This week’s announcements by German Chancellor Angela Merkel and ECB President Mario Draghi that the Eurozone is taking steps towards a closer fiscal union seem to be calming markets and restoring confidence in the decision-making of Eurozone leaders. This column argues, however, that the devil is still in the detail.
Charles Wyplosz, 05 December 2011
Paolo Manasse, 02 December 2011
Paolo Manasse talks to Viv Davies about Italy and the Eurozone crisis. They discuss the economic and political challenges currently facing Italy, how a eurozone fiscal union might work in practice and the role of eurobonds. Manasse explains the trade-off between addressing sovereign debt in the peripheral economies and establishing broader financial stability across the Eurozone; he maintains that an expansionary ECB monetary policy is an important part of the solution. The interview was recorded on 30 November 2011. [Also read the transcript]
Jacob Kirkegaard, 30 November 2011
The ECB seems to be in the background during this crisis – almost helpless due to Treaty obligations and dogmatic adherence to old monetary theories. This column argues that quite the opposite is true. The ECB is a full-blooded political actor engaging in a strategy aimed at forcing EU political leaders to embrace fiscal rectitude and a quantum leap forward in European integration.
Guido Tabellini, 29 November 2011
Last week’s failed auction of German debt showed that none would be immune from a blow-up of the Eurozone, and that normal central banks act as lenders of last resort to their governments. This column argues that unless the ECB starts to care explicitly about financial stability, the troubles will only get worse.
Paul De Grauwe, 28 November 2011
The euro has a matter of weeks to save itself, with several institutions now preparing for its collapse. Given this, why does the ECB still refuse to bail out Europe’s heavily indebted countries? This column provides an explanation. It says that the ECB may well be behaving rationally but adds that such behaviour is also foolish – and dangerous.
Dimitri Vayanos, 11 November 2011
Dimitri Vayanos of the London School of Economics talks to Viv Davies about Greece and the eurozone crisis, and argues that leaving the euro would be a disaster for both Greece and Europe. They discuss the bailout package, the appointment of Lucas Papademos as Prime Minister and the benefits of a coalition government of technocrats. Vayanos maintains that the emphasis for Greece should be on deeper institutional and structural reforms. The interview was recorded on 10 November 2011.
Charles Wyplosz, 04 November 2011
Greek Prime Minister Papandreou made a stand this week. Even though he was backed down, this column argues that he did the EZ a favour by providing an opportunity to change course. One way or another, a disorderly Greek default is in the cards with its attendant contagion. At that point a real solution is inevitable – one that requires EZ leaders and the ECB to play on the same side with credible rules for all.
Paul De Grauwe, 26 October 2011
The Eurozone crisis plays on to a familiar tune. Finance ministers meet on the weekend only for markets to dismiss their efforts the following Monday. This column argues that Europe’s leaders have lost touch, that the ECB has the firepower but is not prepared to use it, and that the outcome of all this is depressingly clear: Defeat by the financial markets.
Charles Wyplosz, 25 October 2011
A series of policy mistakes have put Europe on the wrong path. This column says that the current plan to enlarge the EFSF and recapitalise banks through markets will fail. The twin crises linking sovereign debts and banking turmoil need to be addressed simultaneously for Europe to avoid economic disaster.
Bernard Delbecque, 17 October 2011
It is widely recognised that without a firewall around illiquid but solvent Eurozone countries, a loss of confidence in the markets could increase interest rates to levels high enough to make any country insolvent. The aim of this column is to propose a concrete plan to build such a firewall and halt the spread of contagion of the debt crisis to Italy and Spain.
Charles Wyplosz, 26 September 2011
Last weekend, Eurozone policymakers were shaken into admitting that something more needs to be done to save the Eurozone and avoid a major crisis that would reverberate around the world. This column proposes a three-step solution to finally end the crisis.
Anne Sibert, 15 September 2011
The European Central Bank was once known for its focus on price stability. Since the global economic crisis, however, its role has extended to saving banks and sovereign countries. This column argues that such a move has badly harmed the institution’s legitimacy – something that will damage both its policy effectiveness and confidence in the governing bodies of the EU as a whole.
Francesco Giavazzi, Alberto Alesina, 01 September 2011
One major problem with the Eurozone as a currency area is that its economies are not in sync. With growth in Germany now slowing, this column argues that this could be the blessing the ECB has been praying for.
Paul De Grauwe, 18 August 2011
With the Eurozone crisis casting doubt over the solvency of Spain and Italy, the ECB has once again intervened to provide liquidity in the government bond markets. This column asks the question: Is there such a role for the ECB as a lender of last resort?
Daniel Gros, 11 August 2011
Investors are anticipating the unravelling of the 21 July 2011 “solution” and a breakdown of the interbank-market that would throw the economy into an “immediate recession” like the one experienced after the Lehman bankruptcy. This column argues that this will happen without quick and bold action. The EFSF can’t work as designed but if it were registered as a bank – which would give it access to unlimited ECB re-financing – governments could stop the generalised breakdown of confidence while leaving the management of public debt in the hand of the finance ministers.
Charles Wyplosz, 25 October 2011
UPDATED: EZ leaders are working on a plan to save the euro. This column updates the column posted on 22 August 2011 by evaluating the steps EZ leaders took this weekend. Things don’t look good. By rejecting any major role for the ECB, leaders have guaranteed that any package will be too little too late. After all, imagine what the US crisis package in 2008 would have looked like if the Fed had refused to use its massive firepower to stabilise markets.
Clemens Jobst, 19 July 2011
The debate over TARGET balances and whether there is an ongoing stealth bailout in the Eurozone has attracted attention from top economists and journalists in the past month. This column argues that the reason why the arguments keep dragging on is the lack of a clear framework for the discussion, something this column aims to provide.
Stefan Gerlach, John Lewis, 04 July 2011
Did the ECB respond quickly enough when the global economy melted down in 2008? The authors of CEPR DP8472 argue that the ECB's forward-looking conduct of monetary policy prior to the crisis, with an eye constantly on the zero lower bound, allowed it to react with rapid and deep interest rate cuts after the crisis without bottoming out at the ZLB.
Michele Lenza, Lucrezia Reichlin, 24 June 2011
Should central banks use the headline or the core measure measure of inflation to track medium-term inflationary pressures? Lorenzo Bini Smaghi, board member of the ECB, recently argued in favour of using headline inflation. This provoked strong opposition from Paul Krugman, amongst others. This column assesses the two sides of the debate.
Jeffrey Frankel Frankel, 16 May 2011
It is a year since Greece was bailed out by EU and IMF and there are many who label it a failure. This column says that while there is plenty of blame to go around, there were three big mistakes made by the European Central Bank. Number one: Letting Greece join the euro in the first place.