Just after the Lehman Brother collapse, financial regulatory reform was at the top of the global agenda, and it dominated the discussion at the first summit of G20 leaders in November 2008. By contrast, it was little more than an afterthought in the last G20 meeting in Paris last month. Many observers fret that the financial industry has reverted back to its pre-crisis business-as-usual mode. The financial regulatory agenda discourages most non-insiders because of its apparent intractable complexity, enhanced by barriers of jargon and multiple smokescreens put up by financial executives wary of public discussion, and public authorities eager to protect their turf. Take a step back, though, and there is no reason to despair. The past two years have… Read more
Bruegel blog
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Has global financial reform run out of steam?
16th March 2011
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Facing the Fiscal Music
18th February 2011
What’s at stake:The burgeoning debate over U.S. spending and debt drew some early attention on Thursday from the G20 talks in Paris. President Obama's proposed budget (published on Monday) would cut the deficit by $1.1 trillion in 10 years, with about two-thirds coming from spending cuts and one-third from added revenue. The House Republicans have called for much broader cuts of $2.5 trillion in 10 years. Both plans are primarily political statements, since neither is likely to be carried out without significant compromise. The FY 2012 Budget and CBO estimates Real Time Economics has a summary of the budget. 1) 5-year freeze on domestic discretionary spending, which White House says will save $400 billion. 2) Two-year moratorium that gives cash-strapped… Read more
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Challenges of two speed world recovery
28th January 2011
What’s at stake The difference between cyclical positions in the US and other large developed economies, on the one hand, and in China and some of the larger EM economies, on the other, is creating difficult challenges for policy makers. Rising inflation in the emerging world is fast becoming a headache for the global economy as data suggested that the China, the UK and the euro area are both struggling to contain price pressures. A key question to national central banks is the extent to which such imported inflation should be accommodated. With euro zone inflation above the ECB’s sub-2% target for the first time in over two years, and ECB officials sending hawkish signals of late (see important Bini… Read more
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The Reform of the International Monetary System
10th January 2011
What’s at stake France, which has taken over the chair of the G20 group of leading economies in mid-November and that of the G8 on January 1, has placed reform of the international monetary system at the top of its agenda for its year-long presidency. France wants a reformed international monetary system which is "more balanced", "more stable" and "more transparent" in order to "better protect" emerging and developing countries, to "better diversify" reserve currencies and "better coordinate" exchange rates. The task, however, is anything but simple. The subject is abstruse and barely anybody outside academia has taken an interest in it for the last twenty years. Accordingly, there are hardly any worked-out proposals on the table. Increasing consensus about… Read more
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European bank stress tests: third time lucky?
15th December 2010
Systemic bank crises are always difficult to resolve. In Europe, the difficulty is compounded by cross-border interdependencies. Policy paralysis throughout 2009 and 2010 has resulted in a banking system precariousness that puts a serious drag on the old continent’s recovery. An even more dramatic consequence is to force the euro zone to systematically choose bail-outs over restructurings, whenever one of its members faces macroeconomic difficulties. In April, there was a strong case for immediate sovereign debt restructuring rather than saddling Greece with unsustainable debt levels. But the resulting shockwaves might have toppled fragile Western European banks and gone out of control. Greece’s bail-out was chosen as the least bad option. Similarly, many voices in November called for imposing losses on… Read more
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The Irish programme deconstructed
7th December 2010
What’s at stake: Europe's leaders have put together a programme for Ireland which overwhelmingly appears inappropriate, as it doesn’t credibly ensure a return to solvency; doesn’t credibly isolate and solve banking related issues and risks domestic political backlash. Given the inadequacy of the response, the risk now is that markets consider the Irish case unresolved and intensify stress on the eurozone as a whole. History 101 Harold James argues that the European solution seems to be repeating the same time-buying tactics of the lost decade of the 1980’s in the developing world. There is the same combination of international support, highly unpopular domestic austerity measures (which are bound to set off major protests), and the apparent absolution of banks from… Read more
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Europe needs a growth strategy
7th December 2010
In this piece, Jean Pisani-Ferry writes that there are several reasons why markets have reacted poorly to Europes recent crisis management efforts. Europes response to date has been more innovative and effective than many of its critics realise. But it now must accept that what was once a crisis in the eurozone, is now a crisis of the euro itself. The European Union cannot afford doubts about the viability of the euro to spread and strengthen. A revitalisation programme should involve a strengthening of integration within the single market, particularly in the market for services, to help Europes economies converge. A bolder, more comprehensive response is urgently needed. There are several reasons why markets have reacted poorly to Europe’s recent… Read more
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Crise de l'euro: sortir du déni
3rd December 2010
In this article, Jean Pisani-Ferry reviews the most recent developments in the European debt crisis and sheds some light on the reasons for which markets greeted the Irish bailout with lukewarm enthusiasm. Increased tensions and the threat of contagion mean that it is no longer possible to ignore and delay answering some of the challenges facing Europe. How did we reach this situation? Why didn't the latest announcements convince the markets? Is the euro area still viable? What can be done today? Le printemps avait été affreux, mais l'automne est pire. Le retour de fortes tensions à l’intérieur de la zone euro et la réaction du marché à l’annonce plan de soutien à l'Irlande ne permettent plus de repousser les questions… Read more
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The future of monetary policy
26th November 2010
What’s at stake: It was a heavy week of conferences last week (The 6th ECB research conference and the IMF “Jacques Polak” research conference). Both came up with a range of insightful and challenging thoughts which seem to converge on the importance and challenges facing monetary policy. The recent research unsurprisingly focuses on the importance of the financial sector which was broadly absent from macroeconomic models and on the relevance of macro-prudential policy going forward. Monetary policy framework: the role of the financial sector in generating nonlinearities Frederic Mishkin argued in a paper presented at the ECB conference that macro/monetary economists and central bankers do not have to go back to the drawing board and throw out all that they… Read more
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After Seoul: the challenges of international monetary reform
16th November 2010
In this piece, Jean Pisani-Ferry talks about the idea of International Monetary System (IMS) reform. The US, for whom IMS reform is synonymous with the decline of the dollar, are not keen and the Chinese, who launched the idea, lack precise ideas. As for Europe, it is distracted with its internal problems. Reform of the IMS is a legitimate aspiration, but reforming the international monetary order is likely to be a tough job. If Nicolas Sarkozy himself had written the prologue to his G20 presidency, he could not have done better. The run-up to the Seoul summit was marred with global monetary chaos and ensuing controversies. Whereas French intentions had initially been received sceptically, events have borne out the priority… Read more