Note for the Cercle des Economistes conference, Aix-en-Provence, 6-8 July 2012 A striking feature of international discussions in recent times is how much they have focused on Europe and especially on the euro crisis. The last two G20 summits and the latest IMF meetings were largely devoted to it. Most international economic conferences recently held worldwide have discussed its fate. Furthermore, contrary to paranoid conspiracy theories en vogue here and there, the world’s attitude towards Europe has been overwhelmingly positive. Its partners genuinely hope it that it will succeed in rescuing itself and rescuing its currency – and to this end they are willing to offer support and advice, if not always money. One may wonder why. The euro area… Read more
Bruegel blog
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Imagine a world without Europe
6th July 2012
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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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The creation of euro area safety nets
5th July 2012
The financial crisis has exposed the need to devise stronger and broader international and regional safety nets in order to deal with economic and financial shocks and allow for countries to adjust. The euro area has developed several such mechanisms over the last couple of years through a process of trial and error and gradual enhancement and expansion. Their overall architecture remains imperfect and leaves areas of vulnerabilities. Europe suffers from three simultaneous and mutually reinforcing crises: banking crises, fiscal crises, and balance-of-payment (BOP) crises. Each can occur because of transitory liquidity shock or a more permanent solvency problem but the lines are very often blurred and the associated policy response therefore often uneasy. Table 1 shows the various categories… Read more
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Organising bank supervision and resolution in Europe
5th July 2012
The Euro Summit has decided to create common supervision and allow for direct capital injections into banks by the European Stability Mechanism (ESM). This is an important step towards breaking the negative feed-back loop between banks and their feeble sovereigns and will therefore contribute to the stability of the euro area. Two issues on the road to a banking union will prove particularly contentious: the organisation of common financial supervision, which is an explicit part of the summit agreement and the creation of a resolution authority, which is not really covered in the summit statement. The fact that the summit document is silent on resolution shows how contentious the issue is. Organising common supervision is also not an easy task.… Read more
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ICT for growth: A targeted approach
5th July 2012
The digital Agenda for Europe is a prime example of an initiative to promote EU growth. One of the Europe 2020 strategy’s seven flagship initiatives, it focuses on information and communication technologies (ICTs) as a spur for sustainable and inclusive growth. Several obstacles that keep European businesses and organisations from making greater use of ICT identified, we aim to critically assess these obstacles, and identifying in broad terms the policies that can unlock the highest value for Europe. Four broad technology categories within ICT are identified and their potential economic impact in Europe can be estimated: i) social networks/Web 2.0, ii) cloud computing, iii) machine-to-machine (M2M) communication, and iv) data-driven organisational technology. These technology categories combined can be broadly classified… Read more
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The German Industry and the euro
5th July 2012
There seems to be a division among the representatives of the German industry. While representatives of German family businesses (Familienunternehmen) claim for more regulatory rules and less integration for the eurozone, representatives of the DAX (Deutscher Aktien IndeX) and in particular the Federation of German industry (BDI) generally regrouping export-orientated enterprises defend the common currency and more integration. Nevertheless, claims from the Familienunternehmen are not backed by official statistics on exports activities. Read more
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Europe’s Banking Union: Possible Next Steps on a Bumpy Path
3rd July 2012
In their summit statement of June 29, the heads of state and government of the euro zone issued a declaration widely interpreted by investors as the founding act of a European banking union, about which European policymakers have been talking increasingly vocally [http://www.piie.com/blogs/realtime/?p=2887] in the past two months or so. Their commitment remains little more than a promise, with multiple caveats. But Europe’s leaders will now renege on this promise at their peril. The general perception is that an irreversible step has been made, with vast consequences that will unfold only gradually. “We affirm that it is imperative to break the vicious circle between banks and sovereigns,” the heads of state and government declared. “The [European] Commission will present proposals… Read more
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Paths to eurobonds
3rd July 2012
The defining feature of the European Monetary Union is that it was purposefully designed as a monetary union without a fiscal union. In this sense, the political and intellectual consensus that gave birth to the euro was one in which this unusual form of economic and monetary union was deemed both politically and economically sustainable. The defining feature of the European Monetary Union is that it was purposefully designed as a monetary union without a fiscal union. In this sense, the political and intellectual consensus that gave birth to the euro was one in which this unusual form of economic and monetary union was deemed both politically and economically sustainable. Yet both the history of monetary unions (see Bordo et al (2011)) and the ongoing crisis seem to challenge this very assumption. Read more
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Blogs review: The BRIC’s slowdown
2nd July 2012
What’s at stake: We've been talking about the problems in the eurozone for a while, but the BRIC economies have recently shown worrying decelerating signs. The economies of Brazil, Russia, India and China grew at a furious pace for much of the past decade and have assumed the role of growth engines for the world economy since the beginning of the crisis. But weak economic data in the BRIC nations have had pundits wondered about the impact that a BRIC slowdown could have on an already weak world economy. Read more
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In Memory of Olivier Ferrand
2nd July 2012
Olivier Ferrand, the founder of French think tank Terra Nova, died of an untimely death on June 30 in the South of France, where he had just been elected deputy for the district of Marseilles North-East. He was 42. Terra Nova, founded in 2008, owed its very existence to Olivier’s extraordinary drive. In a very short period of time it has already made multiple impacts – not least nudging France’s center-left Socialist Party into accepting the principle of open primaries to select their Presidential election candidate, as well as advocating for a constructive French posture in the EU and more structural reform at home. On the whole, Terra Nova has been a voice for enlightenment of the domestic policy debate,… Read more