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The five mistakes of the Frugal Four

May 30, 2020

The picture that accompanies this post is the visual rendition of the GDP Spring Forecasts of the European Commission. Darker colours indicate larger GDP losses in a range from 4% to 9%. The Covid pandemic is levying a heavy toll on all EU countries, but not evenly. A clear-cut cleavage is visible between South-West and North-East of the EU, with the former suffering worse human casualties and economic losses. If untamed, this SW/NE cleavage is going to generate powerful centrifugal forces and put the EU in jeopardy in the post-Covid ageThe Frugal Four is the nickname of the leading NE countries (The Netherlands, Denmark, Austria and Sweden) who soon before the outbreak of the Covid pandemic blocked the timid attempt of the Commission to raise the EU budget of few decimal points. The

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The European Recovery Fund: a cooperative solution

May 8, 2020

Beyond the »competition union«?The EU was caught unprepared by the disaster of the Covid-19 pandemic. Less because it was unexpected – everyone is in the same boat – than because the EU, and the Economic and Monetary Union (EMU) in particular, has never developed economic policy tools at Community and supranational level at a scale and in nature sufficient to cope with a systemic crisis. Quite the opposite, this has turned out to be one of the greatest sticking points of those defending the current framework: an area of free exchange reinforced by certain primarily regulatory supranational institutions within which sovereign(ist) states assert their economic policy prerogatives to the utmost and in mutual competition. The global changes that have emerged in the twenty-first century, and

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Covid-bond and European citizenship (with Andrea Boitani)

April 9, 2020

The emergency
The coronavirus pandemic will have a powerfully negative impact on the European Union’s economies. The exact scale of this impact will certainly depend on how long it lasts, together with the consequent restrictions on productive activities and mobility that the various European countries are progressively adopting (and which demonstrate, by the by, how little they have learned from the experience of the countries affected first). But the economic consequences of coronavirus will also depend on the scale and promptness of the action taken to support economies. We have weeks, not months. It is crucial that a decision be made by Easter.
The US government has approved federal action worth 2000 billion dollars in addition to an injection of unlimited liquidity by the FED. In

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Covid-bond and European citizenship (with Andrea Boitani)

April 9, 2020

The emergency
The coronavirus pandemic will have a powerfully negative impact on the European Union’s economies. The exact scale of this impact will certainly depend on how long it lasts, together with the consequent restrictions on productive activities and mobility that the various European countries are progressively adopting (and which demonstrate, by the by, how little they have learned from the experience of the countries affected first). But the economic consequences of coronavirus will also depend on the scale and promptness of the action taken to support economies. We have weeks, not months. It is crucial that a decision be made by Easter.
The US government has approved federal action worth 2000 billion dollars in addition to an injection of unlimited liquidity by the FED. In

Read More »

Europe at the War of Decimals

December 8, 2016

Photo: Jeff Golden
Anxious about the threats to Europe from Syria, Turkey, the refugee crisis, terrorism, Brexit? Be patient. Europe is now at the autumn war of decimals. The governments of the member countries of the Euro Zone are submitting to the Commission the three-year budgetary plans in compliance with the fiscal regulations of the Treaties. The ordinary European citizen may have learned that his/her government should not exceed a deficit/GDP ratio of 3% per year. Hence he/she may feel comfortable with official data (Eurostat) saying that the EZ is expected to stop at 1.7% in 2016 and 1.5% in 2017. Only France and Spain will exceed the threshold. Indeed, under the austerity therapy, deficit/GDP ratios have been consistently declining throughout the EZ from the peaks reached in the aftermath of the Great Recession. So the ordinary European citizen (at least outside France and Spain) may think that no further austerity will be prescribed by the Commission, or even that some margin exists for a fiscal boost to a stagnating economy with persistent unemployment and decline in workers’ incomes. These feelings of the ordinary European citizen may be corroborated by a study of the OECD (2016) showing that almost all the EZ countries in fact have fiscal space (i.e.

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The Europe of Peoples Destroys Itself

August 3, 2016

Photo: Peter Kurdulija
On reading the deluge of comments on the outcome of the “Brexit” referendum, you may  notice that there is (at least) one diagnosis of the fateful event on which “pro-Europeans” and “anti-Europeans” agree: Europe is too distant from the people, and the slave of technocratic bureaucracies. Too bad that this is an entirely wrong diagnosis, and the fact that the pro-European front subscribes to it makes the gravity of the situation evident: the anti-Europeans now dictate the political agenda in the European countries.
In fact, matters are exactly the reverse: it is the Europe of peoples that is destroying itself, as it has always been in remote and recent history. Historians have described the two great wars of the twentieth century as the ‘European civil wars’. Wars engendered in contexts of scant or no democracy, but also wars waged by peoples against each other. The totalitarian regimes that led Europe into the abyss of World War II were produced by movements of people brimming with fears, resentments and hostilities created by the previous war and the economic crisis of the 1930s. Those regimes, in fact, enjoyed their consensus climax on the eve of the war despite their suppression of freedom.

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Financial populism in Germany

March 18, 2016

Photo: fdecomite
In May 2015 the European Central Bank published a working paper by U. Bindseil, C. Domnick and J. Zeuner entitled “Critique of accommodating central bank policies and the ‘expropriation of the saver’. A review“. At first sight, this looks like a common paper of literature review. However, in the first line of the Abstract one can read:

“In parts of the German media, with the support of a number of German economists, the ECB’s low nominal interest rate policy is criticised as unnecessary, ineffective and as expropriating the German saver. This paper provides a review of the relevant arguments”

So this is not a common paper of literature review. It is an uncommon argumentation in defence of the ECB monetary policy against the attacks from the media, hence by and large the public opinion, of a particular country (italics highlight what is uncommon in the ECB communication style). After one year of quantitative easing (QE), and its enhancement decided by the latest meeting of the ECB Board on March 9, the German hostility towards the Frankfurt Tower has grown stronger than ever, and the “expropriation of the saver” is on the front line of fire, as testified by the cover of Handelsblatt of March 13, where President Draghi lights a big cigar with a 100 euro bill that represents the savings of the Germans.

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Why Are Mecoeconomic Imbalances Important for the European Monetary Union?

November 16, 2015

According to a well established view of the crisis in the European Monetary Union (EMU), its seeds were planted well before the world financial collapse of 2007-08 and the subsequent Great Recession. The seeds, “macroeconomic imbalances” in the Brussels language, lie in the lack of real (and, to some extent, nominal) convergence across member countries. The idea is that as long as countries are on divergent trajectories of growth of GDP, productivity and incomes (and possibly price levels), 1) large and unsustainable current account imbalances will also emerge, 2) the ensuing capital movements may suddenly stop triggering bank and financial crises, 3) national fiscal policies will also be put under pressure by the need to bail out faltering banking systems while countries on a low growth path will also face harder convergence towards the 60% debt target, with higher interest rates and heavier fiscal effort.
The first issue of the Annual Growth Survey (EU Commission, 2011) was entirely devoted to pro-growth and convergence policies, and the surveillance on macroeconomic imbalances figures prominently among the new tools of European governance (EU Commission, 2010). “Formalising the convergence process” is the goal of Stage 2 in the road map towards “Completing Europe’s Economic and Monetary Union” presented in the latest “Five President’s Report” (Juncker, 2015).

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