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31. The Post-2010 Lisbon Process: The Key Role of Education in Employment and Competitiveness

Author:
Daniel Gros and Felix Roth
Publication Date:
12-2008
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper points out that education should be the central objective of the post-2010 Lisbon Process. Compared to other OECD countries, the member states of the European Union perform poorly when it comes to key indicators of innovative potential, such as the percentage of students enrolled in tertiary education and the educational quality of Europe's students. Education makes a three-fold contribution to a country's economic health. First it is beneficial for employment rates, second it is a key driver for long-term economic growth and third it appears to be beneficial for social cohesion. It will be crucial for European countries to attain higher levels of tertiary education and increase the quality of their education.
Topic:
Economics, Education, and Regional Cooperation
Political Geography:
Europe and Lisbon

32. Iceland on the brink? Options for a Small, Financially Active Economy in the Current Financial Crisis Environment

Author:
Daniel Gros
Publication Date:
04-2008
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
For small financially active countries the exchange rate assumes particular importance, not only as a shock absorber, but potentially also as a source of shocks during financial market crises. This is very much in evidence today in the case of Iceland which is being hit hard by the recent turbulence in financial markets.
Topic:
Economics and Financial Crisis
Political Geography:
Europe

33. Bubbles in real estate? A Longer-Term Comparative Analysis of Housing Prices in Europe and the US

Author:
Daniel Gros
Publication Date:
10-2007
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
The downturn in the US housing market has attracted a lot of attention as it has sparked a global financial crisis. It is generally assumed that the eurozone does not face a similar problem. This paper shows that this assumption is wrong. The euro area average index of real housing prices has risen almost as much as that of the US and is now (as that of the US) about 40% above its 30-year average. This is similar to the overvaluation of Japanese real estate at the height of the Japanese bubble, which was then followed by over a decade of continuous decline. Over the last 30 years, the euro area index for real housing prices has tended to follow that of the US quite closely. The lag is now much shorter than in the 1970s or 1980s. The euro area market is thus likely to turn soon as well. One feature of housing price cycles that tends to be forgotten is their extraordinary length: many last for more than ten years. This persistence means that the downswing, which now seems to have started, is likely to last at least until the next decade. Within the euro area, there are large divergences: cases of 'froth' (Spain, for example) co-exist alongside cases of declining prices (Germany). These divergences have persisted for over a decade and have led to important macroeconomic disequilibria. The paper also develops an indicator of 'housing overhang', which shows by how much demand for new construction has to decline to bring the supply of housing back to normal levels. This indicator suggests that there is virtually no housing overhang in the eurozone on average and that it is of a manageable magnitude in the US. Spain and Ireland, however, face a massive housing overhang and thus probably a sharp deceleration of construction demand.
Topic:
Economics and Markets
Political Geography:
United States and Europe

34. Employment and Competitiveness: The Key Role of Education

Author:
Daniel Gros
Publication Date:
02-2006
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
More than half way into the decade, it is clear that the ambitious goal to make the EU the 'most competitive economy' by 2010 will be missed. This contribution shows that investing more in education would be the key in terms of employment, a central element in the Lisbon goal. Improving the skills of the EU's population would have, inter alia, a direct impact on the employment rate. Reaching the Lisbon goal of an employment rate of 70% would be possible even without labour market reforms if the average level of qualification of the EU were to reach the benchmarks in this area (which in turn are very close to the values reached by the best performing member states).
Topic:
Development, Economics, and Human Welfare
Political Geography:
Europe and Lisbon

35. Who Needs Foreign Banks?

Author:
Daniel Gros
Publication Date:
09-2002
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper shows that countries with weak banking system and fiscal institutions, might benefit from the presence of foreign banks, which can constitute a commitment and transparency device. Foreign banks can also reduce the probability of self-fulfilling speculative attacks. A strong presence of foreign banks can make a currency peg feasible in the first place by rendering it more resistant to speculative attacks. The European experience is instructive in this respect. In all of the candidate countries from Central and Eastern Europe (CEEC) the banking system is now dominated by foreign banks. This is now taken for granted, but it is unusual if one looks at the existing EU-15 members, where foreign banks play a marginal role in even the smallest economies.
Topic:
Economics and International Trade and Finance
Political Geography:
Europe

36. Fiscal Policy Spillovers in the Euro Area: Where Are They?

Author:
Daniel Gros and Alexandr Hobza
Publication Date:
11-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
What impact would a fiscal expansion in Germany have on the rest of the euro area? It has been generally suggested that it could go in either of two opposite directions, depending on the relative strength of two effects: the direct trade linkage and the financial market repercussions. A review of the results from four major macroeconomic models shows that the cross-country spillover effects of fiscal policy are indeed of uncertain sign and magnitude. Different models give quite different results if used in standardised simulations in terms of the sign, magnitude and time profile of the impact of a fiscal expansion in one member country (e.g. Germany) on other euro area countries. Fewer results are available concerning the potential spillover effects of structural policies, but they are similar to the ones concerning a budgetary stimulus: the magnitude of the spillover is small and varies across countries and over time.
Topic:
Economics, Government, Human Rights, International Trade and Finance, Migration, and Political Economy
Political Geography:
Europe and Germany

37. Is the ECB Sufficiently Accountable and Transparent?

Author:
Daniel Gros and Lorenzo Bini-Smaghi
Publication Date:
09-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
More than two years after its inception, the ECB is still perceived as lacking transparency by many academics and market participants. Our analysis, based on a series of indicators, suggests instead that the ECB is, at least on paper, one of the most transparent and accountable central banks. The discrepancy between theory and public perception suggests that much remains to be done within the given institutional framework to improve the transparency of the ECB. What is the best way to achieve this goal? Several suggestions have been put forward, such as publishing the detailed minutes of the ECB Governing Council meetings. This would result in shifting the true debate to informal meetings of the Governing Council, while formal meetings would only record pre-packaged consensus with no or little discussion. In our view, the best way to make the ECB more accountable is to engage it in substantive discussions about its policy. The ECB should provide more information about the background analysis that leads to policy decisions. For example, the ECB should transform its 'staff projections' into true inflation forecasts and it should be more open about the arguments that shape the internal debates, which precedes decisions. Accountability cannot be ensured by the ECB alone. An important role has to be played by its counterparts, such as the European Parliament, the Council of EU Finance Ministers and the public at large.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

38. Who Needs an Extenal Anchor?

Author:
Daniel Gros
Publication Date:
03-2001
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper argues that there might be non-monotonic relationship between the strength of the domestic framework for fiscal policy and the interest of a country to use an external anchor to achieve price stability. Countries with a strong domestic framework, e.g. low public debt, little pressure for excessive expenditure and an efficient tax system, would anyway enjoy low inflation rates and therefore have little need for an external anchor. Countries with high debt or very weak institutions would greatly benefit from an external anchor to save them from the extreme inflation rates they would otherwise have to endure because the market knows that the temptation for them to inflate public debt away is so strong. By contrast, countries with moderately weaknesses might be in a situation where they need some inflation to supplement government revenues with seigniorage, but the inflation resulting from the interaction with the market, which knows about this, is still moderate.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Europe

39. One Size Must Fit All: National Divergences in a Monetary Union

Author:
Daniel Gros and Carsten Hefeker
Publication Date:
07-2000
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
What policy objective should a common central bank in a heterogeneous monetary union pursue? Should it base its decisions on the EU-wide average of inflation and growth or should it instead focus on (appropriately weighted) national welfare losses based on national rates of inflation and growth? We find that a central bank that minimises the sum of national welfare losses reacts less to common shocks and that this can lead to higher average union-wide expected welfare, if the variability of common shocks is large relative to the inflation bias. But for countries with a transmission mechanism close to the average, welfare can actually be lower in this case. The inflationary bias depends on the interaction between the transmission mechanism and distortions in labour markets.
Topic:
Economics, Government, Human Rights, International Trade and Finance, Migration, and Political Economy
Political Geography:
Europe

40. An Economic System for Post-War South-East Europe

Author:
Daniel Gros
Publication Date:
05-1999
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Economic recovery in the region requires stable currencies and open markets. The best way to establish these two basic conditions quickly is for the countries concerned to immediately link their currencies to the euro via a currency board and join the customs union of the EU. The EU should support this radical approach financially in two ways: a) through compensation for lost tariff revenues (conditional on clean and efficient border controls), and, b) emergency loans to acquire the necessary backing for the currency board. The currency boards should graduate to full euroisation in 2002. The total cost for the EU would be modest: around 2 billion euro p.a. if all countries participate. A market-led approach that pays local hosts to house refugees would ensure that the expenditure on refugees benefits the local economies.
Topic:
Development, Economics, International Trade and Finance, and Migration
Political Geography:
Europe and Eastern Europe