Economic Policy

181 - 210 of 620
08 August 2011

The first act of the eurozone debt drama was about whether any European Union member country could ever become insolvent. It ended when the highest EU authority, the European Council, officially recognised in late July that Greece does need a reduction in its debt obligations. But that acknowledgement of reality does not end the drama. The second act will be about restoring growth prospects for the EU periphery, which will pose an even more difficult challenge.

04 August 2011

This paper asserts that the contagion currently afflicting sovereign bond markets in the eurozone can only be stopped if there is a central bank willing to be lender of last resort, i.e. willing to guarantee that the cash will always be available to pay out the bondholders. Until recently, the European Central Bank performed this role either directly by buying government bonds, or indirectly by accepting government bonds as collateral in its liquidity provision to the banking system, but it has made it clear that it is now unwilling to continue to do so.

22 July 2011

In the immediate aftermath of yesterday’s European Council’s decision to effectively transform the European Financial Stability Facility (EFSF) into a European Monetary Fund, this CEPS Commentary explores whether the EFSF has enough resources to become a credible deterrent against a recurrence of the recent turbulences in the euro area sovereign debt markets. The authors argue that an increase in lending capacity of the EFSF, which has been agreed politically but has not yet been fully ratified, is urgently needed.

13 July 2011

This paper analyses the implications of a continued divergence of TARGET2 balances for monetary policy in the euro area. The accumulation of TARGET2 claims (liabilities) would make the ECB’s liquidity management asymmetric once the TARGET2 claims in core countries have crowded out central bank credit in those regions. Then while providing scarce liquidity to banks in countries with TARGET2 liabilities, the ECB will need to absorb excess liquidity in countries with TARGET2 claims.

12 July 2011

In this Commentary, CEPS Director compares the developments in Greece today with those that took place in Argentina in the decade leading up to its messy default in 2001-02, following its decision a decade earlier to peg its currency to the dollar. He sadly concludes that the Greek experience – so far, at least – looks like a replay of the Argentine drama.

01 July 2011

Since the onset of the debt crisis in late 2009, the comparisons between Greece and Argentina have multiplied, with an emphasis more on the similarities than the differences. This is not surprising given the stunning parallels. This Commentary draws a systematic comparison between the two countries over the decade before the crisis and the management of the crisis. Overall it suggests that there may be little left for Greece to do to avoid a repeat of the Argentine default, but on a larger scale.

01 July 2011

This Policy Brief by Christian Kopf examines the merits of a new proposal from France aimed at resolving the Greek debt crisis in which French commercial banks would swap €85.5 billion in Greek government bonds maturing between 2011 and 2014 into a combination of new long-term Greek bonds with principal guarantee and cash payments.

27 June 2011

The EU’s R&D policy has recently come under the spotlight. It is a central element both in the review of the EU budget and in the so called ‘Europe 2020’ strategy, where the goal of increasing the level of investment in R&D in the EU to 3% of GDP is emphasised. This report, commissioned by the Swedish think tank SIEPS (Swedish Institute for European Policy Studies), discusses the strengths and weaknesses of the Union´s R&D policy and examines areas in which the EU should pay particular attention in order to ensure that results are delivered.

23 June 2011

Protests continue in Greece as its leaders debate the latest suggestions for dealing with its crippling debt. One proposal is for Greece to privatise several of its assets. This Commentary argues that privatisation is a mirage. If solvency is the problem, privatisation will only make matters worse, especially if it has to be done at distressed prices.
Daniel Gros is the Director of CEPS.

23 June 2011

Pointing out that disorderly default or further bailouts are not the only solution to the Greek debt crisis, Daniel Gros and Thomas Mayer argue in this CEPS commentary that a sounder and less messy approach would be to take advantage of the current low prices of Greek debt to go for a market-based debt reduction.
Daniel Gros is Director of CEPS. Thomas Mayer is Chief Economist of Deutsche Bank.

26 May 2011

Based on the latest round of difficulties to emerge from the Greek financial assistance programme, this commentary concludes that there are serious flaws in the design of the eurozone’s crisis management system that periodically push the members to the brink of financial meltdown. He warns that the same is bound to happen again with Ireland and Portugal, and each time with higher risks that the fabric of cooperation within the eurozone will tear irreparably.

25 May 2011

As EU leaders muddle through the eurozone crisis, the debate about its root causes continues. CEPS Director Daniel Gros argues in this Policy Brief that the debate is important if we are to understand how to prevent future crises. In his view, external debt is the key to the turmoil in European economies and that the focus on total public debt is therefore misleading.

13 May 2011

Proclaiming that Ireland is not Argentina, Daniel Gros shows in this Commentary how the Irish government can avoid the fate of Argentina, which defaulted in 2001, by mobilizing the significant private foreign assets held by the country’s institutions, primarily pensions and life insurance companies.
The author is the Director of CEPS.

12 May 2011

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.

05 May 2011

As an alternative to measuring the extent of market integration, ‘home-bias’ indicates the degree to which economic agents ‘over-prefer’ to transact with domestic agents rather than agents from other EU countries. Such an exclusive preference is measured against a benchmark of (ideal) market integration and is called ‘home-bias’.

04 May 2011

This paper describes four key drivers behind the adjustment difficulties in the periphery of the eurozone:

04 May 2011

When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries’ sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise.

06 April 2011

The system for financing the EU today is on its last legs. Indeed, with the EU budget being predominantly financed by national contributions, member states attach great importance to what they get in return, which in the end affects the European principle of solidarity and makes every budgetary negotiation a potential arena for political blockage. The economic and financial crisis, with its corresponding increase in the public deficit of member states, has unfortunately worsened the situation.

31 March 2011

The recent economic and financial crises have shown the weakness of EU economic governance. A process of strengthening macroeconomic and fiscal surveillance started in the course of 2010; among other proposals, the European Commission suggested a new binding criterion of debt reduction: debt-to-GDP ratio is to be considered sufficiently diminishing if its distance with respect to the 60% of GDP reference value has reduced over the previous three years at a rate of the order of one-twentieth per year.

28 March 2011

In a new EuropEos Commentary, Stefano Micossi conducts a post mortem on the comprehensive economic policy package agreed at the March 24-25th European Council and finds that the new measures effectively complete the economic arm of economic and monetary union and promise an end to stagnation and dismal employment performance throughout the EU.
Stefano Micossi is Director General of Assonime, the Association of Joint Stock Companies incorporated in Italy; Professor of Economics at the College of Europe, Bruges and member of the CEPS Board of Directors.


21 March 2011

After the Greek public debt crisis and the bilateral loans to Greece from the other members of the European Monetary Union (EMU), in May 2010 the Ecofin Council launched the European Financial Stabilization Mechanism (EFSM). In June of the same year the EMU countries instituted the European Financial Stability Facility (EFSF). These two mechanisms, which are charged with providing support to EMU countries in “exceptional difficulty”, received their baptism of fire with Ireland in January 2011 and successfully made their first bond issue on the market.

18 March 2011

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.

18 March 2011

Europe now must decide which countries and banks have access to funding, and at what cost. Drawing on the timeless wisdom of William Shakespeare, Daniel Gros warns that those countries now struggling under a mountain of debt should have realized earlier that excessive reliance on borrowing invites excessive consumption and wasteful investment. But the leaders of Germany and the other creditor countries should also be aware that a lender can lose both its capital and its friends.
Daniel Gros is Director of the Centre for European Policy Studies.

16 March 2011

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.

15 March 2011

The pricing of sovereign credit risk is a necessary component of the financial architecture of the European Monetary Union. However, unnecessarily high and volatile risk premia on government bonds are currently preventing effective financial intermediation within the euro area, thereby inhibiting its economic recovery.

09 March 2011

Europe’s leaders have promised to find by the end of this month (March 2011) a comprehensive package, not only to end the euro crisis, but also to preserve the stability of the euro for the future. In the view of CEPS Director Daniel Gros, they are unlikely to succeed, unfortunately, because most of the elements of the package on the table so far at least deal with the symptoms and not the underlying cause of the crisis.

09 March 2011

At its forthcoming spring meeting, on March 24th-25th, the European Council will consider a comprehensive package of measures that can open a new age of European economic governance: one that is truly collective; capable of enforcing economic policy coordination and preventing the build-up of unsustainable imbalances in government as well as private balance sheets; and backed up by credible, quasi-automatic sanctions for any member state posing a threat to collective stability.

08 March 2011

Turkey can look forward to important opportunities with respect to the innovative products and services that the health sector can generate. With a growing call for health services due to the size of its population and expanding insurance coverage, its geographical proximity to world markets and technological infrastructure, Turkey is a significant source of demand for innovative products and services from the health sector.

11 February 2011

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.

08 February 2011

The financial crisis has affected trust in national and European governmental institutions in different ways. This paper analyses the determinants of trust in the national and European institutions over the last decade and comes to the conclusion that inflation reduces citizens’ trust only when the economy runs smoothly. In times of crisis, citizens do not worry about inflation but rather about jobs and the effects of a recession.