In his monthly column, Bruegel Senior Fellow Nicolas Véron analysis the challenges that lie ahead in realising a single global accounting language. He argues that the next 18 months are likely to determine the eventual success or failure of the project to have International Financial Reporting Standards (IFRS) adopted and applied around the world. The report of the court-appointed examiner in Lehman Brothers’ US bankruptcy proceedings, issued on March 11, was a bombshell for the accounting profession, by revealing how the failing investment bank hid liabilities in the tens of billions with the use of accounting shenanigans. Despite alerts from whistleblowers, auditors from Ernst & Young appear to have neglected informing Lehman’s board about the scheme. Echoes of Enron, Worldcom… Read more
Bruegel blog
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The Global Accounting Make-or-Break
22nd March 2011
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Arab spring: Echoes of 1989
22nd March 2011
In 1989 the wall separating the two halves of Europe suddenly collapsed. Within the space of a few months, a hitherto seemingly immutable order gave way to commotion and impatience. One moment the old countries of Europe were paralysed with fear of the unknown and anxiety about immigration, the next they had seized the opportunity which history was offering them. They implemented aid programmes, opened trade talks and promised enlargement. Two decades later, success has proved spectacular. The economic and political transition of former eastern Europe has been swift and deep, it has – with the dramatic exception of Yugoslavia – been peaceful, and it has yielded development. Could a similar – obviously not identical – story unfold for the… Read more
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The Macroeconomic Aftermath of the Sendai Quake
18th March 2011
What’s at stake In days following Japan’s devastating earthquake and tsunami, television and Internet images have been among the most shocking in recent memory. While we are all still struggling to come to grips with the devastation, destruction, and death that occurred in Japan, a debate is already emerging about the extent of the economic impact of the disaster for the Japanese and the world economy. Assessing the immediate impact Greg Ip writes that for all the horrifying images and news out of Japan, the consensus seems to be that the economic consequences will be small. This, after all, seems to be the lesson of other disasters. If so, then the sell-off in global markets in recent days is overdone.… Read more
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Inequality and the Crisis
11th March 2011
What’s at stake In early accounts of the financial crisis, income inequality was not seen to have played a major role. Now it’s beginning to get attention. The new conventional wisdom on the role of increasing inequality in the run-up to the crisis goes like this: Americans below the very top income had borrowed to keep spending despite stagnant or declining incomes. For a time, rising asset prices – especially home prices – masked how leveraged households had become. But when home prices began to decline in 2006, the result was a global bust. Inequality, debt leverage and financial crises Robert Reich draws parallels between the increase in inequality in the years ahead of the Great Recession and the Great… Read more
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The Competitiveness Debate(s)
4th March 2011
What's at stake On both sides of the Atlantic, a fierce debate on competitiveness is taking place. Although the European debate about the “Pact for Competitiveness” is broader and more centred on internal governance issues than the American debate on “Winning the Future”, in both regions policymakers seem to assume that their countries will be able to export their way out of trouble. Too bad there has been new signs of life on Mars. The European debate What’s at stake:In view of the cold reception of the Franco-German Pact for Competitiveness presented on February 4, EU Commission President Jose Manuel Barroso and European Council President Herman van Rompuy have drafted a compromise package that includes many of the original proposals although with more room for… Read more
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The Global Savings Glut revisited
25th February 2011
What’s at stake A large part of the exercise during the recent Ministerial G20 and the discussion on macro policy coordination and global imbalances was to put enough pressure on China to move on the exchange rate without upsetting it enough to cripple other policy coordination outcomes. Hence a number of the touchy issues are avoided, circumvented or presented in way to distract from the actual problem. In the meantime, Fed Chairman Ben Bernanke presented a new paper on the role of the role of global imbalances in the run-up to the crisis. Noteworthy are also two recent policy reports, inspired by the Bernanke thesis, which put forward proposals for reducing the demand and increasing the supply of safe assets.… Read more
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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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The Jasmine Revolution
4th February 2011
What's at stake With the spread of the anti-government protests – the “jasmine revolution” – across North Africa and the Middle East, the world has stopped to contemplate the potential ramifications of regime changes for the political stability of the region and the world economy. Concerns are numerous and legitimate and change is likely to bring more uncertainty but the prospects of a new beginning for the region brings new hopes of change. Geopolitical turmoil and the global recovery Michael Schuman writes in the Curious Capitalist that at first glance, the upheaval on the Nile might seem far removed from the world of Wall Street and Main Street. Egypt is not a major participant in global manufacturing networks, nor is… 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