What’s at stake: In his State of the Union Address, US President Barack Obama resurrected a pledge to raise the minimum wage he had made during the 2008 campaign. In an effort to fight inequality, alleviate poverty and make work more attractive President Obama proposed proposed a $9 federal minimum wage, indexed to inflation. This has generated a lot of writings in the blogosphere, with the main issues revolving around the classic questions of the employment effect of the minimum wage as well as its efficacy as a means of redistribution. Read more
Bruegel blog
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Blogs review: The Minimum Wage debate
4th March 2013
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A new direction for euro-area macro policies
1st March 2013
The debate on austerity in Europe has intensified after the publication of disappointing growth data for last year. The debate has been given further momentum by the recent Italian election, which has been typically interpreted as a rejection of austerity policies. Read more
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The Euro Crisis: Mission Accomplished?*
28th February 2013
High unemployment, bleak economic outlook, high public and private debts, dysfunctional banks, weak competitiveness, and an unfavorable external environment are just a few of the challenges facing southern members of the euro zone. Despite these hurdles, the ever-optimistic European Council and other leaders said in January that the euro crisis had bottomed out. Herman Van Rompuy, the president of the European Council, proclaimed, “The worst is behind us, in particular the existential threat to the euro.” Then there was Mario Draghi, president of the European Central Bank (ECB), who declared that “the darkest clouds over the euro area [have] subsided.” Read more
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Is struggling Europe on the right track?
27th February 2013
The latest European Commission outlook forecasts 2014 unemployment rates above 25 per cent in Greece and Spain, in the vicinity of 15 per cent in Ireland and Portugal, but close to 5 per cent in Austria, Germany and the Netherlands. In the same year it expects GDP per capita to be almost 7 per cent above the pre-crisis level in Germany, but about 7 percent below in Ireland, Portugal and Spain, and a terrifying 24 per cent below in Greece. So the deep economic and social divide that as emerged within the euro area is expected to linger. Read more
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Electricity Infrastructure – more border crossings or a borderless Europe?
27th February 2013
Enabling the seamless trade in electricity across borders would help to deliver on all three European energy policy targets – security, sustainability and competitiveness. Security would be increased because local supply shortages can be addressed by importing electricity from elsewhere. A larger-than-national market would mean that competition between national energy companies should lead to increases in efficiency and reductions in prices. Finally, in a European market, intermittent supply of energy from local renewable sources can be reliably averaged across wide geographic areas, reducing the need (and thus costs) of back-up capacity and system-stabilising services. Read more
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Austerity needed to start, now we need a fiscal union
25th February 2013
The main driver of public debt increases in the last 4 years has been high public deficits, not austerity. Budget consolidation is necessary to avoid excessive increases in debt levels. The central question is about the best moment to pursue the adjustment. I provide a simple scenario analysis, which suggests that fiscal adjustment should be gradual in order to balance risks. Arguably, adjustment has been gradual in some though not all countries considered. The simulations suggest that significant recessions are still ahead of us. This calls for a Marshall plan for Southern Europe and a more forceful use of restructuring and resolution tools. Contracts could be a good way of providing fiscal support in exchange for reforms. Read more
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The implications of Asia’s scientific rise
25th February 2013
A previous article in this newsletter (issue 3, December 2012) demonstrated how selected Asian governments have come to view science as integral to economic growth, and have consequently taken steps to develop their science infrastructures. This holds most for China, but is also true for Korea, Taiwan and Singapore. The rise of new emerging science powerhouses in Asia provokes the question of what the impact will be on science. In particular, does a shift of scientific power to Asia mean that the flows of scientific talent from east to west will dry up, and are Asian scientific centres new cooperation partners in science for the west? Read more
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The multiplier myth
22nd February 2013
Many international economists have recently claimed that fiscal multipliers are much larger now than in normal times. The economic recession in Europe’s South, so the view, is primarily to be attributed to the fiscal consolidation undertaken that together with the larger multipliers has had devastating effects. Many good arguments speak in favor of this interpretation, including the fact that overall government spending in the four largest economies in the euro area has been growing below inflation in the last 3 years despite a weakening growth performance. Read more
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Towards further liberalisation of the capital account in China
22nd February 2013
In China, discussions on capital account liberalisation have recently intensified. The Chinese government plans to gradually liberalise certain capital account items in the areas in which there is sufficient demand from the real economy and areas with relatively low investment risk, while maintaining tight regulation/supervision over the other items of the capital account and the financial sector. In response, Korean financial institutions need to establish strategies that will enable them to take part in this change, especially in the areas expected to undergo capital account liberalisation in the early stage. Read more
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Blogs review: The safe asset shortage
22nd February 2013
What’s at stake: Safe debts – or what is often called information insensitive assets, as they do not suffer from the types of financial frictions that are characteristic to other financial assets – play a major role in facilitating transactions for institutional investors. And, as we have learned in the recent years, they also play a major role in triggering financial crises when they loose their safety status and turn into information sensitive assets. As central bankers start backpedalling on their commitments to increase the supply of safe assets and start worrying about the negative effects of the “search for yield”, there has been a renewed discussion in the blogosphere about the role of safe assets and whether they remain in short supply. Read more