetary Fund and European Union made an agreement with the Greek government on a stabilization program for Greece. This program is being presented as the solution to the Greek financial crisis, but it is difficult to see how that would be the case from the details that have been published.
Euro Is in Fiscal No Man’s Land
Jonathan Story and Ingo Walter (Bloomberg) May 4, 2010
The new agreement by European Union members to stand together with the International Monetary Fund in support of Greece’s effort to stave off fiscal calamity marks a turning point in a grand experiment that stood the relationship between politics and high finance on its head.
How Investors Can Profit From Break-Up of Euro
Matthew Lynn (Bloomberg) May 4, 2010
When the euro celebrated its 10th anniversary last year, it seemed to be a solid currency. Only a few eccentrics speculated about whether it may break up one day.
A bail-out for Greece is just the beginning
Martin Wolf (FT) May 4, 2010
Does this programme look sensible, either for Greece or for the rest of the eurozone? Yes and no in both cases.
Is the euro a failure?
Gilles Saint-Paul (VoxEU) May 5, 2010
As world markets continue to raise concerns about Eurozone countries, this column argues that the euro has been a failure. Why should money be poured into Greece to "save the euro"? Besides the moral hazard effects of the intervention, it makes little sense to prolong a monetary regime which is actually one of the reasons why these Eurozone countries are in trouble.
The Greek Bailout Flop
WSJ May 5, 2010
So much for stopping the contagion.
Europe’s Exit from the Greek Crisis (Part I)
Jonathan Fenby (YaleGlobal) May 5, 2010
Severe imbalances and soaring debt suggest more members may require rescue.
Europe finds the old rules still apply
Kenneth Rogoff (FT) May 5, 2010
For decades, instead of having to demonstrate fortitude, euro members were allowed to have their cake and eat it, too.
India-EU FTA Talks Hit Snags on IP, Environment, Labour
Bridges Weekly Trade News Digest Volume 14, Number 16 May 5, 2010
India and the European Union took another step towards a far-reaching bilateral free trade agreement last week, as senior negotiators met in Brussels for a ninth round of talks
Carry on 'banking'
Julian Delasantellis (AT) May 6, 2010
Like a crazed caravan traveler slowly drowning in the sandy dunes of the desert, it beckoned to me, what looked like a shimmering oasis beckoning truth, safety, sanity - ''an announcement for the 19th Annual Hyman P Minsky Conference on the State of the US and World Economies, After the Crisis: Planning a New Financial Structure, organized by the Levy Economics Institute of Bard College with support from the Ford Foundation.'' The institute said it ''gathered top policymakers, economists, and analysts to discuss efforts to reconstitute and reregulate the US and international financial system in the wake of the global financial crisis."
The Beijing consensus is to keep quiet
Economist May 6, 2010
In the West people worry that developing countries want to copy “the China model”. Such talk makes people in China uncomfortable.
What will happen if Greece defaults? Insights from theory and reality
Eduardo Borensztein & Ugo Panizza (VoxEU) May 6, 2010
For the last 50 years sovereign defaults only concerned developing countries. The recent predicaments of Greece have raised the spectre of a default in a high-income country. This column argues exchange-rate depreciation has helped shrink the costs of default and spur economic recovery in past episodes. As part of the Eurozone, Greece may pay a steep cost if it were to default.
Better data needed to regulate markets
A. Menelowitz and J. Liechty (FT) May 5, 2010
The 2008 crisis revealed how inadequate current data and analysis tools are for understanding threats to financial stability.
When financial markets force too much austerity
Paul De Grauwe (EuroIntelligence) May 6, 2010
This time financial markets do exactly the opposite of what they did prior to the eruption of the crisis. They now judge an increasing number of government bonds to be highly risky, leading investors to sell these bonds and precipitating a debt crisis in the Eurozone. But if financial markets and rating agencies were so spectacularly wrong prior to the crisis, when they underestimated risks, why would they be right now?
The Greek Contagion Spreads
Nouriel Roubini, Arnab Das and Elisa-Parisi Capone (Forbes) May 6, 2010
Time for Plan B.
Michael J. Boskin (WSJ) May 6, 2010
Nobel Laureate Robert Lucas says reform would deliver great benefits at little cost, making it "the largest genuinely true free lunch I have seen.'
The least-bad rich-world economy
Economist May 6, 2010
Good policies, good behaviour and good fortune: if only others could be as lucky.
Greek Crisis and the Future of the European Union – Part II
Jean-Pierre Lehmann (YaleGlobal) May 7, 2010
Mistrust threatens cooperation among nations and EU survival.
Public debt - prudence and folly
Henry C K Liu (AT) May 7, 2010
Too much can be made of the danger of high fiscal deficits and national debts, a burning issue during the present financial crisis. The purported danger comes not from their size but on how the proceeds from them are used - unwisely in the case of the United States in its recent history.
Time to Junk the Corporate Tax
The Greek crisis: It is not too late for Europe
Barry Eichengreen (VoxEU) May 7, 2010
EU and IMF efforts to rescue Greece have failed to stabilise Europe's financial markets. Now there are significant concerns about Spain and Portugal's financial circumstances. This column says Europe needs to wake up, face the facts, and take action. It outlines what the IMF, ECB, and Eurozone members need to do to prevent the crisis from spreading. It may be too late for Greece, but it is not too late for Europe.
Greece, Portugal and Spain: Lessons from Argentina
Domingo Cavallo & Joaquín Cottani (VoxEU) May 7, 2010
Greek debt woes could spark contagion within and beyond Europe. Argentina’s former finance minister and co-author draw four lessons from Argentina’s crisis: devaluation/exit is not the answer; orderly debt restructuring involving a ‘Brady Plan’ now is better than a disorderly one later; fiscal consolidation that improves external competitiveness is a must; all these must be done simultaneously
Untapping the EU-US trade potential: Taking the Transatlantic Economic Council forward
Lucian Cernat & Bertin Martens (VoxEU) May 7, 2010
The EU and US are huge, quite open markets, but many barriers to doing business across the Atlantic remain. This column argues for creating a transatlantic marketplace by reducing regulatory barriers. The EU and US are already regulatory standard setters. Creating a transatlantic market with harmonised regulation would strongly reinforce this global regulatory leadership role.
Political protest and reform: Lessons from communism’s demise
László Bruszt, Nauro F. Campos, Jan Fidrmuc & Gérard Roland (VoxEU) May 7, 2010
Do political protests make a difference? This column examines a new dataset focusing on political protests before the fall of communism. Countries that had a strong civil society, and a lenient communist government, have embarked on a path towards sound political institutions, economic reforms and democratisation. Those that had a weak civil society and repressive governments have not.
A Week in the Life of the Economy
NYT May 7, 2010
Sinking and gyrating stock markets, contagion fears over the Greek debt crisis, rising unemployment. Talk about further evidence for the need for financial reform.
Euro fills some glasses but empties others
Richard Milne (FT) May 7, 2010
The travails the eurozone is suffering from the Greek debt crisis have a positive effect in one area: the weakening euro is spurring industry by giving exporters a boost.
A credo for a revived capitalism
Samuel Brittan (FT) May 7, 2010
Shorn of extremist statements, the basic case for competitive markets is still Adam Smith’s invisible hand. A trader will make most profit if he supplies what consumers most want at the lowest price.
Greek deal lets banks off the hook
Arvind Subramanian (FT) May 7, 2010
That taxpayers in much poorer countries should contribute so that rich financial institutions can get away with reckless lending seems unfair and perverse.
A Money Too Far
Paul Krugman (NYT) May 7, 2010
Greece may not be the next Lehman Brothers, but its problems are deeper than Europe's leaders are willing to acknowledge.
Greece and Contagion
WSJ May 7, 2010
This shouldn't be a repeat of 2008.
The Greek Economy Explained
WSJ May 7, 2010
A warning for Europe, Albany and Washington.
Global: EM Tightening: Think Locally, Rank Globally
Manoj Pradhan (MS GEF) May 7, 2010
EM central banks are clearly poised to reverse the substantial monetary stimulus they had provided to see off the Great Recession. We introduce a ranking to track (i) how much central banks are expected to tighten policy, and (ii) the risk of central banks acting aggressively over the next 6-12 months.
Stages of Contagion
Manoj Pradhan (MS GEF) May 7, 2010
As debt-sustainability concerns increase in Southern Europe and market action points to a higher probability of broader contagion, we re-assess the possible implication of an extended period of volatility for CEE countries.
Europe’s Exit from the Greek Crisis (Part I)
John Bruton (Globalist) May 7, 2010
The European Union has many lessons to learn both from the Greek crisis and the panic in the bond markets that has given rise to it. But these crises are also opportunities to deal with very real problems that might otherwise have been pushed off into the future.
The German Factor in Greece’s Crisis (Part II)
John Bruton (Globalist) May 8, 2010
After heated debate, the German government recently approved a rescue package for Greece. Former Irish Prime Minister John Bruton argues that such assistance should not be portrayed as charity — but as a loan that is being extended in the rational self-interest of both the lender and the borrower.
The PIGS’ external debt problem
Ricardo Cabral (VoxEU) May 8, 2010
Markets are increasingly concerned that the Greek debt crisis could spread to other Eurozone countries including Portugal, Ireland, and Spain. This column notes that much of these countries' debt is held by non-residents meaning that the governments do not receive tax revenue on the interest paid, nor does the interest payment itself remain in the country. The solution lies with debt restructuring and rescheduling.
5 Myths about the European debt crisis
Carmen M. Reinhart and Vincent R. Reinhart (WP) May 9, 2010
Just when the American economy appeared to be on the mend, a new crisis is stressing global financial markets. Greece's difficulty in financing its bloated budget deficit -- and the prospect that its debt troubles will spread throughout Europe and beyond -- is dominating the news. The euro has shed 12 percent of its value this year, and U.S. stock markets have shuddered in response, with the Dow declining almost 6 percent in the past week alone.
Serious reform starts with a systemic risk tax
Enrico Perotti (VoxEU) May 9, 2010
The recent IMF report to the G20 states that fiscal reforms are essential to recover the costs of the crisis, as well as to contain future risk creation. This column argues that progress on controlling future risk requires a direct tax on systemic risk. This would restore confidence in the ability of policymakers to act preventively in future.
The Eurozone’s “original sin”
Giancarlo Corsetti (VoxEU) May 9, 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
America has good reason to worry about Greece
Clive Crook (FT) May 9, 2010
At the end of last week, the US looked hard at Greece and was scared. So tiny an economy should not be bringing all of Europe low and even threatening to explode the euro, but it is.
The eurozone must take responsibility or it will split
Wolfgang Münchau (FT) May 9, 2010
Europe’s leaders are fighting a public relations war. Their target is speculators.
Economic Outlook: Powerhouses scrutinised
Jack Farchy (FT) May 9, 2010
Concerns that Germany and China may not be able to maintain upward trajectory.
Greek Contagion Myth Masks Real Europe Crisis
Caroline Baum (Bloomberg) May 10, 2010
Greece sneezes and Portugal catches a cold. Portugal coughs and Spain falls ill. Spain runs a fever and Italy comes down with the flu.
Greece's No-Pain Bailout Fails Confucian Ethics
William Pesek (Bloomberg) May 10, 2010
Korea, for all its problems, is as good a place as any to start.
The Euro's Tribulations
WSJ May 10, 2010
Don't blame the single currency for the failures of Keynesian economics.
Why Greece matters
Robert J. Samuelson (WP) May 10, 2010
Greece's economic plight threatens to rock the stability of other welfare states, and here's how.
Exchange rate undervaluation: Can neo-mercantilism work?
Anton Korinek & Luis Servén (VoxEU) May 10, 2010
The large foreign-exchange reserves held by emerging markets continue to stoke debate. This column suggests that reserve hoarding leads to a lower exchange rate and encourages the learning-by-doing externalities of export-led growth without the need for direct subsidies. But while this strategy can be welfare increasing, the chances of this are reduced the more countries embrace it. http://www.economist.com/world/asia/displaystory.cfm?story_id=16059990
Europe is unprepared for austerity
Gideon Rachman (FT) May 10, 2010
The growth in the size and power of the EU fed a dangerous sense of complacency. But Europeans are now discovering that the ‘European project’ provides no protection against the harshness of the outside world.
Britain too has to convince the markets
Philip Stephens (FT) May 10, 2010
This is no time for Brits to sound smug about troubles faced in Europe. The government that emerges the general election is about to receive a warning from the Treasury.
Germany pays for Merkel’s miscalculations
Wolfgang Münchau (FT) May 10, 2010
Whatever the merits of the rescue plan, Angela Merkel, the German chancellor, has messed up.
EU buys itself time
Wolfgang Munchau (FT) May 10, 2010
In the end, there was no choice. Faced with an existential threat, the EU has demonstrated that it can act fast if necessary. European leaders deserve respect for finally getting ahead of the situation.
How the eurozone set off a race to the bottom
Peter Boone and Simon Johnson (FT) May 10, 2010
Eurozone countries can either cede substantial sovereignty over fiscal policy and create a single strong bank regulator; or let a system persist that creates boom-bust-bailout cycles.
It's not the way to solve eurozone debt crisis
David Roche (FT) May 10, 2010
The world is facing a sovereign debt crisis that will squeeze growth and possibly deliver a series of debt default events.
NYT May 10, 2010
Europe decided it had to act when it arranged a nearly $1 trillion bailout package to attack the Continent's debt crisis. Still, it isn't clear if the fund will do what's needed.
Roger Cohen (NYT) May 10, 2010
The party's over. Europe now faces a choice: costly containment or collapse.
Is China Headed for a Crash?
Philip Bowring (NYT/IHT) May 10, 2010
China can afford some housing bubbles and busts. But it cannot afford inefficient use of capital.
The Rise and Fall of the G.D.P.
Jon Gertner (NYT) May 10, 2010
Economists and even governments now claim there might be better ways to take measure of a country’s wealth and happiness.
Euro Package Leaves Governments Out of Ammunition
Matthew Lynn (Bloomberg) May 11, 2010
And next time around, there won't be anything left to throw at the problem.
ECB May Kiss Credibility Goodbye
Daniel Gros and Thomas Mayer (Bloomberg) May 11, 2010
There is an old saying among central bankers that credibility is earned in years of hard work, but can be lost overnight. On Sunday night, the European Central Bank may have said goodbye to its credibility when it agreed to buy the government bonds of euro nations in trouble.
The Real Euro Crisis
WSJ May 11, 2010
The EU's bailout postpones the day of fiscal reckoning.
The World's Dollar Drug
Zachary Karabell (WSJ) May 11, 2010
Expect the greenback to remain the world's reserve currency, but that won't be a sign of U.S. strength.
Euroland: A Euro Area Stabilisation Fund
Elga Bartsch & Daniele Antonucci (MS GEF) May 11, 2010
We believe that this is an important move that could help stabilise the euro area periphery. However, like the measures taken before, a stabilisation fund is just buying time for distressed borrowers. If it isn’t followed by aggressive austerity measures, the problem just continues to fester – and could eventually spread even wider.
Euroland: Fast-Track to Fiscal Union?
Elga Bartsch & Daniele Antonucci (MS GEF) May 11, 2010
The Ecofin Council finalised the details for a much larger-than-expected financial stabilisation package of up to €750 billion. We delve into the details.
UAE: Where Do We Stand on Debt Restructuring?
Mohamed Jaber (MS GEF) May 11, 2010
We analyse the nature of the proposed Nakheel debt restructuring. We believe that the terms currently being offered to trade creditors are better than expected. Although this may reflect positively on this government-related entity’s credit, the same may not hold true for Dubai’s sovereign credit.
Asia ex Japan: Implications of EU Debt Concerns for Asia ex Japan
Chetan Ahya (MS GEF) May 11, 2010
The recent developments in Greece and Europe have been a pointed reminder about structural issues related to too much debt in some of the developed world economies. The manifestation of this persistent structural challenge in the recent debt market developments has increased the downside risks to our bullish view on AXJ's growth cycle and reduced upside risk to our inflation outlook. Indeed, as of now all leading indicators and current data points indicate a very strong trend in domestic and external demand. Our current base case forecast assumes GDP growth of 9.0% in 2010 and 7.8% in 2011.
If the euro is to survive the decade, Greece cannot happen again
Michael Burda & Stefan Gerlach (VoxEU) May 11, 2010
This weekend’s plan has been received positively by the markets, but it’s too early to call it a success. Future monetary historians will judge it a brilliant move, or the first step on the slippery slope to ruin depending upon what comes next. 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.
Europe Rises to the Occasion, but the World Shares the Cost
Jacob Funk Kirkegaard (PIEE) May 11, 2010
Europe's leaders seem finally to have risen to the occasion in their crisis management, as they put together something genuinely BIG over the weekend to support the financial stability of the eurozone. It was quite literally the first "2 a.m. Sunday morning moment" for Brussels (albeit a little after the markets opened in Tokyo and Sydney) and for European Union leaders as they groped for a credible solution to allay the concerns of financial markets.
Greece's Newest Odyssey
Thomas L. Friedman (NYT) May 11, 2010
The Greek prime minister exudes Obama-like calm and knows change is in store. Is the big bailout the start of a revolution in Athens?
In Greek Debt Crisis, Some See Parallels to U.S.
David Leonhardt (NYT) May 11, 2010
Both the United States and Greece have governments bigger than they are paying for, and the problem cannot be blamed on politicians alone.
Central banks are losing credibility
John Taylor (FT) May 11, 2010
We are definitely seeing contagion, but it is a contagion of deviations from the independent and credible monetary policy that has served us well in the past.
Saving Euro Trashes Trichet, Dooms Germany's AAA
Mark Gilbert (Bloomberg) May 12, 2010
One of the proudest achievements of the euro project was ensuring government borrowing costs converged at the lower levels enjoyed by Germany rather than the higher yields paid by its less fiscally disciplined neighbors. That’s over.
European Stabilisation Mechanism: Promises, realities and principles
Charles Wyplosz (VoxEU) May 12, 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.
A Greek Tragedy in the Making
Ganesh Rathnam (Mises Daily) May 12, 2010
The recently approved eurozone bailout package, designed to buy more time for fiscally troubled nations such as Greece, Spain, and Portugal, is nothing short of a global Greek tragedy in the making. Of course, quite contrary to this, judging by the response of global stock markets, one would get the impression that happy times are around the corner. However, those of us who understand Austrian economics and believe in free markets and sound currencies can see one more nail driven into the coffin of paper fiat currencies such as the euro, US dollar, British pound, and Japanese yen.
OTC Derivatives Don't Need Fixing
Menachem Brenner (Forbes) May 12, 2010
Reining in derivatives will cripple financial markets, not prevent the next financial crisis.
All Eyes on US Ahead of High-Level Doha Meeting
Bridges Weekly Trade News Digest, Volume 14, Number 17 May 12, 2010
The Doha Round of global trade talks has been moribund for almost two years. In an attempt to revive it, different groups of WTO members are meeting to explore possible ways forward.
Asia's Importance Growing in Global Economy
IMF Survey May 12, 2010
Asia is set to become an increasingly important engine of growth even as it leads the world out of the worst recession in over half a century, enhancing Asia's role as an economic powerhouse over the next few decades, says a leading IMF economist.
Unruffled Asia resumes its economic ascent
David Pilling (FT) May 12, 2010
As Europe grapples with glacial growth and cavernous deficits, Asian states are awash with cash and thundering along at such a pre-crisis clip that they are in danger of overheating.
Goodbye to Europe as a high-ranking power
Richard Haass (FT) May 12, 2010
Nato will no longer be the default partner for US foreign policy. Instead, America will forge coalitions of the willing to deal with specific challenges.
The Rest and the West
Dan Steinbock (Globalist) May 12, 2010
How Europe’s debt crisis is accelerating the shift of economic power from West to East.
Renminbi Revaluation Won't Trigger a Shopping Spree
Zhiwu Chen (YaleGlobal) May 12, 2010
As long as the state hogs land and resources, Chinese urge to save will prevail.
Public debt and the EU patch
Hossein Askariand Noureddine Krichene (at) May 13, 2010
The creation of a stabilization fund to bail out Greece and give the appearance of eurozone financial solidarity is a short-term patch, not a convincing plan that over- indebted European Union countries have a realistic roadmap to getting their financial house back in order.
Global sovereign debt crisis
Henry C K Liu (AT) May 13, 2010
The European states now deep in financial trouble got there by following the rules of neo-liberal games promoted by US market fundamentalists and supported by the easy money stance of the US Federal Reserve. The outcome in Europe is a move by more conservative states, notably Germany, for nationalistic insulation from free- spending neighbors.
When the Food Runs Out
Jeremy Harding (LRB) May 13, 2010
‘The era of endless food is winding down,’ Jeremy Harding writes. The abundance we’ve got too used to can’t last, as the population of the earth grows, more of us eat more meat and dairy, the cost of energy rises, the amount of land available for agriculture shrinks, water shortages become more severe, extreme weather events become more common as the climate changes, and the world’s agricultural workers flee the semi-slavery of the fields and head for the cities. Already, the just-in-time policy of supermarkets mean that Britain is ‘never much further than nine meals from anarchy’. What if anything can be done to safeguard Britain’s, and the world’s, food security? Harding talks to the scientists, policy analysts, nutritionists and campaigners who may have the beginnings of an answer.
Our Giant Banking Crisis—What to Expect
Paul Krugman & Robin Wells (NYRB) May 13, 2010
So now we’ve experienced a severe financial crisis, fundamentally similar to those of the past. What does history tell us to expect next?
Roubini's Warning Reminds Risks Still in Surplus
William Pesek (Bloomberg) May 13, 2010
It would be far worse if Europe turned Japanese. That risk can't be ruled out.
Spillovers of domestic shocks: Will they counteract the “Great Moderation”?
Alina Carare & Ashoka Mody (VoxEU) May 13, 2010
How has globalisation affected output growth volatility? This column presents findings from 22 OECD countries suggesting that while volatility reached a low in the mid-1990s, it has crept back up due the spillovers from otherwise domestic shocks. This increased sensitivity has been caused by the increased vertical specialisation in global trade. While beneficial for output, vertical specialisation is a double-edged sword.
Saving the euro: No going back
Economist May 13, 2010
Ambitious but incomplete, the rescue plan for the euro could change the way Europe is run.
Emerging-market banks: They might be giants
Economist May 13, 2010
Emerging-market banks have raced ahead despite the financial crisis as their Western colleagues have languished. How they will use their new-found strength.
The strange dance of financial markets: Doing the hokey-cokey
Economist May 13, 2010
Financial markets have been shaking it all about so far this year.
The IMF and the euro-zone rescue: High stakes
Economist May 13, 2010
What has the fund got itself into by participating in Europe's bail-out?
In Defense of Over-the-Counter Derivatives
Mark C. Brickell (WSJ) May 13, 2010
Swaps grew out of the banking system because writing risky, custom contracts is a lot like making loans.
Euro remains on the right side of history
Tommaso Padoa-Schioppa (FT) May 13, 2010
The advent of the euro is just an episode – a most significant one – in the building of a post-Westphalian order.
The myth of the “Phoenix Miracle”
Michael Biggs, Thomas Mayer & Andreas Pick (VoxEU) May 14, 2010
The observation that economies can recover from a crisis without the need for credit growth is known as a “Phoenix Miracle”. This column argues that this theory is based on an inappropriate comparison between GDP – a flow variable – and the stock of credit. If GDP is instead compared with the flow of credit, it is evident that GDP and credit recover simultaneously.
Euro Has No Future Without a Political Union
Paul De Grauwe (Bloomberg) May 14, 2010
Since the eruption of the Greek crisis, a feeling of doom and gloom about the future of the euro area has preoccupied analysts and financial markets.
Emerging Green Technology Poses Threat of Trade Wars
Bruce Stokes (YaleGlobal) May 14, 2010
Global rules for developing alternative energy could prevent waste and abuse
Rescue, or fall from grace?
Thomas Mayer (DB Research) May 14, 2010
Two principles were key in the establishment of the European Economic and Monetary Union: (1) Every member country is responsible for its own finances. (2) The ECB is not to be an agent of fiscal policy. These two principles have now been violated. Can this be justified?
Global: XXL Liquidity
Joachim Fels (MS GEF) May 14, 2010
Most investors seem to believe that the sovereign risk crisis is deflationary rather than inflationary on a global scale. We disagree. We believe that global excess liquidity will grow by even more, lifting the prices of commodities and other risky assets and adding to global inflation pressures.
Global: The Unwelcome Trinity for Emerging Markets
Manoj Pradhan (MS GEF) May 14, 2010
Recent policy actions in the euro area have capped the tail risks over the short term, but they are no panacea for the underlying fiscal malaise. The longer these risks and issues remain prominent, the greater the possibility that markets could turn their attention to assessing the vulnerability of emerging markets.
Raise interest rates first, not exchange rate
Andy Xie (China International Business) May 14, 2010
China needs to exit the stimulus policy as soon as possible. Otherwise, inflation may reach double digits in the near future. The right way would be to raise interest rates first and move the exchange rate, if needed, second.
Understanding the Eurozone crisis
Marco Pagano (VoxEU) May 15, 2010
The Eurozone has been swept up in turmoil that has ranged from stock and bond markets to exchange rates, government spending and tax rates. Marco Pagano, Professor at the University of Naples Federico II and CEPR Research Fellow, explains events, how they hang together, and what needs to be done. This challenge facing Europe could be a historical turning point.
Difficult Choices Still Facing Europe
Mohamed El-Erian (PIMCO/FT) May 15, 2010
The beneficial impact of last weekend’s intervention by Europe to save Greece and safeguard the euro is fading.
The global crisis and political extremism
Markus Brückner & Hans Peter Grüner (VoxEU) May 16, 2010
Will the global crisis lead to a rise in political extremism just as during the Great Depression? This column examines the vote share for extreme parties in a sample of 16 OECD countries over three decades. A one-percentage-point decline in growth leads to a one-percentage-point increase in the vote share for right-wing or nationalist parties.
A Default by Greece: Why and When?
Jacob Funk Kirkegaard (PIIE) May 16, 2010
The $1 trillion rescue of the eurozone, aimed at averting a spread of contagion from Greece, did nothing to help the Greeks address their underlying and unsustainable fiscal situation. Greece is insolvent and needs to lower its total debt burden before 2012.
Central bankers get with the politics
Clive Crook (FT) May 16, 2010
In the light of all that has happened in the past three years, whether central banks should be above politics is a question that needs a fundamental rethink.
Europe must reset the clock on stability and growth
José María Aznar (FT) May 16, 2010
Spain, like Greece, must meet its financial commitments by implementing sharp cuts in public spending and a complete structural reform package.
To save the eurozone, reform its governance
Wolfgang Münchau (FT) May 16, 2010
When the programme of credit guarantees ends in three years, the factors that led to the eurozone crisis will still be present.
The world trading system without US leadership
Robert E. Baldwin (VoxEU) May 17, 2010
Since the end of the Second World War, the US has been the world leader in promoting the reduction of trade barriers and establishing international trading rules. This column argues that by remaining on the sidelines of the Doha Round negotiations, the US risks losing influence over how important international economic matters are decided. This loss of economic influence will be followed by a loss of political influence.
Whatever happened to Ireland?
Morgan Kelly (VoxEU) May 17, 2010
The Celtic Tiger faces severe challenges. This column argues that the Irish government’s commitment to absorb the losses of its banking system may well lead to a Greek-style debt ratio by 2012. It is a test-in-waiting for the EU, but one that could be solved by a debt for equity swap to cover the losses of Irish banks.
Venezuela's Monetary Mayhem
Mary Anastasia O'Grady (WSJ) May 17, 2010
Fiat currencies plus bad government equal trouble.
Bailouts Have Discouraged Banks From Lending
John Tamny (Forbes) May 17, 2010
After a near-death experience, formerly insolvent banks are being overly cautious.
Falling euro is a luxury Europe can afford
Paul Betts (FT) May 17, 2010
For most eurozone exporters the problem is not so much how much lower the euro will go but the risk it could climb back from its current level of $1.23 to $1.30 or more.
The death of the European dream
Gideon Rachman (FT) May 17, 2010
The European economic crisis has made life much harder for those Americans or Asians who want to argue that the rest of the world should learn from Europe.
The sad end of Greece’s better tomorrow
Michael Skapinker (FT) May 17, 2010
Greece now faces its biggest test in a generation. Its people will need to reshape their expectations of how long they have to work and how much money they can expect when they retire.
New battle plan needed for a crisis-prone world
Stephen Roach (FT) May 17, 2010
With one crisis begetting another, and the fuse between crises now getting shorter and shorter, the world economy is on a very treacherous course.
The Euro's Lost Promise
David Marsh (NYT) May 17, 2010
The causes of Europe's present crisis are but the latest twists in a drama that began more than two decades ago.
Euroland: Political and Legal Aspects of the EU-IMF Rescue Package
Elga Bartsch & Carlos Egea (MS GEF) May 2010
Last week we held a discussion with Professor Henrik Enderlein and clients to discuss political and legal implications of recent EU/IMF assistance packages. We summarise the key conclusions of the discussion for future reference.
How to save the Eurozone: A Greek debt swap
Avinash Persaud (VoxEU) May 18, 2010
The Eurozone crisis is not over. This column argues that solving it requires a voluntary debt swap. Creditors should be invited to swap old Greek bonds for new bonds backed by the European and IMF package. Par values would be the same but the coupons would be lower and the maturities doubled. The exact parameters should be set so the value of the greater certainty of payout was offset by the lower coupons. This would strengthen the euro, facilitate recovery of the $145 billion pledged, and yet force private creditors to realise that Eurozone support is not a one way bet.
Love Letters from Iceland: Accountability of the Eurosystem
Anne Sibert (VoxEU) May 18, 2010
Investigation of Iceland's meltdown has revealed dodgy behaviours ranging from neglect to criminal fraud. This column describes how Icelandic banks issued “love letters” to each other – swapping their debt securities and using the other bank’s debt as collateral. This ruse ensnared not just the Icelandic Central Bank, but also the ECB -- a fact that has only recently come to light. The ECB's lack of transparency on this is a serious problem.
“Dark pools”: The menace of rising opacity in financial markets
Venkatachalam Shunmugam (VoxEU) May 18, 2010
Over-the-counter markets for derivatives have been a subject of blame for the global crisis. This column argues that the rising opacity and barriers to entry in these markets have been sorely overlooked leading to dark pools, flash trading, and front-running. These unfair practises can – at any time – cripple markets. They undermine the premise of free markets and should be stopped.
Educational attainment in the world, 1950–2010
Robert Barro & Jong-Wha Lee (VoxEU) May 18, 2010
Empirical investigations of the role of human capital require accurate measures across countries and over time. This column describes a new dataset on educational attainment for 146 countries at 5-year intervals from 1950 to 2010. The new data, freely available online, use more information and better methodology than existing datasets. Among the many new results is that the rate of return to an additional year of schooling on output is quite high – ranging from 5% to 12%.
Euro Dies Slow Death Without Common Fiscal Policy
Matthew Lynn (Bloomberg) May 18, 2010
And once that becomes clear, there will be only one option left: let the euro die. (Matthew Lynn is a Bloomberg News columnist. The opinions expressed are ...
For a solution to the euro crisis, look to the states
Martin Feldstein (WP) May 18, 2010
If adopted abroad, state deficit-spending rules could provide fiscal discipline for EU nations.
The euro may keep falling even if debt crisis subsides
Anthony Faiola (WP) May 18, 2010
The once-mighty euro, which briefly plunged to a four-year low against the dollar on Monday, may be doomed to keep falling whether or not European leaders can contain the region's roiling debt crisis.
Greek Myths and the Euro Tragedy
John H. Cochrane (WSJ) May 18, 2010
Letting someone lose money on sovereign debt is the acid test for the euro.
Single currency bloc plays 'beggar-my-neighbour'
Martin Wolf (FT) May 18, 2010
Despite today's gloom and doom, the eurozone will probably survive. But the view that everything would now be fine had fiscal rules been followed is wrong. The private sector's irresponsibility was the biggest failing.
Europe has been damaged by internal wrangling
Charles Grant (FT) May 18, 2010
The weaker the European Commission becomes, the greater the danger of the single market fragmenting.
China’s century is not yet upon us
Joseph Nye (FT) May 18, 2010
While its “market Leninist” economic model (the so-called “Beijing Consensus”) provides soft power in authoritarian countries, it has the opposite effect in many democracies.
Euro is at wrong end of a historic long-term shift
John Plender (FT) May 18, 2010
Forget the hedge fund "wolves", the real reason behind the euro's weakness is the lack of political will over monetary union.
Asia Rides the Crisis
Dominique Dwor-Frecaut (NYT) May 18, 2010
Europe's problems should not slow Asia's financial liberalization.
Harvard's Rogoff Says EU's Bazooka Won't Prevent Defaults
James Pressley (Bloomberg) May 19, 2010
Kenneth Rogoff says Europe’s unprecedented aid package, worth roughly $1 trillion, won’t be enough to prevent sovereign debt defaults. What’s needed, the Harvard University economist says, is a mechanism to allow countries such as Greece to walk away from the euro.
Boom, bust and sovereign ratings: Lessons for the Eurozone from emerging-market ratings
Helmut Reisen (VoxEU) May 19, 2010
Credit rating agencies have recently downgraded Greek, Portuguese, and Spanish sovereign debt, causing unrest among Europe’s leaders. This column argues that unless sovereign ratings can be turned into proper early warning systems, they will continue to increase instability and volatility and to undermine the benefits of capital markets. One option is to drop the use of sovereign ratings in prudential regulation altogether.
Europe’s private versus public debt problem: Fighting the wrong enemy?
Paul De Grauwe (VoxEU) May 19, 2010
A government debt crisis is ravaging the Eurozone. This column argues that its cause is misunderstood. The culprit is a profligate private banking sector that has put strain on otherwise manageable government finances. The increase in debt has reached crisis point because the Eurozone is a monetary union without being a political union – it has no fire brigade to put out the fire.
The red flags over China's trade policies
James McGregor (WP) May 19, 2010
Let's rethink our economic approach to China before it reshapes it for us.
Small Developing Countries Struggle In WTO
Oxford Analytica/Forbes May 19, 2010
Small developing countries are often let down by the global trade behemoth.
EU Resumes Trade Talks with Mercosur, Concludes Talks with Central America
Bridges Weekly Trade News Digest, Volume 14, Number 18 May 19, 2010
The European Union made significant headway on opening up commerce with Latin America this week, re-launching talks with Mercosur, wrapping up trade negotiations with Central America, and signing deals with Colombia and Peru.
Greek Debt Dynamics: Daunting but Feasible
William R. Cline (PIIE) May 19, 2010
Recent market volatility seems to reflect severe doubts that the Greek rescue package can work and, by extension, that serious contagion to other larger European debtors can be avoided. Yet a close look at the numbers in the IMF program for Greece suggests that although the fiscal adjustment needed to secure debt sustainability is daunting, it is feasible. The prospects might be further enhanced by a more ambitious contribution to debt reduction from the proceeds of privatization. Ultimately, in view of the past history of debt crisis resolution, the determining factor for success or failure of the program will likely be political will.
A perverse European fund strategy
John Gapper (FT) May 19, 2010
The French and German governments have long wanted to subdue Anglo-Saxon finance and now have EU support But the Alternative Investment Fund Managers Directive is protectionist, prescriptive and perverse.
The euro will pull through these testing times
Marc Chandler (FT) May 19, 2010
Uncoordinated policy response has added to the turmoil, but the euro will survive.
Does trade openness foster financial development?
Giuseppe Bertola & Anna Lo Prete (VoxEU) May 20, 2010
Financial interconnectedness across countries has reached unprecedented levels – but what has driven this change? This column finds that financial deregulation is responsible for 16 percentage points of the increase in financial development, but openness to trade and the size of government off-set one another. This is because the structural association between trade openness and financial development is mildly negative.
Renminbi revaluation and Latin America: The ugly truth
Ambrogio Cesa-Bianchi, Hashem Pesaran, Alessandro Rebucci, Cesar E. Tamayo & TengTeng Xu (VoxEU) May 20, 2010
What would a Chinese currency revaluation mean for Latin America? This column argues that a revaluation is no silver bullet. It will not solve Latin America’s problems with excessive capital inflows, exchange-rate appreciation, and loss of competitiveness. In fact it poses serious risks. A 10% revaluation of the renminbi could reduce growth in Latin America by 0.3%.
Return of the Bond Market Vigilantes
Alan S. Blinder (WSJ) May 20, 2010
One way for Washington to reassure markets is to tackle Social Security reform.
Rising powers do not want to play by the west’s rules
Philip Stephens (FT) May 20, 2010
The bargain struck by Turkey and Brazil with Iran, if implemented, would see Iran transfer to Turkish custody a large proportion of its stockpile of enriched uranium. Reactions in Washington, London and elsewhere have ranged from condescension to intense irritation. Yet the off-stated ambition of western governments is that the world’s rising powers should bear some of the burden of safeguarding international security and prosperity.
Now is the time to ask: ‘What crisis?’
Samuel Brittan (FT) May 20, 2010
There is still an incipient crisis in the air, but it is an international one.
A big step towards fiscal federalism in Europe
Romano Prodi (FT) May 20, 2010
The Greek crisis was an opportunity to take steps on economic governance that were not possible when the euro started.
The ECB's changing identity: After the fall
Economist May 20, 2010
The ECB's dented reputation is in part a result of hubris about the euro
Brazil's booming economy: Flying too high for safety
Economist May 20, 2010
The burst of Chinese-level growth cannot be sustained, but it hints at Brazil's new strength.
Henry CK Liu (AT) May 21, 2010
The roots of the debt crisis in Greece, a country of almost insignificant size, are buried under decades of financial myth-making condoned by stronger European powers and nourished by the creative geniuses of American banks. The fruit is a credit market meltdown greater than that of 2008 and doubt on the future of the euro.
Europe's Gordian knot
Marko Papic, Robert Reinfrank and Peter Zeihan (AT) May 21, 2010
The Greek debt crisis presents the European Union with a tangle of Gordian knot complexity. Either of two solutions can make sense - reconstitution of the eurozone with Germany quitting the common currency and re-adopting the deutschmark, or Greece returning to the use of the drachma. The associated costs in economic, political, legal and institutional terms make either resolution nearly impossible.
New risk-adjusted forecasts of oil prices
Patrizio Pagano & Massimiliano Pisani (VoxEU) May 21, 2010
The price of oil plummeted during the global crisis, but has since started to climb back. Which way will the oil price go next? This column presents a new risk-adjusted method for forecasting oil prices using the futures market. It suggests that oil prices may climb back to $100 by early next year – a level that may dampen consumption spending.
It’s the general equilibrium, stupid
Ricardo Caballero (VoxEU) May 21, 2010
Are policymakers on track to prevent a repeat global crisis? This column says the answer is probably “no”. It argues that the current financial reform efforts are mostly aimed at the symptoms rather than the underlying illness. The fundamental problem in the current global macroeconomic and financial equilibrium is one of a shortage of safe assets.
The Fear Returns
WSJ May 21, 2010
Europe's policy panic is feeding another financial panic.
The Madness of Cotton
WSJ May 21, 2010
The feds want U.S. taxpayers to subsidize Brazilian farmers.
Trade dependence & economic-political vulnerability vary greatly among the BRIC
Markus Jaeger (DB Research) May 21, 2010
In terms of trade openness, China and Russia are more exposed to international trade, but also stand to benefit more in terms of medium-term economic growth and wealth generation, than Brazil and India. China is undoubtedly the BRIC economy most vulnerable in terms of trade protectionism and access to strategically important commodities, its strong international financial position notwithstanding. Maintaining an open trading system and creating a level playing field as regards foreign direct investment will remain a central plank of Chinese economic diplomacy...
When Will America Face Its Fiscal Crisis?
Bruce Bartlett (Forbes) May 21, 2010
It's up to the credit rating agencies to decide.
How Will Greece Get Off the Dole?
Tyler Cowen (NYT) May 21, 2010
Europe no longer pretends Greece is wealthy. Now the Continent acts as though Greece will quickly become wealthy enough to pay back ever-growing sums of debt.
The new order is chaos
Chan Akya (AT) May 22, 2010
This week's stock trading should tell academics and economists all they need to know as they struggle to define the "new normal". It isn't about relative economic growth or the dynamics of inflation. It is the return of gut-wrenching volatility that places investing in a permanent state of siege. Chaos is the new order; a constant state of crisis is the new normal.
It Takes a Crisis to Make a Continent
Gabor Steingart (NYT) May 22, 2010
Addressing the Greek crisis has brought the members of the European Union closer together as a political unit.
Too big to fail or too small to maintain stability?
Calzolari, G., M. Levi, G.B. Navaretti & A.F. Pozzolo May 23, 2010
Many commentators have called for regulation to prevent banks from becoming “too big to fail”. This column adds a cautionary note. A world with only small and domestic banks is no safer. The key benefit of multinational banks – being able to mobilise funds across countries – could still be extremely useful for maintaining stability in times of distress.
Bad debt also threatens Europe’s strongest
Wolfgang Münchau (FT) May 23, 2010
As long as those Landesbanken and cajas stay unreformed, investors have good reason to treat the eurozone the way they should have treated subprime CDOs.
The way to increase America’s exports to China
Huo Jianguo and John Milligan-Whyte (FT) May 23, 2010
The Strategic and Economic Dialogue should focus on new US policies instead of trying to change China’s policies, which are essential for global economic recovery.
America is no Greece
Fareed Zakaria (WP) May 24, 2010
And we need to ensure that it doesn't become one.
The Great European Debt Breakup
Jacques Delpla and Jakob von Weizsäcker (Project Syndicate) May 24, 2010
Financial markets just threatened to break the eurozone, so the idea of harnessing the power of the market and of financial engineering to guarantee the euro’s long-term viability might seem paradoxical. Realizing the idea is why eurozone sovereign debt should be spit into senior and junior tranches – "Blue Bonds" and "Red Bonds."
Rating the Raters
Lucian Bebchuk (Project Syndicate) May 24, 2010
Credit rating agencies play a crucial role in modern capital markets, but they completely failed in the years preceding the financial crisis. And the problem hasn’t gone away: as long as issuers of securities choose and compensate the firms that rate them, the agencies will have a strong incentive to reciprocate with good ratings – unless they, too, are subject to ratings.
Shale gas will change the world
Gideon Rachman (FT) May 24, 2010
On the growing excitement in the US and Europe at the idea that we may have discovered a large part of the answer to one of the most vexatious problems in foreign and economic policy – energy security.
Look to the developing world
Robert Zoellick (FT) May 24, 2010
The EU and developed countries elsewhere need more than fiscal stringency, especially if achieved by piling on more taxes.
Knee-jerk policy reactions must be avoided
Martin Wheatley (FT) May 24, 2010
In trying to correct "irrational" market behaviour with rapid rule changes, policymakers are provoking a very rational response.
There's A Bubble In Bubbles
Sean Dougherty (Forbes) May 24, 2010
And it's got to stop.
An autopsy of the US financial system: Accident, suicide, or negligent homicide?
Ross Levine (VoxEU) May 25, 2010
Many policymakers stress that the global crisis was caused by a series of unforeseen events and “suicidal” behaviour by market players. This column argues that this is a self-serving narrative. Policymakers designed, implemented, and maintained policies that destabilised the financial system in the decade leading up to 2006 – and were fully aware they were doing so. It is a case of “negligent homicide”.
Managing capital inflows: Emerging Europe is different, again
Johan Mathisen & Srobona Mitra (VoxEU) May 25, 2010
In contrast to much of the emerging world, capital inflows to emerging Europe continue to be weak and mixed. How should the region ensure a healthy level of foreign investment while preventing excessive capital inflows and improving the stability of the financial sector? This column argues a comprehensive policy response is needed and recommendations should be tailored to country-specific circumstances.
Germany Should Quit Euro, Leave Markets in Peace
Matthew Lynn (Bloomberg) May 25, 2010
Greece is going bust. The euro is sliding. The bond markets are in open revolt. And what does the German government decide to do? Shoot the messenger.
China Falls Victim to Greek Deficit Contagion
Michael Pettis (Bloomberg) May 25, 2010
China is under growing pressure from Asia, Europe and the U.S. to revalue its currency. Until recently, it even looked like we were about to embark on a sustained process of yuan revaluation fairly soon.
Chronicle of a Currency Crisis Foretold
Martin Feldstein (Project Syndicate) May 25, 2010
The crisis in Greece and the problems in Spain and Portugal have exposed the euro’s inherent flaws, and no amount of financial guarantees – much less rhetorical reassurance – from the EU can paper them over. While the euro is likely to survive the current crisis, not all of the eurozone’s current members may be there a year from now.
UAE: The End of Dubai's Debt Woes?
Mohamed Jaber (MS GEF) May 25, 2010
The implementation of the debt-restructuring agreement that Dubai World has recently proposed to its bank lenders will likely be positive for Dubai’s government-related entities but negative for its sovereign credit. We argue that greater transparency on the Dubai debt issue is critical.
Dr. Copper And The Pessimists
Brian S. Wesbury and Robert Stein (Forbes) May 25, 2010
The euro- and Greece-induced drop in copper prices doesn't mean we're in a double-dip recession.
Time to Constrain Government
Michael Boskin (Project Syndicate) May 25, 2010
The EU is currently providing a unique update to Lenin’s dictum that nothing so destabilizes a country as a run on its currency. But the fiscal problems that triggered the crisis are not limited to Greece – or even to the other countries on the eurozone’s periphery – and can be solved only by placing constitutional restrictions on legislators' budgeting authority.
The grasshoppers and the ants – a modern fable
Martin Wolf (FT) May 25, 2010
Today's global economy is more complex than Aesop could have imagined. What would be the moral of a contemporary version of his famous story where the "ants" are Germans, Chinese and Japanese, while the "grasshoppers" are American, British, Greek, Irish and Spanish.
Long live the euro – at parity with the dollar
Ricardo Caballero and Francesco Giavazzi (FT) May 25, 2010
A 30 per cent depreciation of the euro would significantly cut the Greek trade deficit and boost exports. This is because tourism accounts for 70 per cent of total Greek exports.
The eurozone's need for 'political imagination'
George Magnus (FT) May 25, 2010
The eurozone needs a sovereign debt restructuring initiative to extend the maturity of debt and soften the terms for nations willing to accept economic restructuring.
Towards a new ethics of nature
Paul Collier (FT) May 25, 2010
Our obligation to the future is not to preserve purity but to pass on equivalent value for the natural assets we deplete, writes Paul Collier
Dateline China: Mr. Zhou Takes on Western Finance
Stephan Richter (Globalist) May 25, 2010
Might China's Communist Party present a better training ground for today’s financial edifices than the practices prevailing in the West?
A threat bigger than nukes
Mikhail Khodorkovsky (WP) May 26, 2010
I witnessed its effects -- retarded economic growth and political instability.
Deeply Divided, WTO Members to Search for Common Ground on Doha
Bridges Weekly Trade News Digest Volume 14, Number 19 May 26, 2010
A meeting of senior officials from 19 WTO members last week was valuable primarily for helping participants reach "a common diagnosis" of the "seriousness and depth" of the problem governments face in trying to conclude the Doha Round trade talks, officials said.
North-South Split over R&D Financing and Counterfeits at World Health Assembly
Bridges Weekly Trade News Digest Volume 14, Number 19 May 26, 2010
Controversial issues related to intellectual property rights (IPRs), innovation, and access to medicine dominated debates at last week's meeting of the World Health Assembly, the top decision making body of the World Health Organization (WHO).
The Panic, Round Two: What Would Reagan Do?
David Malpass (WSJ) May 26, 2010
Giant pools of capital are sitting idle in unproductive deposits or inflation hedges. They could easily fund job growth if real, after-tax prospects improved.
The ECB: Gestures and credibility
Guido Tabellini (VoxEU) May 26, 2010
Improvisation in handling the crisis in Greece has given the impression that governments and European institutions are not capable of facing the toughest challenges. This column reminds us that in times like these, the credibility of institutions is essential and rests on consistency. The ECB decision to "sterilise" the purchase of bonds with inverse operations to drain liquidity puts this credibility at risk.
Does this problem have a solution?
Rudi Bogni (Wilmott) May 26, 2010
Managing society requires the world to embrace randomness. Fat chance!
Asia, Europe, and the IMF
Arvind Subramanian (Business Standard/PIIE) May 26, 2010
The financial crisis of 2008–09 and the sovereign crises of 2010 have allowed the International Monetary Fund (IMF) to reclaim the mantle of the institution as one before which "insolvents must fawn." Dominique Strauss-Kahn, the IMF's managing director, will deservedly get credit for using the crisis to snatch preeminence from the jaws of looming irrelevance, an irrelevance once threatened by the global scarcity of insolvents.
Japan: Past the Sweet Spot: Impact of European Sovereign Debt Issues
Takehiro Sato & Takeshi Yamaguchi (MS GEF) May 26, 2010
We think that Japan’s economy may already have passed its sweet spot. Action by key central banks has averted major disturbance, but the impact of fiscal austerity and risk avoidance on the real economy and financial markets will be long-lasting.
Development Aid in Five Easy Steps
Jeffrey D. Sachs (Project Syndicate) May 26, 2010
The rich world says that it lacks the money to do more to provide the development assistance that could save millions of lives each year in impoverished countries. But what rich countries lack is imagination, not resources.
The dark side of China’s enduring dream
David Pilling (FT) May 26, 2010
A spate of suicides in an electronics plant in southern China, coupled with an undercover newspaper investigation into conditions at the Foxconn plant, has shone a spotlight into the darker crevices of China’s factory system.
A blame game at globalisation’s unravelling
Harold James (FT) May 26, 2010
In the 19th century surpluses and deficits did not lead to global crises but now international imbalances are a sign of tension and conflict rather than a cause for celebration.
'Flash crash' delivers clear messages
Duncan Niederauer (FT) May 26, 2010
Price discovery and investor safeguards are absolutely critical elements of market structure.
China's Plagiarism Problem
Peter Friedman (Forbes) May 26, 2010
It poses a risk to innovation and further economic growth.
Europe's debt-crisis disconnect
David Ignatius (WP) May 27, 2010
What are the mechanisms that will enforce fiscal discipline in Europe?
The Flight to Quality
J. Bradford DeLong (Project Syndicate) May 27, 2010
Since the early fall of 2007, growing excess demand for safe, liquid, high-quality financial assets has accompanied growing excess supply for the goods and services that are the products of ongoing human labor. In such circumstances, the right economic policy to pursue is well-established: if the market wants more such assets, give the market what it wants.
Greek crisis, German politics
Henry C K Liu (AT) May 27, 2010
Efforts to drive through bailout packages for Greece exposed and exacerbated strains between European Union member states and within those countries, notably German. The political, as well as the economic, costs of this crisis are rising, and spreading to the United States.
Central banks - crisis creators
Hossein Askari and Noureddine Krichene (AT) May 27, 2010
The US Federal Reserve admonishes commercial banks for taking excessive risk, yet it does so itself with impunity, operating in a manner that would put any car rental company out of business. The folly of central banks running a loose monetary policy is well known, yet the Fed continues to fuel the present instability.
Economist May 27, 2010
Governments were the solution to the economic crisis. Now they are the problem.
The Role of External Demand in the Eurozone
Jacob Funk Kirkegaard May 27, 2010
The argument is widely heard in Europe and elsewhere: If only Greece and other struggling eurozone countries could let their currency depreciate, as other collapsing economies have done when hit by debt crises—in Asia and Latin America, for example. Such a step would in theory boost demand for these countries' exports, limit their imports, and make it easier to lower their debts. Greece, Spain, Portugal, Italy, and other European countries wedded to the euro can't take that step, of course, without suffering a major disruption. But the view that a currency devaluation would offer a way out for Greece or other countries is in any case based on a simple fallacy. Just because eurozone members share their currency, the euro, with their eurozone neighbors does not prevent them from benefiting from the increased external demand for their goods driven by a decline in the euro itself.
Taxing debt like equity would make our banks safer
David Walker (FT) May 27, 2010
The global crisis has spawned a plethora of legislative and regulatory proposals, many requiring international agreement and co-ordination.
Greek bondholders jittery over haircuts
Gillian Tett (FT) May 27, 2010
Eurozone leaders should oblige banks to make provisions for sovereign risk, but they are adamantly refusing to discuss the topic.
Reforming finance: Bare-knuckle in Basel
Economist May 27, 2010
The task of sorting out banking is far from finished
Sell The Rallies, Don't Buy The Dips
Robert Lenzner (Forbes) May 27, 2010
Europe's $11 trillion in debt replaces greed with fear of another global bubble bursting.
Europe’s Debt Crisis: Long-Term Economic Decline?
Dan Steinbock (Globalist) May 27, 2010
Is the eurozone's current turmoil accelerating the long-term erosion of Europe’s economic power?
Africa resists the protectionist temptation: The fifth Global Trade Alert report
Simon J Evenett (VoxEU) May 28, 2010
Despite the return of economic growth, the threat of protectionism still lingers. This column presents the fifth report from the Global Trade Alert with a focus on sub-Saharan Africa. The report is the busiest yet – the number of identified protectionist measures has risen by 40%. No four-digit product line, no economic sector, and no jurisdiction have emerged unscathed by crisis-era protectionism.
Bank credit during the global crisis: A cross-country comparison
Ari Aisen & Michael Franken (VoxEU) May 28, 2010
What factors determined the performance of bank credit during the global crisis? This column presents evidence from 83 countries suggesting that credit booms prior to the crisis led to a sharper contraction in bank credit after the crisis. Meanwhile, the growth performance of a country’s main trading partners had a positive impact on bank credit – as did monetary policy.
Obama's foreign bribery crackdown
Mark Brzezinski (WP) May 28, 2010
As the administration enforces anti-bribery laws around the world, let's consider the consequences.
Global: Sovereign Headwinds Stretch the Monetary Peloton
Manoj Pradhan (MS GEF) May 28, 2010
The events of the past couple of months have put us firmly back in an environment where major central banks will continue to provide XXL liquidity and early hikers will face the discouraging prospect of dual headwinds: currency appreciation on the back of hikes in policy rates and low bond yields despite it.
An ABC of financial shocks and fiscal aftershocks
Martin Wolf (FT) May 28, 2010
'If the forecasts are true,' asked Bobby, 'why do all these people talk about 'instability'? What's that about?'
The electoral consequences of large fiscal adjustments
Alberto Alesina, Dorian Carloni & Giampaolo Lecce (VoxEU) May 29, 2010
The market turmoil in recent weeks pose a key question: can European governments credibly commit to cutting their deficits? This column presents evidence that fiscal adjustments do not increase the likelihood of electoral defeat for incumbent governments. Europe’s fiscal problems can be solved – it is now up to today’s leaders to step up.
'Pieces of Eight': The Constitution and the Dollar
Seth Lipsky (WSJ) May 29, 2010
With everyone suddenly fretting about the need for a new world reserve currency, unorthodox views on the Federal Reserve are getting a new hearing.
The false trail of austerity and a weak euro
Wolfgang Münchau (FT) May 30, 2010
What the eurozone really needs is a consolidation strategy based on growth and a credible fiscal adjustment plan.
A changed Africa still needs our help to grow
Nicholas Stern (FT) May 30, 2010
The continent can become a major source of low-cost manufacturing as the marked change in the international division of labour gathers pace.
Public debt and underground economies: A “Treasury vs dodgers” dilemma
Maurizio Bovi (VoxEU) May 30, 2010
Europe’s highly indebted countries – Portugal, Italy, Ireland, Greece, and Spain – also face the problem of tax evasion. This column analyses how governments can tackle their fiscal deficits while reducing the possibility of forcing activity underground. It suggests that fewer, better paid public workers could complement tax cuts in fighting tax evasion.
Home equity extraction: Where did all the money go?
Daniel Cooper (VoxEU) May 30, 2010
In this column, Federal Reserve Bank of Boston economist Daniel Cooper presents new evidence suggesting that the spending impact of equity extraction during the recent US housing boom was relatively small compared with the household balance sheet changes and residential investment. This finding contrasts with recent findings claiming that households consumed the vast majority of the money they extracted.
Solutions for a crisis in its sovereign stage
Nouriel Roubini and Arnab Das (FT) May 31, 2010
Creditors need to take a hit, and debtors adjust. This is a solvency problem, demanding a grand work-out.
China: like a cocktail party without the cocktails
Hugh Hendry (FT) May 31, 2010
The Asian business development model is flawed.
Our Deep Debt Future
Sylvester Eijffinger and Edin Mujagic (Project Syndicate) May 31, 2010
The current decade will be remembered as the decade of public debt, and, in some countries or regions, maybe even the decade of permanent fiscal derailment. But it would be naïve to believe that the financial and economic crisis is the only reason that public finances are in such bad shape.
Fan Gang (Project Syndicate) May 31, 2010
Many factors may be pushing China’s economy in the direction of overheating, and one of the most worrying fueled the crisis in the eurozone: mushrooming public debt. But, while the problem in the eurozone is member countries’ sovereign debt, in China the threat stems from local government borrowing.
Financial sector taxation: Balancing fairness, efficiency, and stability
Thorsten Beck & Thomas Losse-Müller (VoxEU) May 31, 2010
The global crisis has exposed the frailty of financial sectors the world over and highlighted the need for regulatory reform. This column argues that taxing banks is no panacea. The only way to achieve financial stability and financial integration in Europe is to move towards a European-level bank resolution framework that has both funding and intervention authority.