What’s at stake: Iceland held a referendum on Saturday which massively rejected the Icesave deal under which Iceland has to repay some EUR 3.8bn to the UK and to the Netherlands in the context of the resolution of the collapsed of Icesave. The money represents a portion of the losses incurred by more than 300,000 Dutch and British customers of the internet branch of Landasbanki. The current European regulation is such that the Icelandic deposit insurance scheme is deemed liable and not the Dutch nor the British. The UK and the Netherlands have been particularly aggressive in their efforts of recouping those losses despite local resistance from a population which is outraged by the idea of adding some of 40%… Read more
Bruegel blog
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The Icesave dispute
10th March 2010
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Don't joke with inflation
8th March 2010
Visiting scholar Ignazio Angeloni argues that the anti-crisis medicine proposed by the IMF- to raise inflation targets in good times- is worse than the illness and defends economic models from the accusation of irrelevance. Click here to download this comment in Italian. Read more
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Looking behind the core inflation numbers
2nd March 2010
What’s at stake: The prices of US goods and services, excluding food and fuel, fell last month for the first time since 1982. Headline inflation in January remained stable from the previous month at a 2 percent annual rate, a bit above most private forecasts, boosted by higher fuel costs. But the show was stolen by the core measure. Excluding food and energy, consumer inflation saw the largest monthly drop in more than 27 years and its third largest decline in 47 years. Laurel Graefe for the Atlanta Fed's macroblog writes that several factors were behind the decline in the core index (such as falling airline fares, a dip in new car prices, and ongoing declines in prices for household… Read more
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Capital controls are in again
2nd March 2010
What’s at stake: The International Monetary Fund has shifted its long-held stance against capital controls as it seeks to help emerging economies protect themselves from future economic crises. In a new staff position note, confirming the change of stance we reported in November, IMF economists wrote that capital controls could be used in some cases by emerging market governments as a shield from unwanted capital flows. The IMF staff position note argues that for both macroeconomic and prudential reasons there may be circumstances in which capital controls are a legitimate component of the policy response to surges in capital inflows. The note reviews the arguments on the appropriate management of inflow surges and focuses in particular on the conditions under… Read more
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Petition wars
23rd February 2010
What’s at stake: There’s an economists’ duel underway in several countries through petitions. In Britain, 60 leading economists backed the decision of Alistair Darling, UK finance minister, to delay spending cuts until 2011. They were responding to a letter published by another group of prominent economists saying that budget cuts should start more or less immediately. In the US, economists have petitioned for a hiring tax credit. Marginal Revolution wonders why institutions bother to generate petitions signed by economists. Is it to influence the world? To signal which economists are on their side? To cultivate better connections with economists and create an excuse to contact them and affiliate with them? He also reports that a team of researchers has just… Read more
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Reorienting macroeconomic policy
16th February 2010
What's at stake: The IMF, at the forefront in recommending the policy response to the global economic crisis, has entered the debate about how macroeconomic policy should be adjusted in the future, drawing lessons from the worst global recession in 60 years. Olivier Blanchard, the IMF's chief economist, and a couple of other Fund economists released a paper on Friday about how macroeconomic policy might be reoriented. Drawing lessons from the Great Recession Olivier Blanchard says economists and policymakers alike were lulled into a false sense of security by the apparent success of economic policy ahead of the crisis. In the piece, Blanchard and co. lay out some key questions about the design of macroeconomic policy frameworks and also develop… Read more
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The internationalisation of the Volcker rule
16th February 2010
What's at stake: the Volcker rule has seized the attention of bankers and regulators around the world as it poses the question of the outlook for financial regulation globally. Underpinning the initiative is a crackdown on institutions deemed “too big to fail” – an area regulators admit had not been settled via the international supervisory authorities, such as the Financial Stability Board and the Basel Committee on Banking Supervision, until the US political intervention. But whether it is at Davos or at the recent G8 in Canada, there is a growing sense of distance amongst policy makers in Europe from what is so far the boldest financial reform proposal put forward. No later that yesterday Reuters reported that European Union… Read more
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A global financial safety net
9th February 2010
What’s at stake: South Korean President Lee Myung-bak, whose country is chairing the G20 this year, proposed building a "global financial safety net" to insure against risky capital flows and help mitigate global imbalances in trade and development. Lee used the special address to hundreds of top policy makers, business leaders and civil society representatives at the World Economic Forum in Davos to outline Korea's plan for the G20 summit to be held in Seoul in November. As a key theme of the G20 summit, he proposed the establishment of a global financial safety net to address sudden reversals of international capital flows on emerging and developing economies. A total of ten G-20 meetings will be held this year the first… Read more
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The Quarrel over Bernanke
1st February 2010
What’s at stake: Ben Bernanke won a confirmation vote in the US Senate on Thursday for another four-year term as chairman of the Federal Reserve after suffering the biggest show of dissent since voting on the position began more than 30 years ago. Thirty senators, both Democratic and Republican, voted against Bernanke and 70 voted for him. What remains to be seen is whether the highly charged lead up to the vote will change the debate when Congress looks to strengthen – or weaken – the Federal Reserve’s regulatory authority in the coming months. Amongst senators who supported Bernanke some want to reduce the Fed’s regulatory authority and delegate it to a new bank supervisor. Others are preparing to grant… Read more
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China’s overheating economy
25th January 2010
What’s at stake: Figures published on January 21st confirmed that the Chinese economy was roaring ahead, growing by 10.7% in the fourth quarter of 2009 from a year earlier. Industrial production, retail sales, and bank credit all jumped by respectively 18.5%, 17.5%, and 32% in the year to December. Barry Eichengreen writes that Chinese markets display all the symptoms of bubble trouble. Why is no mystery. By preventing the exchange rate from moving, China imports accommodative foreign monetary conditions. Zero interest rates may be appropriate for a still depressed United States and Europe, but they are not appropriate for a booming China that increasingly looks like an overheated China. So far Chinese officials have settled for half measures. They have encouraged… Read more