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Central Banking’s Brave New World

February 23, 2021

Leading central banks are now keen to take on responsibility for policy objectives they previously shied away from, such as reducing inequality and combating climate change. But explicitly amending the central banks’ missions would be preferable to letting monetary policymakers decide how their tasks should evolve.

PARIS – Twenty years ago, central bankers were proudly narrow-minded and conservative. They made a virtue of caring more about inflation than about the average citizen, and took great pains to be obsessively repetitive. As future Bank of England (BOE) governor Mervyn King said in 2000, their ambition was to be boring.

No Time to Waste

PS OnPoint


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A Global Pandemic Alarm Bell

January 26, 2021

The appearance of mutant versions of the coronavirus in the United Kingdom, South Africa, and Brazil has given the world no choice but to design and implement a comprehensive global strategy. So, what’s stopping that from happening?

PARIS – Seen from Europe, Asia, or even North America, Manaus, the capital of the Brazilian state of Amazonas, is as remote as can be. Yet the 501Y.V3 variant of the coronavirus recently detected there has already been identified as a global threat, because its emergence in a city where two-thirds of the population was already infected in the spring of 2020 suggests that acquired immunity does not protect against it.

Biden’s Grand Opening


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The EU That Can’t Say No

December 29, 2020

If the European Union’s new recovery fund is to achieve its aim, the soft money it promises should come with hard standards designed to prevent rule-of-law breaches and ineffective government spending by member states. Unfortunately, this looks unlikely to happen.

PARIS – Back in July, the announcement of the European Union’s new €750 billion ($918 billion) recovery fund, dubbed Next Generation EU, was widely (and rightly) regarded as revolutionary. Never before had the EU borrowed to finance transfers and cheap loans to help member states recover from a major economic shock. By breaking longstanding taboos, the initiative may even pave the way to a fiscal union.

How Might COVID-19 Change the World?

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Memo to the European Commission on concrete initiatives for a more outward-looking, geopolitical Europe

December 2, 2020

Background: In the Political Guidelines you presented to the European Parliament immediately after your designation in July 2019, you set the goal of making an “ambitious, strategic and assertive Europe” capable of acting to “uphold and update the rules-based global order.” Europe, you added, regards multilateralism as its “guiding principle in the world.” A year later, in your State of the Union speech, you said that you want the European Union to “lead reforms of the WTO [World Trade Organization] and WHO [World Health Organization]” and behave strategically. The rebuilding of the global economy is definitely a key tenet of your agenda—even more so for the post-COVID-19 world.
Europe, however, is not wired for your agenda. First, it has for many decades been obsessed with internal

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Grading the Big Pandemic Test

November 27, 2020

The results of the second European COVID-19 lockdown remain to be seen, but one thing is already clear. While Europe may wonder whether it was right not to follow Asia’s full pandemic-containment drive, it has no reason to regret having rejected America’s misguided strategy.

PARIS – From the moment COVID-19 emerged as a global threat, it was clear that it would test every society’s strength, resilience, and response capabilities. Almost one year on, it is time to assess who passed the test, and who failed.

America’s Political Crisis and the Way Forward

PS OnPoint

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Europe Must Stand Up

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Globalization Needs Rebuilding, Not Just Repair

October 29, 2020

If US President Donald Trump is defeated on November 3, there will be no lack of eagerness to erase his international economic legacy. Policymakers should focus on taking care of global public goods, containing the weaponization of economic relations, and making the international system fairer.

PARIS – A second term for US President Donald Trump would complete the demolition of the post-war international economic system. Trump’s aggressive unilateralism, chaotic trade initiatives, loathing of multilateral cooperation, and disregard for the very idea of a global commons would overpower the resilience of the web of rules and institutions that underpin globalization. But would a victory for Joe Biden lead to a repair of

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Europe’s Recovery Gamble

September 25, 2020

If the European Union’s new recovery program succeeds, it may ultimately pave the way for the establishment of a fiscal union. But if the EU funds fail to deliver on the plan’s stated goals, or if political interests prevail over economic necessity, federal aspirations will be dashed for a generation.

PARIS – To help their pandemic-hit economies recover, European Union leaders agreed in July to borrow €750 billion ($876 billion) to finance €390 billion in grants and €360 billion in loans to the bloc’s member states. The program, called Next Generation EU, was rightly hailed as a major breakthrough: never before had the EU borrowed to finance expenditures, let alone transfers to member states.

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Trump’s International Economic Legacy

August 27, 2020

If US President Donald Trump loses November’s election, he will most likely leave an insignificant imprint on some parts of the global economic system. But in several others – especially US-China relations – his term in office may well come to be seen as a major turning point.

PARIS – It would be foolish to start celebrating the end of US President Donald Trump’s administration, but it is not too soon to ponder the impact he will have left on the international economic system if his Democratic challenger, Joe Biden, wins November’s election. In some areas, a one-term Trump presidency would most likely leave an insignificant mark, which Biden could easily erase. But in several others, the last four years may well come

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The Challenges of the Post-Pandemic Agenda

July 27, 2020

The pandemic has highlighted the vulnerability of human societies and fortified support for urgent climate action. But while the small government, free-market template of the last four decades suddenly looks terribly outdated, history suggests that transitions between phases of capitalist development can be harsh and uncertain.

PARIS – There is a growing possibility that the COVID-19 crisis will mark the end of the growth model born four decades ago with the Reagan-Thatcher revolution, China’s embrace of capitalism, and the demise of the Soviet Union. The pandemic has highlighted the vulnerability of human societies and fortified support for urgent climate action. And it has strengthened governments’ hand, eroded

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The Uncertain Pandemic Consensus

May 29, 2020

By putting the spotlight on the sector where markets perform the worst – health care – the coronavirus pandemic inevitably prompted a welcome reassessment of the relative roles of markets and the state.The question now is which parts of this emerging consensus will survive the acute phase of the crisis.

PARIS – What is the COVID-19 crisis teaching us about the role of the state? And what lasting lessons will our societies draw from it? It is still very early to be asking these questions, but they cannot be avoided. Postponing their discussion would simply leave the field open for those peddling old obsessions whose time is long gone (if it ever came).

The Lonesome Death of Hong Kong

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Building a Post-Pandemic World Will Not Be Easy

April 30, 2020

Both the COVID-19 crisis and the climate crisis highlight the limits of humanity’s power over nature. But while both remind us that the Anthropocene epoch may jeopardize our continued existence, and that benign everyday behavior can result in catastrophic outcomes, such similarities must not obscure crucial differences.

PARIS – Die-hard green militants regard it as obvious: the COVID-19 crisis only strengthens the urgent need for climate action. But die-hard industrialists are equally convinced: there should be no higher priority than to repair a ravaged economy, postponing stricter environmental regulations if necessary. The battle has started. Its outcome will define the post-pandemic world.

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Will the Economic Strategy Work?

March 31, 2020

Because even thriving companies can be killed in a matter of weeks by a recession of the magnitude now confronting the world, advanced-economy governments have reacted in a remarkably similar fashion to the COVID-19 crisis. But extending liquidity lifelines to private businesses and supporting idled workers assumes a short crisis.

PARIS – With the COVID-19 crisis bringing France to a halt, Insee, the French statistical institute, puts the drop in economic activity relative to normal at 35%. It reckons that the fall in household consumption is of a similar magnitude.
Insuring the Survival of Post-Pandemic Economies

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A Radical Way Out of the EU Budget Maze

February 25, 2020

It can be tempting to treat European budgetary discussions as a fairly inconsequential distributional game. But with the EU’s role increasingly focused on the provision of public goods, in accordance with its values and priorities, this would be a mistake.

PARIS – In 2003, I co-authored a report on the future of the European Union – the Sapir report – in which we observed that the expenditures, revenues, and procedures of the EU budget were all inconsistent with the Union’s objectives. We therefore advocated a radical restructuring of what had become a “historical relic.” Seventeen years later, little has changed.
When China Sneezes

Xinhua/Zhang Ailin via Getty Images

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Explaining the Triumph of Trump’s Economic Recklessness

January 28, 2020

The Trump administration’s economic policy is a strange cocktail: one part populist trade protectionism and industrial interventionism; one part classic Republican tax cuts skewed to the rich and industry-friendly deregulation; and one part Keynesian fiscal and monetary stimulus. But it’s the Keynesian part that delivers the kick.

PARIS – Since he was elected US president, Donald Trump has done almost everything standard economic wisdom regards as heresy. He has erected trade barriers and stoked uncertainty with threats of further tariffs. He has blackmailed private businesses. He has eased prudential standards for banks. He has time and again attacked the Federal Reserve for policy not to his liking. He increased the budget

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Europe’s New Green Identity

December 30, 2019

The European Union has already invested so much of its political capital into the green transition that a failure to fulfill its promise to achieve climate neutrality by 2050 would severely damage its legitimacy. The Green Deal is not just one of many EU projects. It is the Union’s new defining mission.

PARIS – Most countries’ flags are multicolor. Together with red-flagged China, the blue-flagged European Union is one of the few monochrome entities. Not anymore, apparently: the EU’s new defining project colors it green. At a meeting in mid-December, the leaders of all EU countries except one (Poland, not the United Kingdom) officially endorsed the goal of achieving climate neutrality – zero net emissions of greenhouse gases –

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A Credible Decarbonization Agenda Can Help Strengthen Europe’s Economy

December 9, 2019

Europe faces few sure-fire policy options to combat the next recession. As previously discussed, monetary policy, fiscal policy, or their combination through "helicopter money" all face serious limitations in the eurozone. Could a "Green New Deal"—massive investment in the transition to a carbon-neutral economy—provide a more promising option?
Of course, the case for climate action is not driven by macroeconomic stabilization concerns. Achieving carbon neutrality will take at least 30 years. European leaders plan to set themselves ambitious targets when they meet on December 12. Should they agree to a concerted, sustained green investment program, the resulting increase in aggregate demand could be exactly what the eurozone needs to fight off secular stagnation and acquire the resilience

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The UK and the EU Should Prevent Mutual Assured Damage

December 2, 2019

Assuming Brexit happens, future historians will probably remember 2020 as the year when an enfeebled and vulnerable Europe chose to make itself feebler and more vulnerable. The task for its leaders now is to avoid making matters even worse.

PARIS – Nothing can be taken for granted in the United Kingdom these days, but it is now very likely that 2020 will be the year when Brexit finally happens. A majority of UK citizens will probably be relieved to bring this seemingly endless agony to a close, while most European leaders will likely be glad not to have to argue over another postponement. But questions will remain.
Democratic Leadership in a Populist Age

PS OnPoint

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The Euro Area’s Fiscal Ability to Handle Another Recession Is Limited

November 11, 2019

With a possible recession looming, the euro area would normally be preparing to mobilize monetary and fiscal policies to cushion the shock. The problem is that, as previously detailed, there is no room for further monetary easing in the euro area. There does seem to be significant room for fiscal action, but the nonunified status of the euro area severely limits the actual scope for discretionary stabilization. This post assesses the margin of maneuver within the EU rules.
General government debt in the euro area at the end of 2018 amounted to 85 percent of GDP. By contrast, US general government debt was 104 percent of US GDP.[1] The general government deficit was also far lower in Europe (0.5 percent of GDP) than in the United States (5.7 percent of GDP). With bond rates 1.7 percentage

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The Euro Area Has Run Out of Pure Monetary Policy Options to Avert a Recession

November 7, 2019

Growth in the euro area has slowed since the beginning of 2018, and the risk of a recession is growing. Yet the European Central Bank (ECB) has barely any space left for monetary stimulus. No central banker will easily acknowledge that he or she has run out of policy options, but in September 2019, Christine Lagarde, who takes office as ECB president on November 1, seemed to admit as much, saying “central banks are not the only game in town.”
This blog focuses on why there is a lack of monetary policy options to counter a possible European recession. A forthcoming post in this series will discuss the fiscal actions that can be taken.   
As illustrated in a recent PIIE Policy Brief, no one would dispute that the US Federal Reserve still has room to act to counter a recession, even though

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The Great Wealth Tax Debate

October 31, 2019

Inequality is back at the forefront of economic policy debates, for good reason. A wealth tax is no panacea, and not even an ideal response to growing inequality at the top. But absent a better alternative, it can serve as a reasonable second-best policy.

WASHINGTON, DC – In 1990, 12 advanced economies had a tax on household wealth. Now only four do, after French President Emmanuel Macron scrapped his country’s version in 2017. Yet, a fierce debate has erupted in the United States over the proposal by Senator Elizabeth Warren, a leading Democratic presidential candidate, to introduce a tax of 2% on the wealth of “ultra-millionaires” (and 3% on that of billionaires).
What Happens to the United

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How to Ward Off the Next Recession

September 30, 2019

A decade after the Great Recession, Europe’s economy is still convalescing, and another period of prolonged hardship would cause serious, potentially dangerous economic and political damage. With monetary and fiscal policy unlikely to provide enough stimulus, policymakers should explore alternative options.

WASHINGTON, DC – Despite confident official pronouncements, the deteriorating state of the global economy is high on the international policy agenda. The OECD recently revised down its forecast to 1.5% growth in the advanced G20 economies in 2020, compared to almost 2.5% in 2017. And its chief economist, Laurence Boone, warned of the risk of further deterioration – a coded way of indicating a growing threat of

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Thomas Piketty’s New Book: Impressive Research, Problematic Solutions

September 19, 2019

Thomas Piketty’s Capital in the Twenty-First Century blended history, statistics, and theory. Capital and Ideology,[1] his new magnum opus, is long enough (1,200 pages) to lump together several books: a quantitative history of inequality through time and space, from medieval Europe and ancient India to present-day societies; a largely noneconomic theory of social stratification; an investigation into the social roots of current populism; and a political manifesto for the European left. From the extraordinary wealth of its empirical material to the breadth of its cultural scope, and from the rare alliance of statistical precision and literary references to the level of its intellectual and political ambition, there is much to commend in this remarkable book.
From a policy standpoint,

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Dousing the Sovereignty Wildfire

September 2, 2019

In time, the current spat between French President Emmanuel Macron and his Brazilian counterpart Jair Bolsonaro regarding the Amazon rainforest may become a mere footnote. But other rows between collective and national interests are sure to erupt, and the world needs to find a way to manage them.

PARIS – On the eve of the recent G7 summit in Biarritz, French President Emmanuel Macron described the Amazon rainforest as “the lungs of our planet.” And because the rainforest’s preservation matters for the whole world, Macron added, Brazilian President Jair Bolsonaro cannot be allowed “to destroy everything.” In reply, Bolsonaro accused Macron of instrumentalizing an “internal” Brazilian issue, and said that

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The Coming Clash Between Climate and Trade

July 31, 2019

The new leaders of the European Union, which has relentlessly championed open markets, will, ironically, likely trigger a conflict between climate preservation and free trade. But this clash is unavoidable, and how Europe and the world manage it will help to determine the fate of globalization, if not that of the climate.

PARIS – The incoming president of the European Commission, Ursula von der Leyen, has laid out a highly ambitious climate agenda. In her first 100 days in office, she intends to propose a European Green Deal, as well as legislation that would commit the European Union to becoming carbon neutral by 2050. Her immediate priority will be to step up efforts to reduce the EU’s greenhouse-gas

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Farewell, Flat World

July 1, 2019

The single most important economic development of the last 50 years has been the catch-up in income of a large cohort of poor countries. But that world is gone: in an increasingly digitalized global economy, value creation and appropriation concentrate in the innovation centers and where intangible investments are made.

PARIS – Fifty years ago, the conventional wisdom was that rich countries dominated poor countries, and it was widely assumed that the former would continue getting richer and the latter poorer, at least in relative terms. Economists like Gunnar Myrdal in Sweden, Andre Gunder Frank in the United States, and François Perroux in France warned of rising inequality among countries,

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Europe’s Citizens Say They Want a More Political EU

May 30, 2019

The recent European Parliament election suggests that a growing share of European voters sees things differently from national governments. Whereas citizens clearly used their votes to express policy preferences, very few governments are ready for a more political EU leadership.

TRENTO – The most significant result of the recent European Parliament election is neither that conservatives and social democrats lost seats to Liberals and Greens, nor that far-right nationalists gained less than anticipated. It is that citizens voted in much larger numbers than anyone expected.
After Neoliberalism

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Game of EU

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When Facts Change, Change the Pact

April 29, 2019

“When facts change, I change my mind,” John Maynard Keynes famously said. With long-term interest rates currently near zero, the European Union should reform its fiscal framework to allow member states to increase their debt-financed public investments.

PARIS – The European Union’s Stability and Growth Pact, which sets fiscal rules for its member states, is like the emperor’s new clothes. Almost everyone sees it has none, yet few admit it openly. This disingenuous silence is bad economics and bad politics.
Capitalism’s Great Reckoning

nuvolanevicata/Getty Images

Brexit Fever is Breaking

Artur Widak/NurPhoto via Getty Images

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Europe and the New Imperialism

April 1, 2019

For decades, Europe has served as a steward of the post-war liberal order, ensuring that economic rules are enforced and that national ambitions are subordinated to shared goals within multilateral bodies. But with the United States and China increasingly mixing economics with nationalist foreign-policy agendas, Europe will have to adapt.

PARIS – Imperialism, Lenin wrote a century ago, is defined by five key features: the concentration of production; the merging of financial and industrial capital; exports of capital; transnational cartels; and the territorial division of the world among capitalist powers. Until recently, only dyed-in-the-wool Bolsheviks still found that definition relevant. Not anymore: Lenin’s characterization

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The Case for Green Realism

February 27, 2019

The transition to a carbon-neutral economy is bound to make us worse off before it makes us better off, and the most vulnerable segments of society will be hit especially hard. Unless we acknowledge and address this reality, support for greening the economy will remain shallow and eventually wane.

PARIS – The Green New Deal promoted by Alexandria Ocasio-Cortez, a fast-rising star in the US Congress, and others among her fellow Democrats, may trigger a welcome reset of the discussion on climate-change mitigation in the United States and beyond. Though not really new – European Greens have been pushing for such a “new deal” for a decade – her plan is ambitious and wide-ranging.

Jose Luis Pelaez Inc/Getty Images

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The EU Needs a Brexit Endgame

January 31, 2019

Despite having her negotiated EU withdrawal deal soundly rejected in the House of Commons this month, British Prime Minister Theresa May is still in charge of the Brexit process. To avert a disastrous "no-deal" scenario, the bloc’s leaders must continue to work with May on a compromise solution, whether it likes it or not.

PARIS – After 31 months of the United Kingdom and the European Union arguing over Brexit, the truth is that neither side knows what it wants.

Fred Dufour – Pool/Getty Images

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Mark Wilson/Getty Images


This sad reality is most obvious in the case of the UK, whose ruling

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