Macroeconomic coordination, the hallmark of the first few G20 summits, went through three successive phases. The first phase, from Washington to Pittsburgh, focused on stimulating the global economy across the board. The second phase, from Toronto to Cannes, shifted towards a more complex set of objectives, with the aim of avoiding a resurgence of global imbalances. The third phase, from Cannes onwards, put the focus on the European crisis. The initial achievement was major. But the story is one of diminishing returns. The effectiveness of the G20 in macroeconomic coordination declined from one phase to the next. Read more
Bruegel blog
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G20: Decreasing returns
16th May 2012
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Is Germany bluffing on Greece?
15th May 2012
After the recent elections in Greece, German officials seem to seriously consider a Greek Euro area exit – at least this is what official statements from policymakers indicate. Are these statements serious or is Germany bluffing on Greece? We want to summarize their statements and compare them to what is being said in the German National Press and blogosphere, both of which appear much more skeptical about the possibility of a Greek exit. The German minister of Finance, Wolfgang Schäuble, stated in an interview with the “Rheinische Post” on 11 May 2012 that Europe has the capacities to cope with a Greek Euro area exit. He said that Germany and its partners had learned a lot during the last two… Read more
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The Irish shadow in the Spanish deadend
14th May 2012
The Spanish government has taken two important decisions this week. The first is to forcefully recapitalize Bankia, an important source of uncertainty in the banking system, and change its leadership. The second is to agree to a neutral and private sector led audit of a large portion of bank assets in order to credibly assess potential additional losses. The implicit reasoning behind these two decisions is that even with recognition of more losses, Spain will be able to absorb them and/or stretch them over time and restructure its banking system on its own. This is essentially the strategy that was pursued in Ireland in 2010 and that produced the results we know so well: cumulative banking sector losses in excess… Read more
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M. Hollande, ce n’est pas le moment d’être normal
14th May 2012
En s’engageant fin 2011 sur le thème de la croissance et en annonçant son intention de renégocier le traité budgétaire, François Hollande courait le danger d’être marginalisé dans une Europe qui attendait son salut de l’austérité. Six mois plus tard, il recueille les fruits de sa prise de risque : alors qu’elle est entrée en récession et que, sur son flanc sud, se multiplient les signes d’exaspération sociale, l’Union européenne se prépare à saisir l’occasion de rééquilibrer ses priorités. Une grande ambiguïté règne cependant, car des orientations très diverses se retrouvent sous le même étendard de la croissance. Dans ces conditions, François Hollande a le choix entre deux stratégies. La première est de se satisfaire peu ou prou des fruits qu’on… Read more
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The Weekender
14th May 2012
Dear All, In Germany, the elections in North Rhine-Westphalia (German’s most populous state and not Schleswig-Holstein as I mistakenly wrote last week, apologies for this…) brought a victory for the SPD and the Greens. The CDU collapsed to its post war low while the FDP surprisingly held up (around 8%) which, at the Federal level, should help keep the coalition together until the 2013 election. The pirates did a fairly strong showing at 7.5% and will enter the parliament in NRW but are lower than their recent national polls. These domestic political considerations will be important in future European negotiations and are likely to tilt Merkel towards a softer stance. In addition, with respect to domestic German developments, it is… Read more
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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
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Effects of IFRS on Korean banks, and future prospects
11th May 2012
Korean firms’ business activities, such as risk management and foreign investment, have been affected by the obligation since 2011 to adopt International Financial Reporting Standards (IFRS). Korean banks may need to reshape their credit-rating models and enhance their loan-collection systems to prepare for further changes in loan-loss accounting. In addition, the financial authorities must provide adequate guidelines to minimise discretionary accounting and organise regulatory acts in order to prevent false disclosure. Korea’s accounting standards, and the quality of financial information, have improved since the adoption of IFRS in 2011, but comparability between financial statements has declined. IFRS was first adopted for listed companies in EU member countries in 2005. Since then, it has expanded rapidly across the globe, leading Korea… Read more
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Will the elections in Europe change economic policy?
9th May 2012
The elections of this week-end are widely interpreted as a strong signal by voters that they are unhappy with austerity or what they perceive to be austerity. Will the elections change the speed of budget consolidations? Will France even reverse policies? Or will the elections not lead to any change? In Greece, it appears highly unlikely that elections will change the current policies. De facto, even if there was to be a new election due to the inability to form a government and at the next elections the anti-austerity Syriza party would come to dominate the political scene, there is still little it could change. The Greek adjustment path is largely set by the Troika, i.e. the European Commission, the… Read more
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Germany’s reaction to the newly elected French President
8th May 2012
"Europe is watching us" declared François Hollande last Sunday after his victory in the French presidential elections, “At the moment when the result was proclaimed, I am sure that in many countries of Europe there was relief and hope: finally austerity is no longer destiny.” How did the German press and blogosphere react to the results of the French election? Hollande – a possible danger? Günther Nonnemacher states in the Frankfurter Allgemeine Zeitung (FAZ) that two reasons led to his victory. First, it was not enthusiasm, but his insistence: when he announced his candidacy in 2011, hardly anyone believed that he would win the primaries of the French Socialist Party (PS). Secondly, Hollande benefited greatly from the widespread aversion against… Read more
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Move the financial stability board’s secretariat to Asia
8th May 2012
On the face of it, the financial crisis of 2007-08 has helped rebalance global financial governance, partially correcting the prior under-representation of emerging economies and particularly of Asia. From November 2008 to April 2009, the G7/G8 was superseded by the G20, the Financial Stability Board (FSB) was empowered and enlarged to include major non-Western economies, and discussions began on reconfiguring the governance of the International Monetary Fund and World Bank. The Basel Committee on Bank Supervision was also adjusted to broaden its membership. Much remains to be done to enable Asians to feel a genuine sense of ownership, however. Membership may have been broadened, but these institutions, which were generally created by Westerners for Westerners, remain predominantly run by Westerners… Read more