One of the features of the German socio-economic model is its vitality in terms of exports. In this respect it contrasts sharply with France. In 2000, German and French goods exports amounted to respectively 8.7 and 7.5 percent of world trade. Ten years later France's share of global trade was barely 3.4 percent. It would be tempting to ascribe this decline to the rise of China, which in the meantime advanced from seventh to first position in the export league. But then how can we explain that Germany managed to preserve its share almost unchanged? Another way to compare countries' export performance is to compute their ratio to gross domestic product (GDP). In 2000, German and French goods exports amounted… Read more
Bruegel blog
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The great Franco-German divide
4th April 2012
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Can the G20 save globalisation?
3rd April 2012
The current of wave of globalisation that started at the end of the twentieth century has a lot in common with the previous wave that began one century earlier. The same factors are behind both: technological change and political decisions to open up markets for freer trade and capital movements. Likewise both created huge economic opportunities and wealth, but also huge economic and political tensions within and across countries. Domestic tensions arise because not everyone in a country is able to take advantage of the opportunities created by globalisation and some clearly lose out from technological change or freer trade. International tensions result from an unequal distribution of the gains and pains from globalisation across nations. During the first wave… Read more
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Sudden stops in the euro area
3rd April 2012
Many analysts and observers have put forward that the euro crisis is a balance-of-payments crisis at least as much as a fiscal crisis. The issue has gained further relevance with the widening of imbalances among euro-area central banks within the Target 2 settlement system and has important implications for both the short and the long-term policy responses. In a recent paper, we provide evidence of capital flows reversals in Greece, Ireland, Portugal, Spain and Italy and show that on the basis of the Calvo criteria, these episodes can be characterised as Sudden Stop. We discuss the implications of this finding for the Target2 discussion and the appropriate responses to the euro crisis. Read more
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Why is there no TARGET2 debate in the US?
3rd April 2012
Both Target2 and ISA balance have risen considerably since the outbreak of the crisis. We address the differences and similarities between ISA and Target2 imbalances and argue that without a well-functioning interbank market only two options remain: mounting or discounting. Our previous blog post on Target 2 imbalances received a lot of attention and generated a couple of questions. TARGET2 is a real-time gross settlement system operated in central bank money by the Eurosystem that lies at the basis of the European Monetary Union (EMU). It provides payment and settlement services to both public and private market participants (see here for institutional details). Euro area national central banks (NCBs) can build up gross and net claims and liabilities through Target2… Read more
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France and Europe: the phantom issues and the real issues
3rd April 2012
Usually in France the subject of Europe is absent from presidential debates. True, the topic is both important and controversial, as the 1992 and 2005 referenda demonstrated, but the divide is not the neat left-versus-right one which always ends up shaping the electoral battle. Both sides in fact include a significant Eurosceptic component, so rather than risk splitting their own camp, candidates usually opt to skirt the issue – only to see it raising its head later in the national debate, often in unplanned ways. However, this time around the Europe question is economically and politically centre stage. Even though the last three months have been calmer, the crisis which was raging at the end of 2011 has not been… Read more
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Sky-high protectionism?
2nd April 2012
A new controversy has emerged between the European Union and several of its main trade partners since the EU decided to include in its CO2 emission-control scheme all flights to and from its territory, including transcontinental flights. Airlines will need to acquire emission permits for their flights’ CO2 emissions. China and the United States are outraged. Chinese airlines have delayed orders to purchase European aircraft. The CEOs of aircraft manufacturer Airbus and major European airlines have urged European leaders to step in. There is talk of a new trade war. This is an important quarrel, because it is the first real clash in the debate on climate and trade. Not only are the motivations and arguments new, but suspicions about… Read more
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The Weekender
2nd April 2012
Dear All, The French election is taking a very interesting turn and I believe that participation will be very high (by our historical standards) and that the far-left will keep on growing. Its candidate, Jean Luc Melenchon, is now polled at 15% and my personal gut feeling is that he is still under-polled. Beyond French politics, it has been an eventful week with important meeting of BRIC Heads of States and Governments in Delhi, of the Syrian National Council (and the friends of Syria) in Istanbul and the first informal ECOFIN under the Danish presidency in Copenhagen. But outside of these important economic and geopolitical developments, I will focus on the following: 1. Some conclusions from the ECOFIN in Copenhagen, 2. Internal rebalancing and German wages negotiations Read more
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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
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Chart of the week: banking and sovereign risk: is it banks’ holding of government debt or banks’ location?
29th March 2012
Since the start of the European sovereign debt crisis, the interdependence between banks and sovereign risk has been emphasised. This week's chart shows the positive correlation between sovereign and bank credit default swaps (CDS) for a number of euro-area countries during 2011. Read more
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LTRO, interbank stress and banks’ stock prices: a conundrum?
28th March 2012
Stress in the interbank market increased steeply after July 2011. The figure below shows the pattern of the Euribor-Eonia Swap spread, an indicator of the interbank market stress, from 2007 up to now. A first peak was recorded at the end of September 2011 and then the stress peaked in December 2011. Since the end of December, the spread receded considerably and this can be linked to the long-term refinancing operations (LTRO) of the ECB which has provided abundant liquidity to banks to ensure their financing. Read more