Richard Baldwin, Daniel Gros, Luc Laeven, 17 June 2010

The euro’s crisis is not over. Measures taken in May were critical but they were palliatives not a cure. The Eurozone rescue needs to be completed. This Vox eBook gathers the thinking of a dozen leading economists on what more needs to be done.

Richard Baldwin, Daniel Gros, 17 June 2010

The euro’s crisis is not over. Measures taken in May were critical but they were palliatives not a cure. The Eurozone rescue needs to be completed. This column introduces a new Vox eBook that gathers the thinking of a dozen leading economists on what more needs to be done.

Daniel Gros, 17 June 2010

Many analysts of the Eurozone crisis take members’ asymmetric competitiveness for granted and underplay the role of the global crisis. This essay argues that some of the trends which now are widely assumed to be the result of the euro are actually natural consequences of two unique events: German unification and the mid-decade global credit boom.

Ángel Ubide, 17 June 2010

The euro’s history has been marked by half-steps, derogations, and political expediency. This essay argues that Eurozone leaders must complete the Economic and Monetary Union that is needed to underpin the euro if they are to avoid a serious risk that the Eurozone in its current form will fail. Europe must find the courage to address its structural shortcomings in order to boost potential growth. Fiscal adjustment alone is not the solution.

Giancarlo Corsetti, 17 June 2010

The Eurozone crisis is forcing fiscal retrenchments across Europe. The challenge is to reassure financial markets about debt sustainability without resorting to budget cuts and tax hikes that kill the recovery. This essay argues that quick corrections may be important signals of the government’s determination on fiscal discipline, but they are not sufficient. True sustainability must be based on policies that have lasting effects; a gradual implementation of spending cuts is probably the best strategy.

Charles Wyplosz, 17 June 2010

Some see the Eurozone crisis as a harbinger of a more perfect union, others as the euro’s death knell. In contrast, this essay explains the current situation as something in-between; the Eurozone is levitating on the hope that an exit strategy can soon be found. The key is to establish fiscal discipline in every Eurozone member. As a real European government is politically impossible, this must be based on national institutions that can guarantee fiscal discipline.

Avinash Persaud, 17 June 2010

Europe has run out of policy instruments to deal with booms and busts, and to restrain unsustainable fiscal behaviour. This essay suggests a national regulatory policy that could take the form of countercyclical charges, loan-to-value limits, tighter leverage ratios, transaction taxes, or other macroprudential tools. Also, countries should have automatic access to a fund to swap their debt for the debt of other Eurozone countries – but only at the cost of a 30% haircut.

Alberto Alesina, Roberto Perotti, 17 June 2010

Many analysts blame Germany’s fiscal prudence for worsening the crisis. This essay argues that the monomaniacal focus on aggregate demand is based on slightly outdated and oversimplified Keynesianism. The real constraint on European growth is not Germany’s fiscal policy. It is the supply side rigidities that plague all European nations – especially those at the heart of this crisis. The demand side matters, but is it foolish to think that German budget deficit of 5% instead of 3% of GDP would solve Europe’s problems.

Thomas Mayer, 17 June 2010

Two key building principles of the Eurozone were that the ECB should be insulated from political interference and prevented from the funding of government deficits. This essay explains how the Eurozone crisis has threatened these principles and suggest ways to restore them.

Jean Pisani-Ferry, 17 June 2010

The crisis has revealed deep flaws in the Eurozone’s governance regime. This essay argues that EU leaders should address fundamental questions about the operational principles upon which the euro is based. Key choices for Eurozone leaders are the nature of the economic policy framework, the optimal degree of decentralisation, and the identification of reforms that will ensure the policy regime can deal with all eventualities.

Antonio Fatás, Ilian Mihov, 17 June 2010

The inability of governments to maintain fiscal discipline is not new. But this essay argues that numerical budget rules are a far from optimal solution. They cannot be enforced and can produce highly procyclical policy during downturns. Instead, it proposes constraints on fiscal discretion imposed, monitored, and enforced by an independent fiscal policy council.

Barry Eichengreen, 17 June 2010

Financial crises feed on uncertainty. This essay warns that the longer the Eurozone crisis is allowed to linger, the greater will be the damage. But Europe can take concrete actions to bring it to an end. It should make bank stress tests public, provide more clarity on its special purpose vehicle, move forward with restructuring Greece’s debt, and support growth through quantitative easing.

Paul De Grauwe, 17 June 2010

The Eurozone lacks the mechanisms needed to ensure convergence of members’ competitive positions and to resolve crises. This essay argues that the survival of the Eurozone depends on its capacity to embed itself into a political union. The latter must imply some transfer of sovereignty in macroeconomic policies and the organisation of automatic solidarity between member states.

Michael Burda, Stefan Gerlach, 17 June 2010

While the Stability and Growth Pact had good intentions, it failed because nothing happened when governments broke the rules. This essay proposes an enhanced Pact with increased fiscal transparency, an independent committee of fiscal experts, and a 1% tax on new debt above the 60% debt-to-GDP ratio. This would redistribute the costs of running Europe from the countries that have their house in order to those that don’t.


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