Category: Blog

Europe’s Hamiltonian moment… Again

In these dark times of ’Coronacoma’ for the World Economy, the European Monetary Union is on the brink…Again. This time, it could be truly different. Countries opposed to any kind of debt mutualization properly ordered hinder de facto the achievement of a federal leap that it is desperately needed to complete the monetary union. Without this giant leap, there are real risks of implosion for the eurozone and, even, the whole EU. This brief note tries to explain why the US historical experience could be inspiring for Europeans in a situation where the concept of radical uncertainty is especially...

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The long-term growth impact of the pandemic

The economic effects of the Covid-19 pandemic are devastating worldwide. The IMF is projecting that the world economy will contract by 3% in 2020, before rebounding by 5.8% in 2021. The V-shaped recovery is predicated on the pandemic receding in the second half of 2020. A U-shaped scenario, with a prolonged recession, is also possible if the pandemic lingers, or if the recession triggers banking and/or sovereign debt crises. Will GDP growth get back to its pre-crisis trend in the aftermath the pandemic? Is an L-shaped scenario likely, with a permanent decline in the growth rate? Uncertainty surrounding the...

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Joint liability bonds for a joint European defense against the pandemic

The problem Mitigating the impact of the Covid-19 pandemic will require a significant increase in public spending to rescue sinking economies and further shield health systems. At the same time, tax revenues will be collapsing as long as economic activity remains suppressed. Budget deficits will inevitably swell, leading to soaring public debt. Eurozone countries – such as Italy, Greece, Portugal and Spain – that have already suffered the effects of the sovereign debt crisis – and their debt remains high – will be hit particularly hard. The increase in debt will call into question its sustainability, posing the risk...

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The European response to the epidemic

Germany shut down its borders with France, Denmark, Austria and Luxembourg in an effort to curb the spread of the Covid-19 epidemic at home. Spain and other European Union countries are doing the same. The closure of the Schengen border raises more barriers to individual movements within the EU.  Closing the borders is an impulsive response to the crisis. It is perhaps understandable in an emergency, when national governments are responsible for protecting the population, in the absence of a common health policy in Europe. But it promotes an inward-looking attitude that does not facilitate the coordination of actions...

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Competitiveness Imbalances in the Eurozone

ERMEES Note, 25/01/14 Thomas Coudert (BETA-CNRS, University of Strasbourg) and Jamel Saadaoui (BETA-CNRS, University of Strasbourg) With the incoming European elections in May 2014, several political parties propose that southern European countries (France included) leave the monetary union in order to devalue their national currencies in order to restore their competitiveness. Before I go forward, I will make two remarks to be clearer. Firstly, competitiveness in a broad sense includes price competitiveness and non-price competitiveness. The first concept concerns the price of products traded with the rest of the world and the second concept corresponds to the quality of products traded with foreign partners. Devaluation allows increasing price competitiveness to some extent as traded good would be cheaper relatively to competitors. Secondly, competitiveness is always a relative concept. A country, a firm, a football team is always competitive relatively to its partners or competitors. Come back to the benefits that will induce this increase of competitiveness in southern countries. These competitiveness gains (relatively to the rest of the Eurozone) would permit to reignite growth through the export sector. In fine, renewed growth in southern countries would allow to reduce stratospheric unemployment rates observed since the onset of the Euro crisis in 2010. In this post, I propose to explore different paths through which the Eurozone could reduce competitiveness imbalances. Specifically, I want to highlight that currency devaluation (after an...

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