Bruegel - Latest Updates

A Greek deal – the end of the eurozone crisis?

Tue, 21 Feb 2012 10:57:57 +0000

After a long night of discussions, the eurogroup agreed on a new deal for Greece. The main elements consist of a larger contribution of the private sector and a larger contribution of the public sector with the aim to bring back Greek debt on a sustainable path. The agreement involves a PSI exchange offer with a nominal haircut of 53.5% and the approval of further structural expenditure reductions of € 325 million by the Greek parliament, aimed at closing the fiscal gap in 2012. It was agreed that the ECB’s profit on bonds held under the SMP will be disbursed…

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Who lost Greece? (update)

Mon, 20 Feb 2012 13:36:38 +0000

The Brussels agreement on 21 February with private creditors and public lenders has not only removed the threat of imminent Greek default. The Europeans must be commended for having based the restructuring deal on a much more realistic assessment of Greece’s ability to pay back its private creditors. The 53% haircut and the lowering of interest rates on the remaining debt to 2% in the short term and 3.6% on average over the lifetime of the claims offer an opportunity to finally create financial conditions that are conducive to economic adjustment, reforms, and ultimately recovery. If these do not materialise,…

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How to deal with Europe’s debt challenge

Fri, 17 Feb 2012 10:55:25 +0000

Growth in Europe is projected to be weak in 2012 and 2013. This is true for the aggregate but the outlook is much worse for many countries in the South. The south of the eurozone is, in fact, struggling with a twin challenge: high external debt and weak competitiveness. The indebtedness of Greece, Portugal, Spain and Ireland to abroad is around 100% of GDP and typically results form debt increases in the private sector. At the same time, price competitiveness is weak. Efforts to reduce indebtedness are slowing growth, but weak growth hinders the deleveraging: a catch-22 situation? In such…

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Choosing the right one

Fri, 10 Feb 2012 10:55:49 +0000

Public support for new energy technologies has involved some pretty expensive decisions. Billions of public Euros have been spent on nuclear energy in countries that are currently phasing-out this technology. Research and development funding for CCS, hydrogen fuel cells, nuclear fusion, and second generation biofuels have not, as yet, led to a major commercial breakthrough. Visibly, today, thousands of cross-subsidized solar panels lie under a layer of snow in Germany. It is clear, however, that incumbent technologies such as coal fired power plants and gasoline cars lack the capability of achieving emissions reductions targets set out by the EU. Consequently,…

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Europe’s fiscal union still lacks a blueprint

Thu, 09 Feb 2012 16:28:35 +0000

The improvement of eurozone market conditions in January can be attributed to several factors, including the progress made by Prime Minister Mario Monti in Italy, and some constructive if Delphic signals coming from Berlin. It also suggests that a lot of bad news was already priced in in December, including a “credit event” on Greek debt that would trigger payment of credit-default swaps, as now looks very likely. But the eurozone’s fundamental design problems remain unresolved. Even the main positive driver of investor sentiment, the European Central Bank’s long-term refinancing operations offering cheap 3-year liquidity to banks, creates risks of…

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Making the carbon market wider and deeper

Thu, 09 Feb 2012 16:09:05 +0000

A drastic change in the way we produce and consume energy is necessary to contain the risk of a global environmental catastrophe. For its part, the EU has set targets for reduction of GHG emissions by up to 80-95% of 1990 levels by 2050 to keep global temperature increases below 2�C. One key policy for achieving this target cost-effectively is the European Emission Trading System (EU ETS). However, the only partial coverage of important emitting sectors (namely transport) creates economic inefficiency. While the ETS has succeeded in containing carbon emissions in the power sector, it has not provided sufficient signals…

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Europe in the global economy

Tue, 07 Feb 2012 16:47:18 +0000

This breakfast seminar will be a discussion on Europe in the global economy. The presentation by Pascal Lamy will be followed by a Q&A session chaired by Jean Pisani-Ferry. The world is suffering unprecedented economic and monetary turbulence with Europe at the epicentre of many of them. WTO Director-General Pascal Lamy will look at the future of the global economy in the medium and longer term to understand the forces that are shaping tomorrow's economy and to see how Europe fits in this changing landscape. He will also outline concrete paths for reform and public policies capable of ensuring Europe's…

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Energy market developments in the UK

Tue, 07 Feb 2012 14:43:57 +0000

Bruegel would like to invite you to attend a presentation and discussion on energy market developments in the United Kingdom. This event is part of a Bruegel event series entitled: “Energy and Climate Exchange series 2012: member states energy market developments.” This will be a monthly series in which panelists from a different member state will present, each month, on the burning issues being discussed in their country. Our aim is to facilitate exchange on the separate developments in the different member state electricity markets. We aim to facilitate a lively debate by including panelists from government, regulatory authorities, and…

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Corporate balance sheet adjustment: stylized facts, causes and consequences

Mon, 06 Feb 2012 09:54:19 +0000

We analyse corporate balance sheet adjustment episodes in Germany and Japan, as well as a sample of 30 countries, using national account data. Corporate balance sheet adjustment tends to be long lasting and associated with a strong impact on current accounts, wages and investment. Adjustment episodes lead to significant changes in corporate balance sheet ratios with a buildup of liquidity and a reduction of leverage. The adjustment is generally achieved by reducing investment and increasing savings on the back of a falling wage share. A panel econometric exercise shows that balance sheet adjustment periods are triggered by macroeconomic downturns as…

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Who's afraid of sovereign bonds?

Mon, 06 Feb 2012 08:59:55 +0000

The crisis has underlined the strong interdependence between the euro-area banking and sovereign crises. To understand the role domestic banks have played in holding sovereign debt, a breakdown of government debt by holding sectors is required. The data shows that at the start of the crisis, most continental euro-area countries were characterised by the large size of their banks’ portfolios of domestic government bonds, which were markedly larger than in the UK or the US. Consequently, concern about sovereign solvency was bound to have major consequences for banks. The structural vulnerability of euro-area countries has increased, reinforcing the sovereign/ banking…

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How to make the Eurozone’s strategy effective

Mon, 06 Feb 2012 08:50:16 +0000

There are three ways to read the eurozone’s focus on austerity. The first is that its leaders genuinely think that the current crisis is rooted in non-observance of the stability pact. But it is hard to believe that this could apply to countries such as Spain or Ireland, which always stuck to the rules. The second is that treaty-based discipline is the precondition for a fiscal union and the issuance of eurobonds. But is it wishful thinking enough to commit to retrenchment without any certainty that the next step will come? The third is that consolidation in southern Europe is…

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Don’t let the euro-area crisis go east

Fri, 03 Feb 2012 09:26:18 +0000

The European Union is committed to strengthening its partnership with China, as demonstrated by the fourteenth EU-China summit, to take place in Beijing on 14 February 2012. The EU will be represented by Herman Van Rompuy, President of the European Council, and by Jos� Manuel Barroso, President of the European Commission. The People's Republic of China will be represented by Prime Minister Wen Jiabao. EU Trade Commissioner Karel De Gucht will also attend. On Thursday 2 February Chinese premier Wen Jiabao signalled intention to move towards helping the euro area extricate from its trouble and declared that China was “investigating…

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Presentation of the 2012 EEAG Report on the European Economy

Thu, 02 Feb 2012 15:27:41 +0000

Jointly organised by Bruegel and the European Economic Advisory Group (EEAG) at CESifo, this event will cast an in-depth look at the protracted, intractable crisis of the euro, with possible ways to overcome it, as well as present a thorough economic forecast for the coming 12 months. The event will feature presentations by Hans-Werner Sinn as well as Jan-Egbert Sturm, followed by comments from Zsolt Darvas and an open discussion chaired by Guntram Wolff. This event marks the official launch of the eleventh yearly EEAG Report on the European Economy. As its tradition dictates, the EEAG Report provides a comprehensive…

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Cutting carbon, not the economy

Thu, 02 Feb 2012 13:09:40 +0000

A drastic change in the way we produce and consume energy is necessary to contain the risk of global environmental catastrophe. For its part, the EU has set agreed to a greenhouse gas reduction target of 80-95 percent by 2050, compared to 1990. However, with the current fuel mix, even the most ambitious improvements on incumbent technologies are unlikely to be sufficient for reaching the reduction targets. Meeting the targets requires low-carbon transition. However, the process of transition will likely be littered with market failures. Hundreds of more-or-less proven low-carbon technologies are competing for market share in the low-carbon system.…

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The great transformation: decarbonising Europe’s energy and transport systems

Thu, 02 Feb 2012 13:00:40 +0000

The euro-area crisis dominates the economic news. Yet, the world and Europe may face even more important challenges that will shape our lives and the lives of our children.World population is projected to increase to 9 billion or more by 2050. At the same time, current trends indicate an increase in living standards and a growing middle class around the world. These two mega-trends will have profound implications, and the way they are managed will be one of the key determinants of prosperity and peace in the decades or even centuries to come. A number of factors are important in…

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The eurozone’s strategy of pain

Wed, 01 Feb 2012 13:12:17 +0000

For the third year in a row, the eurozone is the weakest link in the world economy. In 2010, attention was focused on responses to the crisis on the eurozone periphery – Greece, Portugal, and Ireland. In 2011, the crisis moved to the core, with Italy and Spain feeling the heat, and concerns mounting about the viability of the eurozone itself. The question for 2012 is whether those tensions will abate or reach a new climax. Once again, the Greek crisis is the focus of attention and epitomises Europe’s failings. Once again, hard decisions have to be made about debt…

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Europe’s growth challenge

Tue, 31 Jan 2012 09:39:13 +0000

The strategy for addressing the euro debt crisis evolved last summer, as European leaders put economic growth right in the policy agenda. It was an important commitment. Yet, at this juncture, action is required, and for at least two reasons. The first is that the Marshall Plan for Greece agreed in July 2011, whose purpose is to accelerate the use of outstanding Structural and Cohesion funds to boost growth, takes time to deliver. A Taskforce for Greece was created over the summer with the responsibility, amongst many others, of facilitating the absorption of outstanding EU funds. Greek managing authorities and…

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The debt challenge in Europe

Tue, 31 Jan 2012 09:24:12 +0000

The euro area faces a double challenge: debt overhang and the need for price adjustment. This paper reviews the debt challenges in the household and corporate sectors and maps out some policy options. In particular, we document the increase in private debt prior to the crisis and consider how the corporate and household sectors have adjusted their balance sheets during the crisis. We examine previous experiences with corporate and household deleveraging and draw lessons for policymakers. We show how the macroeconomic effects of balance-sheet adjustments have been in part offset by the use of fiscal deficits, and we discuss the…

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How economics shapes science

Thu, 26 Jan 2012 13:55:19 +0000

With countries struggling to build their post-crisis knowledge based growth strategies, there is an increased interest in understanding science to as engine of growth. Society’s grand challenges like climate change, ageing, security require science to effectively tackle them. The US science system is typically invoked as the frontier. But one typically lacks detailed knowledge on how it actually operates. Paula Stephan’s book provides a wealth of facts, figures and stories on the recent trends in the US science system. The data are processed through an economic framework, analyzing the incentives of researchers, what university science costs, who pays for it…

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Growth in Europe: don’t forget the long-run

Thu, 26 Jan 2012 11:22:58 +0000

Growth in Europe is projected to be weak in 2012 and 2013. This is true for the aggregate but the outlook is much worse for many of the countries in the South. The south of the eurozone is struggling with a twin challenge: high (external) debt and weak competitiveness. Efforts to reduce indebtedness are likely to continue, but progress will be slow because weak GDP growth will hinder the deleveraging process. Of course, GDP growth is weak in part because the private sector is attempting to deleverage. Downward wage adjustment is necessary. It is, however, economically leading to export success…

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A sceptic's solution to the euro crisis?

Wed, 25 Jan 2012 14:47:03 +0000

Having been an early supporter of the euro, Hans-Olaf Henkel now considers his engagement to be the biggest professional mistake he ever made. In this lunch time talk, he presented his views on the euro. Speakers Hans-Olaf Henkel, former head of the Federation of German Industries (BDI) Zsolt Darvas, Research fellow at Bruegelchair - Guntram Wolff, Deputy Director of Bruegel Podcast Media coverage of the event EURO SKEPTICISM par tvnportal

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The numbers behind a new EU Growth Fund

Wed, 25 Jan 2012 13:23:31 +0000

The European strategy for Greece took a new twist in the summer of 2011, as economic growth was included in the policy agenda. The rationale is self-evident. A severe macroeconomic adjustment like the one Greece has committed to is self-defeating if economic growth remains weak or is indeed further weakened by the huge fiscal consolidation effort.Different strategies may be used to support growth including non-monetary measures that aim to reform a country’s legal and regulatory framework. Yet, it is difficult to imagine that these forms of intervention are sufficient in a country that is clearly stacked in a recession. Instead,…

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La politique en berne

Mon, 23 Jan 2012 14:04:02 +0000

Dans tous les pays europ�ens en difficult�, les partis traditionnels ont �t� incapables de structurer un d�bat sur les r�ponses � la crise. En Gr�ce, la politique est mise entre parenth�ses le temps de n�gociations financi�res vitales pour l'avenir du pays. En Italie, Mario Monti et son gouvernement de technocrates se sont substitu�s � une gauche inaudible pour offrir une alternative � Silvio Berlusconi. En Espagne, la droite de Mariano Rajoy a brillamment gagn� en prenant bien soin de ne rien dire sur rien. Au Portugal, celle de Passos Coelho l'a emport� en promettant d'appliquer avec plus de conviction les…

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Financial reform after the crisis: an early assessment

Mon, 23 Jan 2012 08:22:11 +0000

This paper takes stock of global efforts towards financial reform since the start of the financial crisis in 2007-08, and provides a synthetic (if simplified) picture of their status as of January 2012. Underlying dynamics are described and analysed both at the global level (particularly G-20, International Monetary Fund and the Financial Stability Board) and in individual jurisdictions, together with the impact the crisis has had on them. The possible next steps of financial reform are then reviewed along several dimensions including ongoing crisis management in Europe, the new emphasis on macroprudential approaches, the challenges posed by globally integrated financial…

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What explains the rise of CEO pay in Germany?

Fri, 20 Jan 2012 14:15:52 +0000

This event consisted of a presentation and discussion of the paper What Explains the Rise of CEO Pay in Germany? written by Dalia Marin and Francesca Fabbri. The presentation by Dalia Marin was followed by an open discussion chaired by Jean Pisani-Ferry. The compensation of executive board members in Germany has become a highly controversial topic since Vodafone's hostile takeover of Mannesmann in 2000 and it is again in the spotlight since the outbreak of the financial crisis of 2009. Dalia Marin analyses executive pay in the financial crisis in 2009 and in the banking sector based on unique panel…

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Behind the ECB’s Wall of Money

Thu, 19 Jan 2012 11:42:51 +0000

Throughout the crisis period, the European Central Bank’s behavior has been conditioned by the tension between what it can do and what it is allowed to do. The ECB is the only institution in the European Union that is able to provide unlimited funding to governments, but its governing statute prohibits government bailouts. Nonetheless, the ECB has provided large amounts of liquidity to the financial system, indirectly softening the pressure on government debt refinancing. For 18 months, it has been buying government bonds – worth more than €200 billion ($254 billion) – on secondary markets under its Securities Market Program.…

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S&P’s downgrades: don’t shoot the messenger

Sun, 15 Jan 2012 09:27:36 +0000

On Friday 13 January Standard and Poor's downgraded nine euro-area countries. The outlook for fourteen of the seventeen members of the club is negative. Beyond the headline-grabbing downgrade of France, this reassessment is a vote of no-confidence on the decisions taken on 9 December by the European leaders. In the words of the S&P communiqu�, "the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems (..and)is predicated on only a partial recognition of the source of the crisis: that the current financial turmoil stems primarily from fiscal profligacy at the…

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The Eurozone’s gamble

Sun, 15 Jan 2012 09:21:38 +0000

For the third year in a row, the Eurozone is the weak spot of the world economy and the focus of international attention. In 2010 discussions concentrated on responses to the crisis in the periphery –Greece, Portugal and Ireland. In 2011 the crisis moved to the core as Italy and Spain felt the heat, and there were mounting concerns about the viability of the Eurozone. The question for 2012 is whether tensions are going to abate or reach a new climax. In the eyes of many, the Greek crisis still epitomises Europe’s failings. The Europeans should indeed take the blame…

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The Euro crisis and the new impossible trinity

Sun, 15 Jan 2012 09:13:48 +0000

The search for solutions to the euro crisis is based on a partial diagnosis that overemphasises the lack of enforcement of existing fiscal rules. Europe’s leaders should rather address the euro area’s inherent weaknesses revealed by the crisis.At the core of euro-area vulnerability is an impossible trinity of strict no-monetary financing, bank-sovereign interdependence and no co-responsibility for public debt. This Policy Contribution assesses the corresponding three options for reform: a broader European Central Bank (ECB) mandate, the building of a banking federation, and fiscal union with common bonds. None will be easy.The least feasible option is a change to the…

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Stepping-up the role of the ETS in EU energy sector decarbonisation

Thu, 12 Jan 2012 11:31:24 +0000

This seminar, jointly organised by IDDRI and Bruegel on policy instruments, intended to incentivise long-term investments in decarbonising the energy sector. Presentations by Michel Colombier, Karsten Neuhoff, and Georg Zachmann on EU policy mixes for the long-term transition were followed by a response from Philip Lowe and a panel discussion chaired by Laurence Tubiana. The 2008 Climate and Energy Package took important steps towards a low-carbon economy in Europe. Since then, the policy focus has broadened to the long-term 2050 perspective, in which it is clear that Europe must achieve a fundamental transformation of its energy system. Current policy instruments…

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