Poland is the winner among 24 EU countries in a ranking based on the stability and growth of five indicators (production, productivity, employment, labour market performance and exports) between 2008 and 2011. E.g. Polish business sector output and employment hardly declined during the crisis and by the end of 2011 they were 14% and 3% higher respectively than in early 2008 (All indicators consider the business sector without construction, real estate activities and agriculture, in order to exclude public sector developments and construction, which was doing like crazy in some countries). Read more
Bruegel blog
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Weathering the Storm in Central Europe
16th July 2012
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Devaluation and internal adjustment of the real exchange rate
13th July 2012
There is an interesting debate at Free exchange of Economist.com on real exchange rate adjustment. The author of the article brought the point that while devaluation is painful and amid crisis can contribute to and is often associated with significant economic contraction, it helps to achieve a fast V-shaped recovery in output. Without devaluation the adjustment path is slower and more painful. Joseph Gagnon added further points by arguing that there are even examples in which devaluation (resulted from the sudden stop in capital inflows) is not associated with economic contractions. Poor outcomes after devaluation, he argues, is the result of poor (inflation generating) policies and not devaluation, but when devaluation is caused by rising unemployment or external deficits, the… Read more
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Internal adjustment of the real exchange rate: Does it work?
6th July 2012
The forefathers of Europe’s single currency argued that rather than devalue their currencies to restore competitiveness, countries could devalue ‘internally’. Against the current of bad press, this column presents a novel way of recording competitiveness and argues that Ireland, Spain, Latvia, and Lithuania have all managed these adjustments – but not without paying a huge toll in jobs lost. Read more
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On the efficacy of internal devaluations: answers to the questions of Kevin O’Rourke
25th June 2012
Kevin O’Rourke kindly drew attention at http://www.irisheconomy.ie/ to my recent Bruegel Policy Contribution titled “Compositional effects on productivity, labour cost and export adjustments” and asked four questions. In my answer I would like to show some charts – but as I cannot post charts at the Irish Economy blog, I post these charts at Bruegel Blog. Question 1: What happens when you calculate a composition-adjusted real exchange rate index for Ireland vis à vis other eurozone members only? Figure 1 below shows that since 2008Q1, the difference between the developments of the real effective exchange rate (REER) calculated against euro-area partners only and 30 trading partners is not large: the former depreciated by 12 percent, the latter by 14 percent.… Read more
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Europa muss Griechenland eine Zukunft bieten
25th June 2012
Die Wahlen in Griechenland am 17. Juni haben etwas Erleichterung gebracht. Eine neue Regierung wurde gebildet, die sich mit den europäischen Partnern und dem IWF an einen Tisch setzen wird, um die Bedingungen des aktuellen Hilfsprogramms zu diskutieren, vielleicht auch zu überarbeiten. Die unmittelbare Gefahr eines griechischen Austritts aus dem Euroraum ist gebannt. Doch dies ist nur eine vorübergehende Erleichterung. Sowohl für Griechenland als auch für den Rest der Euroraums muss noch viel getan werden. Wie ich bereits früher angemerkt habe, muss Europa Griechenland eine Zukunft nach den Wahlen eröffnen, wenn eine kooperative Regierung gewählt wird. Nun ist eine neue Regierung gewählt worden, die sich wahrscheinlich kooperativ zeigen wird. Doch die Troika aus EU-Kommission, EZB und IWF wird wahrscheinlich zu… Read more
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Greece after the elections
20th June 2012
The Greek elections on 17 June 2012 brought some relief. There is a realistic chance that a government can be formed shortly with the participation of three parties, which will sit to the table with European partners and the IMF to discuss, and perhaps revise, the conditions of the current financial assistance programme. The immediate risk of a Greek exit from the euro-area is abated. But this is just a temporary relief and much needs to be done for Greece, in Greece, and for the rest of the euro area as well. As I argued earlier, Europe must offer a prospect for Greece after the elections if a cooperative government is elected. The reasons for this are simple. First, Greece’s… Read more
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Europe must offer Greece a post-election prospect
8th June 2012
The euro might survive. But a cooperative Greek government, a real European programme to support Greek economic growth and a resolution of the Greek public debt overhang are minimal conditions for the short term. The euro's deeper flaws should also be addressed soon if a disorderly and destructive dissolution of the euro area is to be avoided. Read more
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Chart of the week: Intra-euro rebalancing has started
8th June 2012
The figure shows the trade and current account balances of Spain and Germany, the largest deficit and surplus countries of the euro area (France and Italy also used to have current account deficits, but much smaller than in Spain relative to GDP). Bilateral current accounts are generally not available, but bilateral trade balances of goods are, which, in a number of countries including Spain and Germany, account for a significant portion of the current account balance. Trade balance with different regions, and the current account balance (% GDP), 1999-2011 Source: Current account (CA): Eurostat. Trade balances (TB): author’s calculation by aggregating bilateral trade flows of goods from Eurostat’s External Trade Statistics. In 2007, the last good year before the crisis,… Read more
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The new Dutch disease
26th April 2012
“Dutch disease” used to label the harm caused by the discoveries of natural resources, since the increased revenue can push up the value of the currency, thereby making the export of other goods and services less competitive on world markets. This happened in the Netherlands after the discovery of a natural gas filed in the North Sea in the late 1950ies. (The real value of the Dutch guilder increased significantly in the 1960s, while eg in the neighbouring Belgium and Germany the real effective exchange rate was broadly stable – see Figure 2.g in comparison with 2.a and 2.d in my recent working paper). The ‘new Dutch disease’ is of very different nature and will likely be less harmful for… Read more
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Hungary is no Turkey
26th April 2012
Somewhat unexpectedly, the European Commission concluded on 25 April, following the meeting of Hungarian Prime Minister Viktor Orbán and Commission President José Manual Barroso on 24 April, that negotiations for financial assistance for Hungary can begin, once the relevant legislation is adopted. On 23 April, just a day before the meeting of the two Heads, the exchange rate of the Hungarian forint reached a low of several weeks and government bonds yields were on the rise, suggesting that the Commission’s decision was indeed unexpected. Markets have reacted very positively: the exchange rate of the forint strengthened by four percent from 23 to 25 April, long term government bond yields have fallen from about 9 percent to 8 percent, and the… Read more