What’s at stake Due to a series of factors (the consequences of the economic crisis, ageing population, cutbacks in the welfare state, the political crisis in North Africa…) migration issues have become a central political topic and are taking an increasingly important role for economic policy considerations. The Agreement reached by an extraordinary EU ministerial meeting to adopt conditions under which border control could be reinstated, effectively weakening the Schengen area is a good illustration of migration policy crashing with the principles of free movement of labour, which has a broad range of consequences ranging from labour markets flexibility, financing of welfare and ageing related expenditures but also free movement of capital and the governance of the monetary union. If… Read more
Bruegel blog
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Schengen and the Arab Spring
27th May 2011
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The IMF's succession race
20th May 2011
What’s at stake Amid the hubbub over Dominique Strauss-Kahn's sex scandal, an important question for the legitimacy and the efficiency of the Fund has resurfaced: the selection process of its next leader. The resignation of the IMF Managing Director last Wednesday has reopened the race for his succession but the context has profoundly changed since DSK’s appointment in 2007 as calls for an end to the tradition of having a European head the institution are getting louder and merging economies have no shortage of skilful candidates. But the current involvement of the IMF in Europe as well as the lack of clear signals from the US administration that it is ready to give up the helm of the World Bank… Read more
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Bailing out the bail outs
13th May 2011
What’s at stake This week marks the anniversary of the May 9th 2010 announcement of the creation of the EFSF, which was seen by many as the beginning of the end of the European debt crisis. A year later, the crisis lives on despite repeated initiatives – remember the “grand bargain”? – to bring it to an end and could well enter a new phase where policymakers need to increase their financial commitments and continue to disentangle the feedback loops between sovereign debt and a still fragile financial system. All in all, there is an apparently strong willingness by European policymakers to provide more liquidity but also a growing sense of fatigue about the lack of burden sharing best illustrated… Read more
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Expansionary fiscal contractions and the UK experiment
6th May 2011
What’s at stake Under Prime Minister David Cameron and Chancellor George Osborne, the Tory-Liberal coalition in the United Kingdom has run an experiment in the theory of expansionary fiscal contraction – the result of which is likely to influence how governments in other advanced economies approach the issue of fiscal consolidation. Although the bulk of fiscal tightening has yet to come – the cyclically adjusted tightening is planned to be a full 6.9 per cent of GDP between 2010-11 and 2015-16 – the weak preliminary estimates of Q1 GDP released by the Office for National Statistics has made the opponents of front-loaded fiscal consolidations more vocal. Confidence, oxymoron, and zombie ideas In a recent WEO chapter, the IMF debunked the… Read more
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Updating the case for Nominal GDP Targeting
26th April 2011
What’s at stake Nominal GDP targeting – as an alternative to inflation targeting – was first discussed in the early 1990s. Proponents of the idea have, however, been particularly vocal in the different phases of the current recession arguing that monetary policy under NGDP targeting would have better leaned against the increase in imbalances ahead of the crisis, provided a stronger and more rapid policy response to the initial phase of the downturn and would make easier to provide an adequate response to the anemic economic recovery despite the current spike in inflation. What NGDP targeting is: basically a “velocity-corrected” money growth rule In a 1993 issue of the San Francisco Fed economic review, John Judd and Brian Motley pointed… Read more
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The Vickers Commission Interim Report on UK Banking
15th April 2011
What’s at stake Global banking regulation took a step towards convergence on Monday as a UK commission proposed measures that will bring the country’s financial rules closer to the US, reducing fears that British lenders will flee London for New York. The proposed reforms by the Independent Commission on Banking (ICB) – chaired by Sir John Vickers and composed of Clare Spottiswoode, Martin Taylor, Bill Winters and Martin Wolf – are aimed at preventing any future difficulties in banks’ investment arms from affecting savers’ deposits, and protecting taxpayers from future bailouts. The proposed changes – which have to be finalised by September – are similar to regulations in the US, where banks are limited in the amount of deposits they… Read more
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Financial Regulation Fatigue
8th April 2011
What’s at stake Following the US Dodd-Frank Act and recent regulatory efforts in Europe, the way forward appears less straightforward as challenges pertaining to coordination and to “fatigue” are growing. As a recent column by Alan Greenspan illustrated, the consensus that prevailed over the last couple of years about the need for financial reform is fragile and self and light regulation advocates are staging a come back. Greenspan on Dodd-Frank inconsistencies Alan Greenspan re-opened the debate on financial regulation with a firm plea in favour of financial deregulation. He argues that as the Dodd Frank Act is being translated into detailed regulations, its numerous inconsistencies of which we have only seen the tip of the Iceberg will emerge. In particular,… Read more
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ECB liquidity and the return of National Central Banks
8th April 2011
What’s at stake The inability of Ireland to renegotiate the terms of its EU/IMF program and the mounting issues surrounding its banks has spurred a discussion about the substantially increased amount of emergency liquidity assistance (ELA) the Central Bank of Ireland (CBI) has granted to Irish financial institutions. The ELA facility gives all national central banks in the euro area the ability to support domestic financial institutions, over and above the assistance provided by the Eurosystem. The strengthened use of this facility could well be a new turn in the European banking crisis for it addresses some of the banking systems issues, while putting back the burden on national European governments via their respective national central banks. Meeting the ELA:… Read more
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Central Banks: the difficult balance between transparency and flexibility
1st April 2011
What’s at stake Over the past few months, the Fed has been required to release information about its emergency lending programs and discount window lending as a result of the Dodd-Frank Act and a Supreme Court appeal. This disclosure and the limits – introduced by the Dodd-Frank Act – on the Fed authority to use Section 13(3) of the Federal Reserve Act to extend credit to nonbank and private parties in “unusual and exigent circumstances" illustrate the difficulty of finding the right balance between the right of the public to know what the Fed is doing and the need for policy discretion. In a desire to regain credibility from the public and reduce the Fed bashing rage on Capitol Hill,… Read more
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The unemployment puzzle
25th March 2011
What’s at stake For the fourth consecutive week, the U.S. Department of Labour revealed that the 4-week moving average of weekly unemployment insurance claims is below the 400,000 level. Although this is a small positive step for the labor market as pointed out by Calculated Risk, the slow progress in U.S. and other advanced economies’ labour markets remains frustrating. Jobless recoveries and the changing nature of recessions Dave Altig points that on average it took 10 months to recover all the jobs lost during the recessions of the period between 1950 and 1989. In contrast, it took 23 months to recover the jobs lost following the 1990–91 recession and 38 months following the 2001 recession. Right now we are 20… Read more