During the Global Crisis, sovereign debt-to-GDP ratios grew substantially in the face of shocks to growth, increased fiscal deficits, bank recapitalisation costs, and rising borrowing costs. This column looks at how these various shocks interact with each other to exacerbate or mitigate the eventual impact on debt. Choice of monetary policy regime is an important determinant of how public debt reacts to these shocks.
Alex Pienkowski, Pablo Anaya, 06 August 2015
Andrew Hughes Hallett, 20 June 2014
The UK and Scottish governments are engaged in a set of parallel and overlapping games in the economic and political arenas. CEPR Policy Insight 73 presents research that analyses how decisions about whether to cooperate over financial regulation, fiscal rules, and the choice of currency and monetary policy, will all have far reaching implications for a newly independent Scotland and the rest of the UK.
Andrew Hughes Hallett, 20 June 2014
The UK and Scottish governments are engaged in a set of parallel and overlapping games in the economic and political arenas. This column presents research that analyses how decisions about whether to cooperate over financial regulation, fiscal rules, and the choice of currency and monetary policy, will all have far reaching implications for a newly independent Scotland and the rest of the UK.
Oliver Harvey, George Saravelos, 28 May 2014
Much ink has been spilled over Scotland’s currency options in the event of independence. This column argues that a breakup of the sterling area would be truly unprecedented. The sterling union is unique because it services a unitary state with a highly integrated and complex financial sector, an indivisible payments system, and an overlapping legal system. Politics aside, neither a unilateral nor a mutual break-up would be credible, leaving a negotiated currency union as the only option. However, as the Eurozone crisis demonstrates, a badly designed currency union could be exceptionally costly.
Mai Dao, Davide Furceri, Prakash Loungani, 01 December 2013
Labour mobility is one of the keys to a successful currency union – be it within or across nations. This column discusses new evidence showing that the shock-absorbing role of migration has increased in Europe and declined in the US. During the Great Recession, European migration remained high – although not high enough given the vast differences across the Eurozone. Overall, Europe has strengthened this essential adjustment mechanism.
Anders Åslund, 21 August 2012
It has become increasingly fashionable to talk about Europe without the euro. But this column points out that in the last century Europe has seen the collapse of three multi-nation currency zones: the Habsburg Empire, the Soviet Union, and Yugoslavia – and they all ended with disastrous hyperinflation. The lesson for the Eurozone is clear: avoid break up at almost any cost.
Paul De Grauwe, 10 May 2011
Why does the Spanish government pay significantly more to borrow than the UK government – despite having a smaller deficit and lower overall debt? This column argues that the reason lies in the Eurozone’s fragility. Its members lose their ability to issue debt in a currency over which they have full control. The column discusses ways to deal with this weakness.
Roel Beetsma, Massimo Giuliodori, 27 November 2009
Currency unions strip national governments of a macroeconomic policy instrument. What do they get in return? This column says the European Economic and Monetary Union has eliminated incentives for competitive devaluations and enhanced inflation credibility. But monetary union may necessitate fiscal coordination and discipline.
Andrew Rose, 06 February 2008
Since World War II, economies have exited currency unions at an average rate of one per year. Yet the evidence confounds established theory: economists are unable to predict which economies are likely to leave currency unions.