Senior Resident Fellow Nicolas Véron writes in his monthly column about the fear that governments have acquired too much discretionary power in the wake of the financial crisis. Véron argues that the crisis has already led to cases of government outreach, citing several examples, and warns that such overreach is dangerous for long-term economic competitiveness. For more than two years, financial turmoil has forced an ever wider scope of government intervention in many countries. It is natural that public authorities extend their reach in emergencies, and in many cases there was no other reasonable option. Moreover, in spite of the market rebound, many economies remain disrupted and fragile, making new emergency developments likely, as recent headlines about Dubai or Greece… Read more
Bruegel blog
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Will Governments Overrearch in their Crisis Interventions?
17th December 2009
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A Long March to an EU Patent?
17th December 2009
Senior Resident Fellow Bruno van Pottelsberghe discusses the next steps policymakers need to take after EU industry ministers agreed on a package on 4 December that may pave the way for a European community patent (COMPAT). Discussing the effects of such a patent, van Pottelsberghe points to his recent working paper on the costs and benefits of the COMPAT and argues that national decision-makers must act so as not to get leapfrogged by China and other developing economies. Forty-seven years after the first call for a Community patent, the EU may have taken the first step.The package agreed by EU industry ministers on 4 December may pave the way for an „EU' or community patent – but, if it does,… Read more
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Framing Copenhagen Talks
14th December 2009
What’s at stake: As world leaders meet in Copenhagen this week to debate climate change policy, economists have shared their thoughts on what they would consider a successful agreement. Jean Tirole sketches what would be, from an economist’s viewpoint, a successful agreement in Copenhagen. Delivering an outcome in conformity with GIEC’s recommendations depends on three conditions: a global system of tradable quotas, ensuring the uniqueness of the carbon price; an incentives-based credibility of commitments made by states; a compensation mechanism through quota allocations and the application of the subsidiary principle. An alternative would consist in agreeing on a set of precocious abatement actions for the near future, together with the principle of an agreement on a framework specifying: a) a… Read more
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Bonus Question
14th December 2009
What’s at stake: France on Thursday said it would follow Britain’s lead in levying a supertax on bankers’ bonuses, giving added momentum to efforts to curb high levels of financial sector pay. The British and French moves stirred the first real public debate as to whether the US should adopt a windfall tax, too. Sceptics call it “Old Testament” policies – in the sense that they punish the financial sector rather than fix structural problems, but there could be big gains from siding with Main Street against Wall Street. The US administration seems, however, anxious not to be seen as confiscatory and socialist. Paul Krugman says Darling, I love you. OK, that’s way too strong. But Alistair Darling’s new super-tax… Read more
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EMU Warfare: The Colin Powell doctrine has come to Europe
12th December 2009
Bruegel Director Jean Pisani-Ferry analyses the events leading up to May 9 a historic week for the European monetary union. In this article, he questions the unprecedented decisions that governments had to take with, regard to the euro area debt crises, and the long-term repercussions of them. The author questions if European policymakers have boxed themselves into a corner. If they only bought time with the decision to put up 500bn in loan guarantees available to finance assistance to ailing states and do they risk an even bigger catastrophe than the one they have avoided. May 9 will go down in European monetary history as the day when long-held taboos were thrown overboard. After endless weeks of agony over… Read more
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The Baltic Misery Needs a Solution
10th December 2009
Writing for the European policy website Euractiv.com, Resident Fellow Zsolt Darvas proposes a solution for the Baltic states, based off his Policy Contribution The Baltic Challenge and Euro-Area Entry. Darvas argues that the economic rationale surrounding certain aspects of the criteria for entry into the Euro area are unsound and should be reformed, allowing for immediate Euro-area entry for the Baltic states. The global financial and economic crisis has not turned into another global Great Depression. The Baltic situation, however, is very gloomy. After losing about 20 percent of GDP in the last two years, Latvia and Lithuania are still expected to contract by an additional 4 percent in 2010, while Estonia is expected to stagnate. There are also serious… Read more
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Kick-Starting the Green Innovation Machine
9th December 2009
Senior Fellows Philippe Aghion and Reinhilde Veugelers, with Harvard researcher David Hemous, write about the need for government subsidies in encouraging 'green innovation' in an op-ed for Vox, the widely-read web portal for European economic policy research. Another, less data-focused version was also published in German business newspaper Handelsblatt (10 Dec). Both pieces was based off the authors' Policy Brief, "No Green Growth Without Innovation". Click here to download this comment. Read more
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A New Purpose for Public Action
7th December 2009
Director Jean Pisani-Ferry writes about the state of capitalism in the French daily Le Monde. He argues that the two current crises - the financial crisis and the climate change problem - have created a new role for public action: not to throw away capitalism and replace it with nationalisation or a planned economy, but to drive private actors to fundamentally modify their behavior. Selon un récent sondage effectué pour le groupe britannique de médias BBC, 43 % des Français tiennent le capitalisme pour fondamentalement déficient et veulent lui substituer un autre système économique. Cette aspiration est partagée par un à peu près un tiers des sondés en Italie, en Espagne, au Brésil et au Mexique, et globalement par environ… Read more
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The Fed under Attack
6th December 2009
What’s at stake: It is becoming increasingly clear that politicians around the world are seeking someone else to blame for the crisis and that, in many countries, that someone is the central bank. In the US, the Federal Reserve is coming under extreme pressure from Congress. On Thursday, Ben Bernanke urged Congress not to take away the Federal Reserve’s bank supervision powers or curtail its independence. The FT’s Money Supply blog reports that Allan Meltzer – the unofficial historian of the US central bank – thinks that the situation is worse than at any point in the Fed’s history. There is real concern that some of the proposals before Congress to curtail the power of the Fed and its independence will end up becoming law.… Read more
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Sovereign Defaults in Europe
6th December 2009
What’s at stake: Dubai’s repudiation of its implicit guarantee on Dubai’s World has prompted a reassessment of sovereign risks around the world and especially in Europe where there has long been an assumption that the European Union would, if necessary, come to the rescue if one of its periphery country. Simon Johnson says that the thinking that a partial bailout for Dubai from Abu Dhabi implies something about how Ireland (or Greece) will be treated within the European Union makes sense for three reasons. If Dubai can effectively default or reschedule its debts without disrupting the global economy, then others can do the same. If Abu Dhabi takes a tough line and doesn’t destabilise markets, others (e.g. the EU) will… Read more