Recently, a €10 billion ($13 billion) shortfall in this year’s European Union budget came to light. As a result, the EU cannot reimburse member states for recent unexpected expenditures, including emergency outlays, such as aid to Italian earthquake victims, and spending aimed at boosting economic growth and employment, such as the accelerated absorption of unused Structural and Cohesion Funds. Member states have refused the European Commission’s request for extra contributions to cover the shortfall, causing talks over next year’s budget to collapse. Meanwhile, negotiations over the 2014-2020 Multiannual Financial Framework (MFF), the central-planning instrument for the use of EU funds, have broken down, owing to disagreement over key issues, including the size of the budget and the composition of expenditure.… Read more
Bruegel blog
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Europe’s Dysfunctional Growth Compact
29th November 2012
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Obama Should Think Globally in Appointing a New SEC Chair
29th November 2012
Mary Schapiro, the chair of the US Securities and Exchange Commission (SEC), has announced that she will step down from her position next month after four years in office. President Barack Obama appointed one of the four other SEC Commissioners, Elisse Walter, to replace her until a more permanent successor is chosen next year. The latter appointment is likely to have momentous consequences, not only for US securities markets but also, and perhaps mainly, for the global architecture of financial standard-setting after the recent systemic financial crisis. The SEC was created as an independent federal agency in the 1930s as part of the Roosevelt administration’s response to the 1929 stock market crash and the Great Depression. In recent years it… Read more
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Greek glass: half-empty or half-full?
27th November 2012
At marathon-meeting yesterday, European finance ministers agreed on a new debt deal for Greece, supported by the staff-level agreement of troika of European Commission, European Central Bank (ECB) and the International Monetary Fund (IMF). The main elements of the deal are the following: “The adoption by Greece of new instruments to enhance the implementation of the programme, notably by means of correction mechanisms to safeguard the achievement of both fiscal and privatisation targets, and by stronger budgeting and monitoring rules” – yet no further details are available; A strengthened segregated account for debt servicing – which echoes the German demand for an escrow account;Endorsement of the postponement of a primary surplus target of 4.5% of GDP from 2014 to 2016,… Read more
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Blogs review: GDP revisions, news and noise
27th November 2012
What’s at stake: The numbers guiding policymakers and experts are subject to revisions as "advance" estimates are based on incomplete source data. Until recently, most economists thought that data revisions were likely to be small and inconsequential. But the size of data revisions over the past few years have made a convincing case that data revisions may be large and have important implications for both policies (as exemplified by role of revisions in the debate about shifts in the Beveridge curve) and the variables we choose to measure output growth (GDP vs. GDI). Read more
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Time to focus
27th November 2012
Europe’s tardiness to come to agreement on Greece let alone the EU budget shows worrying degree of focus. This week, the European Commission has the opportunity to concentrate European economic governance on the countries and the problems that really matter. Wednesday, the European Commission is releasing its annual growth survey (AGS) and its alert mechanism report (AMR). The AGS is supposed to be the central document guiding European economic governance in the next year. It is supposed to set priorities for fiscal, macroeconomic and structural policies for the EU as a whole. The problem with such a document is that it easily is too broad and misses the focus on the real priorities. In recent papers (see An Assessment of… Read more
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Should Europe Emulate the US?
23rd November 2012
Paul Krugman, the Princeton University economist and blogger, recently summarized diverging transatlantic trends as follows: “Better here, worse there.” It is a shocking observation: as recently as in 2009, European politicians and commentators lambasted the US for being at the root of the financial turmoil and hailed the euro for protecting the continent from it. Unfortunately for Europe’s boosters, the facts are unambiguous. According to the European Commission, US per capita GDP is expected to return to its 2007 level next year, whereas it is expected to remain 3% below that level in the eurozone. Likewise, unemployment was roughly the same on both sides of the Atlantic in 2009-2010, but it is now almost four percentage points lower in the… Read more
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The German implementation of the fiscal compact - towards more ambition (in German)
20th November 2012
This testimony was presented at a hearing at the Bundestag Haushaltsausschuss on 19 November 2012. Der Fiskalvertrag erfordert die Umsetzung bestimmter Vorgaben in nationale Haushaltsregeln. Die Vorschläge der Bundesregierung zu einem unabhängigen Fiskalrat, der die Einhaltung dieser Regeln überwachen soll, werden als insgesamt relativ wenig ambitioniert eingeschätzt. Der Stabilitätsrat kann nicht als vollständig unabhängiger Fiskalrat im besten Sinne der Literatur betrachtet werden. Sein unabhängiger Beirat hat nicht ausreichend definierte Informationsrechte und sein Benennungsverfahren könnte verbessert werden. Auch die Informationsrechte des Parlaments sind verbesserungsfähig. Der Beirat sollte gestärkt werden, um diese Probleme zu beheben. Dadurch würde Deutschland die angestrebte internationale Vorbildfunktion verbessern. 1) Einleitung Der Vertrag über Stabilität, Koordinierung und Steuerung in der Wirtschafts- und Währungsunion, kurz Fiskalvertrag, ist ein zentraler… Read more
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Decarbonisation is no 100 metre race
16th November 2012
In November 2012, the European Climate Commissioner made a proposal to stabilise the European Union’s emission trading system – a market for greenhouse gas emission allowances that has been in place since 2005. Under the proposal, allowances worth six month of EU emissions (900 mn tonnes) would be temporarily taken out of the trading system, and sold in 2019 and 2020 rather than 2013-2015. Read more
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Blogs review: Dating the European Double Dip
16th November 2012
What’s at stake: Eurostat announced this week that euro area GDP declined for a second consecutive quarter – pushing back the euro area into recession according to the commonly used rule of thumb for defining a recession. But the European equivalent to the NBER’s business cycle committee – generally seen as the authority for dating US recessions – announced that the recession actually started earlier than that, arguing that the euro area has been in a recession since economic activity peaked in the third quarter of 2011. The CEPR committee's procedure for identifying turning points, established in 2002, slightly differs from that of the NBER to help deal with heterogeneity across euro area countries. Read more
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The Greek debt trap: missing the wrong target
15th November 2012
IMF and European officials have publicly clashed over the date by when Greece public debt should be reduced to 120 percent of GDP. The IMF insists on the earlier target date of 2020, while the Europeans propose 2022. Both are wrong: a 120 percent target, whether it is reached in eight or ten years, will not restore trust now and will not make investments in Greek bonds attractive to private investors a decade from now. A credible strategy should involve zero-interest official lending and indexing loans to GDP. A major reason for Greece's public debt misery is a negative feedback loop between high public debt and the collapse in GDP. The loop is especially strong when there are widespread expectations… Read more