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2081. Europe on the Brink

Author:
Simon Johnson and Peter Boone
Publication Date:
07-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Attempts to resolve the problems in Europe are failing, and the crisis is spreading from Greece, Ireland, and Portugal to larger nations. Europe's financial system relies on moral hazard, i.e., a “no defaults” policy, to attract the funding needed to roll over large amounts of short–term bank and sovereign debt. Now that politicians in creditor nations are calling for private sector burden sharing, investors are demanding higher interest rates to hold these debts. But higher rates may tip banks and nations toward bankruptcy. Europe's banks and financial system are highly integrated across countries. Rising expectations of default in some countries could lead to large-scale capital flight into “safe” countries. This shift will raise concerns regarding solvency and liquidity of many financial institutions. The payments system of the euro area is serving as an opaque bailout mechanism that is currently preventing the euro area from falling apart at this time. If the number of nations in trouble spreads beyond Greece, Ireland, and Portugal, this bailout system will be stressed because of the potential size of accumulated funding. The European Central Bank (ECB) could soon see a vocal debate between inflationist and hawkish (anti–inflation) members. Inflationists will call for large–scale interventions, including bond buybacks and emergency loans, while the hawks will attempt to close loopholes in the payments system that effectively permit each troubled nation to create money needed to finance capital flight and budget deficits. At this stage in the debate, we see little chance that Europe can avoid ending the “moral hazard” regime, in which case it needs to plan for widespread sovereign and bank debt restructurings.
Topic:
Debt, Economics, Regional Cooperation, and Financial Crisis
Political Geography:
Europe, Greece, and Ireland

2082. Markets vs. Malthus: Food Security and the Global Economy

Author:
Cullen S. Hendrix
Publication Date:
07-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In the past four years, rising world food prices and the global economic downturn increased the ranks of the world's food insecure1 from 848 million to 925 million by September 2010, reversing decades of slow yet steady progress in reducing hunger (WFP and FAO 2010). While the human costs have been considerable, the political consequences have been significant as well. Food prices sparked demonstrations and riots in 48 countries 2007–08. While prices receded in 2009, they reached historic highs in February 2011—and were once again implicated in political turmoil. High food and fuel prices were among the grievances motivating the demonstrations that led to the ouster of Tunisian President Zine El Abidine Ben Ali and Egyptian President Hosni Mubarak.
Topic:
Agriculture, Economics, International Trade and Finance, Poverty, and Food
Political Geography:
Ethiopia and Egypt

2083. Keeping the Promise of Global Accounting Standards

Author:
Nicolas Véron
Publication Date:
07-2011
Content Type:
Policy Brief
Institution:
The Polish Institute of International Affairs
Abstract:
Accounting is a fundamental underpinning of capital markets, and the worldwide spread of International Financial Reporting Standards (IFRS) marks one of the most advanced attempts to develop globally consistent financial rules. The financial crisis has generated heated debates on the economic role of fair value accounting and other IFRS principles. Underlying these controversies are differing views about the mission and governance of accounting standard-setters, and how standards interact with other public policy instruments. The absence of relevant precedents for the unique institutional features of the IFRS Foundation, the global standard-setting organization, makes choices more difficult.The IFRS' defining promise is crossborder comparability of financial statements, but the aim of global harmonization will not be fully achieved in the next few years. Given the varying pace and modalities of local IFRS adoption, the IFRS Foundation must focus on the quality of its standards and the integrity of its brand. Standardsetting should serve investors' information needs, leaving other public-policy goals to be met through local assessment by individual jurisdictions. The foundation's governance and funding framework should strengthen its accountability to the global investor community. Active monitoring of local endorsement and implementation practices should encourage the gradual convergence of “IFRS dialects” towards a true single global reporting language.
Topic:
Economics, Globalization, International Trade and Finance, and Markets

2084. What Should the United States Do about Doha?

Author:
Jeffrey J. Schott
Publication Date:
06-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The Doha Round of multilateral trade negotiations in the World Trade Organization (WTO) remains stalled despite the political impetus provided by the Seoul G-20 Summit in November 2010. The major trading nations have not revised their positions enough to propel new negotiations on agriculture, manufactures, and services. There is now little chance to complete an agreement this year and little indication that current efforts could succeed next year.
Topic:
Economics, International Cooperation, and International Trade and Finance
Political Geography:
United States

2085. The Political Feasibility of the Istanbul Canal Project

Author:
Mensur Akgün and Sylvia Tiryaki
Publication Date:
08-2011
Content Type:
Policy Brief
Institution:
Global Political Trends Center
Abstract:
Popularly referred to as the “crazy” project, Turkish Prime Minister Recep Tayyip Erdoğan's Istanbul Canal Project has been debated vigorously since its proposal prior to the 2011 elections in the country. While some questioned its economic and ecological feasibility, others carried the discussion towards the Project's political implications. In addition to evaluating these debates, in this policy brief we discuss the Project through a historical perspective that includes the dynamics of the 1936 Montreux Convention. We argue that the feasibility of the Canal Project is valid only after certain changes are made in the application of the Montreux Convention. However, we conclude that this may lead to an outcome in which the signatories would question the legitimacy of the Convention under present conditions.
Topic:
Economics and Infrastructure
Political Geography:
Central Asia and Turkey

2086. Turkey's 2000/1 Banking Crisis: A Case Study for the Transformation of the Greek Finance?

Author:
Onur Bayramoğlu
Publication Date:
08-2011
Content Type:
Policy Brief
Institution:
Global Political Trends Center
Abstract:
On April 2010, recently after the eruption of the Greek crisis, an unexpected hand from Turkey reached to Greece. Proud with his country's last decade growth figures, Turkey's then Vice Prime Minister, Ali Babacan, paid a visit to Greece in order to share his country's reform period after its 2000/1 crisis, arguing that it could also be a case study for Greece. In this brief, I analyzed Greek and Turkish financial crises. Although it is a mere fact that the structural problems in Greek economy complicate the reform period in Greece, there are certain lessons that Greeks can learn from the Turkish experience. As Turks did after 2001, they should see the crisis as an opportunity to overcome the long time problems . In this regard, Greeks first and foremost should establish consensus among themselves, signaling to the markets that they are ready to face the burdens of the reform period.
Topic:
Debt, Economics, International Political Economy, and Financial Crisis
Political Geography:
Europe, Central Asia, Turkey, and Greece

2087. Ethics and the Economist: What Climate Change Demands of Us

Author:
J. A. Nelson
Publication Date:
05-2011
Content Type:
Working Paper
Institution:
Global Development and Environment Institute at Tufts University
Abstract:
Climate change is changing not only our physical world, but also our intellectual, social, and moral worlds. We are realizing that our situation is profoundly unsafe, interdependent, and uncertain. What, then, does climate change demand of us, as human beings and as economists? A discipline of economics based on Enlightenment notions of mechanism and disembodied rationality is not suited to present problems. This essay suggests three major requirements: first, that we take action; second, that we work together; and third, that we focus on avoiding the worst, rather than obtaining the optimal. The essay concludes with suggestions of specific steps that economists can take as researchers, teachers, and in our other roles.
Topic:
Climate Change, Economics, Energy Policy, and Political Theory

2088. Partial sovereign bond insurance by the eurozone: A more efficient alternative to blue (Euro-)bonds

Author:
Hans-Joachim Dübel
Publication Date:
08-2011
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
'Blue' or Eurobonds guaranteed via joint and several liability by the eurozone member states have been proposed as an important tool to stabilise and structure the eurozone sovereign bond markets. But in this new Policy Brief, Hans-Joachim Dübel argues the case for a partial insurance of sovereign bonds by the European Stability Mechanism. Hans-Joachim Dübel is an independent financial sector consultant based in Berlin and founder of Finpolconsult.
Topic:
Economics, International Trade and Finance, Markets, Regional Cooperation, and Monetary Policy
Political Geography:
Europe and Berlin

2089. The Eurozone Debt Crisis: From its origins to a way forward

Author:
Diego Valiante
Publication Date:
08-2011
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The Eurozone debt crisis has now reached a turning point. This paper argues for a more organised intervention by the ECB to stop contagion through the creation of a quantitative easing programme, coupled with a political agreement among member states on a more federalist budget for the Eurozone.
Topic:
Debt, Economics, Regional Cooperation, and Financial Crisis
Political Geography:
Europe

2090. Western Aid: The Missing Link for North Korea's Economic Revival?

Author:
Nicholas Eberstadt
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
As the leadership of the Democratic People's Republic of Korea (hereafter DPRK, or North Korea) looks to the future, economic development figures centrally in its officially proclaimed agenda. This year, as it has done every year over the past decade, the government's joint New Year editorial stressed the imperative of economic construction, broadly outlining the sorts of improvements that are to be achieved over the remainder of the current calendar year, and intoned that "The present grand onward march for the improvement of the people's standard of living demands that a full-scale offensive be launched in the overall economic front." But economic growth and development has just taken on a whole new importance in North Korean policy, one that extends beyond rhetoric: this past January, for the first time in over two decades, Pyongyang has formally unveiled a new multi-year economic plan: a 10-year "strategy plan for economic development" under a newly formed State General Bureau for Economic Development. The new economic plan is intended not only to meet the DPRK's longstanding objective of becoming a "powerful and prosperous country" [Kangsong Taeguk] by 2012 (the 100th anniversary of the birth of Kim Il Sung), but also to promote North Korea to the ranks of the "advanced countries in 2020."
Topic:
Development, Economics, and Foreign Aid
Political Geography:
Israel, South Korea, and North Korea