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Begin New Search Topic Economics Political Geography Italy Publishing Institution Centre for International Governance Innovation Publication Year within 25 Years

1. Fiscal Asymmetries and the Survival of the Euro Zone

Author:
Paul R. Masson
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
The independence of the European Central Bank (ECB), seemingly guaranteed by its statutes, is presently under attack. The ECB has been led to acquire large amounts of government debt of the weaker euro zone members, both to help contain their interest costs and to help protect the solvency of banks throughout the zone that hold their debt. This paper presents a model of a dependent central bank that internalizes the government's budget constraint. Using a Barro-Gordon framework, the model embodies both the desire to stimulate output and to provide monetary financing to governments. As a result of the inability to pre-commit to first-best policies, the central bank produces excess inflation — a tendency partially reduced in a monetary union. The model implies that not only shock asymmetries, but also fiscal asymmetries, are important in the membership calculus of desirable monetary unions. On the basis of this framework, calibrated to euro zone data, the current membership is shown not to be optimal: other members would benefit from the expulsion of several countries, notably Greece, Italy and France. A narrow monetary union centred around Germany is sometimes mooted as a preferable alternative, especially if it could guarantee central bank independence. However, simulation results suggest that such a narrow monetary union would not be in Germany's interest: though better than the euro zone with a dependent central bank, it would not internalize enough trade to make it more attractive than the resumption of monetary autonomy by Germany.
Topic:
Debt, Economics, Monetary Policy, and Governance
Political Geography:
Europe, Greece, France, Germany, and Italy

2. From London to L'Aquila: Building a Bridge between the G20 and the G8

Author:
Paola Subacchi and Eric Helleiner
Publication Date:
06-2009
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
From many perspectives, the London Summit of the G20 leaders at the beginning of April 2009 was a success – and a hard act to follow. The discussion was framed around crisis resolution and the strengthening of the international financial architecture. Beyond any concrete achievement, the success of the London Summit is that it morphed into an ongoing process with a rolling agenda, rather than remaining a one-off event. Undoubtedly the Italian Presidency of the G8 has a hard task, being caught between the success of London and the decreasing relevance of the G8. But there is also scope for building a meaningful bridge between London and the G8 meeting in L'Aquila in July 2009, and continuing and strengthening the economic governance reform process. There is an urgent need to continue to push for progress on a number of key items that were not adequately addressed at the London Summit and where progress can be made in L'Aquila – fostering clarity for the G20 agenda for the next meeting in Pittsburgh in September 2009. With regard, in particular, to the reform of the International Monetary Fund, the Italian Presidency should use its G8 chair to initiate a dialogue on reform of the European representation, taking advantage of having all the key players gathered together in L'Aquila.
Topic:
Economics, International Cooperation, International Trade and Finance, Treaties and Agreements, and International Monetary Fund
Political Geography:
Europe, London, and Italy