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102. Interest Rate Shock and Sustainability of Italy's Sovereign Debt
- Author:
- William R. Cline
- Publication Date:
- 02-2012
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Contagion from Greece, together with domestic political uncertainty in Italy, caused interest rates on Italian sovereign debt to spike in the second half of 2011. As shown in figure 1, the risk spread above German bunds for 10-year Italian government bonds rose from 200 basis points in early July 2011, to a range of 300 to 400 basis points after the July 21 Greek package with its new emphasis on private sector involvement. There was a second surge to the 400 to 500 basis point range in November through January, following the October 27 Greek package that insisted on a 50 percent reduction in private sector claims.
- Topic:
- Debt, Economics, and Financial Crisis
- Political Geography:
- Europe, Germany, and Italy
103. IFSWF Report on Compliance with the Santiago Principles: Admirable but Flawed Transparency
- Author:
- Edwin M. Truman and Sarah Bagnall
- Publication Date:
- 08-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- On July 7, 2011 the International Forum of Sovereign Wealth Funds (IFSWF) released a report on IFSWF Members' Experience in the Application of the Santiago Principles. The report is a self-assessment of the voluntary compliance of 21 member sovereign wealth funds (SWFs) with the Generally Accepted Principles and Practices of SWFs, issued in October 2008. We commend the IFSWF for undertaking the surveys on which the report is based, for the later decision to publish the results, and for the detail included in the report. However, as with many self-assessments, the report has some flaws. The principal flaw is that the characterization of the extent of compliance with the Santiago Principles is exaggerated.
- Topic:
- Economics, International Trade and Finance, Markets, and Sovereign Wealth Funds
- Political Geography:
- Santiago
104. Europe on the Brink
- Author:
- Simon Johnson and Peter Boone
- Publication Date:
- 07-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Attempts to resolve the problems in Europe are failing, and the crisis is spreading from Greece, Ireland, and Portugal to larger nations. Europe's financial system relies on moral hazard, i.e., a “no defaults” policy, to attract the funding needed to roll over large amounts of short–term bank and sovereign debt. Now that politicians in creditor nations are calling for private sector burden sharing, investors are demanding higher interest rates to hold these debts. But higher rates may tip banks and nations toward bankruptcy. Europe's banks and financial system are highly integrated across countries. Rising expectations of default in some countries could lead to large-scale capital flight into “safe” countries. This shift will raise concerns regarding solvency and liquidity of many financial institutions. The payments system of the euro area is serving as an opaque bailout mechanism that is currently preventing the euro area from falling apart at this time. If the number of nations in trouble spreads beyond Greece, Ireland, and Portugal, this bailout system will be stressed because of the potential size of accumulated funding. The European Central Bank (ECB) could soon see a vocal debate between inflationist and hawkish (anti–inflation) members. Inflationists will call for large–scale interventions, including bond buybacks and emergency loans, while the hawks will attempt to close loopholes in the payments system that effectively permit each troubled nation to create money needed to finance capital flight and budget deficits. At this stage in the debate, we see little chance that Europe can avoid ending the “moral hazard” regime, in which case it needs to plan for widespread sovereign and bank debt restructurings.
- Topic:
- Debt, Economics, Regional Cooperation, and Financial Crisis
- Political Geography:
- Europe, Greece, and Ireland
105. Markets vs. Malthus: Food Security and the Global Economy
- Author:
- Cullen S. Hendrix
- Publication Date:
- 07-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In the past four years, rising world food prices and the global economic downturn increased the ranks of the world's food insecure1 from 848 million to 925 million by September 2010, reversing decades of slow yet steady progress in reducing hunger (WFP and FAO 2010). While the human costs have been considerable, the political consequences have been significant as well. Food prices sparked demonstrations and riots in 48 countries 2007–08. While prices receded in 2009, they reached historic highs in February 2011—and were once again implicated in political turmoil. High food and fuel prices were among the grievances motivating the demonstrations that led to the ouster of Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak.
- Topic:
- Agriculture, Economics, International Trade and Finance, Poverty, and Food
- Political Geography:
- Ethiopia and Egypt
106. What Should the United States Do about Doha?
- Author:
- Jeffrey J. Schott
- Publication Date:
- 06-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The Doha Round of multilateral trade negotiations in the World Trade Organization (WTO) remains stalled despite the political impetus provided by the Seoul G-20 Summit in November 2010. The major trading nations have not revised their positions enough to propel new negotiations on agriculture, manufactures, and services. There is now little chance to complete an agreement this year and little indication that current efforts could succeed next year.
- Topic:
- Economics, International Cooperation, and International Trade and Finance
- Political Geography:
- United States
107. US Tax Discrimination Against Large Corporations Should Be Discarded
- Author:
- Gary Clyde Hufbauer and Martin Vieiro
- Publication Date:
- 10-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The United States holds contradictory views about large corporations. When Americans speak of breakthroughs in research and engineering, they are justly proud of large firms that pioneered railroads and steam engines in the 19th century, automobiles, electric power, and oil exploration in the 20th century, and computers, software, and biotechnology in the 21st century. Yet when talk turns to paying taxes, public opinion holds that large corporations should pay a higher statutory tax rate than other business firms, and enjoy fewer deductions in computing their taxable income. Despite common sense and the teachings of economics, tax discrimination is alive and well.
- Topic:
- Economics, Globalization, International Trade and Finance, Markets, and Financial Crisis
- Political Geography:
- United States and America
108. Sustainability of Greek Public Debt
- Author:
- William R. Cline
- Publication Date:
- 10-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- On July 21, 2011, the heads of government of the euro area announced a new plan to address the Greek debt crisis. This policy brief presents a simulation exercise that examines whether the new arrangements are likely to provide a sustainable solution. The analysis focuses on four key measures: gross debt relative to GDP; net debt relative to GDP; net interest payments relative to GDP; and amortization of medium-and long-term debt coming due during the year in question, relative to GDP. The new Greek package shows prospective future progress on all four measures, and Greek debt looks much more sustainable after the package than before. Debt also appears considerably more manageable if the criterion is net debt or interest burden rather than gross debt ratio, although even for gross debt the ratio is down substantially by 2020. It also becomes clear that the major contribution of the private-sector involvement (PSI) part of the package is in the form of sharply cutting amortization due, although by avoiding large new borrowing at crisis-level interest rates it also alleviates the interest burden that would otherwise occur.
- Topic:
- Debt, Economics, Regional Cooperation, and Financial Crisis
- Political Geography:
- Europe and Greece
109. What Can and Cannot Be Done about Rating Agencies
- Author:
- Nicolas Véron
- Publication Date:
- 11-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Credit Rating Agencies (CRAs) are prominent participants in the assessment of credit risk by financial markets. They determine and publish credit ratings, which represent the CRA's opinions on issuers' relative probability of default. The market for credit ratings is currently dominated in most western countries by three players: n Standard Poor's (S) is a division of the McGraw- Hill Companies, a US-based media group whose ownership is dispersed (the largest shareholder is Capital Group, with 12 percent of shares); n Moody's Corporation is an autonomous US-based listed company with dispersed ownership (the largest shareholder is Berkshire Hathaway, with 12.5 percent of shares); n Fitch Ratings is a division of the Fitch Group which is jointly owned by Fimalac, a Paris-based listed investment vehicle (60 percent of shares), and the US-based Hearst Corporation (40 percent of shares).
- Topic:
- Debt, Economics, Globalization, International Trade and Finance, and Markets
- Political Geography:
- United States
110. The United States Should Establish Permanent Normal Trade Relations with Russia
- Author:
- Gary Clyde Hufbauer and Anders Åslund
- Publication Date:
- 11-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- After 18 years, Russia is finally on the verge of acceding to the World Trade Organization (WTO). No country has struggled for so long to become a member of this important organization. The last impediment was removed on November 9, when Russia and Georgia concluded an agreement on monitoring trade flows across their disputed border. The WTO Working Party, which oversaw the negotiations, then approved Russian accession on November 10, clearing the way for formal membership to be adopted at the WTO ministerial conference to be held December 15–17, 2011 (WTO 2011).
- Topic:
- Conflict Resolution, Economics, International Trade and Finance, Markets, and Bilateral Relations
- Political Geography:
- Russia, United States, and Georgia
111. G-20 Reforms of the International Monetary System: An Evaluation
- Author:
- Edwin M. Truman
- Publication Date:
- 11-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- With great French fanfare the G-20 committed itself in Seoul, Korea a year ago “to build a more stable and resilient international monetary system (IMS), including by further strengthening global financial safety nets.” As subsequently elaborated by French President Sarkozy and other French government officials, the agenda for IMS reform included five elements: surveillance of the global economy and financial system, the international lender-of-last-resort mechanisms (global financial safety nets), the management of global capital flows, reserve assets and reserve currencies, and IMS governance.
- Topic:
- Economics, Globalization, International Trade and Finance, Markets, and International Monetary Fund
- Political Geography:
- Korea
112. The Current Currency Situation
- Author:
- William R. Cline and John Williamson
- Publication Date:
- 11-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The currency markets have been extremely disturbed for the last three months. The period witnessed a major strengthening of the US dollar in September, then the European currency crisis, a recovery of the euro when the markets believed that the crisis was being controlled, and then a rebound of the dollar. In view of these developments, those who follow currency movements need a new guide as to how the current values of currencies compare to our estimates of fundamental equilibrium exchange rates (FEERs). That is the main object of this paper.
- Topic:
- Economics, Globalization, International Political Economy, and Monetary Policy
- Political Geography:
- United States and Europe
113. Debt Relief for Egypt?
- Author:
- John Williamson and Mohsin S. Khan
- Publication Date:
- 11-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The current government of Egypt has frequently stated that external financial assistance is necessary in the present economic situation and has expressed a strong preference for receiving it in part via debt relief. The question asked in this policy brief is whether there is a case for debt relief and if so what form this relief should take. This policy brief reviews a number of cases in which debt relief has been granted to draw out the lessons and implications for Egypt.
- Topic:
- Debt, Economics, Regime Change, and Popular Revolt
- Political Geography:
- Arabia, Arab Countries, North Africa, and Egypt
114. Lessons from the East European Financial Crisis, 2008-10
- Author:
- Anders Åslund
- Publication Date:
- 06-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In the fall of 2008, Central and Eastern Europe became a flashpoint in the global financial crisis. The ten new eastern members of the European Union were in a state of severe overheating in all regards. Inflation surged everywhere and to double digits in Bulgaria, Estonia, Latvia, and Lithuania. Wages and real estate prices skyrocketed, rendering these countries ever less competitive, which further undermined their current account balance. Output plunged and unemployment soared.
- Topic:
- Economics, Global Recession, and Financial Crisis
- Political Geography:
- Europe, Lithuania, Estonia, Bulgaria, and Latvia
115. Logistics Reform for Low-Value Shipments
- Author:
- Gary Clyde Hufbauer and Yee Wong
- Publication Date:
- 06-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Facilitating trade is essential for countries that aspire to compete in the global economy. Low transactions costs, speed, and predictability are all ingredients of a good logistics system. The payoff is large. According to a World Bank (2010) evaluation of nearly 155 countries, improving logistics for countries at the same level of per capita income can increase GDP by 1 percent and two-way merchandise trade by 2 percent.
- Topic:
- Economics, Emerging Markets, Globalization, and International Trade and Finance
116. Revitalizing the Export-Import Bank
- Author:
- Gary Clyde Hufbauer, Meera Fickling, and Woan Foong Wong
- Publication Date:
- 05-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The United States has experienced persistent trade deficits for decades, and thoughtful observers have concluded that deficits cannot be sustained at levels much exceeding 4 percent of GDP annually. There are only two ways to decrease the trade deficit: reduce imports or increase exports. For global economic health, increased exports are a far better proposition.
- Topic:
- Economics, International Trade and Finance, and Monetary Policy
- Political Geography:
- United States
117. Estimates of Fundamental Equilibrium Exchange Rates, May 2011
- Author:
- William R. Cline and John Williamson
- Publication Date:
- 05-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This policy brief updates our estimates of fundamental equilibrium exchange rates (FEERs) to the latest available data, which for exchange rates are the average rates of April 2011, and for the IMF's balance of payments forecasts, those published in the April 2011 issue of World Economic Outlook (WEO; see IMF 2011a). It is the central study in what has now become a regular annual cycle, in which we draw out what we believe to be the implications of the IMF's forecasts for the pattern that exchange rates need to take if the world is to approach a reasonably satisfactory medium-run position. This past year we also published an interim policy brief (Cline and Williamson 2010b) in which we updated our calculations to the average exchange rates of October 2010, as well as commented on Brazilian Finance Minister Guido Mantega's description of international monetary events as constituting "currency wars." As in the previous year, however, the November 2010 policy brief updated our estimates only for intervening changes in market exchange rates. We did not make use of the IMF's revised autumn WEO forecasts to update our estimates of FEERs; on the contrary, we assumed the FEERs estimated in May 2010 were correct. In contrast, this policy brief presents totally new estimates of FEERs.
- Topic:
- Economics and Monetary Policy
- Political Geography:
- United States and China
118. The Outlook for International Monetary System Reform in 2011: A Preliminary Report Card
- Author:
- Edwin M. Truman
- Publication Date:
- 05-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Reform of the international monetary system was placed on the agenda of the Group of 20 (G-20) a year ago at the initiative of the incoming French leadership of the G-20. On November 4, 2011 in Cannes, France, the G-20 leaders will announce their conclusions and agreements after a year and half of intense dialogue and debate. This policy brief summarizes my preliminary rating of the expected results based on the evidence to date: a barely passing grade on substance but an A for effort. Neither final grade is locked in stone, however.
- Topic:
- Economics, International Cooperation, International Trade and Finance, International Monetary Fund, Monetary Policy, and Financial Crisis
- Political Geography:
- France
119. The Elephant in the "Green Room": China and the Doha Round
- Author:
- Arvind Subramanian, Aaditya Mattoo, and Francis Ng
- Publication Date:
- 05-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The puzzle about the Doha Round of multilateral trade negotiations in the World Trade Organization (WTO) is not why it is on life support now but how it has survived as a viable multilateral initiative for so long. From the very beginning, it was clear that the Round suffered from a lack of private-sector interest, the engine that had driven previous rounds of successful trade negotiations. At most, Doha promised to deliver some security of access for unilateral liberalization previously undertaken by countries and some modest incremental market opening (Martin and Mattoo 2009; Hufbauer, Schott, and Wong 2010). That the Round had much to be modest about was reflected in the failure of even antiglobalization protesters to show up for the more recent meetings of the Doha Round.
- Topic:
- Economics, Globalization, International Trade and Finance, and Markets
- Political Geography:
- China
120. Corporate Tax Reform for a New Century
- Author:
- Gary Clyde Hufbauer and Woan Foong Wong
- Publication Date:
- 04-2011
- Content Type:
- Policy Brief
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In his State of the Union address, President Barack Obama stressed four ingredients of American prosperity: faster innovation, better education, less deficit, and more jobs. As the president recognized in his address, the US free enterprise system drives the private sector to innovate, invest, and create jobs. This policy brief concentrates on how reforming the corporate tax system can strengthen the private sector, thereby spurring both innovation and job.
- Topic:
- Economics, Globalization, International Trade and Finance, Monetary Policy, and Financial Crisis
- Political Geography:
- United States