At the G8 meeting in Deauville, May 26-27, the leaders of the world’s major economies are called upon in a new CEPS Commentary by Rym Ayadi to make a major commitment to support the Tunisian people’s quest for inclusive and sustainable economic and social development, following the Jasmine Revolution early this year.

This Commentary argues that the current crisis in the eurozone periphery is really about foreign debt, not sovereign debt and that the single-minded concentration of the EU and the IMF on fiscal adjustment in the EU periphery is misguided. For Greece, fiscal adjustment is undeniably the key issue. For Portugal, however, the key problem is the private sector’s continuing external deficit. Ireland is different again, as it has very little foreign debt and will soon run a current-account surplus.

The economic philosophy behind the Competitiveness Pact now before the European Council can be summarized by two hypotheses:
1. If we fix (relative?) wages, no external imbalances can arise since relative costs determine export performance.
2. Higher productivity always means more ‘competitiveness’, and is thus always useful to reduce divergences.
On first sight, this Commentary finds that both theses seem to make sense, but on closer inspection, neither corresponds to reality.

At the European Council on 11 March 2011, EU leaders agreed to the outlines of a new mechanism to deal with eurozone debt problems after the current mechanism expires in 2013. This Commentary argues that this mechanism is a continuation of the leaders’ preference for ‘tough talk and soft conditions’ and warns that the package is merely the next step down the slippery slope of EU taxpayers sharing the burden with Greek taxpayers.
Daniel Gros is Director of CEPS.
 

Various forms of common ‘European bonds’, or more precisely eurobonds, have been proposed recently as a way out of the current euro crisis, with proponents stressing the promise of lower borrowing costs. While acknowledging that the proposal is tempting and even quite promising in theory, this Commentary by CEPS Director Daniel Gros finds it seems mostly to be wishful thinking.

Michael Emerson asks in this latest CEPS Commentary: What next after the heady days of revolutionary euphoria in Tunis and Cairo? He observes that “now is that poignant moment of total uncertainty over the future, except for the certainty that the status quo cannot last much longer”. Inevitably, next comes the long haul of struggling democratic transitions, or other scenarios. He outlines four regime options for consideration by the various parties in the region.

The hangover from the rich countries' housing bust is likely to depress growth and keep unemployment high in 2011 – and for much of the next decade. But, as CEPS Director Daniel Gros explains in this new Commentary, the dream of homeownership is very much alive – and is a powerful economic force – in the emerging world.

This Commentary presents preliminary key messages and recommendations of the CEPS Task Force on “The Strategic Energy Technology Plan: From Concept to Practice”, Taking the form of an ‘open letter”, it aims to express the views of the Task Force members in the run-up to the meeting of the Energy and Innovation European Council on 4 February 2011. It argues that a successful innovation policy needs an efficient Strategic Energy Technology (SET) Plan.

In response to the horrific clan-based criminality, human trafficking and corruption that is rampant throughout Kosovo, Michael Emerson and Jan Wouters explore the options available to the EU in its self-appointed role as the leading force for the political transformation and economic integration of the whole of the Western Balkans into modern Europe and its values.

In his latest Commentary, CEPS Director Daniel Gros draws an analogy between the situation in the eurozone for investors today and a crowded cinema with only one emergency exit: everyone knows that in case of fire, only the first to leave will be safe. To avoid a stampede, he calls upon the IMF and the ECB to show investors that they have enough funding to finance the simultaneous exit of all short-term investors by immediately widening the exit door and by prominently displaying huge fire extinguishers.

Muddling through isn’t working. This commentary argues that troubled eurozone nations should simultaneously open restructuring talks while continuing to service their debts normally. Germany, France and other core eurozone nations would have to stand ready to recapitalise the banks most exposed to the restructured debt. The ECB would then stabilise the banking system and the EFSF would stabilise sovereign debt. This big bang could be prepared in a weekend; the market already seems to be pricing it in.

Daniel Gros is the Director of CEPS.

For decades, the world has complained that the dollar’s role as global reserve currency has given the US guaranteed access to cheap money. But there is no free lunch: in this Commentary, CEPS Director Daniel Gros tells the US that it must choose between job creation, which requires a more competitive exchange rate, and cheap financing of its external and fiscal deficits.

With multiple top-level political meetings scheduled in the near future to review progress of the European Neighbourhood Policy (ENP) and the Eastern Partnership (EaP), Michael Emerson examines the EU’s posture in two key areas – free trade and visa liberalisation – where something could be done promptly and which would mean something tangible for the states in the region. Instead, he is disappointed to report that the EU has devised long, long processes of conditionality for the partner countries to meet and has deferred concrete benefits to the distant future.

This Commentary identifies several key weaknesses and oversights implicit in the proposals on the table at the October 2010 European Council summit to discipline EU member states whose governments exceed EU deficit or debt limits. As a more effective alternative, the author proposes enlisting the power of opposition parties and the bond markets curb such excesses.
John Bruton is a member of the CEPS Board of Directors. He served as Taoiseach (prime minister) of Ireland from 1994 to 1997 and as the Ambassador of the European Union to the United States from 2004–09.