The IMF Managing Director Christine Lagarde recently mentioned that a more unified euro area could be a “compass to prosperity for the region and a beacon of hope to the world.” In this spirit, the Elcano Royal Institute has recently published a paper by Spanish economists on the reform of the EMU.
Francesco Saraceno | This post is nothing new. It is just a reminder for non European readers (or for distracted European readers), about the way things work in the EMU. The German Bundesbank President Weidmann violently attacked the European Commission for failing to enforce fiscal discipline within the Stability Pact.
Last week the Council decided that Spain and Portugal’s recent efforts to reduce deficit were not enough. This lead to the two countries being fined, the first time this happens since the inception of the euro.
The ECB’s main priority will be to fuel confidence in the financial markets and inflation will be its alibi for this. In February, eurozone CPI receded to -0.2% year-on-year and, in the short term, the region should be prepared for negative rates to continue.
PARIS | By Francesco Saraceno | I was asked to write a piece on whether we should continue to study the EMU (my answer is yes. In case you wonder, this is called vested interest).
By Luis Martín via Truman | Professor at the Lyndon B. Johnson School of Public Affairs (Texas), James K. Galbraith was advisor to the Greek Minister of Finance, Yanis Varoufakis, from February through July 2015. In this interview he spoke about the Greek crisis and the challenges ahead for the euro currency.
LA CAIXA RESEARCH | Convergence between core and periphery countries must improve in order to strengthen the eurozone’s future growth and sustainability.
NICOSIA |By Marios Zachariadis via MacroPolis | Policies undertaken from a narrow national perspective that encourage systematic fiscal surpluses, coupled with a national consensus on wage suppression between unions and industry facilitated by the state, impact negatively upon domestic spending while increasing national saving.
By Franceso Saraceno | Where [President of CESifo Group Hans-Werner Sinn and I] disagree is on how to trigger the demand-driven boom. Mr Sinn expects this to happen thanks to market mechanisms, just because of the reversal of capital flows that the crisis triggered. He argues that the capital which foolishly left Germany to be invested in peripheral countries, being repatriated would trigger an investment and property boom in Germany, that would reduce German’s current account surplus. This and this alone would be needed. Not a policy of wage increases, useless, nor a fiscal expansion even more useless. Problem is, the data speak against Mr Sinn’s belief. Since the crisis hit, capital massively left peripheral countries, and yet this did not fuel domestic demand in Germany.