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
Bruegel blog
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The multiplier myth
22nd February 2013
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What does the Big Mac say about Euro Area adjustment?
6th February 2013
The Big Mac Index offers some quick insights into the state of currencies around the globe by comparing the price of Big Macs across countries. Of course, the Big Mac index was never intended as a precise gauge of currency misalignment, as the Economist has just reminded us in its latest update. According to them, it is just about making PPP and other difficult exchange rate concepts more digestible. Read more
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Will Europe pay for Japan?
28th January 2013
As the Bank of Japan is rolling out its new programme of quantitative easing, a significant debate about the impact on Europe is emerging. Is Japan engaging in a “beggar-thy-neighbour” policy? Is Europe paying the price as other central banks are responding? Jean-Claude Juncker has already announced that the euro is overvalued while Jens Weidmann sees global central bank independence endangered. Let’s first look at the facts. Read more
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Inequality and adjustment in Europe
10th January 2013
Inequality differs across Europe. Some countries in major economic adjustment have been hit hard by an increase in inequality together with an increase in unemployment in the last couple of years. Especially France and Spain saw strong increases. At the same time, Germany has seen a significant fall in inequality and in unemployment during the last 5 years. Read more
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Banking union for non-EA countries
8th January 2013
In a recent blog entry we estimated the total assets and number of banks in the euro area underdirect ECB supervision according to the agreed criteria of the Single Supervisory Mechanism. We now extend the research to all EU countries. In this blog, we start with the statistics before discussing the more complicated home-host issues and how they are treated in the new compromise legislative text. Read more
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Three structural reforms remain central for the euro in 2013
19th December 2012
As the year draws to a close, it is time to reflect on the economic policy priorities for 2013. I would identify three structural reform areas that are central to the success of the euro… and one less structural measure. Read more
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Slow, but real progress on resolving eurozone crisis
17th December 2012
Last week summit of heads as well as finance ministers marks an important step in completing the eurozone architecture. At the same time, the summit’s results fall short of what could have been hoped for. Read more
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A banking union of 180 or 91%?
13th December 2012
The European finance ministers have agreed on a deal for the banking union. According to the deal, the ECB would be directly responsible for banks with assets exceeding 30bn euro or 20% of GDP, or at least the 3 largest banks of each country member for those nations where fewer than three fulfil the previous criteria. In this chart of the week, we applied the two criteria to the Banker dataset, which includes 754 banks in the euro zone, so 14% of the 5404 banks. In terms of assets, a comparison between the Banker database and ECB aggregate statistics shows a good overall coverage of the banking system. Read more
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A genuine monetary union?
6th December 2012
The European Commission’s president, José Manuel Barroso, last week proposed a roadmap setting out how to transform Europe’s current set-up into a better-functioning monetary union. The paper has two major weaknesses, but it makes three very good and ambitious points. First, on the positive side, the communication stresses the need to move ahead with a common bank-resolution authority and acknowledges that a purely national system of resolution would not be effective. This is a major and very important change in the Commission’s policy stance: until very recently, the Commission’s view was that national resolution would suffice. A banking union without a common resolution authority would not be a genuine banking union. Without a common form of resolution, there can be… Read more
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Chart of the week: a deadly embrace
4th December 2012
Europe is determined to break the vicious circle between sovereigns and banks. To achieve this aim, it appears to be clear that Europe will need a strong central supervisor, a common resolution authority as well as the appropriate fiscal backstop to help in case of major crisis when the resources of the resolution fund are exhausted. As Europe is advancing its work on the banking union, the increased dependence of banks on their sovereigns in the last year has not received sufficient attention. An important reason for the link between banks and sovereigns is the fact that banks are holding government bonds on their books. Already before the crisis, European banks were holding large amounts of sovereign debt on their… Read more