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Daniel Gros



Articles by Daniel Gros

The EU’s Nullification Crisis

22 days ago

By challenging the right of an EU court to rule on the European Central Bank’s monetary-policy decisions, Germany’s Federal Constitutional Court most likely has picked a fight it cannot win. Like South Carolina in 1832, Germany’s judges may soon find that they have less political support than they think they do.

BERKELEY – A recent ruling by Germany’s Federal Constitutional Court (GCC) has opened a deep rift in the eurozone. In three months, the Bundesbank will be prohibited from participating in the European Central Bank’s Public Sector Purchase Program (PSPP) unless the GCC receives a satisfactory explanation that the ECB’s bond buying constitutes a “proportionate” measure for maintaining price stability.

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COVID-19 and Europe’s New Battle of Ideas

April 23, 2020

On the surface, European Union member states are arguing about whether the bloc should issue mutualized “coronabonds” to help its hardest-hit countries deal with the COVID-19 pandemic. But the real fight is about the future direction of fiscal policy and even the euro itself.

BERKELEY – Europe can see light at the end of the COVID-19 tunnel as the numbers of daily infections and deaths from the virus fall gradually across the continent. But the economic fallout from the “Great Lockdown” is still to come. The International Monetary Fund is forecasting that the eurozone will experience a drop in real GDP of more than 7% this year and only partly recover in 2021, making this downturn deeper than even the Great Recession

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The West’s COVID-19 Learning Curve

March 30, 2020

If central bankers and governments can keep financial markets working and prevent mass bankruptcies during the COVID-19 pandemic, then the now unavoidable global recession could be followed by a vigorous recovery once the virus has been contained. But protecting public health requires Western societies to learn and adapt quickly.

BERKELEY – Politicians sometimes belittle military leaders with the charge that they always fight the last war. But that potted wisdom applies equally to policymakers – and it’s not always a bad thing.
Insuring the Survival of Post-Pandemic Economies

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This Time Truly Is

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How Europe Should Manage the Coronavirus-Induced Crisis

March 9, 2020

Neither interest-rate cuts nor new government spending would do much to offset the short-term effects of COVID-19 in Europe. Central banks and government authorities should explain this to the public, and then focus their attention on the less glamorous work of safeguarding public health, household incomes, and the financial system.

BRUSSELS – The spread of the COVID-19 coronavirus across Europe and the United States has led to a sharp financial-market correction and prompted calls for active monetary and fiscal policy to prevent a recession. But a closer look suggests that such an approach might not help much at all.
Plagued by Trumpism

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Building an EU-UK Special Relationship

February 3, 2020

With Brexit, the European Union has lost one of its largest member states, and now must decide what kind of future relationship to pursue with the United Kingdom. Fortunately, beyond trade, there is a broad range of issues on which the two parties can cooperate.

BERKELEY – The European Union has lost one of its most important member states. The United Kingdom accounted for around one-sixth of the EU’s population and economy. Without it, the EU will still be one of the world’s premier economic powers, but it will suffer a loss of dynamism.
Can Sanders Do it?

PS OnPoint

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Britain Enters

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Will Eurozone Policymakers Take the Long View?

January 7, 2020

The 2010s were an exceptional decade that called for unprecedented economic policies. Now, however, the eurozone’s fiscal and monetary policymakers must think more long-term and accept that continued stimulus measures are unlikely to offset the effects of Europe’s demographic decline.

BRUSSELS – The beginning of a new year, and the start of a new decade, is a good time for longer-term reflection on economic policy. In the 2010s, a decade dominated by the aftermath of a once-in-a-lifetime financial crisis, a strong monetary and fiscal stimulus was clearly justified. In fact, there is now general agreement that large fiscal expansions by governments almost everywhere, followed by unconventional monetary policies, were instrumental

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What EU “Geopolitical” Power Will Cost

December 6, 2019

Ursula Von der Leyen, the new president of the European Commission, has promised to position the European Union as a geopolitical power that is capable of holding its own against the United States and a rising China. But the EU may come to regret any attempt to parlay its economic strength into geopolitical clout.

LONDON – With former German Defense Minister Ursula von der Leyen assuming the presidency of the European Commission, the European Union now has a new executive. Von der Leyen has promised to lead a “geopolitical” Commission, believing that Europe needs to be more assertive in its relations with other countries, and more hard-nosed in pursuing its own interests around the world, particularly vis-à-vis the

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The Siren Song of Strategic Autonomy

November 8, 2019

A recent report by the European Commission’s in-house think tank has called for Europe to aim for more “strategic autonomy.” But what may seem like an innocuous goal could easily take an economic-nationalist turn, with serious implications for world trade and the global economy.

BRUSSELS – For over a year, US President Donald Trump’s protectionist war against China – and his broader use of import tariffs to advance geopolitical objectives – has been fueling anxiety about the future of world trade. But tariffs are only the tip of the iceberg of economic nationalism. If the world doesn’t navigate carefully, hidden hazards could sink the global trading system.
The Rise of Nationalism After the Fall

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The Eurozone’s 2% Fixation

October 7, 2019

The European Central Bank’s inflation target of “below, but close to, 2%” currently dominates economic policymaking in the eurozone. Moreover, the idea that this target supersedes the bloc’s fiscal rules seems to be gaining ground – with potentially worrying implications for financial stability.

BRUSSELS – Economic policy discussions in Europe used to be dominated by the number three, namely the 3%-of-GDP upper limit on national fiscal deficits. Although the fiscal rules enshrined in the Maastricht Treaty were in fact much more complex, public debate tended to focus on the 3% figure, especially when deficits ballooned during the euro crisis nearly a decade ago.
The Impeachment Trap

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The ECB’s Deflation Obsession

September 6, 2019

It is hard to understand why the European Central Bank is currently so anxious to find new ways to make its policy stance even more expansionary. Its hyper-vigilance about falling prices is misplaced, and its ability to increase the rate of inflation is dubious.

BRUSSELS – Central banks aim for price stability, and today, prices are largely stable across much of the developed world. Yet central bankers declare themselves unsatisfied. Some policymakers, most notably at the European Central Bank, are even preparing further stimulus measures aimed at convincing financial markets of their resolve to fight deflation. But such policies overestimate the risk of falling prices.
The Trump Narrative and

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The Real Cost of Trump’s Trade Wars

August 6, 2019

Economic analysis suggests that bilateral trade wars are unwinnable in an interconnected world. By firing his latest tariff salvo against China, US President Donald Trump has further raised the stakes in an increasingly damaging dispute – and America is likely to emerge as the bigger loser.

BRUSSELS – For a while at least, trade tensions between the United States and China seemed to have settled into a “new normal.” After both countries imposed high tariffs on a substantial proportion of each other’s goods, US President Donald Trump refrained from further escalation. But, following another inconclusive round of bilateral trade talks in Shanghai last week, Trump announced that the US will impose 10%

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Europe’s 5G Wake-Up Call

July 8, 2019

Whereas the battle over 4G mobile networks was essentially commercial, the ongoing 5G debate is about geopolitics, technological leadership, and national security. And Europe, in particular, must develop a much stronger common approach in order to make itself less vulnerable to security risks.

BRUSSELS – How times change. Not so long ago, the next big thing in telecommunications was 4G mobile networks, which promised massive data transfers and cheap voice calls. Now comes 5G, which will potentially spur all sorts of new digital innovations, thanks to its greater speed (200 times faster than 4G), faster data transfers from wireless broadband networks, and, most important, the ability to connect

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A Parliament is Born

June 4, 2019

With the latest election, the European Parliament seems to have taken a small but important step toward becoming a true expression of Europeans’ popular will. While many issues are still decided in the European Council, the balance of authority between European and national leaders now seems to be less lopsided.

BRUSSELS – European Parliament elections used to be a boring affair, forsaken by voters and barely noticed by the media. But the latest election, held in the last weekend of May, broke the mold, capturing attention as it confounded expectations.
How Central-Bank Independence Dies

PS OnPoint

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Don’t Fear the Euroskeptics

May 8, 2019

Although the European Union is arguably as popular as ever, the next European Parliament may well contain a large minority of forces skeptical or hostile to further integration. Instead of viewing this as a threat, pro-Europeans should seize the opportunity to start a necessary debate about the continent’s future.

BRUSSELS – As the European Parliament elections draw closer, most opinion polls predict a strong showing by parties that declare themselves Euroskeptic to varying degrees. But their likely success represents an unsurprising backlash against recent European integration, rather than opposition to the European Union itself.
The Economy We Need

Keith Bishop/Getty Images

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Who’s Afraid of Low Inflation?

April 9, 2019

The fact that eurozone inflation is closer to 1% than 2% is not ideal, but the European Central Bank should not be overly concerned. The ECB does not need to pull out all the stops and invent ever more instruments in the forlorn hope of increasing inflation by a few tenths of a percentage point.

BRUSSELS – A year ago, the European Central Bank took advantage of a temporary uptick in prices to declare victory in its fight to bring eurozone inflation up to its target of “below, but close to, 2%.” But the triumph proved short-lived. Headline inflation has since come down again, and core inflation, which strips out volatile energy prices, is back to about 1%. Yet this should not be a major concern for the ECB.

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Trump’s Imperial Overreach on Trade

March 6, 2019

As part of its effort to contain its main global rival, the US is trying to secure the power to prevent the United Kingdom and the European Union from so much as negotiating trade agreements with China. Although a post-Brexit UK will probably have little choice but to follow Canada’s lead and comply, the EU is big enough to say no.

LOS ANGELES – Two recent developments are bringing America’s trade strategy toward China into focus. The first, which affects bilateral trade negotiations, is no surprise: US President Donald Trump has abandoned his bluster for vague promises – to enforce property rights, loosen restrictions on foreign investment, and stop pressuring foreign companies to share their technology – that China has made

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The Mirage of a Global Euro

February 6, 2019

When the euro was introduced a generation ago, European leaders envisaged a common currency that would come to rival the US dollar as a second global reserve currency. That hope has failed to materialize – an outcome that European leaders would be wise to welcome.

BRUSSELS – One of the great claims made for the euro was that it would rival the US dollar as a second global reserve currency. These hopes have failed to materialize. The euro’s importance in global reserves and financial markets today is about the same as it was two decades ago, when the euro replaced the Deutsche Mark and ten other national currencies.

Fred Dufour – Pool/Getty Images

Chip Somodevilla/Getty Images

Mark

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The Euro Turns 20

January 7, 2019

The euro’s first 20 years played out very differently than many expected, highlighting the importance of recognizing that the future is likely to be different from the past. Given this, only a commitment to flexibility and a willingness to rise to new challenges will ensure the common currency’s continued success.

BRUSSELS – Twenty years ago this month, the euro was born. For ordinary citizens, little changed until cash euros were introduced in 2002. But in January 1999, the “third stage” of Economic and Monetary Union officially started, with the exchange rates among the original 11 eurozone member states “irrevocably” fixed, and authority over their monetary policy transferred to the new European Central Bank. What has

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Are China’s Trade Practices Really Unfair?

December 5, 2018

Even if China’s non-tariff barriers remain high, they are lower than in the past. In fact, current complaints about unfair Chinese trade practices are actually complaints about the mismatch between the slow pace of economic opening and the very fast pace of modernization.

BRUSSELS – The temporary truce reached by US President Donald Trump and his Chinese counterpart Xi Jinping at the just-concluded G20 meeting in Buenos Aires should give both sides some time to reflect on the issues in question. And the most fundamental of those issues is whether American grievances against China – shared by many of the advanced economies – are justified.

ALAIN JOCARD/AFP/Getty Images

Previous

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The Myth of China’s Forced Technology Transfer

November 8, 2018

One of the Trump administration’s chief complaints against China is that its trade practices rely on what US authorities call “forced technology transfer.” But the impact of this policy on both foreign companies and China’s economy – not to mention the amount of "force" it actually entails – is vastly overestimated.

BEIJING – Even as observers in developed countries criticize US President Donald Trump’s use of blunt tools such as tariffs against China, many believe that he is responding to a real problem. China, they argue, really is engaging in unfair trading practices. But is it?

Nicholas Asfouri/AFP/Getty Images

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One of the chief complaints against China is

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Who Wins in Trump’s Trade War?

October 9, 2018

US President Donald Trump has set the scene for an escalating trade confrontation with China, with all of its weighty and unforeseeable geo-strategic implications. But, for the rest of the world – and especially the European Union – the best outcome might be a long Sino-American conflict.

BRUSSELS – The contours of US President Donald Trump’s trade strategy are becoming clearer by the day. America’s trading partners face dramatic threats. But, as the revamp of the United States-Korea Free Trade Agreement and the “reform” and renaming of the North American Free Trade Agreement (NAFTA) demonstrate, most countries need to offer only minor concessions to appease Trump. The only country Trump really cares about – his “public enemy number one” –

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Sex and Populism

September 5, 2018

Even as the flow of refugees into Europe dwindles, anti-immigrant sentiment continues to rise, and is now being expressed violently in some areas. Economic factors probably play an important role, but to understand opposition to immigration also requires taking evolutionary psychology into account.

BRUSSELS – The rate at which migrants are arriving has diminished considerably almost everywhere in Europe since the huge inflows seen in 2015. Yet migration continues to dominate political debate throughout the European Union. This suggests that populist, anti-immigrant sentiment is not actually being driven by claims that mainstream politicians cannot defend Europe’s frontiers.

Nicolas Asfouri/AFP/Getty Images

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Europe’s Trade Coup

August 6, 2018

At the core of the recent US-EU trade agreement is the understanding that the two sides will “work together" toward zero tariffs and non-tariff barriers. But the potential for a free-trade deal isn’t the point; the end to the escalation of tit-for-tat tariffs is what matters – and not just to the US and Europe.

BRUSSELS – All has gone quiet on the transatlantic trade front, with last month’s agreement between US President Donald Trump and European Commission President Jean-Claude Juncker having dispelled fears of an all-out tariff war. The deal was surprising, but perhaps it shouldn’t have been.

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The European Union’s Dublin Conundrum

July 10, 2018

Despite a sharp decline in the number of asylum seekers reaching Europe, politicians continue to exploit the issue. But the real question that needs to be answered is not how to keep migrants away from Europe’s borders, but rather which country should be responsible for those who have already entered EU territory.

BRUSSELS – Tensions over immigration continue to dominate European politics. In Italy, Interior Minister Matteo Salvini, a populist firebrand, is monopolizing the public’s attention with almost daily outbursts against immigrants. Likewise, Salvini’s German counterpart, Horst Seehofer, created a crisis in the governing coalition in order to secure new measures against asylum seekers trying to enter Germany from

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Scapegoating the EU Won’t Fix Italy

June 6, 2018

The populist parties that comprise Italy’s new government owe their electoral victory to emotionally satisfying but logically unsound arguments about the role of the European Union in their country’s travails. Now that they are in power, they will have to confront the fact that Italy’s most pressing problems are its own creation.

BRUSSELS – Italy is making international headlines again. In the country’s election on March 4, the populist Five Star Movement (M5S) and the right-wing League party captured a combined parliamentary majority by tapping into the public’s discontent over immigration and economic stagnation. Now, M5S’s Luigi Di Maio and the League’s Matteo Salvini have formed a new government. Despite their

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Trump’s Shot Heard Round the Foot

June 5, 2018

The imposition of steel tariffs on European producers was an unprovoked attack, to which the EU has vowed to retaliate. But instead of engaging in a costly strategy of escalation with their biggest trading partner, Europe’s leaders should swallow their pride and indulge its president’s insistence on running the US economy into the ground.

BRUSSELS – The first salvo in the transatlantic trade war has now been fired by the United States, which is imposing stinging tariffs on steel imports from the European Union (as well as from Canada and Mexico). It was an unprovoked attack, to which the European Union has vowed to retaliate. Moreover, US President Donald Trump has announced an investigation into whether car imports threaten

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How Europe Should Respond to Trump’s Steel Tariffs

May 8, 2018

Whereas the US has apparently abandoned economic logic in its search for quick “wins" on trade, the EU continues to prioritize economic logic above geopolitical considerations. Fortunately, when it comes to steel, there is a way to give Trump his victory that aligns with the EU’s economic interests.
BRUSSELS – The last-minute decision by US President Donald Trump’s administration to delay imposing steel (and aluminum) tariffs on Canada, the European Union, and Mexico for 30 more days will ostensibly give the US a chance to negotiate a longer-term arrangement with its trading partners. What should such an arrangement look like?

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Trade Wars in a Winner-Take-All World

April 6, 2018

In the old competitive economy, trade wars might be easy to win for a country with a large trade deficit. But, in the emerging winner-take-all economy, a war designed to force the rest of the world to open up, thereby allowing the aggressor’s own winning firms to earn higher rents, is an altogether different proposition.
BRUSSELS – With President Donald Trump’s new trade tariffs, the United States has been transformed from the global multilateral trading system’s leading champion and defender to its nemesis. But it would be very difficult for an erratic politician suddenly to overturn long-established structures and mechanisms, were it not for a more fundamental economic shift.

The Year Ahead 2018

The world’s

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A Brexit Gentlemen’s Agreement

March 7, 2018

The main barrier to keeping the UK in the EU’s customs union is political: a country with the heft and influence of the UK cannot be viewed as merely following EU decisions, over which it has no influence. Yet this problem can be solved – or, rather, finessed – with an informal agreement by the EU to take UK interests into account.
BRUSSELS – In her latest speech on Brexit, British Prime Minister Theresa May rejected the prospect of the United Kingdom remaining in the European Union’s customs union, on the grounds that the UK wants its own trade policy. This is not in the best interest of either the UK or the EU.

The Year Ahead 2018

The world’s leading thinkers and policymakers examine what’s come apart in

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The Eurozone Island of Stability

February 13, 2018

After a decade of struggles, the eurozone is an island of relative stability in a turbulent sea. To ensure that it stays that way, its leaders must remember a fundamental truth: no predominantly domestic problem will ever be resolved by a loan or transfer of resources from abroad.
BRUSSELS – Market volatility has surged lately, apparently vindicating those who have warned of lofty equity valuations. But, even as the US stock market suffered one of its worst weeks since the financial crisis, the eurozone’s public-debt market has remained relatively stable, with risk spreads – which have usually increased amid market volatility – scarcely changing, even for the peripheral eurozone countries.

The Year Ahead 2018

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