Bruegel Director Jean Pisani-Ferry analysis the current economic climate through a historical lens. He draws parallels to the year 1937 when the tough fiscal policy of the US federal government sharply cut GDP growth and resulted in a dramatic increase in unemployment. The current debt crisis also has echoes from past from the chain of sovereign defaults between the Napoleonic wars in the eighteenth and nineteenth centuries. The author explains why the the planned fiscal tightening in 2011 is financially inevitable, but economically risky. Dans la controverse entre partisans de la relance et avocats de la rigueur qui a fait rage ce printemps, il a souvent été fait référence à 1937. C’est en effet cette année-là, quatre ans après le début du… Read more
Bruegel blog
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Are we in 1936 or 1812?
19th July 2010
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Detailed disclosure is the key to stress-test success
15th July 2010
The European Union has committed to publish the results of stress tests of 91 of its largest banks at the end of next week. In this column published today by eurointelligence.com, Bruegel Senior Fellow Nicolas Véron argues that the success of this unprecedented initiative will be largely determined by the degree of disaggregated detail in the disclosure of results. He also calls for enhanced disclosure of each banks exposure to eurozone countries sovereign risk, to compensate for the fact that the stress scenario will not include a sovereign default. By agreeing to publish stress-test results for the EU’s most prominent banks, European leaders have made a bold step that is both indispensable and ridden with execution risks. Even as the… Read more
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Migration policy in the great recession
12th July 2010
What’s at stake: The great recession of 2008–09 brought the worst falloff of global economic activity since the Great Depression as measured by trade, industrial production and a host of other economic indicators. But the effects of the recession have also seeped into other aspects of policy around the world — including migration. Stemming from increased unemployment rates, many countries made changes to migrant policy that largely encouraged both migrant residents to leave and discouraged new immigration. Mike Nicholson and Pia Orrenius of the Federal Reserve Bank of Dallas show that the expansion that spurred immigration throughout much of Europe came to an abrupt end with the 2008 financial crisis and slowdown in world economic growth. Countries also responded to… Read more
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A Single Market crisis
12th July 2010
What’s at stake: Since the start of this year, Europe’s financial crisis has been given many labels - a sovereign debt crisis, a banking sector crisis, a crisis of the euro itself. But rarely is it asked whether the European Union’s single market, which is the foundation stone of EU integration in the modern era, is under serious threat. One person who has asked this question is Mario Monti – the distinguished former EU commissioner for the internal market and competition policy – who published a report commissioned by José Manuel Barroso on how to strengthen the 27-nation bloc’s single market. Thanks to the severity of the financial crisis and recession, the Commission has been under pressure from governments to relax the… Read more
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Did you say federalism?
7th July 2010
In this column, Bruegel Director Jean Pisani-Ferry asks whether a budgetary union can survive without budgetary federalism? Europe needs some form of solidarity in the face of adversity, a form of "federal insurance" but without the cumbersome nature of a federal budget or a permanent increase in transfers. Against this context, he examines the options available to the European Union. It is an old debate, but tensions within the euro area have revived it: can a monetary union survive without some form of fiscal federalism?Until recently it was merely a topic for academic research. It is now of persistent concern for investors worldwide. Holders of European government bonds believed they knew what they had bought. Sure, there was no such… Read more
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Fed economist slams econ bloggers
5th July 2010
What’s at stake: Going back to the subject of modern macro and who should talk about it, there’s been uproar this week on the blogosphere over Kartik Athreya's provocative essay on economics blogs. Athreya argued that most blogging is done by ill-informed hacks. His argument that bloggers should either shut up about economics and economic policy or be treated to a general boycott of attention has, as one would expect, elicited a mostly hostile response from economics bloggers. Kartik Athreya says that he’s totally puzzled by the willingness of many who fearlessly and breathlessly opine about economics, especially macro- economic policy. Deficits, short-term interest rate targets, sovereign debt are all chewed over with a level of self-assuredness that only someone… Read more
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The recovery is loosing steam
5th July 2010
What’s at stake: Until this year, the words “double dip” were most associated with a famous “Seinfeld” episode in which George Costanza puts a half-eaten chip back into the cocktail dip at a party. Now, especially after this week’s alarming numbers, they stand for a far less amusing idea: a return to recession. While that’s not a consensus forecast among economists, both the data and the gloom pervading financial markets suggest that the current recovery will be a long, painful process. James Politi talks on the FT Money Supply blog of a triple whammy of bad US data. July 1 was a rough day on the economics beat in Washington. Rough in terms of America’s hopes for a strong economic recovery,… Read more
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Back to the G7?
29th June 2010
The Toronto declaration sounds strangely familiar, as was the case for the disputes leading up to the summit. On the macro side, the only issue for discussion seems to have been the rift between the US and Germany as regards the timing and pace of budgetary consolidation. And on the financial regulation side the agenda is mainly one for implementation by the advanced economies. The emerging countries – the very countries that make the G20 a different body – feature prominently in the section on the International Financial Institution and Development only. So the whole in the end reads as a traditional G7 communiqué as if what really matters for the world economy were decisions taken in Washington and Berlin… Read more
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Back to the G7?
29th June 2010
(Contribution to The Economist’s By Invitation Blog)The Toronto declaration sounds strangely familiar, as was the case for the disputes leading up to the summit. On the macro side, the only issue for discussion seems to have been the rift between the US and Germany as regards the timing and pace of budgetary consolidation. And on the financial regulation side the agenda is mainly one for implementation by the advanced economies. The emerging countries – the very countries that make the G20 a different body – feature prominently in the section on the International Financial Institution and Development only. So the whole in the end reads as a traditional G7 communiqué as if what really matters for the world economy were… Read more
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The future European economic governance
28th June 2010
What’s at stake: The European Commission will publish on Wednesday its concrete proposals on how to better coordinate economic policies in Europe going forward. Eurozone governments are moving gingerly towards an enhanced system of economic governance, uncertain how far they ought to limit national sovereignty in the name of saving their monetary union. More rigorous surveillance of national budgets, closer attention to debt levels and the development of a scoreboard to monitor trends in competitiveness were all agreed last week at a short summit of European Union leaders in Brussels. Honor Mahony notes that there is a certain lack of clarity at the moment about what is meant by EU economic governance. Or to be more precise, everyone seems to… Read more