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61. Diminishing Quality of Fiscal Institutions in the United States and European Union

Author:
Thomas Grennes
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
The value of government debt relative to the size of the economy has become a serious problem, and the problem is likely to grow in the future. Total debt of the U.S. government relative to gross domestic product increased substantially since the financial crisis and the Great Recession that began in 2007, but the debt ratio has been increasing since 2001. Gross debt relative to GDP increased from 55 percent in 2001 to 67 percent in 2007 to 107 percent in 2012. Comparable figures for debt held by the public (net debt or gross debt minus debt held by various government agencies) were 80 percent in 2011 and 84 percent in May 2012 (IMF 2012). As a result, the debt ratio is now the highest in U.S. history, except for World War II, when it reached 125 percent of GDP (Bohn 2010). U.S. debt is also high relative to the debt of other high-income countries, and projections of future debt place the U.S. government among the world's largest debtors (IMF 2011, 2012; Evans et al. 2012). Gross debt consists of all the bonds issued by the U.S. Treasury, but a broader measure that includes contingent debt results in a much larger debt (Cochrane 2011). Contingent debt includes unfunded obligations related to Social Security, Medicare, Medicaid, and loan guarantees to agencies such as Fannie Mae and Freddie Mac, and these obligations are so large that they have been described as a “debt explosion” (Evans et al. 2012). The sovereign debt crisis of the European Union has similarities to the U.S. debt problem, but it also has significant differences, as will be shown below. Interestingly, the poorer countries of the world that have frequently experienced debt problems in the past, have avoided major debt problems so far.
Topic:
Financial Crisis
Political Geography:
United States and Europe

62. Asian and European Financial Crises Compared

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, and Financial Crisis
Political Geography:
Europe and Asia

63. An Economic NATO: A New Alliance for a New Global Order

Author:
C. Boyden Gray
Publication Date:
02-2013
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
In the aftermath of World War II, the greatest concern facing the United States and its European allies was restraining the Soviet Union and preventing the spread of communism. Cooperation on military security was paramount, and the United States and Europe rose to the challenge by creating NATO, a new type of multilateral defense agreement. Once again, the transatlantic relationship is at a new and perilous crossroads. But now it is economic, rather than military security that is at risk. Crisis grips the economies of Europe, just as the United States, mired in historic levels of unemployment in the wake of the 2008 recession, is rethinking its strategic priorities and place in the world. As before, fears mount concerning the future of liberal democracy and Western capitalism. The question is whether transatlantic cooperation will again rise to the challenge.
Topic:
NATO, Economics, International Trade and Finance, Treaties and Agreements, Financial Crisis, and Reform
Political Geography:
United States, Europe, and North America

64. Europe's Strategic Future: Implications of the Eurozone Crisis

Publication Date:
05-2013
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
The analysis of the eurozone crisis is often limited to an assessment of its impact on the political and economic future of the European Union. Far less attention is given to how the crisis will shape Europe's role in the world and how other corners of the globe perceive Europe as a strategic actor. The economic crisis that began in 2008 has now become a multidimensional political crisis for both the northern and southern countries of Europe, and the trends do not all go in the same direction.
Topic:
Economics, International Trade and Finance, and Financial Crisis
Political Geography:
Europe

65. A simple model of multiple equilibria and sovereign default

Author:
Daniel Gros
Publication Date:
07-2012
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper presents a simple model that incorporates two types of sovereign default cost: first, a lump-sum cost due to the fact that the country does not service its debt fully and is recognised as being in default status, by ratings agencies, for example. Second, a cost that increases with the size of the losses (or haircut) imposed on creditors whose resistance to a haircut increases with the proportional loss inflicted upon them.
Topic:
Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Europe

66. Money and power: EU budget negotiations in a time of austerity

Author:
Sara Hagemann
Publication Date:
05-2012
Content Type:
Policy Brief
Institution:
Danish Institute for International Studies
Abstract:
The ongoing negotiation of the EU's multi-annual budget is heavily constrained by how the decision process takes place. Governments focus on narrowly defined national interests, rather than on securing a better budget for Europe. While the budget is small in size, it could be used as a powerful political tool for much needed economic growth policies on a larger scale.
Topic:
Debt, Economics, Government, and Financial Crisis
Political Geography:
Europe

67. Flexicurity in Italy – how far is Rome from Copenhagen?

Author:
Ilaria Maselli
Publication Date:
09-2012
Content Type:
Policy Brief
Institution:
Danish Institute for International Studies
Abstract:
The recently approved labour market reform in italy is clearly inspired by the danish flexicurity model. However, despite the noble intention and some improvements, the reform is failing to bring the long- hoped-for change, especially regarding the dualisation of the labour market and the universalisation of welfare provision.
Topic:
Economics, International Trade and Finance, Markets, Regional Cooperation, and Financial Crisis
Political Geography:
Europe and Italy

68. From Bretton Woods to the Euro: How Policy-Maker Overreach Fosters Economic Crises

Author:
Pierre Siklos
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
This paper considers the relevance of the Bretton Woods system for the prospects of reform of the international monetary system and in the context of the ongoing euro area financial crisis. It explores the challenges that must be met in attempting to reform the present international monetary system and euro area policies. After considering what resonates, and what does not, from the Bretton Woods regime of fixed exchange rates, it examines some of the key lessons from that era. The paper concludes that policy makers at Bretton Woods promised too much in terms of the stability and durability of the policy regime, and did not give sufficient thought to how the arrangement devised in the 1940s would actually function. They failed to instill the logic of collective action among their members. In particular, the Bretton Woods system failed because the agreement paid virtually no attention to governance issues. Finally, in terms of the current situation in the euro zone, policy makers have failed to recognize that the problems are not purely economic; domestic political considerations are important too. A political-economy approach is required for the design of new international monetary arrangements. The same principles apply today when we contemplate the survival of the euro zone. Politicians need to be more realistic and less ambitious, lest they create the preconditions for the next global crisis.
Topic:
Economics, Global Recession, Financial Crisis, and Governance
Political Geography:
Europe

69. What Germany should fear most is its own fear: An analysis of Target2 and current account imbalances

Author:
Paul De Grauwe and Yuemei Ji
Publication Date:
09-2012
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper analyzes two claims that have been made about the Target2 payment system. The first one is that this system has been used to support unsustainable current account deficits of Southern European countries. The second one is that the large accumulation of Target2 claims by the Bundesbank represents an unacceptable risk for Germany if the eurozone were to break up. We argue that these claims are unfounded. They also lead to unnecessary fears in Germany that make a solution of the eurozone crisis more difficult. Ultimately, this fear increases the risk of a break-up of the eurozone. Or to paraphrase Franklin Roosevelt, what Germany should fear most is simply its own fear.
Topic:
Economics, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe and Germany

70. Country Economic Forecasts: Germany

Publication Date:
06-2012
Content Type:
Policy Brief
Institution:
Oxfam Publishing
Abstract:
The German economy is clearly slowing in the face of the latest phase of the Eurozone crisis. We expect the impact of the crisis on business investment and exports to cause the economy to contract in Q2 before recovering slowly in H2. As a result, GDP growth is now forecast to slow to 0.7% in 2012 overall from 3.1% last year, before accelerating to 1.4% in 2013.
Topic:
Economics, Industrial Policy, Markets, and Financial Crisis
Political Geography:
Europe and Germany