This paper studies the mechanisms through which the adoption of the euro delayed, rather than advanced, economic reforms in the Eurozone periphery and led to the deterioration of important institutions in these countries. The authors show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident.
Jesús Fernández-Villaverde, Luis Garicano, Tano Santos, 24 March 2013
Rossana Merola, Javier Pérez, 01 May 2013
Who should we trust when it comes to fiscal forecasts: governments or independent agencies? This column argues that this question is, in fact, a red herring: empirical evidence suggests that in the past, international agencies’ fiscal forecasts were partially affected by the same problems that the literature widely acknowledges for governmental forecasts. An attractive solution is independent national forecasters.
Alexandr Hobza, Stefan Zeugner, 26 April 2013
Current-account deficits have caused problems in several Eurozone countries, but surpluses are also an issue. This column argues that surpluses are detrimental to the welfare of the population to the extent they are driven by structural weaknesses affecting demand. Addressing these issues through structural reforms, while letting wages and prices respond flexibly to market signals, would be welfare-enhancing for the surplus countries.
Bruno Crépon, Esther Duflo, Marc Gurgand, Roland Rathelot, Philippe Zamora, 24 April 2013
Youth unemployment in Europe seems to be sticking around. This column assesses youth unemployment policy in France using data from a controlled experiment. ‘Job counselling’ – a key French policy that prepares some job seekers for the recruitment process, and connects them with potential employers – seems to improve graduates' chances of employment only marginally. Moreover, the evidence suggests that what’s good for one graduate may be bad for another: the beneficiaries of intensive job counselling are more likely to find employment simply at the expense of other job seekers.
Dirk Schoenmaker, 18 April 2013
International banking is under threat in the aftermath of the Global Crisis Supervisors across the world are pushing for a split of international banks into national subsidiaries. This column discusses ‘financial protectionism’, offering some governance solutions that may help to international banks. These solutions boil down to burden sharing. In Europe, the first step is banking union.
Richard Baldwin, Daniel Gros, 17 April 2013
The Bank of Japan has now joined the club of central banks practising a new, post-Crisis form of inflation targeting. This column discusses the new goals, new tools and new challenges of ‘augmented inflation targeting’. Despite economists’ worries and the many unknowns ahead, there really is no alternative in a post-Crisis world. Augmented inflation targeting is here to stay.
Patrick Messerlin, 16 April 2013
Mega-regional trade arrangements are being negotiated in Asia. This column asks how Europe should respond and assesses which Asian trade deals would provide the biggest boost and the best insurance against discriminatory effects. The evidence tentatively suggests Europe’s best bets are Japan and Taiwan.
Paul De Grauwe, Yuemei Ji, 16 April 2013
A recent ECB household-wealth survey was interpreted by the media as evidence that poor Germans shouldn’t have to pay for southern Europe. This column takes a look at the numbers. Whilst it’s true that median German households are poor compared to their southern European counterparts, Germany itself is wealthy. Importantly, this wealth is very unequally distributed, but the issue of unequal distribution doesn’t feature much in the press. The debate in Germany creates an inaccurate perception among less wealthy Germans that transfers are unfair.
Stefano Micossi, 15 April 2013
CEPR Policy Insight no. 65 analyses the changes and shifts of power among the EU’s institutions, arguing that further reforms are needed in order to safely and accountably underpin new executive power.
Michiel Bijlsma, Andrei Dubovik, Bas Straathof, 15 April 2013
The Global Crisis hit firms hard, making the terms of getting credit worse and thus amplifying the recession. This column discusses new research that isolates the ‘credit crunch’ element from other outcomes of recession. Crisis-linked credit drops caused a 5.5 percentage-point reduction in industrial growth in 2008, with a stronger effect in countries with more highly leveraged banks. The evidence clearly suggests that more attention should be paid to credit supplies to firms at the onset of financial crises.
Stefano Micossi, 15 April 2013
The Eurozone crisis has produced rapid institutional change with executive powers over national economic policies shifting to the EU. This column introduces a new CEPR Policy Insight that analyses the changes and shifts of power among the EU’s institutions. What is clear is that further reforms are needed in order to safely and accountably underpin new executive power.
Nadege Jassaud, Heiko Hesse, 13 April 2013
The recent IMF assessment of Europe’s financial sector found that much has been achieved to address the recent financial crisis in Europe, but vulnerabilities remain, and intensified efforts are needed across a wide front, one of which being bank balance sheet repair. This column looks at progress with bank restructuring in Europe.
Biagio Bossone, 08 April 2013
The crisis in peripheral Europe is deepening and spreading to the core of Europe. This column argues that it’s time for the Eurozone to shift gear. Eurozone members should use the Emergency Liquidity Assistance facility provided for under the statute of the European System of Central Banks to undertake ‘overt money financing’ of government debt. Greater cooperation – for a time – between central banks and fiscal authorities is, despite arguments to the contrary, in no way inconsistent with the independence of the central banks.
Javier Andrés, Rafael Doménech, 05 April 2013
Fiscal adjustment and structural reform are key parts of Eurozone bailout packages (or key features of government policy that aims to avoid such bailouts). This column argues that patience is the most prized virtue of policymakers implementing fiscal adjustment and structural reform. Reducing unemployment and fiscal consolidation are mutually reinforcing, but they move at different speeds.
Giovanni Dell'Ariccia, Rishi Goyal, Petya Koeva-Brooks, Thierry Tressel, 05 April 2013
The crisis has highlighted the need for, and difficulties with, a Eurozone banking union. This column argues that, to make a union, you need three crucial ingredients: common supervision, a single resolution mechanism, and common safety nets. The power to control and the resources to rescue must work in parallel. Eurozone leaders have taken the first critical steps, but further progress is needed to strengthen the financial architecture of the single currency.
Lucrezia Reichlin, Domenico Giannone, Jasper McMahon, Saverio Simonelli, 29 March 2013
The Eurozone and US business cycles seems to have decoupled, but is Germany on the US or Eurozone side of the divide? This column presents recent results from the Now-Casting model on whether this US-Eurozone decoupling also applies to Germany. If this is right, the German stock market – which seems to predict Germany’s convergence to the US path – is due for a correction.
Jon Danielsson, 28 March 2013
Cyprus has imposed temporary capital controls. This column sheds light on how temporary and how damaging they are likely to be, based on Iceland’s experience. The longer controls exist, the harder they are to abolish. Icelandic capital controls, which have been ‘temporary’ for half a decade, deeply damage the economy by discouraging investment. We can only hope the authorities that created the chaos in the first place realise that temporary really needs to mean temporary.
Fernando Broner, Tatiana Didier, Aitor Erce, Sergio Schmukler, 28 March 2013
How much do we really know about net capital flows? Presenting new research, this column lays out a number of new stylised facts on the dynamics of gross capital flows and their implications for policymaking. Interestingly, if we’re to learn from relatively crisis-resilient middle-income countries, policymakers may well need to monitor and perhaps regulate the separate behaviour of domestic and foreign investors to weather future crises.
Ariel Binder, Paolo Mauro, Rafael Romeu, Asad Zaman, 27 March 2013
How confident are we that major developed countries remain fiscally prudent? Having developed a new dataset, this column gauges the degree of fiscal prudence or profligacy for major economies over the past several decades. From the evidence, it’s clear that the global financial crisis has posed the biggest policy challenge in living memory, with varying responses. How these responses turn out very much depends on whether the slowdown in growth is long-lasting or not.
Nicolas Véron, 25 March 2013
The Monday morning Eurozone Cyprus bailout is now public, although details are scant. This column argues that this package cancels out some of the mistakes in last week’s package. Last week, the Troika should have vetoed the small-deposit tax and prepared a plan B for the Cypriot parliament’s rejection. Avoiding the risky scenario of a Cyprus exit will require further fiscal commitments from Eurozone partners. One possibility is a temporary, but EZ-wide, 'deposit reinsurance', or backing of national deposit-guarantee schemes by the ESM.