What’s at stake: The revival of the Spanish crisis and the chorus of support from academics have made the establishment of a EU-wide banking union – with euro-wide deposit insurance, bank oversight and joint means for the recapitalization or resolution of failing banks – a centerpiece of the upcoming European Summit on June 28-29. A banking union would contribute to the resilience of the monetary union by strengthening financial integration and reducing the potential correlation between sovereign crises and banking crises. The Commission announced on 30 May 2012 the goal of moving towards a banking union. It adopted on 6 June 2012 a legislative proposal for bank recovery and resolution that is seen as a first step towards this goal. Read more
Bruegel blog
-
Blogs review: The bumpy road to a banking union
8th June 2012
-
The momentum for Eurobills
1st June 2012
What’s at stake: The European discussion towards the establishment of Eurobonds is progressing at a rapid pace as officials have begun focusing on precise interim steps towards the establishment of an eventual full-fledged mutualisation of public debt. Among the current set of concrete proposals, the Eurobills proposal put forward last year by Christian Hellwig, a professor at Toulouse School of Economics, and Thomas Philippon, an associate professor of finance at New York University’s Stern School of Business seems to be getting traction. By limiting its total size (10% of GDP) and maturity (debt of maturity less than a year), Eurobills would avoid creating open-ended commitments. But they would, nonetheless, manage to cover about half of the refinancing needs for 2012. It might well be a good first step and a possible challenge to the more established European Redemption Fund proposal, which remains the most talked about proposal. Read more
-
Ethical economists
25th May 2012
What’s at stake: The members of the American Economic Association received on Wednesday an email signaling that – beginning July 1, 2012 – all submissions to AEA must be accompanied by a Disclosure Statement summarizing potential conflicts of interest. The AEA's move was partly motivated by the public attention the documentary "Inside Job", which outlined ethical lapses within the profession. Although the AEA has no authority to police economists, other journals will probably use the AEA's disclosure guidelines to formulate their own. And many economics departments and think tanks will likely establish rules that adhere to these guidelines. Read more
-
Blogs review: the shrinking labor force
18th May 2012
What’s at stake: There is a great deal of interest in the American blogosphere to understand the recent dynamic of the labor force participation rate. The latest Jobs reports have, indeed, shown a continuing decline in the share of working-age Americans who are in the labor force. The civilian labor participation rate fell in April to 63.6, its lowest rate since December 1981 providing a simple explanation to the seeming contradiction in the unemployment numbers — that the unemployment rate keeps dropping even though job creation has been low. The issue has obvious implications for the short term, but also for the long term potential rate of the growth of the US economy. Read more
-
Blogs review: The Capital requirements directive (CRD4)
11th May 2012
What’s at stake: The last ECOFIN has been the occasion of a fierce negotiation over the adaptation into EU legislation of the Basel Committee rules known as Basel III. The Capital Requirements Directive proposal (CRD4) was proposed in July 2011 by the European Commission and is expected to enter into force in January 2013, with gradual implementation until completion in 2019. Yet no agreement was reached at the last ECOFIN where important divisions inside Europe have been exposed, and more work is still expected from the Basel Committee on a number of elements of the final proposal. This is at the heart of fundamental shifts within Europe’s banking sector and potential political conflicts primarily between the UK and continental Europe. Read more
-
Blogs review: the productivity-compensation wedge and the mark-up puzzle
4th May 2012
What’s at stake: While our understanding of the origins of the productivity – median compensation wedge – that is, the fact that real median hourly wages in the US have remained close to stagnant over the past 3 decades – progresses, a new puzzling fact has recently been uncovered for which we still have few good explanations: that most of the inflation in nonfarm business prices during the past decade has been due to a rise in the price markup over unit labor costs rather than to rising unit labor costs in the US. After reviewing these two facts, we discuss the extent to which they reflect the same underlying developments. The productivity - median compensation wedge Lawrence Mishel has… Read more
-
Blogs review: new facts and arguments in the austerity debate
27th April 2012
What's at stake: The euro zone strategy to cut deficits has come under increasing strain from slowing economies, gyrating financial markets and electoral setbacks. Last year, we wrote a review on expansionary fiscal contraction that underscored the differing views between European policymakers and the vast majority of academics; especially after an IMF study deconstructed earlier studies on the growth impact of fiscal contractions. We come back to this issue, not only because it is again the hot topic of the day, but also to take stock of some of the new arguments that have been put forward in this debate. Read more
-
Blogs review: the discounting debate in climate change mitigation
20th April 2012
What’s at stake: Decisions with respect to climate change action depend on various parameters, but a particularly important one is the choice of the social discount rate (SDR), which captures – among other things – the weight at which we discount the welfare of future generations. This discounting decision has direct implications as to whether it is necessary to delay or accelerate climate change mitigation policies. In discussions about the choice of the appropriate SDR, two main approaches have emerged: an a priori approach (as proposed by Stern) and a market based approach (as proposed by Nordhaus and Weitzman). Read more
-
Blogs review: output gaps and the behavior of inflation
6th April 2012
What’s at stake: The big issue underlying most macroeconomic discussions these days is the extent to which the decline in GDP is temporary or permanent (see our recent issue of the blogs review on potential output and asset price bubbles for example). To distinguish between these two alternative explanations, it is natural to look at the behavior of inflation. The argument is that if the economy is operating significantly below potential, inflation should be decreasing, while it should be increasing if the drop in output is permanent. As we point out in this issue, this exercise is, however, harder than it looks because of the presence of downward nominal wage rigidities, anchored inflation expectations and the possibility of temporary decline in potential output. Read more
-
Blogs review: The Gold Standard and the Euro
30th March 2012
What’s at stake: Thanks to Ben Bernanke's series of lectures at Georges Washington University this week, the gold standard is back as a topic for debate. In particular, a number of commentators worry that the new fiscal rules in Europe (see our previous review on the Fiscal Compact) might play the deflationary role that the gold exchange standard played in the 1930s. There are parallels between the gold standard and the euro – namely in terms of the asymmetric pressure that it puts on deficit countries compared to surplus countries to adjust – but, contrary to the 1930s, the crisis can hardly be solved by countries leaving the exchange rate zone. The difficulty of the task is thus to implement rules that would ensure credibility without creating a new deflationary trap. Read more