Three Will Get You Two (or) Two Will Get You Three
Bill Gross (PIMCO) Jun 2010
The burden of debt can take decades to accumulate, but only a few short months to change course into crisis.
Distressed Debt: The End is NOT Near
Stephen G. Moyer & Michael C. Watchorn (PIMCO) Jun 2010
We expect there will continue to be significant distressed investment opportunities for investors.
Europe’s Sovereign Debt Crisis: No Place to Hide?
John H. Makin (AEI) Jun 2010
John Donne's oft-cited 1624 sentiments, a compelling metaphor for systemic risk in highly integrated global financial markets, have been widely invoked during the rolling financial crisis that emerged in 2007. Talk show pundits have intoned--having noticed that Europe is undergoing a debt crisis--that America should beware: this same sovereign debt crisis could be coming to our shores.
Fulfilling the promise of sub-Saharan Africa
Ngozi Okonjo-Iweala (McKinsey) Jun 2010
The region has already made big strides below the radar. It now stands to become the developing world’s next great success story.
What’s driving Africa’s growth
Acha Leke, Susan Lund, Charles Roxburgh, and Arend van Wamelen (MxKinsey Quarterly) Jun 2010
The rate of return on foreign investment is higher in Africa than in any other developing region. Global executives and investors must pay heed.
Emerging Markets as Drivers of Global Growth and Wealth Creation
Ramin Toloui (PIMCO) Jun 2010
As economic and financial power in the globe shifts, emerging markets are becoming increasingly important as a core allocation in fixed income portfolios.
Emerging Markets: New World Order
Tom Buerkle (II) Jun 2010
Emerging markets are driving the global economy while the U.S., Europe and Japan struggle. How sustainable is the new order?
Emerging Markets Go From Niche to Mainstream
Julie Segal (II) Jun 2010
Many institutional investors are fundamentally rethinking their approach to emerging markets. Investors are diversifying within the emerging-markets space, moving beyond basic equities to put their money in fixed-income securities, private equity and infrastructure investments.
Europe's Divergent Futures
Andrew Balls (PIMCO) Jun 2010
The eurozone stands at a crossroads.
Inside the Machine: a Journey into the World of High-Frequency Trading
Michael Peltz (II) Jun 2010
An editor's journey into the heart of darkness: the world of high-speed trading and proprietary algorithms that make or break markets.
Estimates of Fundamental Equilibrium Exchange Rates, May 2010
William R. Cline and John Williamson (PIIE) Jun 2010
This policy brief updates Cline and Williamson's estimates of fundamental equilibrium exchange rates (FEERs) to May 2010 using the data to March contained in the April issue of the International Monetary Fund's World Economic Outlook. The IMF's data are updated to May by subsequent exchange rate changes and Cline's estimates of the impact of exchange rate changes on trade flows. In addition, the assumptions about current account targets have been somewhat modified from previous years: All countries are now assumed to aim to keep current account balances within 3 percent of equilibrium, whereas formerly some countries with large net foreign assets to GDP ratios (NFA/GDP) were allowed larger targeted imbalances. The fundamental question explored is what pattern of exchange rates is consistent with satisfactory medium-term evolution of the world economy, interpreted as achieving those objectives while maintaining internal balance in each country. The big disequilibrium in the pattern of exchange rates remains the undervaluation of the renminbi and the overvaluation of the dollar. The size of this disequilibrium is, however, less than previously estimated (now 15 percent on an effective basis and 24 percent bilaterally with respect to the dollar), due to the decline in the IMF's estimate of China's prospective current account surplus. The recent depreciation of the euro, while increasing the size of Euroland's prospective surplus, does not threaten to lead to an internationally unacceptable imbalance (i.e., greater than 3 percent of GDP) and therefore does not create a case for international action to reverse the rise. The yen is no longer found to be overvalued on an effective basis, although if China revalued that would create a case for a stronger yen/dollar rate. Several of the other East Asian currencies would also need to appreciate bilaterally to avoid effective undervaluation. Of the 28 other economies covered, Hong Kong, Malaysia, Singapore, Sweden, Switzerland, and Taiwan are judged to need an effective appreciation and Australia, Brazil, New Zealand, South Africa, and Turkey to need an effective depreciation.
Attention Whole Foods Shoppers
Robert Paarlberg (FP) May/Jun 2010
Stop obsessing about arugula. Your "sustainable" mantra -- organic, local, and slow -- is no recipe for saving the world's hungry millions.
The Global Glass Ceiling
Isobel Coleman (Foreign Affairs) May/Jun 2010
Multinational corporations must invest resources to empower women as a way to achieve their international development goals.
Top of the Class
Richard C. Levin (Foreign Affairs) May/Jun 2010
Governments in Asia understand that overhauling their higher-education systems is required to sustain economic growth. They are making progress by investing in research, reforming traditional approaches to curricula and pedagogy, and beginning to attract outstanding faculty from abroad. Many challenges remain, but it is more likely than not that by midcentury, the top Asian universities will stand among the best universities in the world. Read
Rising Domestic Consumption in Emerging Markets Looks Good for Global Investors
Brigitte Posch (PIMCO) Jun 2010
We expect emerging nations to facilitate domestic demand over the next three to five years.
The Return of State Capitalism
Saumil H. Parikh (PIMCO) Jun 2010
Is this the return of big government? In the third of a series of Q&A articles accompanying the recent release of PIMCO's Secular Outlook, portfolio manager Saumil Parikh delves into the politics driving changes in financial regulation as well as related global trends in government and economics and what they might mean for investors.
A Flatline Europe
Andrew Balls (PIMCO) Jun 2010
The eurozone faces acute economic, institutional, coordination and political challenges.
G-20 Protection in the Wake of the Great Recession
Gary Clyde Hufbauer, Jacob Funk Kirkegaard, and Woan Fong Woong (PIIE) Jun 2010
The G-20, with its roster of advanced and emerging economies, is uniquely situated to address burning questions as the world emerges from the Great Recession. The continued implementation of protectionist measures, along with a stalled agenda in the Doha Round, is among those questions. In this report we first describe the economic context for protection by G-20 countries and then turn to policy responses.
The BP Oil Spill’s Lessons for Regulation
Kenneth Rogoff (Project Syndicate) Jun 1, 2010
As the damaged BP oil well continues to spew millions of gallons of crude from the depths of the floor of the Gulf of Mexico, the immediate challenge is how to mitigate an ever-magnifying environmental catastrophe. But the disaster poses a much deeper challenge to how modern societies deal with regulating complex technologies.
The West's Wrong Turn on Natural Resources
Joseph Sternberg (WSJ) Jun 1, 2010
If democracies don't extract oil, dictatorships will.
Do inefficient stock markets drive bad corporate governance?
Sergey Chernenko, Fritz Foley & Robin Greenwood (VoxEU) Jun 1, 2010
Why do minority shareholders continue to hold stock despite the risk of expropriation by controlling shareholders? This column provides two decades of evidence from Japan suggesting that many investors do not foresee these conflicts of interest, even when there is plenty of disclosure. Inefficient stock markets allow majority shareholders – often parent companies – to sell overpriced stock only to buy it back at a later date.
Did protectionist policy cause the trade collapse?
Hiau Looi Kee, Cristina Neagu & Alessandro Nicita (VoxEU) Jun 1, 2010
Did increased protectionism cause the great trade collapse? This column argues that, while there has been a rise in the use of tariffs and anti-dumping duties, protectionism accounted for no more than 2% of the drop in world trade in 2009.
The grasshoppers and the ants – elucidating the fable
Martin Wolf (FT) Jun 1, 2010
Flows of finance from export-driven ant nests to advanced grasshopper colonies end in tears. Flows of finance from old ant nests to young ones have not worked out either.
Prepare for change on Wall Street
Henry Kaufman (FT) Jun 1, 2010
To benefit from financial reform, America needs a new economic philosophy showing how to integrate economics and finance.
Scandinavia is quietly emerging as Europe's haven
Richard Milne (FT) Jun 1, 2010
Underpinned by strong public finances and a reasonable economic recovery, the Nordic region is outperforming its European neighbours as Scandinavia appears to be a haven in the debt crisis.
Regional trade agreements: Blessing or burden?
Caroline Freund & Emanuel Ornelas (VoxEU) Jun 2, 2010
Regional trade agreements have spread rapidly throughout the world since the early 1990s. This column surveys the latest theoretical and empirical research on regionalism, asking whether we should celebrate or be concerned about this trend. It concludes that although countries should approach regionalism with care, such agreements have been more of a blessing than a burden.
Euro Exit Is Ludicrous Idea for Any Country
Hannes Androsch (Bloomberg) Jun 2, 2010
The Greek sovereign-debt crisis and the attempts of the European Union to quell the simmering pot before it boils over is commanding the attention of the international community.
Fishy Conservation Efforts
Achim Steiner (Project Syndicate) Jun 2, 2010
A recent meeting in Doha of the Convention on the International Trade in Endangered Species underscored the threat to many economically and ecologically important marine species. Unfortunately, whether these species avoid extinction still depends on organizations that have presided over a breathtaking collapse of fish stocks.
Europe Needs a Reward for Its Austerity: Is a Maastricht Bond the Answer?
Jacob Funk Kirkegaard (PIIE) Jun 2, 2010
Austerity is back in fashion across the European Union, thanks to the Greek debt crisis—particularly among the vulnerable southern eurozone members. Faced with suddenly hostile financial markets and unwilling to refinance affected countries' debts at anything other than unsustainably high interest rates, Europeans are adopting a slew of severe budget and regulatory measures throughout the eurozone. Spain, Portugal, and Italy are following in the footsteps of Latvia, Ireland, and of course Greece itself to cut public wages and take other tough steps. Meanwhile in Germany, the government looks set to implement its own balanced budget constitutional amendment, implying at least another €10 billion in annual budget cuts each year until 2016 while in France the government is—among other measures—planning to raise the retirement age by 2 to 3 years.
Year-End Climate Goal in Question as Bonn Meetings Begin
Bridges Weekly Trade News Digest Volume 14, Number 20 Jun 2, 2010
The annual mid-year negotiations of the UN Framework Convention on Climate Change got underway in Bonn, Germany this week. Officials will spend eleven days and nights churning through issues with the ultimate aim of establishing new multilateral rules on climate change.
Bananas: Geneva Agreement Signed; Bilaterals Cut Tariffs Further
Bridges Weekly Trade News Digest Volume 14, Number 20 Jun 2, 2010
Trade negotiators opened bottles of champagne in Geneva on Monday as they formally signed the Geneva Agreement on Trade in Bananas, thus laying to rest one of the most protracted and bitter disputes in the multilateral trading system's recent history.
Ministers Review Doha Talks on OECD Sidelines
Bridges Weekly Trade News Digest Volume 14, Number 20 Jun 2, 2010
High-level trade officials met with WTO Director-General Pascal Lamy in Paris last week to assess progress toward concluding the beleaguered Doha Round of trade talks at the WTO.
Potholes on the road to emerging markets
Richard Milne (FT) Jun 2, 2010
Countries such as China and Brazil are expected to provide the lion's share of global growth in the coming years, so it is little wonder that businesses are trumpeting their plans to expand in such markets.
Bankers have been sold short by market distortions
Raghuram Rajan (FT) Jun 2, 2010
When the discipline of markets breaks down, as it sometimes does, the finely incentivised financial system can derail quickly and cause immense damage.
Relentless rise of the 'barbarous relic'
Jonathan Spall (FT) Jun 2, 2010
Gold prices have risen steadily since a rash of selling by central banks at the end of the last century, with rising demand from exchange traded funds providing support.
Paradigm Lost: The Euro in Crisis
Uri Dadush (CEIP) Jun 2, 2010
The debt crisis that began in Greece quickly engulfed Europe and now threatens the global recovery and the future of the euro. Despite unprecedented support from the European Union and IMF, the euro crisis is far from over. In this timely collection, Carnegie experts examine the causes of the crisis, provide country case studies, and offer policy recommendations for leaders inside Europe and beyond.
Urgently needed: A global green New Deal
Edward B. Barbier (VoxEU) Jun 3, 2010
Nearly one-sixth of the more than $3 trillion in fiscal stimulus spent in 2008 and 2009 was allocated to green spending. But this column argues that without correcting existing market and policy distortions, the “greening” of the world economy will be short-lived. Now more than ever, the world needs a global green New Deal – and it needs the G20 to lead the way.
The Core Dilemma Of Financial Regulation
Jennifer Kapila, Parul Walia and Arnab Das (Forbes) Jun 3, 2010
Should we choose a robust financial system or leverage-fueled growth?
Trapped in Euroland
Takatoshi Ito (Project Syndicate) Jun 3, 2010
Asians have watched the Greek crisis with a muted sense of vindication. In response to their own crisis in 1997, Asian leaders sought to establish a regional monetary fund to provide liquidity assistance to beleaguered members – an idea that the IMF and the US rejected at the time, but have now embraced for Europe.
Lame Ducks in Love
Harold James (Project Syndicate) Jun 3, 2010
Just as the US recently pressed European leaders to rescue the euro, owing to fears that a collapse could weaken the dollar, so American policy makers in the 1960's sought to prop up that era's second-leading international reserve currency, the British pound. With the renminbi as a reserve option, the euro and the dollar would be freed from their forced marriage.
China's challenge to the free market
Ian Bremmer and Devin Stewart (AT) Jun 4, 2010
China is leading the challenge of state capitalism, where markets are used ultimately for political gains, to the global free-market system developed and championed over the past four decades by the United States. Yet Washington may be wise in supporting China in its increased reluctance to move to a free-market system.
A plan to live with ‘imbalances'
Samuel Brittan (FT) Jun 3, 2010
The citizens of some countries are being told to spend more for the sake of the world economy. Individuals and families should make up their own minds about how much to save.
Pay the rating agencies according to results
Larry Harris (FT) Jun 3, 2010
Profits should rise if bonds that are rated investment grade perform well and fall if such bonds default more often than expected.
Global economic policy: The deflation dilemma
Economist Jun 3, 2010
Rich countries must act to prevent prices from falling. That will cause problems for emerging economies
Wanted: Competent Leaders With Vision To Tackle Global Crises
Jeffrey E. Garten (YaleGlobal) Jun 3, 2010
Markets spooked by leaders' lack of courage before great challenges.
Should larger reserve holdings be more diversified?
Roland Beck & Sebastian Weber (VoxEU) Jun 4, 2010
Large foreign-exchange reserve holdings by emerging market central banks are back on the radar of academics, policymakers, and market participants. One prediction has been that the large increases in reserve holdings should lead to more diversified portfolios. This column argues that this may not necessarily be the case – diversification depends on whether reserves are precautionary or not.
Global: Paradise Lost
Joachim Fels (MS GEF) Jun 4, 2010
The longer the banking crisis and the sovereign crisis last (and both are by far not over yet), the more likely we will get a crisis of confidence in the central banks who act as lenders of last resort to banks and governments.
Financial Re-Regulation and Democracy
Joseph E. Stiglitz (Project Syndicate) Jun 4, 2010
It has taken almost two years since the collapse of Lehman Brothers, and more than three years since the beginning of the global recession brought on by the financial sector’s misdeeds, for the US and Europe finally to reform financial regulation. But banks that wreaked havoc on the global economy continue to resist reform – with support from some who should know better.
Beyond Stimulus
Pier Carlo Padoan (NYT) Jun 4, 2010
To be sure, not every country is in the same situation. Time is running out for all, but at different speeds.
Made in China Remade
Ang Yuen Yuen (Project Syndicate) Jun 4, 2010
Rising labor costs and the global financial crisis have wiped out huge swaths of China's export manufacturing base. But that could be a blessing in disguise for China, as market consolidation leads to the emergence of larger firms that, by investing more in product innovation and design, move the economy up the value chain.
Europe’s Competitiveness Obsession
Daniel Gros (Project Syndicate) Jun 4, 2010
The EU is now obsessed with closing the competitiveness gap that has emerged between eurozone countries. But this approach risks leading in the wrong direction, because competitiveness is a relative concept: restoring competitiveness in some countries, such as Greece and Spain, would require others (Germany in the first instance) to accept deterioration in theirs.
World Can Grow Faster With Right Policies, Says IMF
IMF Survey Jun 5, 2010
The world economy is recovering quicker than expected from the global recession, but the pace is uneven and could be faster with better coordination and the right policies, IMF Managing Director Dominique Strauss-Kahn says. IMF analysis shows growth could be boosted by 2.5 percent.
On the Need to Listen Carefully to What the G-20 is Saying
Mohamed El-Erian (PIMCO) Jun 5, 2010
Structural and balance sheet realities are imposing themselves on the global economy.
Frankfurt’s shroud of secrecy should be shed
Wolfgang Münchau (FT) Jun 6, 2010
The underlying cause of last week’s rise in sovereign bond spreads was lousy communication. Transparency is not something in which the EU, and the ECB in particular, excel.
The False Promise of Crisis-Resolution Funds
Stefano Micossi (Project Syndicate) Jun 7, 2010
Ever since financial markets began to stabilize late last year, the idea of making the financial sector pay for the costs incurred by taxpayers to keep it afloat has gained increasing support among policymakers and the wider public. But the idea of a resolution fund is at best a distraction – and at worst a harbinger of further financial instability.
Can Emerging Markets Save the World Economy?
Mohamed A. El-Erian and Michael Spence (Project Syndicate) Jun 7, 2010
Whereas industrial countries are experiencing bouts of severe financial instability, emerging economies, once considered much more vulnerable, have been remarkably resilient, proving to be important engines of global growth. But emerging economies do not operate in a vacuum, and sustaining their strong performance requires the accommodation of industrial countries.
Sources of the WTO’s woes: Decision-making’s impossible trinity
Richard Baldwin (VoxEU) Jun 7, 2010
The WTO is in a funk – unable to conclude the Doha Round even as its members liberalise unilaterally and regionally. This column introduces a Policy Insight arguing that the tactics used to conclude the last round pushed the organisation into decision-making’s “impossible trinity” (consensus, uniform rules, and strict enforcement). The Doha Round may succeed – defeating the triangle with the 'big package' tactic – but this tactic does not work fast enough to allow the WTO to confront 21st century challenges in a timely manner. At least one of the impossible triangle’s corners will have to be modified.
Bailouts as Usual
WSJ Jun 7, 2010
The credit-raters say 'too big to fail' is alive and well.
CEEMEA FX: On the Implications of a Stronger USD
Pasquale Diana, Tevfik Aksoy, Oliver Weeks, Alina Slyusarchuk, Michael Kafe, Andrea Masia & James Lord (MS GEF) Jun 7, 2010
Following our Global Currency Research team’s new EURUSD forecasts, we have revised our FX forecasts across CEEMEA. We look at our macro rationale in each region and conclude with some strategy ideas.
Exchanges are coming close to the edge
Michael Gordon (FT) Jun 7, 2010
Overly-progressive trading technology will lead to alienation.
Time to plan for post-Keynesian era
Jeffrey Sachs (FT) Jun 7, 2010
Governments should explain that there is little economic policy can do to create high-quality jobs in the short term.
Commodity Price Drops Signal A Double-Dip Recession Ahead
Michael Pento (Forbes) Jun 7, 2010
Oil, gold, copper declines result from weak demand, not a strong dollar.
A silver lining lurks behind the dark clouds
Karim Foda & Eswar Prasad (VoxEU) Jun 8, 2010
Is the worst of the crisis behind us, or is this just the eye of the storm? This column provides a snapshot from a new index provided jointly by the Brookings Institution and the Financial Times known as TIGER – Tracking Indices for the Global Economic Recovery. It argues that while some dark clouds remain, the economic picture looks far better now than it did a year ago.
Fear must not blind us to deflation’s dangers
Martin Wolf (FT) Jun 8, 2010
A consensus is forming that policymakers in countries with large fiscal deficits should tighten fiscal policy sharply – but what makes them sure that business and consumers will spend in response to austerity?
The new lesson for resilient Asia
Stephen Roach (FT) Jun 8, 2010
The region has come through the global crisis with flying colours but it must adapt yet again, moving towards greater reliance on its own internal markets.
After the credit crisis – next it will be oil
Jeremy Leggett (FT) Jun 8, 2010
Every year, peak-oil worriers say they doubt the Opec producers’ reserve statistics that are echoed in BP’s review.
Inclusive crises and exclusive recoveries?
Ronald U. Mendoza (VoxEU) Jun 9, 2010
As the G20 changes its recommendations from fiscal stimulus towards fiscal austerity, this column argues that policymakers should be careful not to leave the most vulnerable behind. It says that robust social spending and investments are needed even under tight fiscal conditions – stock markets may bounce back, but a generation growing up in poverty may not.
Euroland: Enter the EFSF
Elga Bartsch & Daniele Antonucci (MS GEF) Jun 9, 2010
Euro area finance ministers have finally established the EFSF, a limited liability company which will raise funds and provide loans of up to €440 billion to euro area member states, subject to strict conditionality. In our view, this is an important step, which buys euro area governments some time to address their fiscal policy issues.
Who Lost Europe?
Dani Rodrik (Project Syndicate) Jun 9, 2010
Europe urgently needs a short-term growth strategy to supplement its financial-support package and its plans for fiscal consolidation. But the greatest obstacle to implementing such a strategy is the EU’s largest economy and its putative leader: Germany.
EU Commissioners to Consider Energy Tax Overhaul
Bridges Weekly Trade News Digest Volume 14, Number 21 Jun 9, 2010
The European Union is set to consider a blanket energy tax that could make renewable fuels cheaper than traditional sources of energy. News of the potential policy shift broke last week when Reuters news agency obtained a draft European Commission document that outlines the proposed changes.
UNITAID Launches Patent Pool for HIV/AIDS Drugs
Bridges Weekly Trade News Digest Volume 14, Number 21 Jun 9, 2010
A "patent pool" that promises to spur innovation and lower costs for state-of-the-art HIV/AIDS treatment took a big step closer to becoming a reality on Tuesday, with a crucial procedural decision that sets up an entity that can negotiate with the makers of key drugs to secure access to their intellectual property.
New imbalances will threaten global recovery
Fred Bergsten (FT) Jun 9, 2010
America must convince the world that it is unwilling once again to become the the consumer and borrower of last resort.
Beware the biggest moral hazard of them all
Marc Lackritz (FT) Jun 9, 2010
Before mounting their soapboxes to decry financial reform, these avatars of ideology might look in the mirror.
Long-term performance of commodities not improving
Peter Tasker (FT) Jun 9, 2010
The idea they are a good inflation hedge is absurd.
The Wrong Message on Deficits
NYT Jun 9, 2010
The sudden fierce enthusiasm for fiscal austerity, especially among stronger economies, is likely to backfire.
The trillion-dollar failure
Henry CK Liu (FT) Jun 10, 2010
The Greek debt crisis has ushered in austerity measures across the eurozone and beyond, forcing the young, the working poor and the elderly to pay for the careless profligacy and corruption of governments, the propertied rich, and financiers. In all cases, social democrats support the cuts, telling working people that there is "no alternative". There is.
At the Heart of the Crash
Jeff Madrick (NYRB) Jun 10, 2010
Not the least striking revelation of Michael Lewis’s excellent book, The Big Short, is that this author of financial best-sellers has changed his mind. In a column for Bloomberg News in early 2007, he praised the rapidly expanding market for derivatives. Visiting the annual meeting of financiers and policymakers at the World Economic Forum in Davos, Switzerland, that year, he was exasperated by the fears of some of the participants. “None of them seemed to understand that when you create a derivative you don’t add to the sum total of risk in the financial world,” he wrote, sounding arguments very similar to those made by Alan Greenspan. “You merely create a means for redistributing that risk. They have no evidence that financial risk is being redistributed in ways we should all worry about.”
In Case of Euro Crisis, Break Deutsche Mark Glass
Mark Gilbert (Bloomberg) Jun 10, 2010
Juergen Stark keeps a framed sheet of deutsche marks bearing his signature on his office wall at the European Central Bank in Frankfurt. He should consider adding a sign saying “In Case of Emergency, Break Glass.”
China can let the renminbi depreciate
Yukon Huang (FT) Jun 10, 2010
The collapse of the euro presents a golden opportunity for China to introduce greater exchange rate flexibility. And it should begin by letting the value of the renminbi depreciate.
Europe's antipathy to stress tests is well founded
Gillian Tett (FT) Jun 10, 2010
Having just asked tax payers to fork out to save Greece and other eurozone nations, Germany and France are cautious about revealing further banking-system flaws.
Accounting standards: To FASB or not to FASB?
Economist Jun 10, 2010
A transatlantic divide over the treatment of financial instruments.
Myths about economic austerity: A cut too far?
Economist Jun 10, 2010
The G20's budget cuts are less reckless than many fear. Be worried instead by the paucity of structural reforms
Keeping the interbank market liquid in times of crisis
Sergio Nicoletti-Altimari & Carmelo Salleo (VoxEU) Jun 11, 2010
The global crisis ruthlessly exposed the weakness of the market for liquidity. This column suggests that banks should issue securities with a “Roll-Over Option Facility” that would allows banks to keep funds if there is turmoil in liquidity markets. It adds that these facilities would help reallocate liquidity risk outside the banking sector, thus reducing the probability and severity of a crisis.
Financial Re-Regulation and Democracy
Joseph E. Stiglitz (Project Syndicate) Jun 11, 2010
It has taken almost two years since the collapse of Lehman Brothers, and more than three years since the beginning of the global recession brought on by the financial sector’s misdeeds, for the US and Europe finally to reform financial regulation. But banks that wreaked havoc on the global economy continue to resist reform – with support from some who should know better.
To Save Africa, Reject Its Nations
Pierre Englebert (NYT) Jun 11, 2010
A global effort to derecognize failed African states will force their rulers to adopt the necessary reforms to gain domestic support.
The eurozone’s tragic small-country mindset
Wolfgang Münchau (FT) Jun 13, 2010
The prevailing view in Brussels and Frankfurt is that the growth problem is 100 per cent structural.
How to implement a systemic risk policy
Andrew Large (FT) Jun 13, 2010
In the UK, responsibility for maintaining financial stability seems likely, and rightly, to be restored to the Bank of England.
The all-too-real phantom balance sheet
David Rothkopf (FT) Jun 13, 2010
It has been discovered that for countries, at least, there are three balance sheets with which we need to deal in order to assess financial risks accurately.
The Euro: Despite the Markets and Prophets of Doom, It Is Safer than Ever
Jacob Funk Kirkegaard (PIIE) Jun 13, 2010
There has been little love by financial markets for European leaders these days. But one has to wonder about the level of disdain reflected in recent surveys of City of London economists and global investors showing agreement about the likelihood of a breakup of the eurozone. How can a majority of 25 City of London economists conclude that "a euro breakup of greater or lesser proportions will occur during the next Parliamentary term"—within five years, in other words—a view supported by 40 percent of global investors polled by Bloomberg?
Did global imbalances cause the crisis?
Kati Suominen (VoxEU) Jun 14, 2010
Did global imbalances cause the global crisis? This column summarises the variety of explanations of the relationship between imbalances and the crisis. While the debate continues, it suggests that, as a matter of prudence, policies to contain global imbalances may still be warranted even if they did not trigger the crisis.
Global: Just Say No to the Double-Dip
Joachim Fels, Manoj Pradhan & Spyros Andreopoulos (MS GEF) Jun 14, 2010
There are many things we worry about: a sovereign crisis, lower potential growth, and potential global inflation surprises. However, a double-dip recession and resulting deflationary pressures that many worry about right now are definitely not at the top of our worry list.
Of BRIC geography, trade & geopolitics
Markus Jaeger (DB Research) Jun 14, 2010
Geography matters. It affects, but does not determine, the distribution of wealth within countries, trade between economies and foreign relations between states. Geography also helps shape the geo-political interaction among the BRIC countries (Brazil, Russia, India and China). As the emergence of the BRICs and, in the case of China and India, the quest to secure access to natural resources and protect lines of communication intensify, geo-strategic competition among geographically contiguous China, India and Russia will increase. Brazil will stand relatively aloof thanks to its relative geographic isolation...
A carbon giveaway Europe cannot afford
Michael Grubb and Susanne Droege (FT) Jun 14, 2010
Debt and climate change build up over long periods during which policy is dominated by lobbying and short-term expediency, until a day of reckoning.
Europe's 'shock and awe' needs an overhaul
Cambiz Alikhani (FT) Jun 14, 2010
A four-point plan to deal with the eurozone's debt crisis.
Exit strategies for central banks: Lessons from the 1930s
Joseph Mason & Kris James Mitchener (VoxEU) Jun 15, 2010
Many commentators have compared the global crisis to the Great Depression. This column explores lessons that can be applied to help shape expectations and guide exit policy for central banks. It argues that the need for credit stimulus should end when failed intermediaries are resolved and positive net present value credits are reallocated to solvent lenders.
How to rescue the Eurozone: Lessons from Southeast Asia
David Vines (VoxEU) Jun 15, 2010
Unlike Southeast Asia, Greece cannot devalue its currency in a bid to kick start an export-led recovery. Instead this column argues that, while politically difficult, a combination of rescheduling its debt and of consolidated, coordinated, wage cuts is what Greece needs – and fast.
How to Avoid a Double-Dip Global Recession
Nouriel Roubini (Project Syndicate) Jun 15, 2010
Failure to adopt coordinated policy measures aimed at sustaining global aggregate demand at a time when deflationary trends are still severe in advanced economies could lead to a double-dip recession in advanced economies. Indeed, it could severely damage the growth prospects of emerging-market economies that have so far recovered more robustly.
Creating the Next Crisis
Simon Johnson (Project Syndicate) Jun 15, 2010
With the Obama administration rejecting what it once supported – the breakup of megabanks that are too big to fail – we are setting ourselves up for another boom based on excessive and reckless risk-taking at the heart of the world’s financial system. This can end only one way: badly.
Why plans for early fiscal tightening carry global risks
Martin Wolf (FT) Jun 15, 2010
Yet again, we hear the cry of the old economic religion: repent before it is too late; the wages of fiscal sin is death. But is it already time to retrench? I doubt it.
We should all have a say in how banks are reformed
John Kay (FT) Jun 15, 2010
The value of the financial services industry lies in what it does for the rest of the economy, not in what it does for itself.
It is time for Asia to rewrite the rules of capitalism
Chandran Nairold (FT) Jun 15, 2010
The western economic model, which defines success as consumption-driven growth, must be challenged. Asia is best placed to do this.
Yuan back in US firing line
AT Jun 16, 2010
Hopes for an improvement in relations between China and the United States are being dashed as US politicians, faced with high unemployment among voters and forthcoming elections, renew their demands that President Barack Obama increase pressure on Beijing to raise the value of the Chinese currency.
Reining in Europe’s deficits is first step
David Cameron and Fredrik Reinfeldt (FT) Jun 16, 2010
It is time for banks to be more open about what they do and to hold more money back in the good years so they do not need taxpayers to bail them out.
Rethinking national fiscal policies in Europe
Philip Lane (VoxEU) Jun 17, 2010
The global crisis has developed into a fiscal crisis within the Eurozone. This essay argues that fiscal policy during normal times must be sufficiently sustainable and counter-cyclical to enable aggressive fiscal intervention in the event of a major negative shock. It says that the solution is to set up independent fiscal councils in Eurozone member countries.
The narrative outside of Europe about Europe’s fiscal crisis is wrong
Avinash D. Persaud (VoxEU) Jun 17, 2010
Europe has run out of policy instruments to deal with booms and busts, and to restrain unsustainable fiscal behaviour. This essay suggests a national regulatory policy that could take the form of countercyclical charges, loan-to-value limits, tighter leverage ratios, transaction taxes, or other macroprudential tools. Also, countries should have automatic access to a fund to swap their debt for the debt of other Eurozone countries – but only at the cost of a 30% haircut.
Germany spending is not the cure
Alberto Alesina & Roberto Perotti (VoxEU) Jun 17, 2010
Many analysts blame Germany’s fiscal prudence for worsening the crisis. This essay argues that the monomaniacal focus on aggregate demand is based on slightly outdated and oversimplified Keynesianism. The real constraint on European growth is not Germany’s fiscal policy. It is the supply side rigidities that plague all European nations – especially those at the heart of this crisis. The demand side matters, but is it foolish to think that German budget deficit of 5% instead of 3% of GDP would solve Europe’s problems.
What more do European governments need to do to save the Eurozone in the medium run?
Thomas Mayer (VoxEU) Jun 17, 2010
Two key building principles of the Eurozone were that the ECB should be insulated from political interference and prevented from the funding of government deficits. This essay explains how the Eurozone crisis has threatened these principles and suggest ways to restore them.
Eurozone governance: What went wrong and how to repair it
Jean Pisani-Ferry (VoxEU) Jun 17, 2010
The crisis has revealed deep flaws in the Eurozone’s governance regime. This essay argues that EU leaders should address fundamental questions about the operational principles upon which the euro is based. Key choices for Eurozone leaders are the nature of the economic policy framework, the optimal degree of decentralisation, and the identification of reforms that will ensure the policy regime can deal with all eventualities.
Fiscal policy at a crossroads: The need for constrained discretion
Antonio Fatás & Ilian Mihov (VoxEU) Jun 17, 2010
The inability of governments to maintain fiscal discipline is not new. But this essay argues that numerical budget rules are a far from optimal solution. They cannot be enforced and can produce highly procyclical policy during downturns. Instead, it proposes constraints on fiscal discretion imposed, monitored, and enforced by an independent fiscal policy council.
Drawing a line under Europe’s crisis
Barry Eichengreen (VoxEU) Jun 17, 2010
Financial crises feed on uncertainty. This essay warns that the longer the Eurozone crisis is allowed to linger, the greater will be the damage. But Europe can take concrete actions to bring it to an end. It should make bank stress tests public, provide more clarity on its special purpose vehicle, move forward with restructuring Greece’s debt, and support growth through quantitative easing.
The Eurozone needs a political union, or at least elements of one
Paul De Grauwe (VoxEU) Jun 17, 2010
The Eurozone lacks the mechanisms needed to ensure convergence of members’ competitive positions and to resolve crises. This essay argues that the survival of the Eurozone depends on its capacity to embed itself into a political union. The latter must imply some transfer of sovereignty in macroeconomic policies and the organisation of automatic solidarity between member states.
A credible Stability and Growth Pact: Raising the bar for budgetary transparency
Michael Burda & Stefan Gerlach (VoxEU) Jun 17, 2010
While the Stability and Growth Pact had good intentions, it failed because nothing happened when governments broke the rules. This essay proposes an enhanced Pact with increased fiscal transparency, an independent committee of fiscal experts, and a 1% tax on new debt above the 60% debt-to-GDP ratio. This would redistribute the costs of running Europe from the countries that have their house in order to those that don’t.
The Eurozone’s levitation
Charles Wyplosz (VoxEU) Jun 17, 2010
Some see the Eurozone crisis as a harbinger of a more perfect union, others as the euro’s death knell. In contrast, this essay explains the current situation as something in-between; the Eurozone is levitating on the hope that an exit strategy can soon be found. The key is to establish fiscal discipline in every Eurozone member. As a real European government is politically impossible, this must be based on national institutions that can guarantee fiscal discipline.
Fiscal consolidation as a policy strategy to exit the global crisis
Giancarlo Corsetti (VoxEU) Jun 17, 2010
The Eurozone crisis is forcing fiscal retrenchments across Europe. The challenge is to reassure financial markets about debt sustainability without resorting to budget cuts and tax hikes that kill the recovery. This essay argues that quick corrections may be important signals of the government’s determination on fiscal discipline, but they are not sufficient. True sustainability must be based on policies that have lasting effects; a gradual implementation of spending cuts is probably the best strategy.
Linkages between International Trade and Financial Markets: Mapping the Issues
Edwin M. Truman (PIEE) Jun 17, 2010
My PhD dissertation topic was trade creation and trade diversion in the European economic community. In that research, completed in 1967, I applied a rudimentary disaggregated, partial-equilibrium methodology focused on trade flows. Today's approaches exploit computable general equilibrium (CGE) models, but they share an almost exclusive focus on effects on economic activity, on trade and the real economy rather than on finance and financial markets, and, in particular, not vice versa. The gap between trade and finance is large.
Systemic Failure: Lessons from the World of Trade for the World of Finance
Michael Gadbaw (Globalist) Jun 17, 2010
Why the world's trade and finance systems performed so differently in the Great Crisis of 2008-09.
It is time to strip the banks of their clutter
Philip Augar and John McFall (FT) Jun 17, 2010
If the independent commission is successful it can help to solve society’s riddle, ‘when is a bank not a bank?’
Competition in investment banking: Rights and wrongs
Economist Jun 17, 2010
Why price competition between investment banks is so feeble
Sovereign-wealth funds: Cash in hand
Economist Jun 17, 2010
State-backed investors are coming back into the spotlight.
Rebalancing the world economy: The clock ticks
Economist Jun 17, 2010
American pressure for China to revalue the yuan is reviving. Others are less fussed.
The G-20’s Next Test
Jean Pisani-Ferry (Project Syndicate) Jun 17, 2010
The G-20 meetings this month, first in Busan, South Korea for finance ministers, and later this month in Toronto for heads of government, mark the moment when the major players in the world economy shift gear from budgetary stimulus to retrenchment. Not everyone is in agreement about this, and managing internal divergence will be the G-20's next great challenge.
Global: The Lure of Liquidity
Joachim Fels & Elga Bartsch (MS GEF) Jun 18, 2010
The sovereign debt crisis has now sparked another banking crisis and a fresh round of liquidity injections through the ECB and, potentially soon, the newly created EFSF. Given the weakness of many euro area governments and the size of the fiscal and banking sector problems, the situation is likely to linger.
China Needs a Service-Sector Revolution
Barry Eichengreen (Project Syndicate) Jun 18, 2010
With a wave of strikes pushing up wages and making exports of manufactures more expensive, China will have to grow by producing something else. It will have to move away from a strategy in which manufactures are the engine of growth toward the model of a more mature economy, in which employment is increasingly concentrated in the service sector.
The Naked ECB
Howard Davies (Project Syndicate) Jun 18, 2010
The European Central Bank has begun to buy government bonds, including those of Greece, at prices well above those that would prevail in a free market. But the decision to do so was not unanimous, and has exposed issues concerning the ECB's governance that Europe’s decision-makers have wanted to keep under the carpet.
U.S. Debt and the Greece Analogy
Alan Greenspan (WSJ) Jun 18, 2010
Don't be fooled by today's low interest rates. The government could very quickly discover the limits of its borrowing capacity.
How 'Protectionist' Became An Insult
Douglas A. Irwin (WSJ) Jun 18, 2010
As Congress dawdles on trade agreements, the harsh results of the Smoot-Hawley tariff should not be forgotten.
US Lawmakers Ramp Up Pressure on Chinese Currency
Bridges Weekly Trade News Digest Volume 14, Number 22 Jun 18, 2010
For a few months, the US and China pulled their punches in their sometimes-feisty debate over Beijing's exchange rate policy. No longer. US Senator Chuck Schumer, a Democrat from New York, vowed last Wednesday to push for a vote "in the next two weeks" on legislation that would threaten China with punitive tariffs if it failed to raise the value of the yuan (also called the renminbi), which Beijing has maintained at a rate of about 6.83 to the dollar since July 2008.
WTO Officials Vent Frustration Over Lack of Momentum on Doha
Bridges Weekly Trade News Digest Volume 14, Number 22 Jun 18, 2010
WTO Director-General Pascal Lamy attempted to inject a positive tone into Friday's meeting of the Trade Negotiations Committee, which saw delegations express their frustration at the Doha Round's slow progress.
Banking on the IMF
Luigi Zingales (Project Syndicate) Jun 18, 2010
The biggest financial nightmare looming over the world economy is the insolvency of a large international bank. To minimize the risk of an unruly collapse, an international resolution mechanism with authority over all major international financial institutions is needed – the IMF being the obvious candidate.
Trade adjustment costs in developing countries
Bernard Hoekman & Guido Porto (VoxEU) Jun 18, 2010
When developing countries open up their markets, there are costs as well as benefits. This column presents findings from a collection of papers investigating adjustment to trade. It argues that unemployment is only part of the story, adding that the development community should aim to address the constraints that prevent too many households from seizing the newly available opportunities.
Doha and development: Market access, trade costs and aid for trade
Bernard Hoekman (VoxEU) Jun 19, 2010
A key objective of the WTO Doha Round was to address the concerns of developing countries. This column argues that, despite the lack of progress on the core market access agenda, much has been achieved in terms of market access and trade facilitation since 2001.
Alternatives to consensus at the WTO
Philip Levy (VoxEU) Jun 19, 2010
The persistent failure to reach a new agreement under the WTO has sent trade scholars back to the drawing board. This column discusses two prominent ideas for restructuring the talks to get past the prolonged impasse. One is to permit agreements between some, but not all, members; the other to relax the requirement of consensus.
Needed: A new approach to reduce regulatory barriers to trade
Geza Feketekuty (VoxEU) Jun 19, 2010
What is holding back the Doha Round? This column argues that while there are many reasons for the difficulties the WTO has faced, the shortcomings of the mercantilist model in framing mutually acceptable multilateral agreements is undoubtedly a major factor. The WTO needs a new kind of forum where countries can think through the issues before the give and take.
The WTO dispute settlement system would survive without Doha
Chad P. Bown (VoxEU) Jun 19, 2010
The international community responded to the global crisis with a promise not to raise protectionist measures, and there has been little trade friction in terms of WTO disputes. This column assesses the dispute settlement system's capacity to bear a larger caseload and suggests that an increase in WTO litigation could be good news for the rules-based trading system – even in the absence of progress on the Doha round.
Sleight of hand is not the best reform
Clive Crook (FT) Jun 20, 2010
Wall Street has been lobbying hard to neuter some costly aspects of America’s financial reform bill. The main planks of reform have survived, so far – but the wide discretion handed to regulators arouses the suspicion that the buck is being passed and that the changes in practice will amount to less than they should.
We need the figures on Europe’s toxic banks
Wolfgang Münchau (FT) Jun 20, 2010
This is not a sovereign debt crisis at heart, but a banking crisis and a crisis of policy co-ordination failures.
More wobble than float
Economist Jun 20, 2010
The People's Bank of China's move is best seen as an institutional reform, not a change in price
Dealing with Dutch disease
Milan Brahmbhatt, Otaviano Canuto & Ekaterina Vostroknutova (VoxEU) Jun 21, 2010
The recent boom in primary commodity prices has once more stimulated interest in the issue of “Dutch Disease” – the changes in a country’s structure of production expected after a favourable shock such as a large natural resource discovery. This column examines the implications for welfare and some policy options for resource-rich countries.
The China Currency Syndrome
WSJ Jun 21, 2010
World leaders would do better to worry less about imbalances and more about whether their own nations are pursuing policies that contribute to global prosperity.
How will the new exchange rate regime affect the Chinese economy?
Barry Eichengreen & Andrew K. Rose Jun 21, 2010
China’s announcement that it will allow the renminbi to move upwards against the dollar was welcomed by US and European leaders. This column discusses new empirical research on what happens to economies when they exit exchange rate pegs that are resisting appreciation. Using data on 27 such instances, the authors find that growth slows, but only modestly, and there is no evidence of economic and financial damage as a result – certainly nothing like the fears that China's next decade could look like Japan’s lost decade.
The Euro Shields Germany from Consequences of Fiscal Consolidation
C. Randall Henning (PIIE) Jun 21, 2010
The recent turn toward fiscal austerity in Europe in the wake of the Greek crisis has raised serious concerns that it will threaten economic growth and revive global trade imbalances. While fiscal consolidation is unavoidable for the high-deficit, high-debt countries, the cuts made by Germany, whose government deficit is comparatively moderate, have attracted particular criticism. Conflict over macroeconomic policy is a recurring feature of international monetary relations, but the present episode is particularly illuminating. It highlights a little-noticed but fundamental consequence of the creation of the euro in 1999—loss of the ability on the part of the United States to press the European country with the largest current account surplus, Germany, to adopt expansionary policies.
Europe is having a midlife crisis
Gideon Rachman (FT) Jun 21, 2010
The Union is like a middle-aged man whose thoughts on the meaning of life have been interrupted by the realisation that he has not saved enough for his retirement.
We need more from China than a flexible renminbi
George Magnus (FT) Jun 21, 2010
Even limited appreciation could stall in the face of pressure from export companies, especially if global growth slows.
Predictions of a bond market bubble are wrong
David Rosenberg (FT) Jun 21, 2010
Everything seems so confusing in the early stages of this new secular paradigm of a global credit collapse.
Moral Hazard and China's Banks
Victor Shih (WSJ) Jun 21, 2010
Beijing could face its own banking crisis unless more market discipline is introduced.
No Safe Havens for Dirty Money
Christine Lagarde and Ngozi Okonjo-Iweala (Project Syndicate) Jun 21, 2010
As world leaders convene at the G-20 and other forums in the coming weeks, the fight against corruption should remain high on the multilateral agenda. All G-20 countries should ratify the United Nations Convention Against Corruption, which provides a legal framework for countries to close safe havens for criminals who steal from the developing world.
How to Bail out Good Banks and Let Bad Banks Fail
Roger Farmer (Project Syndicate) Jun 21, 2010
Nobody wants to bail out bad banks, but to save a financial system from collapse requires preventing all banks from failing at the same time. A novel approach to supporting the whole but not the parts would be for a country’s central bank to put a floor under the value of the banking system by committing to buy shares in an index fund of bank stocks at a predetermined price.
China: Renminbi Exits from USD Peg and Returns to Pre-Crisis Arrangement
Qing Wang (MS GEF) Jun 22, 2010
The PBoC announced on June 19 an exit of the renminbi from the USD peg and a return to the pre-crisis arrangement. This is desirable and timely and should be welcomed by the market, in our view. We believe that it should help contain inflationary pressures in the short run and rebalance the Chinese economy over the medium and long run.
Yuan gains after currency pledge
Olivia Chung (AT) Jun 22, 2010
China's currency gained after Beijing said it will allow more flexibility in the yuan against the US dollar. The pledge should cool immediate demands by the United States and other trading partners for a stronger yuan while easing pressure on inflation at home. But the forecast gains suggest those demands may intensify again before very long.
G-20 split and out of order
Hossein Askari and Noureddine Krichene (AT) Jun 22, 2010
The United States does not feel compelled to develop exports to pay for imports, instead letting the dollar's reserve currency position do the heavy lifting. These deficits cannot be cured by a re-evaluation of the yuan. Nor is the Group of 20 the forum to demand that countries abandon their export-led strategies.
What To Look For While We Wait For Europe's Bank Stress Tests
Jacob Funk Kirkegaard (PIIE) Jun 22, 2010
Winston Churchill once quipped about Americans: They always do the right thing—after they have tried everything else. One can now say the same of Europeans and their handling of banks. After steadfastly refusing to do so ever since the beginning of the global financial crisis in 2008, last week the European Council suddenly decided to publish by mid-July the results of stress tests of the 25 largest European banks, followed by a second phase covering additional parts of the EU banking system.
Failed States
Mark Schmitt (TAP) Jun 22, 2010
From Bear Sterns to BP -- there is a reason "bailout" has become the defining word of the era.
One Fiscal Size Does Not Fit All
Adam S. Posen (PIIE/EuroIntelligence) Jun 22, 2010
Twelve years ago, the Asian Financial Crisis hit. The International Monetary Fund took a common approach across the crisis countries, prioritizing fiscal austerity. In retrospect, outside observers and the Fund itself came to the conclusion this was a mistake—while appropriate for Indonesia, the "It's Mostly Fiscal" approach made the situation worse than it needed to be in South Korea, with negative spillovers for the rest of the region. The euro area governments, under pressure from Berlin and Brussels, are repeating this mistake.
Why it is right for central banks to keep printing
Martin Wolf (FT) Jun 22, 2010
At present, we have ‘too little money chasing too many goods’. In this environment, monetary policy must be aggressive. When the economy recovers, the monetary effects should be withdrawn.
Towards a system to secure the euro
Jean Pisani-Ferry (FT) Jun 22, 2010
The crisis was indicative of the failure of procedures, but also of the institutions in charge of surveillance and collective action in times of stress.
Lessons from the 1930s for a rising renminbi
Benn Steil (FT) Jun 22, 2010
Then, as now, China would not budge. The US fired back: “We are not going to invest and you tie your money to sterling. You people are playing poker and you are bluffing.”
The Return of the African Coup
John Campbell & Asch Harwood (Project Syndicate) Jun 22, 2010
The conventional wisdom that sub-Saharan Africa has moved beyond military coups may be wishful thinking. In the past two years, Africa has seen successful coups in Niger, Guinea, Madagascar, and Mauritania, with a handful of indirect interventions, failed coups, and whispered threats elsewhere.
Disbanding The Euro--A Worst-Case Scenario
Stephen Simpson (Forbes) Jun 22, 2010
What would the fallout be if the world's second-largest currency disappears?
OTC derivatives must be cleared
Gertrude Tumpel-Gugerell (FT) Jun 22, 2010
Why central clearing of OTC derivatives is an essential part of the regulatory reform to make market sufficiently transparent.
Brazil, US Strike 'Framework' Deal in Cotton Dispute
Bridges Weekly Trade News Digest, Volume 14, Number 23 Jun 23, 2010
Trade officials from Brazil and the United States reached a place-holder accord last week that delays until 2012 the imposition of trade sanctions in a protracted dispute over Washington's cotton subsidies.
China Loosens Hold on Currency Ahead of G20 Summit
Bridges Weekly Trade News Digest, Volume 14, Number 23 Jun 23, 2010
China's central bank announced over the weekend that it would modestly relax its currency's two-year-old peg to the US dollar, in a move calculated to defuse international tension over the yuan's value ahead of the G20 summit in Toronto this week.
Chinomics: Yes, China Does Need that Infrastructure
Nicholas R. Lardy (PIIE/WSJ) Jun 23, 2010
Among the most widespread criticisms of China's stimulus program is that it is financed not with increased budgetary outlays but rather with a massive increase in bank lending. The increase in loans outstanding in 2009 was a historic high of 9.6 trillion yuan ($1.4 trillion), almost twice as great as 2008. The critics charge that inevitably the quality of lending must have declined and that Chinese banks are likely to face a growing mountain of nonperforming loans. In this view, dealing with this glut of bad debt ultimately will require another central government injection of public funds into the banks, setting back China's transition to a commercially oriented financial system.
The G-20 and "Chermany"
Arvind Subramanian (PIIE) Jun 23, 2010
Of all the major couplings that have gained prominence—Jairam Ramesh's "Chindia," Niall Ferguson's "Chimerica," and Martin Wolf's "Chermany"—it is very much the latter that is in the spotlight.
Rebalancing the global economy: A primer for policymakers
Stijn Claessens, Simon J Evenett & Bernard Hoekman (VoxEU) Jun 23, 2010
The global balances are a thorn in the side of the G20. This column launches a new eBook with the aim of providing policymakers and their advisers with up-to-date, comprehensive analyses of the central facets of global economic imbalances and to identify and evaluate potential national and systemic responses to this challenge.
Uneven compliance: The sixth report of the Global Trade Alert
Simon J Evenett (VoxEU) Jun 23, 2010
The current macroeconomic context, characterised by a sovereign debt crisis in the Eurozone and a growing emphasis on fiscal restraint, may influence government behaviour towards open borders. This column discusses the implications of fiscal restraint for protectionist dynamics before summarising the main findings of the sixth Global Trade Alert (GTA) report. It argues that “jumbo discriminatory measures” have affected more than 10% of world imports in 2008, casting doubt on any claims that the amount of trade potentially affected by crisis-era protectionism is de minimus.
As the Renminbi Goes ...
NYT Jun 23, 2010
Unless China makes a firm commitment to let its currency rise, it will have a hard time managing inflationary pressures and international resentment.
Our Agenda for the G-20
Timothy Geithner and Lawrence Summers (WSJ) Jun 23, 2010
Countries should work to stabilize debt levels, enact new financial regulation, and reduce their dependence on fossil fuels.
'The Time We Have is Growing Short'
Paul Volcker (NYRB) Jun 24, 2010
To a substantial extent, it was "nonbanks"—investment houses, hedge and private equity funds—that were at the epicenter of the financial crisis. Contrary to well-established practices, many of those same institutions received extensive government assistance to remain viable. Dealing with this great extension of moral hazard has become the largest challenge for financial reform. What failing institutions need is a dignified burial—not intensive care with hopes for recovery.
Germany’s Europe Deficit
George Soros (Project Syndicate) Jun 24, 2010
Germany used to be at the heart of European integration. Its statesmen used to assert that Germany had no independent foreign policy, only a European policy. After the fall of the Berlin Wall, its leaders realized that German reunification was possible only in the context of a united Europe, and they were willing to make some sacrifices to secure European acceptance. Germans would contribute a little more and take a little less than others, thereby facilitating agreement. Those days are over. The euro is in crisis, and Germany is the main protagonist. Germans don’t feel so rich anymore, so they don’t want to continue serving as the deep pocket for the rest of Europe. This change in attitude is understandable, but it has brought the European integration process to a halt.
Spooking the markets: Politicians, confusion, and the Eurozone crisis
Jacopo Carmassi & Stefano Micossi (VoxEU) Jun 24, 2010
As the recent austerity measures can testify, Europe’s leaders are acutely concerned about government debt. This column tracks policy announcements from the start of the Eurozone crisis in December 2009, arguing that governments may have contributed to turmoil with their public display of confusion – ultimately undermining credibility. But if Eurozone governments show unity of purpose, this credibility can be restored.
Volcker and Derivatives
WSJ Jun 24, 2010
The end game for financial reform.
Beyond the false growth vs austerity debate
Mohamed El-Erian (FT) Jun 24, 2010
The majority of industrial countries need to adopt both fiscal adjustment and higher growth as twin policy objectives.
Divide emerges as companies tackle debt
Gillian Tett (FT) Jun 24, 2010
There is likely to be more, not less, pressure on banks in the coming years as Basel reforms bite.
The Renminbi Runaround
Paul Krugman (NYT) Jun 24, 2010
China is playing games with its foreign-exchange policy at the world's expense.
Europe's pressured banks: Crash-test dummies
Economist Jun 24, 2010
The tortuous process of "stress testing" Europe's wobbly banks.
Exchange-traded funds: Explosive
Economist Jun 24, 2010
A fast-growing industry is attracting more regulatory attention.
Flexible Yuan's Impact On The U.S.
Rachel Ziemba, Natalia Gurushina & Arnab Das (Forbes) Jun 24, 2010
Chinese policies could support the American Treasury market, commodities and risky assets.
What determines productivity?
Chad Syverson (VoxEU) Jun 25, 2010
This column summarises a wealth of literature that tries to understand what determines productivity, which is often referred to as a measure of our ignorance. It concludes with a call for more data – including currently unmeasured aspects of business’s production practices such as producer-level prices. While collecting more data is costly, this column argues that there is much to be gained in exchange.
Global: No Relief from the ‘Trilemma'
Manoj Pradhan (MS GEF) Jun 25, 2010
The PBoC surprised markets at the weekend by removing the currency peg to the US dollar. However, the predictable nature of the current regime means that any policy tightening could exacerbate capital inflows and lead to even greater accumulation of reserves.
What Euro Crisis?
Hans-Werner Sinn (Project Syndicate) Jun 25, 2010
European leaders, led by French President Nicolas Sarkozy, declared in May a systemic crisis of the euro, thereby invoking a clause of the EU Treaty intended to help member countries facing the effects of natural disaster. But there is no crisis of the euro, only a search by markets for a new equilibrium on interest-rate spreads – which are still far below pre-euro levels.
The G-8 and G-20 Are Supposed to Lead
NYT Jun 25, 2010
President Obama needs to tell his counterparts this weekend that the financial crisis isn't over, and the world's economies need to keep working together.
G-20: The West Bickers, the Rest Acts
Arvind Subramanian (PIIE) Jun 25, 2010
There will be an eerie familiarity to this weekend's G-20 meetings. Disagreements between the United States and Europe on two important issues—macroeconomic policy, and specifically the timing of withdrawal of policy support, and financial regulation—will characterize these meetings. Resolution of these issues seems unlikely. The verdict will be that the G-20 has failed, reinforcing the creeping cynicism about its role and effectiveness.
G-20 Rules; Time for Germany Bashing
Arvind Subramanian (PIIE) Jun 25, 2010
Last weekend's announcement by China to introduce greater exchange rate flexibility is unambiguously good news. Greater currency flexibility will help China with its domestic overheating problem. But China deserves a lot of credit for its act of responsible international citizenship, for making its contribution to global rebalancing. Two implications follow.
Three birds with one stone: The G20 and systemic externalities
Hasan Doluca, Ulrich Klüh, Marco Wagner & Beatrice Weder di Mauro (VoxEU) Jun 26, 2010
As G20 leaders meet to discuss financial reform, this column argues that it is not too late for an international solution. It says that the EU and US should lead the way with a tax on systemically important financial institutions. Beyond internalising the costs of systemic risk, such a levy would make an international agreement more likely and raise substantial funds.
Three debts: A view from emerging Europe
Vladimir Gligorov & Michael A. Landesmann (VoxEU) Jun 26, 2010
As the debate rages over the best path for fiscal policy, this column looks at the causes of the Eurozone crisis, especially in emerging Europe. It argues that despite the debate focusing on public debt, the key issue is the development of private debt. That suggests that the key policy remedy would be private debt consolidation supported by countercyclical fiscal policy.
From hard to soft industrial policies in developing countries
Ann Harrison & Andres Rodríguez-Clare (VoxEU) Jun 27, 2010
Does industrial policy – policies to encourage exports, attract foreign direct investment, promote innovation, and pick winners – work? This column recommends developing countries pursue “soft” industrial policies, which aim to develop a process whereby government, industry, and cluster-level private organisations can collaborate on interventions that can directly increase productivity.
Fiscal disarray is the least of the G20’s sins
Clive Crook (FT) Jun 27, 2010
The US looks ready to pass its new financial regulation law – but agreement on the Basel III rules on bank capital, which are more important, has receded. As for the Doha round, what Doha round? The G20 richly deserves its bad press, but not for failing to co-ordinate fiscal policy. That is the least of its sins.
China builds a bridge across the Danube
Jonathan Holslag (FT) Jun 27, 2010
Support from Beijing could be a blessing for eastern European economies. But if the EU does not get its house in order, it risks losing political clout on its own doorstep.
Only a closer union can save the eurozone
Wolfgang Münchau (FT) Jun 27, 2010
The EU’s citizens and their political leaders will have to make a choice between reverting to dysfunctional and, as it transpires, insolvent nation states, or jumping to a political and economic union.
G-20 Leaders Aim for Balanced Growth, Revival of Jobs
IMF Survey Jun 27, 2010
G-20 leaders backed measures to sustain the global recovery and said they would work together to encourage economic growth, promote job creation, and enhance global prosperity while strengthening the financial system and curbing worrying public deficits.
Challenges in the coming phase of globalisation: A sense of déjà vu
Otaviano Canuto & José Manuel Salazar (VoxEU) Jun 28, 2010
Economic integration transmitted the negative shocks of the crisis to workers across the world. As the global economic recovery begins, this column says that there is no cause for complacency or celebration. It warns that unemployment rates are expected to remain high in many countries and recommends designing government policies so that more may share in the gains from globalisation.
The Arrogance of Chinese Power
Brahma Chellaney (Project Syndicate) Jun 28, 2010
Success breeds confidence, and rapid success produces arrogance. That, in a nutshell, is the problem that both Asia and the West face in China, whose unimpeded economic rise owes everything to its established status as a military power.
Greece’s best option is an orderly default
Nouriel Roubini (FT) Jun 28, 2010
It would be better to use a small amount of public money to tempt creditors into a pre-emptive deal now than waste €110bn of it trying to prevent an unavoidable restructuring later.
Deficit reduction is not the enemy of jobs
Jared Bernstein (FT) Jun 28, 2010
Excess capacity keeps interest rates and inflation low, so monetary policy is not compelled to mop up any overflow.
Echoes of subprime ring out across Greek crisis
Eric Posner and Mitu Gulati (FT) Jun 28, 2010
How misplaced political will can distort markets and create crises, as he compares the Greek debt shock with problems caused by subprime derivatives
How durable is the hard peg of the euro?
Kris James Mitchener & Marc Weidenmier (VoxEU) Jun 29, 2010
The Eurozone crisis has led some to seriously consider the prospect of a breakup of the euro. This column presents evidence from the classical gold standard era (1870-1913) suggesting that even then investors doubted the credibility of emerging market countries sticking to a hard currency peg – with higher premiums on sovereign debt as a result.
This global game of 'pass the parcel' cannot end well
Martin Wolf (FT) Jun 29, 2010
The world has been playing a sophisticated game of "pass the parcel" – or rather four simulataneous games. The first scattered toxic assets across the financial system. The second left the non-bank private sector with a debt overhang and deleveraging. The third duly damaged the finances of states. The fourth helped cause the crisis and is now an obstacle to recovery. These games are all linked to one another and so have to be changed together. The G20 does understand this, but only up to a point.
Radical reforms can save the euro
Peter Sutherland (FT) Jun 29, 2010
For all its merits, the original system of governance for the European single currency was intellectually and politically schizophrenic.
Bank fragility means recovery remains precarious
John Plender (FT) Jun 29, 2010
Like the fabled plane in the second world war, the global economy is limping along on a wing and a prayer.
Beijing: A Global Leader With 'China First' Policy
David Shambaugh (YaleGlobal) Jun 29, 2010
Prodded to take leadership, China focuses on national interests.
China wary of currency 'drug'
Antal E Fekete (AT) Jun 30, 2010
Demands in the United States that China move towards a floating exchange rate mechanism wrongly assume that flexible rates are a foundation of foreign trade. The opposite is the case, with rate flexibility a debilitating drug, as the Japanese have learnt to their cost.
G-20 splits asunder
Hossein Askari and Noureddine Krichene (AT) Jun 30, 2010
The Group of 20 is no longer a "group" but a divided gathering in which some at least recognize the folly of unlimited government spending. European policymakers have made it clear they can no longer toe a United States line drawn by politicians eyeing only the shortest of short-term results.
How durable is the hard peg of the euro? Lessons from the classical gold standard
Kris James Mitchener & Marc Weidenmier (VoxEU) Jun 30, 2010
The Eurozone crisis has led some to seriously consider the prospect of a breakup of the euro. This column presents evidence from the classical gold standard era (1870-1913) suggesting that even then investors doubted the credibility of emerging market countries sticking to a hard currency peg – with higher premiums on sovereign debt as a result.
G-20 Compromise on Deficit Reduction, But Spectre of Mercantilism Looms
Bridges Weekly Trade News Digest, Volume 14, Number 24 Jun 30, 2010
Leaders from the world’s biggest economies agreed over the weekend to a timeline for reducing their budget deficits and debt levels, as well as to plans for new regulations aimed at enabling banks to withstand severe financial crises.
WIPO Copyright Body Fails to Agree on Instrument For Visually Impaired
Bridges Weekly Trade News Digest, Volume 14, Number 24 Jun 30, 2010
Talks in the World Intellectual Property Organization’s copyright committee broke down without agreement last Thursday, dashing hopes that member governments would soon be able to agree on how to loosen international copyright rules in order to ease access to print material for the blind and visually impaired.
Those Fickle Sovereign Wealth Funds
Veljko Fotak & William Megginson (Project Syndicate) Jun 30, 2010
Two years ago, sovereign wealth funds were the bogeymen of world finance – until the global financial crisis made worries about them seem to vanish. Now that the crisis is abating, concerns about the SWFs and their behavior are returning.
The Unaccountable G-8
Jeffrey D. Sachs (Project Syndicate) Jun 30, 2010
In hosting the 2010 G-8 summit of major economies, Canadian Prime Minister Stephen Harper called for an “accountability summit,” to hold the G-8 responsible for the promises that it made over the years. But the G-8 has neither fulfilled its promises, nor taken responsibility for its failure to do so.
A long-term assessment of world trade
Steven Schott & Jochen Möbert (DB Research) Jun 30, 2010
The fall of the Iron Curtain was followed in the early 1990s by a surge in globalisation that sent global exports rising sharply. World trade rose from USD 5.4 tr in 1990 (equivalent to some 16% of global GDP at 2009 prices) to its all-time high of USD 15.5 tr in 2008 (24.4%). The global downturn triggered by the financial crisis reduced global trade to around USD 10.1 tr in 2009. Developments since then have varied widely in the individual countries and regions. Analysing bilateral trade flows is therefore a worthwhile way of tackling economic issues, such as how global imbalances materialise.
Will Europe Undergo "Reform Fatigue"?
Jacob Funk Kirkegaard (PIIE) Jun 30, 2010
Even on the assumption that European leaders have finally produced a coherent policy response to the European debt crisis, a clear downside risk remains associated with the longer-term political and economic outlook for Europe. The long-term demographic decline in the region will continue to accelerate, and at some point "austerity and reform fatigue" among electorates seems inevitable.
The Asian century calls for a rethink on growth
Kevin Brown (FT) Jun 30, 2010
The 2bn or so extra people who will move to Asia’s cities by mid-century will double or triple demand for health services, transport, energy, housing, sanitation, food and water.
Tough and targeted rules will strengthen markets
Stephen Schuler and Daniel Tierney (FT) Jun 30, 2010
Creating an end-of-day, consolidated audit trail will enable regulators to monitor the markets for illegal activity.
Failure at the G-20
Tim Fernholz (TAP) Jun 30, 2010
Why Obama's pitch for a coordinated global stimulus flopped.
Keynes vs. Alesina. Alesina Who?
Peter Coy (Businessweek) Jun 30, 2010
Austerity triggers growth.