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  • Author: Olivier Blanchard, Thomas Philippon, Jean Pisani-Ferry
  • Publication Date: 06-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The measures that most governments took in response to the sudden collapse in economic activity during the COVID-19 lockdowns nearly exclusively focused on protecting vulnerable workers and firms. These measures included unemployment benefits, grants, transfers, loans at low rates, and tax deferrals. As lockdowns are lifted, governments must shift policies toward supporting the recovery and design measures that will limit the pain of adjustment while preserving productive jobs and firms. This Policy Brief explores how such measures can be designed, with particular emphasis on Europe and the United States. The authors propose a combination of unemployment benefits to help workers, wage subsidies and partially guaranteed loans to help firms, and debt restructuring procedures for small and medium-sized companies handicapped by excessive legacy debt from the crisis.
  • Topic: Debt, Economics, Government, Labor Issues, Unemployment, Coronavirus
  • Political Geography: Europe, North America, United States of America
  • Author: Gary Clyde Hufbauer , Zhiyaou (Lucy) Lu
  • Publication Date: 10-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In early 2019, several important members of the World Trade Organization (WTO) submitted noteworthy proposals in a realm of international commerce that has evolved faster than rules to govern it: e-commerce or digital trade. While countries agree on less controversial subjects like banning unsolicited commercial electronic messages, the three leading WTO members—China, the European Union, and the United States—have big differences in their approaches to more challenging issues: data flows, data localization, privacy invasions by data collectors, transfer of source code, imposition of customs duties and internet taxes, and internet censorship. Their differing viewpoints lead Hufbauer and Lu to conclude that the prospect of reaching a high-level WTO e-commerce agreement is not promising. To reach an agreement, either most of the contentious issues must be dropped or the number of participating countries must be sharply reduced. A WTO accord, even of low ambition, would have value if only to establish basic digital norms on matters such as banning unsolicited commercial messages and protecting online consumers from fraudulent practices. A more ambitious accord covering the controversial issues should be negotiated in bilateral and/or plurilateral/regional pacts rather than in the WTO.
  • Topic: Economics, World Trade Organization, Finance, Privacy, Data
  • Political Geography: China, Europe, Asia, North America, United States of America, European Union
  • Author: Chad P. Bown, Jennifer A. Hillman
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States, the European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It first provides a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade and the World Trade Organization (WTO) predating any concerns introduced by China. It then describes contemporary economic problems with China’s approach to subsidies, their impact, and the apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems—in a manner analogous to how the Organization for Economic Cooperation and Development took on agricultural subsidies in the 1980s—before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.
  • Topic: Economics, World Trade Organization, Tariffs, Trade
  • Political Geography: Japan, Europe, Asia, North America, United States of America, European Union
  • Author: Alvaro Leandro, Jeromin Zettelmeyer
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
  • Topic: Economics, Sovereign Wealth Funds, Banks, Risk
  • Political Geography: Europe, Global Focus
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 09-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For years China has been one of the world’s most rapidly growing sources of outward foreign direct investment. Since peaking in 2016, however, Chinese outward investments, primarily to the United States but also the European Union, have declined dramatically, especially in response to changes in China’s domestic rules on capital outflows and in the face of rising nationalism in the United States. Concerns about growing Chinese influence in other economies, the ascendant role of an authoritarian government in Beijing, and the possible security implications of Chinese dominance in the high-technology sector have put Chinese outward investments under intense international scrutiny. This Policy Brief analyzes the most recent trends in Chinese investments in the United States and the European Union and reviews recent political and regulatory changes both have adopted toward Chinese inward investments. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the United States has cracked down far harder on the company than the European Union.
  • Topic: Economics, International Trade and Finance, National Security, Foreign Direct Investment, Investment
  • Political Geography: China, Europe, Asia, North America, United States of America
  • Author: Maria C. Latorre, Zoryana Olekseyuk, Hidemichi Yonezawa, Sherman Robinson
  • Publication Date: 03-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines 12 economic simulation models that estimate the impact of Brexit (Britain’s exit from the European Union). Most of the studies find adverse effects for the United Kingdom (UK) and the EU-27. The UK’s GDP losses from a hard Brexit (reversion to World Trade Organization rules due to a lack of UK-EU agreement) range from –1.2 to –4.5 percent in most of the models analyzed. A soft Brexit (e.g., Norway arrangement, which seems in line with the nonbinding text of the political declaration of November 14, 2018, on the future EU-UK relationship) has about half the negative impact of a hard Brexit. Only two of the models derive gains for the UK after Brexit because they are based on unrealistic assumptions. The authors analyze more deeply a computable general equilibrium model that includes productivity and firm selection effects within manufacturing sectors and operations of foreign multinationals in services. Based on this latest model, they explain the likely economic impact of Brexit on a wide range of macroeconomic variables, namely GDP, wages, private consumption, capital remuneration, aggregate exports, aggregate imports, and the consumer price index.
  • Topic: Economics, World Trade Organization, Brexit, Multinational Corporations
  • Political Geography: Britain, Europe, European Union
  • Author: Jeromin Zettelmeyer
  • Publication Date: 03-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: ermany’s new National Industrial Strategy 2030, unveiled by Economy Minister Peter Altmaier in February 2019, advocates an aggressive industrial policy. Although it stays clear of the virulent economic nationalism of the 1930s and the protectionism of President Donald Trump, its tone and much of its content are unmistakably nationalist. Zettelmeyer concludes that three of Altmaier’s five proposals—attempting to further raise the German share of manufacturing, restricting non-EU imports of intermediate goods, and promoting national champions in Germany and the European Union—are bad policies. The two remaining ideas—preventing some foreign takeovers and ramping up state support for certain technologies—are somewhat easier to justify, based on either market failures or the risk of technological dependence on foreign companies susceptible to political interference. But even in these areas, the specific policies proposed may well do more harm than good.
  • Topic: Economics, Nationalism, European Union, Donald Trump
  • Political Geography: Europe, Germany
  • Author: Felipe González, Nicolas Véron
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: China's rapid rise and unique economic system and the increasingly aggressive and disruptive US trade policy are posing an unprecedented threat to the global rules-based trading and economic system. The European Union has critical interests at stake in the current escalation, even as it has so far been comparatively spared from US trade policy belligerence and China's reactions. In this context, the European Union should adopt an independent and proactive stance, building on recent efforts and going beyond them. The European Union, even more than the United States or China, has a strategic interest in the preservation of the global rules-based order embodied by the World Trade Organization (WTO). It must play a leading role in steering WTO reform and modernization, working closely with broadly aligned third countries such as Japan and other players. It should expand its outreach beyond its immediate negotiating counterparts in both the United States and China, and leading European officials at both the EU and member state levels should work at better understanding China. While strengthening its domestic policy instruments to address new challenges, such as the screening of foreign direct investment for security purposes, the European Union must also resist its own temptations of protectionism and economic nationalism. In support of these objectives, the European Union should prepare itself for difficult decisions, which may involve revising some of its current red lines in international trade negotiations. Conversely, the European Union should stand firm on principles such as refusing one-sided agreements and rejecting abusive recourse to national security arguments in trade policies. The European Parliament, in working with the European Council and the European Commission, will have a critical role to play in steering the European Union through these challenging times.
  • Topic: International Relations, Economics, Trade Wars, Trade Policy
  • Political Geography: China, Europe, Asia, North America, United States of America, European Union
  • Author: Alvaro Leandro, Jeromin Zettelmeyer
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
  • Topic: Economics, Regional Integration, Risk, Fiscal Policy
  • Political Geography: Europe
  • Author: Simeon Djankov
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the 15 years of President Vladimir Putin's rule, state control over economic activity in Russia has increased and is greater today than in the immediate postcommunist era. The concentration of political and economic power in Putin's hands has led to an increasingly assertive foreign policy, using energy as a diplomatic tool, while plentiful revenues from extractive industries have obfuscated the need for structural reforms at home. The West's 2014 sanctions on Russia have brought about economic stagnation, and with few visible means of growth, the economy is likely to continue to struggle. Watching Europe struggle with its own growth, in part because of deficiencies in its economic model, Russia will not be convinced to divert from state capitalism without evidence of a different, successful economic model. Changing course can only be pursued in the presence of political competition; the current political landscape does not allow for such competition to flourish
  • Topic: Economics, Politics
  • Political Geography: Russia, Europe
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: After surviving its worst economic downturn since the Great Depression and the near collapse of its common currency, Europe is now engulfed by hundreds of thousands of desperate migrants and refugees from the Middle East and Africa. It needs new and permanent migration institutions and resources not only to accommodate the influx of refugees but also to set up a new border control system throughout the region. These demands pose a challenge for European policymaking as serious as the euro crisis of the last five years. Kirkegaard proposes a migration and mobility union, to be implemented gradually, with the goal of comprehensively reforming European migration policy.
  • Topic: Economics, Migration, Politics, Refugee Issues
  • Political Geography: Europe
  • Author: Angel Ubide
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The rules and buffers created in the last few years to enable the euro area to withstand another sudden stop of credit and market-driven panic in one or more of its member states are welcome steps, but they are widely recognized as inadequate. Ubide proposes creating a system of stability bonds in the euro area, to be issued by a new European Debt Agency, to partially finance the debt of euro area countries—up to 25 percent of GDP. These stability bonds should be initially backed by tax revenues transferred from national treasuries, but ultimately by the creation of euro area–wide tax revenues, and used to fund the operations of national governments. They could also be used for euro area–wide fiscal stimulus, to complement the fiscal policies of member states. Such bonds would strengthen the euro area economic infrastructure, creating incentives for countries to reduce their deficits but not forcing them to do so when such actions would drive their economies further into a downturn. The bonds would permit the euro area to adopt a more flexible or expansionary fiscal policy during recessions.
  • Topic: Economics, International Trade and Finance, Monetary Policy, GDP
  • Political Geography: Europe
  • Author: Ángel Ubide
  • Publication Date: 02-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Inflation in the euro area is too low, just 0.9 percent year-on-year in December 2013, and inflation expectations, measured from inflation derivative contracts, have shifted lower, indicating that markets expect some small probability of deflation in 2014 and average inflation over the next five years in the 1.25 to 1.5 percent range. The European Central Bank (ECB), however, seems to be content with this outlook. Its current projections show a very slow economic recovery and inflation at just 1.3 percent in two years' time. Yet the ECB describes the risks to inflation as balanced. This puzzling assessment might be due to the fact that the ECB's definition of price stability is less precise than that employed by other central banks, and some ECB members may interpret the definition as setting a ceiling, rather than a target, for inflation at close to but below 2 percent. But if one considers the ECB's self-assessment of success since its creation—achieving 2 percent inflation on average—its current inflation forecast of 1.3 percent would fall short of achieving its price stability mandate.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: Europe
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Mark Twain once wrote an essay about the difficulties of learning what he called "The Awful German Language." Similar barriers to comprehension seem to plague those trying to explain recent German economic performance. By most measures, Germany has the best functioning labor market among large economies in the West, with levels of employment reaching those in the United States at the end of the turbo-charged 1990s. A debate has stirred, however, about whether this success has come with a price—specifically, whether Germany's domestic structural reforms have lowered living standards for Germany's low income workers and worsened income inequality and whether Germany is fortuitously and perhaps selfishly riding a wave of strong foreign demand for German exports.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Markets, Labor Issues
  • Political Geography: United States, Europe, Germany
  • Author: Joseph E. Gagnon
  • Publication Date: 06-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For the major advanced economies and the world as a whole, insufficient aggregate demand—that is, too little spending—impeded recovery from the Great Recession of 2008-09. By manipulating their currencies to boost their net exports, many countries made a bad situation worse for their trading partners, which saw demand shifted away. The world needs policies that increase total demand rather than policies that fight over the allocation of the existing amount of demand.
  • Topic: Economics, International Trade and Finance, International Monetary Fund
  • Political Geography: Europe, Asia, Switzerland, Singapore
  • Author: David G. Blanchflower, David N. F. Bell
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines the amount of slack in the UK labor market and finds the downward adjustments made by the Monetary Policy Committee (MPC) to both unemployment and underemployment invalid. Without evidence to support its assessment of the output gap, the MPC reduces the level of unemployment based on its claim that long-term unemployment does not affect wages. The authors produce evidence to the contrary and present arguments on why the MPC's halving of the level of underemployment in the United Kingdom is inappropriate. Bell and Blanchflower set out arguments on why they believe the level of slack is greater than the MPC calibrates. Consistent with that is the fact that real wages in the United Kingdom continue to fall.
  • Topic: Economics, Markets, Labor Issues
  • Political Geography: United Kingdom, Europe
  • Author: Arvind Subramanian, Kevin Stahler
  • Publication Date: 11-2014
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Prima facie, competitiveness adjustments in the eurozone, based on unit labor cost developments, appear sensible and in line with what the economic analyst might have predicted and the economic doctor might have ordered. But a broader and arguably better—Balassa-Samuelson-Penn (BSP)—framework for analyzing these adjustments paints a very different picture. Taking advantage of the newly released PPP-based estimates of the International Comparison Program (2011), we identify a causal BSP relationship. We apply this framework to computing more appropriate measures of real competitiveness changes in Europe and other advanced economies in the aftermath of the recent global crises. There has been a deterioration, not improvement, in competitiveness in the periphery countries between 2007 and 2013. Second, the pattern of adjustment within the eurozone has been dramatically perverse, with Germany having improved competitiveness by 9 percent and with Greece's having deteriorated by 9 percent. Third, real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for effecting external adjustments. Fourth, internal devaluation—defined as real competitiveness improvements in excess of nominal exchange rate changes—is possible but seems limited in scope and magnitude. Our results are robust to adjusting the BSP framework to take account of the special circumstances of countries experiencing unemployment. Even if we ignore the BSP effect, the broad pattern of limited and lopsided adjustment in the eurozone remains.
  • Topic: Economics, Industrial Policy, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Anders Åslund
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Ukraine has experienced a year of unprecedented political, economic, and military turmoil. The combination of Russian military aggression in the east and a legacy of destructive policies leading to pervasive corruption has plunged the country into an existential crisis. The West, meanwhile, has been largely paralyzed with uncertainty over how to assist Ukraine without reviving Cold War hostilities. Yet all is not lost for Ukraine. A tenuous ceasefire, along with the successful elections of President Petro Poroshenko in May and a new parliament in October offer an opportunity for economic reform. If the current ceasefire in the east holds, Ukraine has a great opportunity to break out of its vicious circle of economic underperformance. Yet, the window of opportunity is likely to be brief. The new government will have to act fast and hard on many fronts to succeed.
  • Topic: Conflict Resolution, Security, Economics, Politics
  • Political Geography: Russia, Europe, Ukraine
  • Author: Natalia Aivazova
  • Publication Date: 08-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Five years since the global economic crisis began in 2008, many of the world's advanced economies are still struggling with sluggish growth and high levels of joblessness, especially among younger workers. In June 2013 the European Council expressed concern that “youth unemployment has reached unprecedented levels in several Member States” and called for “urgent action.” Much of the debate in Europe and the United States has focused on fiscal and monetary measures; while macroeconomic policy can address cyclical problems, a wide consensus recognizes the need to address structural challenges. One such challenge is a mismatch between the skills demanded by employers and those available among the population, especially younger workers. This mismatch can be addressed in part through the implementation of apprenticeship programs. The European Council recently concluded that “high quality apprenticeships and work-based learning will be promoted, notably through the European Alliance for Apprenticeships.” However, in the United States, where many are struggling to find jobs after graduating, apprenticeship programs hardly draw government and private-sector resources. Boosting apprenticeships could give both European and US workers the much-needed skills and competitive edge.
  • Topic: Economics, Markets, Labor Issues, Youth Culture
  • Political Geography: United States, Europe
  • Author: Jeromin Zettelmeyer, Christoph Trebesch, Mitu Gulati
  • Publication Date: 08-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief— over 50 percent of 2012 GDP—with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedents—particularly in its very generous treatment of holdout creditors—that are likely to make future debt restructurings in Europe more difficult.
  • Topic: Debt, Economics, Monetary Policy, Financial Crisis
  • Political Geography: Europe, Greece
  • Author: David G. Blanchflower, David N. F. Bell
  • Publication Date: 08-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: One of the factors that may inhibit reductions in unemployment as the economy recovers is the extent to which existing workers would like to work more hours and employers may prefer to let them work longer hours before making new hires. This phenomenon suggests that the unemployment rate does not capture the full extent of excess capacity in the labor market. But how should it be measured? In this paper we argue that the United States does not have the necessary statistical tools to calibrate this form of underemployment. We describe an index that captures the joint effects of unemployment and underemployment and provides a more complete picture of labor market excess capacity. We show how this index can be implemented using British data and describe its evolution over the Great Recession. Comparisons of our index with unemployment rates suggest that unemployment rates understate differences in labor market excess capacity by age group and overstate differences by gender. We also show that being unable to work the hours that one desires has a negative effect on well-being. Finally, we recommend that the Current Population Survey conducted by the US Bureau of Labor Statistics might be extended to enable the construction of an equivalent US index.
  • Topic: Economics, International Trade and Finance, Markets, Labor Issues
  • Political Geography: United States, Europe
  • Author: Ángel Ubide
  • Publication Date: 10-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The euro area has made significant strides in the last six months in designing a banking union. The goal has been to centralize supervisory decision making and improve the management of failing banks while protecting European taxpayers and imposing costs on creditors through so-called bail-ins to reduce moral hazard. Euro area leaders have reached some political agreements, and legislation is being prepared for eventual adoption by the European Parliament and then the various member states. This progress has been hailed as a step in the right direction, with particular praise for the euro area leaders' plan to endow the European Central Bank (ECB) with supervisory powers and create new rules for managing troubled banks.
  • Topic: Economics, Markets, Regional Cooperation, Monetary Policy
  • Political Geography: Europe
  • Author: Anders Åslund
  • Publication Date: 09-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Since gaining independence in December 1991, Ukraine has vacillated between the European Union and Russia for economic and political cooperation. Until recently neither had offered Ukraine much, but in the last few months, things have heated up. Ukraine's intention to sign an Association Agreement for political association and economic integration with the European Union has raised a furor in the Kremlin, which is now trying to block Ukraine from aligning itself with the European Union. Moscow has imposed trade sanctions in clear violation of its obligations in the World Trade Organization (WTO) and is pursuing an intense confrontation.
  • Topic: Economics, Treaties and Agreements, World Trade Organization, Bilateral Relations
  • Political Geography: Russia, Europe, Ukraine, Asia, Moscow
  • Author: Simon Johnson, Jeffrey J. Schott
  • Publication Date: 10-2013
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In July 2013, the United States and the European Union launched negotiations on a Transatlantic Trade and Investment Partnership (TTIP). The talks aim to craft a comprehensive accord matching or exceeding the reforms achieved in their previous trade pacts. Since both sides have included financial services in prior free trade agreements (FTAs), they implicitly recognized that the TTIP accord would also cover this sector. But what will be included in the financial services chapter is still subject to debate.
  • Topic: Economics, International Trade and Finance, Treaties and Agreements, Bilateral Relations
  • Political Geography: United States, Europe
  • Author: Arvind Subramanian, Martin Kessler
  • Publication Date: 07-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper describes seven salient features of trade integration in the 21st century: Trade integration has been more rapid than ever (hyperglobalization); it is dematerialized, with the growing importance of services trade; it is democratic, because openness has been embraced widely; it is criss-crossing because similar goods and investment flows now go from South to North as well as the reverse; it has witnessed the emergence of a mega-trader (China), the first since Imperial Britain; it has involved the proliferation of regional and preferential trade agreements and is on the cusp of mega-regionalism as the world's largest traders pursue such agreements with each other; and it is impeded by the continued existence of high barriers to trade in services. Going forward, the trading system will have to tackle three fundamental challenges: In developed countries, the domestic support for globalization needs to be sustained in the face of economic weakness and the reduced ability to maintain social insurance mechanisms. Second, China has become the world's largest trader and a major beneficiary of the current rules of the game. It will be called upon to shoulder more of the responsibilities of maintaining an open system. The third challenge will be to prevent the rise of mega-regionalism from leading to discrimination and becoming a source of trade conflicts. We suggest a way forward—including new areas of cooperation such as taxes—to maintain the open multilateral trading system and ensure that it benefits all countries.
  • Topic: Economics, Emerging Markets, Globalization, International Trade and Finance
  • Political Geography: Europe, Asia, North America
  • Author: Edwin M. Truman
  • Publication Date: 10-2013
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The European and Asian financial crises are the two most recent major regional crises. This paper compares their origins and evolution. The origins of the two sets of crises were different in some respects, but broadly similar. The two sets of crises also shared similarities in their evolution, but here the differences were more significant. The European crisis countries received more external financial support, despite the fact that they involved more solvency issues while the Asian crises involved more liquidity issues. On balance, the reform programs in the European crises were less demanding and rigorous than in the Asian crises. Partly as a consequence, the negative impacts on the global economy have been larger. I draw three lessons from this analysis: First, history will repeat itself; there will be other external financial crises. Second, other countries have a stake in appropriate crisis management. Third, the IMF and other countries were mistaken in treating the European crises as individual country crises rather than as a crisis for the euro area as a whole that demanded policy conditionality on all members of the euro area.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Financial Crisis
  • Political Geography: Europe, Asia
  • Author: Nicolas Véron
  • Publication Date: 01-2012
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper aims to take stock of global efforts towards financial reform since the start of the financial crisis in 2007–08, and to provide a synthetic (if simplified) picture of their status as of January 2012. Underlying dynamics are described and analyzed both at the global level (particularly G-20, IMF, and FSB) and in individual jurisdictions, as well as the impact the crisis has had on these regions. The possible next steps of financial reform are then reviewed, including: the ongoing crisis management in Europe, the new emphasis on macroprudential approaches, the challenges posed by globally integrated financial firms, the implementation of harmonized global standards, and the links between financial systems and growth.
  • Topic: Economics, International Trade and Finance, Markets, Global Recession, Financial Crisis
  • Political Geography: Europe
  • Author: C. Fred Bergsten, Jacob Funk Kirkegaard
  • Publication Date: 01-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Doom and gloom about the euro abounds. An increasing number of commentators and economists, including here at the Peterson Institute, have begun to question whether the common currency can survive.
  • Topic: Economics, International Trade and Finance, Political Economy, Regional Cooperation, Financial Crisis
  • Political Geography: Europe
  • 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, Financial Crisis
  • Political Geography: Europe, Germany, Italy
  • Author: William R. Cline, John Williamson
  • Publication Date: 11-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In 2008 we introduced a semiannual series providing estimates of fundamental equilibrium exchange rates, or FEERs (Cline and Williamson 2008a). The economic concept of FEERs was first set forth by Williamson (1983). An operational method for arriving at multilaterally consistent estimates of FEERs was developed by Cline (2008) and has been applied over the past five years in this series of estimates. This issue marks the valedictory round of the series for Williamson, who is retiring.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: Europe, Lisbon
  • Author: Anders Åslund
  • Publication Date: 11-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Hyperinflation is one of the most misused words in the English language. Two years ago, I heard a prominent American investor say that we were about to get hyperinflation, “not 15 percent a year as under Jimmy Carter but perhaps 5 percent a year.” Hyperinflation is usually 1,000 percent or more a year. The standard definition by Philip Cagan (1956) is that hyperinflation starts when inflation reaches 50 percent a month, and then the economy is in hyperinflation for one year until monthly inflation falls and stays below 50 percent.
  • Topic: Economics, International Trade and Finance, Markets, Regional Cooperation, Monetary Policy
  • Political Geography: Europe
  • Author: Anders Åslund
  • Publication Date: 08-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: One of the big questions of our time is whether the Economic and Monetary Union (EMU) will survive. Too often, analysts discuss a possible departure of one or several countries from the euro area as little more than a devaluation, but I argue that any country's exit from the euro area would be a far greater event with potentially odious consequences. Exit from the EMU cannot be selective: It is either none or all.
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: Europe
  • Author: Joseph E. Gagnon Gagnon
  • Publication Date: 07-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Widespread currency manipulation, mainly in developing and newly industrialized economies, is the most important development of the past decade in international financial markets. In an attempt to hold down the values of their currencies, governments are distorting capital flows by around $1.5 trillion per year. The result is a net drain on aggregate demand in the United States and the euro area by an amount roughly equal to the large output gaps in the United States and the euro area. In other words, millions more Americans and Europeans would be employed if other countries did not manipulate their currencies and instead achieved sustainable growth through higher domestic demand.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: United States, America, Europe
  • Author: C. Fred Bergsten, Jacob Funk Kirkegaard
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Getting the diagnosis right is a prerequisite for understanding the euro area predicament and evaluating key decisions taken since early 2010. As we laid out in Bergsten and Kirkegaard (2012), while the euro area faces multiple overlapping and mutually reinforcing elements of fiscal (Greece), banking (Ireland/Spain), and competitiveness (Southern periphery) crises, it is first and foremost facing a crisis of institutional design. The common currency as designed in the Maastricht Treaty of 1992 is a half-built house without the critical components of banking and fiscal union necessary to sustain it through the type of crushing economic and financial down- turn witnessed since October 2008.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Nicolas Véron
  • Publication Date: 12-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On June 29, 2012, the heads of state and government of the 17 euro area countries issued a landmark statement that started with the sentences “We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB [European Central Bank] for banks in the euro area the ESM [European Stability Mechanism] could, following a regular decision, have the possibility to recapitalize banks directly” (Euro Area Summit Statement 2012). This statement was received by the investor community and the European public as marking the initial step towards a European banking union, i.e., a shift of the key instruments of banking policy from the national to the European level to enable the formation and maintenance of an integrated European banking system.
  • Topic: Economics, Globalization, International Trade and Finance, Monetary Policy
  • Political Geography: Europe
  • Author: Anders Åslund
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the current financial crisis plaguing Europe, Latvia stands out for resolving its financial problems quickly and resolutely. After contracting 24 percent in 2008 and 2009, it grew at the rate of 5.5 percent in 2011. The speed and determination. with which the government carried out austerity measures in 2009 and restored confidence after suffering the worst output decline is a crucial lesson for the ailing South European countries—Greece, Italy, Portugal, and Spain. Many policy observers and economists have dismissed Latvia's crisis resolution as irrelevant to the situation in Southern Europe. The Latvian orange, they say, cannot be compared with the South European apples. I argue otherwise.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Europe, Greece, Latvia
  • Author: Peter A. Petri
  • Publication Date: 06-2012
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Trans-Pacific Partnership (TPP), currently at an advanced stage of negotiation, began as a small agreement but now has big implications. The TPP would strengthen ties between Asia and the Americas, create a new template for the conduct of international trade and investment, and potentially lead to a comprehensive free trade area (FTA) in the Asia-Pacific. It could generate large benefits—greater than those expected from the World Trade Organization's (WTO) global Doha Development Agenda. This Policy Brief reports on our ongoing quantitative assessment (with FanZhai) of the TPP and other Asia-Pacific integration efforts.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Treaties and Agreements
  • Political Geography: America, Europe, Israel, Asia, Australia/Pacific
  • Author: Anders Åslund
  • Publication Date: 04-2012
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The response of the ten new eastern members of the European Union to the global financial crisis has valuable lessons of crisis resolution for the euro area. These countries were severely hit by the crisis in the fall of 2008 and responded with extensive reforms. Crisis made the unthinkable possible. This paper outlines the main reform measures that the ten Central and East European (CEE) countries carried out. It then quantifies to what extent the CEE countries resolved the macroeconomic crisis and explores the effects of the reforms on future growth prospects. The fourth and major section discusses how the political economy of the crisis resolution actually worked. Finally, the author examines what lessons euro area countries can learn from the crisis resolution of the newest members of the European Union.
  • Topic: Debt, Economics, International Trade and Finance, Markets, Political Economy, Financial Crisis
  • Political Geography: Europe
  • Author: Morris Goldstein, Nicolas Véron
  • Publication Date: 01-2011
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by "too big to fail" financial institutions. They identify variations in historical experiences, financial system structures, and political institutions that help one understand the differences of approaches between the United States, EU member states, and the EU institutions in addressing this problem. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on which policy developments are likely in the near future.
  • Topic: Economics, Financial Crisis
  • Political Geography: United States, America, Europe
  • 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, Financial Crisis
  • Political Geography: Europe, Lithuania, Estonia, Bulgaria, Latvia
  • Author: C. Randall Henning
  • Publication Date: 03-2011
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Recent crises and the expansion of international financial arrangements have dramatically elevated the importance of cooperation between regional institutions and the International Monetary Fund (IMF). While the case for coordination between regional and multilateral institutions is generally accepted, however, the need to organize it on an ex ante basis is not fully appreciated. The relatively successful cooperation among the European Commission, European Central Bank, and IMF on the European debt crisis is not likely to be easily replicated in joint programs for countries in other regions, moreover, and the costs of coordination failure could be very large. Recent innovations at the IMF, on the other hand, present opportunities for cooperation with regional facilities. Henning reviews (1) the case for organizing cooperation on an ex ante basis, (2) the policy and institutional matters that should be coordinated, (3) how East Asian arrangements in particular and the IMF might cooperate, and (4) an Interinstitutional Agenda of general principles, modalities, and institutional recommendations. The G-20, member states, and institutions themselves should address this agenda proactively.
  • Topic: Debt, Economics, Regional Cooperation, International Monetary Fund, Financial Crisis
  • Political Geography: Europe, East Asia
  • Author: Simon Johnson, 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, Financial Crisis
  • Political Geography: Europe, Greece, Ireland
  • 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, Financial Crisis
  • Political Geography: Europe, Greece
  • Author: William R. Cline, 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, Monetary Policy
  • Political Geography: United States, Europe
  • Author: Edwin M. Truman
  • Publication Date: 12-2011
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper addresses two central questions for Asia and the world: (1) What is the purpose of Asian regional policy coordination going forward? (2) Will Asian regional policy coordination substitute or complement global policy coordination? The paper examines the potential coverage and content of such policy coordination, what is meant by Asia in this context, and how Asia fits in with global policy coordination processes. Truman addresses three related aspects of Asian regional policy coordination: macroeconomic policies, reserve management, and crisis management. He concludes that while the countries in the Asian region have not completely exploited the scope for regional policy coordination, more ambitious efforts focused on close integration are not likely to bear fruit, in particular, if they are conceived and promoted under the banner of Asian exceptionalism. These conclusions are based on two main considerations: First, Asian economies differ, and will continue to differ, sufficiently in size and stage of development such that it is difficult to conceive of a successful voluntary blending of their interests. Second, the central lesson of the global financial crisis and its current European coda is that global economic and financial integration has advanced sufficiently that countries can run but they cannot hide individually or in sub-global groups of countries.
  • Topic: Economics, International Trade and Finance, Regional Cooperation
  • Political Geography: Europe, Asia
  • Author: Nicholas R. Lardy
  • Publication Date: 03-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: China's policy response to the global financial and economic crisis was early, large, and well-designed. Although Chinese financial institutions had little exposure to the toxic financial assets that brought down many large Western investment banks and other financial firms, China's leadership recognized that its dependence on exports meant that it was acutely vulnerable to a global recession. Thus they did not subscribe to the view sometimes described as “decoupling,” the idea that Asian countries could passively weather the financial storm that originated in the United States and other advanced industrial economies. They understood that absent a vigorous policy response China inevitably would suffer from the backwash of a sharp economic slowdown in its largest export markets—the United States and Europe.
  • Topic: Economics, Financial Crisis
  • Political Geography: United States, China, Europe, Asia
  • Author: Gary Clyde Hufbauer, Julia Muir
  • Publication Date: 06-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: On May 31, 2010 a majority of the Lower House of the National Diet of Japan approved legislation that would reverse a decade's worth of effort to fully privatize key subsidiaries of Japan Post Holdings Co. Ltd. Besides postal services, the state-run postal system offers banking and insurance services, through Japan Post Bank (JPB) and Japan Post Insurance (JPI), respectively. These are the financial engines of Japan Post and were the units slated for privatization. Both subsidiaries have long received favorable government treatment, tilting the playing field against private banks and insurance firms, whether foreign or domestic. The government of Japan is in clear violation of its commitments under the World Trade Organization (WTO), and if the Upper House approves the legislation, Japan will reverse the efforts made by the United States and the European Union, as well as domestic private banks and insurance firms, to establish a level playing field. What's more, Japan risks having a formal WTO dispute brought against it.
  • Topic: Economics, Government, Privatization
  • Political Geography: United States, Japan, Europe
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 06-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Nothing is easier than pointing fingers at policymakers woring feverishly at 2 a.m. to contain a rapidly spreading financial crisis. Rarely has this been truer for the European Union than during the current crisis's amateurish policy management. Yet, what really matters is the final result, which is far more postive for Europe than the ugly sausage-making process.
  • Topic: Economics, International Trade and Finance, Financial Crisis
  • Political Geography: Europe
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 10-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: So far so good for the European Union in preventing the Greek sovereign debt crisis from spiraling out of control in the short term. But with Greece in May 2010 requiring an unprecedented bailout from the European Union/IMF to avoid immediate default and 25 of the European Union's 27 member states currently subject to an “excessive deficit procedure” (European Commission 2010i), it remains evident that the European Union's existing fiscal surveillance framework patently failed both before and during the Great Recession and that Europe's leaders must head back to the drawing board for a required long term reform of the EU fiscal policy and surveillance framework.
  • Topic: Debt, Economics, Financial Crisis
  • Political Geography: Europe, Greece
  • Author: Nicolas Véron, Stéphane Rottier
  • Publication Date: 09-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: “All politics is local,” as the saying goes, but all economics is global, and regulation is one area where these two realities meet and conflict. This has been particularly true for financial regulation in the wake of the unprecedented financial crisis.
  • Topic: Economics, Genocide, International Cooperation, International Trade and Finance, Monetary Policy
  • Political Geography: Europe
  • Author: Leszek Balcerowicz
  • Publication Date: 12-2010
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper distinguishes four alternative sovereign debt resolution mechanisms: pure market solutions, modified market solutions, crisis lending by the IMF and other institutions, and the proposed Sovereign Debt Restructuring Mechanism (SDRM). It is hard to find—at the general level of analysis—the unique advantages of SDRM. The assessment of the European Stabilization Mechanism will ultimately depend on its operation, especially whether it will be a tool of subsidizing countries in debt distress or an instrument of fiscal crisis lending. The present fiscal problems in the eurozone are due to the erosion of fiscal discipline and not to the lack of strong compensatory transfers within the eurozone. The right model to look at the conditions for the stability of the eurozone is not a single state but the gold standard–type system, a system of sovereign states with a (de facto) single currency. Based on this analogy and considering modern developments, three types of measures are needed to safeguard the stability of the eurozone: (1) measures that would reduce the procyclicality of the macroeconomic policies and of the economy; (2) reforms that would help the eurozone economies grow out of increased public debt; and (3) steps to increase the flexibility of the economy so that it can deal with the future shocks in a better way.
  • Topic: Debt, Economics, Markets, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Nicolas Véron
  • Publication Date: 12-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the context of a transatlantic comparison, the first thing to be mentioned is the difference between the time sequence of financial reforms in the European Union and its equivalent in the United States. The financial crisis started simultaneously on both sides of the Atlantic, with the initial disruption of some financial market segments in August 2007 and the major panic episode of September through October 2008. But they are not at the same stage of policy reaction and especially regulatory reform now. At least four reasons can be identified for this difference.
  • Topic: Economics, Global Recession, Monetary Policy, Financial Crisis
  • Political Geography: United States, Europe
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 12-2010
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: As Europe's financial market contagion spreads to systemically important eurozone members, the region is echoing with "end-game scenarios" (Johnson and Boone 2010) and demands for major new steps by European policymakers (Financial Times 2010). Among these would be a European "fiscal transfer union," a new common eurozone bond, action by the European Central Bank (ECB) to monetize sovereign debts, and finally a eurozone breakup itself.
  • Topic: Debt, Economics, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 01-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: It is generally believed that the United States is a country of low taxes and small government, at least when compared with countries in Europe (and until the financial crisis so greatly expanded the role of the federal government in the United States in late 2008). Fully accounting for the role, size, and effect of the government in an economy is a complex endeavor, however, and it is hardly accomplished by repeatedly restating differences in top marginal tax rates, overall tax burdens, or gross sizes of governments in GDP terms.
  • Topic: Economics, Government, Political Economy, Privatization
  • Political Geography: United States, Europe
  • Author: Adam S. Posen, Nicolas Véron
  • Publication Date: 06-2009
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Since mid-2007, public authorities in the European Union have broadly met the challenge of ensuring a functional degree of liquidity and preventing financial meltdown. The Eurosystem has even been ahead of the curve compared with the Federal Reserve and the Bank of England in discounting early on a wide variety of assets to a range of counterparties. However, despite unprecedented central bank intervention, extensive government guarantees since October 2008, and macroeconomic assistance (with the International Monetary Fund) to the European Union's weakest member states, the underlying state of continental Europe's banking industry remains very fragile.
  • Topic: Economics, Markets, Monetary Policy
  • Political Geography: United States, United Kingdom, Europe
  • Author: Arvind Subramanian, Aaditya Mattoo
  • Publication Date: 10-2008
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: A fundamental shift is taking place in the world economy to which the multilateral trading system has failed to adapt. The Doha process focused on issues of limited significance while the burning issues of the day were not even on the negotiating agenda. The paper advances five propositions: (1) the traditional negotiating dynamic, driven by private-sector interests largely in the rich countries, is running out of steam; (2) the world economy is moving broadly from conditions of relative abundance to relative scarcity, and so economic security has become a paramount concern for consumers, workers, and ordinary citizens; (3) international economic integration can contribute to enhanced security; (4) addressing these new concerns-relating to food, energy, and economic security-requires a wider agenda of multilateral cooperation, involving not just the World Trade Organization but other multilateral institutions as well; and (5) despite shifts in economic power across countries, the commonality of interests and scope for give-and-take on these new issues make multilateral cooperation worth attempting.
  • Topic: Security, Economics, International Trade and Finance, Treaties and Agreements, World Trade Organization
  • Political Geography: United States, China, Europe
  • Author: Nazgul Jenish, Anders Åslund
  • Publication Date: 06-2006
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the first decade of postcommunist transition, multiple growth regressions showed that the more radical and comprehensive market economic reform was, the earlier a country returned to economic growth and the more vigorous its growth, and that Central Europe took the lead. Since 2000, however, the Commonweath of Independent States (CIS) countries have had more than 4 percentage points higher annual growth than the Central European countries. A regression analysis for 20 postcommunist countries shows, with strong significance, that reducing public expenditures has most effectively stimulated economic growth. As expected, oil exports are also positive and significant. The distance from the European Union is also positive and significant: that is, the further from the European Union, the higher the economic growth. The effect of corruption is negative for growth but only marginally significant. Neither the laggard effect nor investment reveals any significant effect. The conclusion is that at least among postcommunist countries more emphasis should be given to reducing public expenditures to boost economic growth.
  • Topic: Economics, International Organization, Political Economy
  • Political Geography: Europe, Central Europe
  • Author: C. Randall Henning
  • Publication Date: 06-2006
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Scholarship on European integration has extensively debated the external character of the monetary union. The institutions of exchange rate policymaking bear substantially on the euro area's role in international monetary conflict and cooperation. This working paper examines the institutional arrangements for foreign exchange intervention within the euro area and the policymaking surrounding the market operations of autumn 2000—the only case to date of euro area intervention in currency markets. Drawing on interviews of officials in finance ministries, central banks, European institutions, and international organizations, as well as public sources, the paper specifies the division of labor among the European Central Bank (ECB), Euro group, and other European actors and compares that arrangement with corresponding arrangements in the G-7 partners. It concludes, among other things, that (1) the interinstitutional understanding within the euro area gives substantial latitude to the ECB, greater latitude than held by central banks in its G-7 partners, (2) but the understanding is susceptible to renegotiation over time, and (3) economic divergence within the euro area potentially threatens the ability of the monetary union to act coherently externally.
  • Topic: Economics, International Organization, Political Economy
  • Political Geography: Europe
  • Author: Nicolai Laugesen, Jacob Kirkegaard, Peter Jensen
  • Publication Date: 06-2006
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Based on a large Danish survey of companies in tradable goods and services sectors, this working paper presents the results of offshoring and its impact on jobs, adding new perspectives to the globalization debate. Globalization entails a cross-border flow of jobs, but contrary to the mainstream media portrayal of globalization, it is not a one-way but a two-way street. In 2002–05 more jobs were created as a result of offshoring of activities into eastern Denmark from companies outside Denmark (i.e., inshored to Denmark) than were eliminated due to off shoring from companies in the Danish region. Overall, the employment effects of both off shoring and in shoring were found to be limited to less than 1 percent of all jobs either lost to offshoring or gained via inshoring. For Denmark, the worries in purely numerical terms regarding the employment effects of globalization seem overly alarmist. However, the trends revealed in the study do pose challenges for low-skilled workers—the group most negatively affected—and for highly skilled specialists, who face pressure to constantly upgrade their skills. Policy implications can be drawn in view of our results to ensure that labor markets are able to meet the demands of globalizing firms.
  • Topic: Economics, International Organization, Political Economy
  • Political Geography: Europe
  • Author: Adam S. Posen, Daniel Popov Gould
  • Publication Date: 08-2006
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This working paper investigates the European Monetary Unification's (EMU) effect on wage restraint—the degree to which wage increases do or do not exceed productivity growth. We find in cross-sectional investigations that wage restraint either is unchanged or has increased following EMU in the vast majority of countries. This finding contradicts the predictions of a widely cited family of models of coordination of labor market bargaining. In particular, one would have expected Germany to display the greatest decline in wage restraint post-EMU under these models, but in our time-series analysis we find no indication of such a decline. The overall shift toward greater wage restraint is consistent with the models that emphasize the gains from monetary credibility. The time-series evidence on Italy, which shows a significant increase in wage restraint after eurozone entry, also supports this view. That said, the increase in wage restraint in the eurozone is matched by that associated with the increase in credibility seen in the United Kingdom and Sweden after their adoption of inflation targeting post-1992.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United Kingdom, Europe, Germany, Sweden
  • Author: Adam S. Posen
  • Publication Date: 01-2006
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: On January 13, Germany's new chancellor, Angela Merkel, will have her first official visit with US President George W. Bush. Washington, or at least the part of Washington that still pays attention to transatlantic issues, not just the Bush administration, will be glad to see her given that she is not her US-bashing predecessor Gerhard Schroeder. Though this change in atmosphere is welcome, no one should make too much of it. It is unlikely to make much difference on security issues, where Iran's own actions are forcing the United States and Germany to come together, where German public opinion will keep the governments apart on Iraq, and where neither country is prepared to make major changes to defense budgets and approaches. The Masri case will certainly limit Merkel's interest in appearing too chummy with Bush on security matters.
  • Topic: Development, Economics
  • Political Geography: United States, Iraq, Europe, Iran, Washington, Germany
  • Author: Gary Clyde Hufbauer, Yee Wong
  • Publication Date: 10-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Frustrated with lackluster momentum in the WTO Doha Round and the Asia Pacific Economic Cooperation (APEC) forum, and mindful of free trade agreement (FTA) networks centered on the United States and Europe, Asian countries have joined the FTA game. By 2005, Asian countries (excluding China) had ratified 14 bilateral and regional FTAs and had negotiated but not implemented another seven. Asian nations are also actively negotiating some 23 bilateral and regional FTAs, many with non-Asian partners, including Australia, Canada, Chile, the European Union, India, and Qatar. China has been particularly active since 2000. It has completed three bilateral FTAs—Thailand in 2003 and Hong Kong and Macao in 2004—and is initiating another 17 bilateral and regional FTAs. However, a regional Asian economic bloc led by China seems distant, even though China accounts for about 30 percent of regional GDP. As in Europe and the Western Hemisphere, many Asian countries are pursuing FTAs with countries outside the region. On present evidence, the FTA process embraced with some enthusiasm in Asia, Europe, and the Western Hemisphere more closely resembles fingers reaching idiosycratically around the globe rather than politico-economic blocs centered respectively on Beijing, Brussels, and Washington.
  • Topic: Economics, International Trade and Finance, Regional Cooperation
  • Political Geography: United States, China, Europe, Washington, Canada, India, Beijing, Asia, Australia, Qatar, Chile, Hong Kong, Brussels, Macao
  • Author: Dan Magder, Dan Magder
  • Publication Date: 08-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Exporting through international supply chains was a successful way for East Asian countries to develop their textile and apparel industries in the 1970s and 1980s, but it is a less clear route for countries like Egypt trying to compete today. The challenge is particularly acute given the strength of competitors like China, and even more so in the post-MFA era. Some analysts suggest that "lean retailing" increases the importance of geography in exporting in the world of rapidly changing apparel fashion, in a way that could benefit a country like Egypt with its proximity to European end markets. Using a supply chain model, this paper suggests that shortening lead times can indeed have an impact on profits, but that the effect is not tremendous, being in the range of a 0.3 percent to 0.9 percent increase in profits for every week of improvement in lead times. The study also finds that the business environment in Egypt lags key comparator countries in several areas that help the firms compete in global apparel chains, although recent reforms by the Egyptian government are working to address several of these aspects. It concludes by exploring to what extent geography, trade preferences, and local production factors may help Egypt's textile and apparel industry carve out a role for itself in global supply chains, and provide an engine to drive industrial upgrading throughout the country.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: Europe, East Asia, North Africa, Egypt
  • Author: Daniel Gould
  • Publication Date: 06-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The proposed European Constitution, which was just voted down in France and the Netherlands, is technically a treaty containing far-reaching amendments to the present set of treaties governing the European Union. Article 48 of the EU treaty text currently in force specifies that any such amendments first be unanimously approved by the governments of the member states within an Inter-Governmental Conference framework and then ratified by each country. The first, intergovernmental step of ratification was completed October 29, 2004.
  • Topic: Economics, Government
  • Political Geography: Europe, France, Netherlands
  • Author: Philipp M. Hildebrand
  • Publication Date: 05-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: I am pleased to be in Washington today and would like to thank Fred Bergsten and his colleagues at the Institute for International Economics for providing me with this opportunity to talk about the recently completed gold sales of the Swiss National Bank (SNB).
  • Topic: International Relations, Economics, International Trade and Finance
  • Political Geography: Europe, Washington
  • Author: Fred Bergsten
  • Publication Date: 04-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The dollar has been the dominant currency of the world economy for almost a century for a single overwhelming reason: It had no competition. No other economy came close to the size of the United States. Hence no currency could acquire the network externalities, economies of scale and scope, and public goods benefits necessary to rival the dollar at the global level. A similar situation for the United Kingdom explains sterling's dominance in the 19th century.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, United Kingdom, Europe
  • Author: Michael Mussa
  • Publication Date: 04-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: After surging to the highest growth rate in a generation, world real GDP is set to slow from a rate of just over 5 percent for 2004 to about 4 percent for 2005 and a tad slower for 2006. The economic slowdowns in several important economies in the second half of last year, including much of continental Europe and Japan, already make it clear that year-over-year growth will slow for 2005. But the continued strong growth of domestic demand in other countries, most notably the United States and China, virtually assures that global growth this year will not fall below potential.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Japan, China, Europe, Israel, East Asia
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 03-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Once again a specter is haunting Europe—not in the shape that Marx saw it but in the form of outsourcing and offshoring, which allegedly will empty Europe of the highly skilled high-paying jobs of the future. This working paper argues that the specter needs to be dispelled. Today, Europe faces challenges in the form of low productivity growth and low labor utilization/high unemployment. Outsourcing and offshoring, far from being a blight, are powerful tools to help solve the productivity growth problem and may also—provided the right structural reforms are implemented—assist in solving Europe's low employment problem.
  • Topic: Economics, Government, Third World
  • Political Geography: Europe
  • Author: Edwin M. Truman
  • Publication Date: 02-2005
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This note addresses three topics: (1) Do the recent musings by Dooley, Folkerts-Landau, and Garber (DFG), in particular their argument that the world is operating under a revived Bretton Woods system (BW2), provide a useful framework for thinking about international economic and financial developments and prospects? (2) What does the DFG framework imply for the euro area, and are those implications reasonable? (3) What does the DFG framework imply for the United States, and are those implications reasonable?
  • Topic: Development, Economics
  • Political Geography: United States, Europe
  • Author: Peter B. Kenen, Ellen E. Meade
  • Publication Date: 10-2003
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In May 2004, ten countries are due to join the European Union. They are therefore obliged to join the European Monetary Union (EMU) and adopt the euro as their national currency. Most of them, moreover, have been eager to do that. None of them sought an opt-out of the sort that Britain and Denmark obtained in 1991, when the Maastricht Treaty was drafted. Membership in EMU is not automatic, however, because the accession countries must first satisfy the preconditions contained in the Maastricht Treaty. Although those preconditions are rigorous, and some of the accession countries are still far from meeting them, most of those countries have indicated that they want to enter EMU at the earliest possible date.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Britain, Europe, Denmark
  • Author: Michael Mussa
  • Publication Date: 09-2002
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The global economic recovery is continuing but at a somewhat slower pace than was anticipated six months ago. Specifically, using the country weights from the IMF's World Economic Outlook, the forecast for real GDP growth in the world economy during 2002 (i.e., on a fourth-quarter-to-fourth-quarter basis) is cut by about half a percentage point to 3 percent—a pace that is slightly below my estimate of the potential growth rate for world GDP. This downward revision reflects primarily slower growth than earlier expected during the first half of 2002 in most industrial countries and the expectation that growth will remain somewhat more sluggish than earlier expected at least through year-end. For 2003, the forecast for global economic growth is also cut by about half a percentage point—to 4 percent—reflecting both general factors suggesting slightly weaker performance in many industrial and developing countries and the particular economic risks arising from possible military action against Iraq and from potential credit events affecting key developing countries. Despite these downward revisions, however, there is little doubt that the world economy will see significant improvement this year from the 1 percent growth recorded in 2001, and it is still reasonable to expect further improvement to a growth rate modestly above global potential during 2003.
  • Topic: Economics
  • Political Geography: United States, Iraq, Europe, Israel, Asia, South America, Latin America, North America
  • Author: Gary Hufbauer
  • Publication Date: 11-2002
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Some trade disputes—like long Russian novels—never seem to end. The United States, Europe, and other trading nations have disputed the taxation of export earnings since the 1970s. To understand why the Foreign Sales Corporation (FSC) dispute is so hard to resolve, we must start with a historical tour.
  • Topic: Economics, Political Economy
  • Political Geography: Russia, United States, Europe
  • Author: Catherine L. Mann, Ellen E. Meade
  • Publication Date: 07-2002
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper brings together the literature on determination of home bias in equity holdings and the portfolio balance model of exchange rates to consider whether the dollar might be affected by a change in transactions costs that alters international portfolio allocations. Our empirical findings lend support to the view that transactions costs have a significant influence on US portfolio holdings, even after accounting for float market share. In addition, new survey evidence on the equity holdings of European firms indicates home bias for European investors, and points to a reduction in the magnitude of this home bias since 1997.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Europe
  • Author: Gary Clyde Hufbauer, Erika Wada, John H. Rogers
  • Publication Date: 01-2001
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Consumer price inflation in the euro area declined steadily during most of the 1990s. However, in the last two years, both headline and core inflation have risen throughout the area, and sizable cross-country differences in inflation have re-emerged. This is illustrated by Figure 1, which shows the headline consumer price inflation rate for the euro area as a whole and for select member countries. As of October 2000, all euro area countries had headline inflation rates above the European Central Bank's 2 percent medium-term ceiling, with rates ranging from 2.1 percent in France and Austria to 6 percent in Ireland. In Greece, which will join the euro area on 1 January 2001, inflation was 3.8 percent.
  • Topic: Economics, Political Economy
  • Political Geography: Europe, Greece, France, Austria
  • Author: Catherine L. Mann
  • Publication Date: 10-2000
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The global and dynamic e-commerce marketplace will increasingly impact the nature of national and international economic and government relations. This paper highlights three areas where the United States and European Union (EU) governments differ in their approaches as to how best to serve their domestic constituencies: treatment of trade flows, approach to tax regimes, manner of protecting personal data. Because the Internet marketplace is global but policy jurisdictions remain local, policy conflicts can develop. Policymakers on both sides need to harness technology and promote incentives for the private sector to help solve problems caused by the jurisdictional overlap. In addition to cross-border jurisdictional overlap, problems within a country can develop from issue convergence and policy overlap. That is, because the e-commerce marketplace is so integrated, the policy toward handling one issue, even within the national context, has implications for the policy set that is available to policymakers on other issues. Therefore, policies within a country must be more carefully meshed with each other with an eye toward consistency in the face of the forces of electronic commerce..
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: United States, Europe
  • Author: C. Fred Bergsten
  • Publication Date: 03-2000
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The initial postwar challenge from East Asia was economic. Japan crashed back into global markets in the 1960s, became the largest surplus and creditor country in the 1980s, and was viewed by many as the world's dominant economy by 1990. The newly industrialized countries (Korea, Taiwan, Hong Kong, Singapore) followed suit on a smaller but still substantial scale shortly thereafter. China only re-entered world commerce in the 1980s but has now become the second largest economy (in purchasing power terms), the second largest recipient of foreign direct investment inflows, and the second largest holder of monetary reserves. Indonesia and most of Southeast Asia grew at 7 percent for two or more decades. The oil crises of the 1970s and the financial crises of the late 1990s injected temporary setbacks but East Asia has clearly become a third major pole of the world economy, along with North America and Western Europe.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: Japan, China, Europe, Israel, Taiwan, East Asia, Asia, North America, Korea, Singapore, Hong Kong