Towards a new financial World Order?

Wolfgang Kowalsky

Since 2008, the world has been witnessing a struggle between politics and financial markets. The objective of a number of policy-makers is to limit the power of the financial industry to avoid another rescue package. The objective of the financial industry is to protect itself from economic interference. The result of this uneven struggle seems [...]

Why we need comprehensive Debt Restructuring in Europe

john ryan

The Eurozone crisis has been a battle over who will ultimately be liable for the billions worth of actual and potential losses on sovereign debt held by European financial institutions. With neither the issuance of collectively backed Eurobonds nor the use of the European Central Bank (ECB) as lender of last resort initially available as [...]

The Challenges of the Eurozone

henning-147x166

Al Jazeera International produced a good roundup of the current problems of the Eurozone. I gave my two pennies worth at the end of the report: With the eurozone recession set to get worse, world leaders (…) will have to face a number of challenges. For two years the debt crisis has loomed over Europe. Greece, [...]

Europe’s Darkness at Noon

eichengreen

It may be hard to imagine that Europe’s crisis could worsen, but it just has. European Union leaders failed at their summit two weeks ago to produce anything of substance. China and Brazil are clearly reluctant to come to the rescue by providing a large injection of foreign cash. And the recent G-20 summit in [...]

Haircuts, incentives, moral hazard and some anecdotal evidence

watt

It is often claimed that imposing a haircut (i.e. a partial default) on holders of Greek bonds is fair, sets incentives correctly, and avoids moral hazard. Haircut fans on Right and Left use slightly different arguments, but the basic point is the same. If you invest money, you must accept the risk of losses. If [...]

Go Green and Go Big or Go Home

David Lizoain

The countries most affected by Europe’s sovereign debt woes and Europe’s most energy dependent countries are largely the same. Greece, Ireland, Portugal, Italy, and Spain all import more than two thirds of their energy requirements. The context is one where Europe depends more generally on a wide range of commodities imported from abroad. The last [...]

Weak core growth is bad for the euro periphery: wrong-headed dialectics from Alesina and Giavazzi

watt

Sometimes a counter-intuitive statement is based on a clever insight. For example, the statement ‘fiscal austerity can lead to higher government deficit ratios’ sounds implausible, but (most) economists agree that, at least under certain conditions, it may well apply. The reason is that the austerity reduces output, and thus the denominator of the deficit ratio, [...]

Europe’s Small Steps and Giant Leaps

pisani-ferry

The world was expecting Eurobonds to come out of last week’s Franco-German summit; instead, the eurozone will get economic governance. According to German Chancellor Angela Merkel and French President Nicolas Sarkozy, the great leap forward to the creation of Eurobonds would perhaps be the culmination of that process, but for the moment small steps remain [...]

What Happens if the Euro were divided in Two?

David Lizoain

The European powers that be continue to accumulate failures. A break-up of the euro area is increasingly on the table.  This is clearly not a desirable outcome. Yanis Varoufakis has explained why forcing Greece out of the euro would lead to the unravelling of the euro zone, while Barry Eichengreen has argued that a break-up would [...]

Responsibility for Europe

Sigmar Gabriel

Europe is clearly in a serious crisis that requires courageous decisions of great magnitude to be taken. The SPD has concluded that the Federal Government must change its policies if it is to lead Europe out of the crisis. The party chairman, Sigmar Gabriel, and the chairman of the parliamentary group in the Bundestag, Frank [...]

Short Term Gain and Long Term Pain

gwi-id

The least one can say is that at least the EU Ministers meeting in Brussels on Thursday 21 July took decisions to avert immediate crisis as the Vox EU letter from 13 economists asked.[1] The package seems to have been somewhat grudgingly accepted by the markets. The aim of the exercise was only in part [...]

The Battle of the Bonds

skidelsky

Everyone knows that Greece will default on its external debt. The only question concerns the best way to arrange it so that no one really understands that Greece is actually defaulting. On this topic, there is no shortage of expert plans – among them bond buy-backs, bond swaps, and the creation of Eurobonds, a European [...]