When Does It Hurt?

By: Ansgar Belke

The exchange rate “pain threshold” for German exports is at $1.55 to the euro.

Fiscal policy in Central and Eastern Europe

By: John Lewis

Countercyclical but deteriorating with EU membership.

The Systemic Risk Board: A return to the EMS

By: Casper de Vries

The board has no clear goal, no instruments or any power; at best it can collect and disseminate information on systemic risk.

The banking crisis - a rational interpretation

By: Patrick Minford

An unfashionable defense of rational expectation models.

Towards Default

By: Wolfgang Münchau

The European response to the Greek crisis is at least in part to blame.

Eurozone Meltdown

This is the first in a new series of regular briefing notes on important issues facing the euro area. In this briefing note we are asking whether the euro area could ever break up. We think not. But we are not as certain as we used to be.

How to rescue a bank without regret

By: Reint Gropp and Jan Pieter Krahnen

During the recent financial crisis almost all bank rescue operations followed the same myopic script: once a troubled bank reports its troubles, a rush for resurrection sets in, frequently on a Friday evening after close of business. The authorities have only two and a half days, from Friday to Sunday, to find a workable solution. On Monday morning, before the opening of the markets on the other side of the globe, a water-tight rescue plan has to be presented to the public. More often than not, the bank will be bailed out with public money. This rewards excessive risk taking and weakens the position of the bank’s competitors. Both effects decrease social welfare and financial stability over the medium term. At the same time, the seeds for the next crisis are planted.

How not to select the ECB President

By: Francesco Giavazzi

Once again the procedure the Eurogroup is following in designating new members of the Governing Council of the European Central Bank is unlikely to select the candidates best suited for the job. This time, however, the damage could be more serious: on February 15 the Eurogroup—because of the way it decides--will de facto select two candidates, the vice-president and the President. Both will serve eight-year mandates: the first starting in July of this year, when the term of Lucas Papademos, the current vice-president expires; the second starting next year when the term of Jean Claude Trichet will also come to an end.

US health care reform - an unintended stimulus

By: Adam Posen

Health care reform legislation – the extension of health insurance to millions of uncovered Americans – will pass the US Congress in some form soon, despite the Democrats’ loss of a Senate seat Even if partial at best,this is a long overdue catch-up of American social justice in an essential area with the rest of the civilized world. It will be a huge triumph and hugely expensive. What gets overlooked is that it will also have the effect of being the second US fiscal stimulus package following the global crisis, with substantial effects on the rest of the world as a result.

The Botox Economy - Part II

By: Satyajit Das

From late 2008 onwards, Government intervention, on an unprecedented scale, has been a dominant factor in economic matters. Governments have spent aggressively, going into or increasing deficits, to increase demand within the economy to offset weak private sector consumption and investment. Central banks have maintained low interest rates, pumped liquidity into the financial system and "warehoused" toxic assets to support the financial system. In the U.S., Fed holdings of MBS reached around $1 trillion. The purchases provided much needed liquidity to banks and reduced potential write-down on these securities. They also helped keep interest rates low and maintained the supply of housing finance.

Crunch Time for China

By: Barry Eichengreen

Another year, another round of criticism of Chinese currency policy. Once more Beijing is being faulted for tethering the renminbi to the dollar. By keeping its exchange rate artificially low, China is enlarging its already enormous current account surplus. This beggars the rest of the world. It obstructs the process of global rebalancing.

The Botox Economy - Part I

By: Satyajit Das

Botox (botulinum toxin), a highly toxic neuro-toxic protein produced by Clostridium Botulinum, is commonly used in cosmetic procedures. Botox is sometimes injected to improve a person’s appearance by removing facial lines and other signs of ageing. The effect is temporary and can have significant side effects. The global economy is currently taking the "botox" cure. A flood of money from central banks and governments – "financial botox" - has temporarily covered up unresolved and deep-seated problems.

The case for optimism: Three reasons why global GDP growth will accelerate in 2010

By: Eric Chaney

End of 2009 business cycle and market indicators were not as bullish as they were in the first phase of the global recovery, which, tracked by the global trade of manufactured products, started in June. Various signs of a global slowdown have recently appeared in business surveys, from China (PMI) to the US (see our Surprise Gap built from the ISM survey) and Germany (industrial production). Global stock markets have moved sideways since the end of October, as uncertainties about the continuation of the recovery grew. In addition, the announced restructuring of Dubai World’s debt, the downgrade of Greece and the bailout of an Austrian bank have raised the markets’ awareness that, in a still deflationist world, debts do not vanish in thin air, they just move from hands to hands, like hot potatoes.

How will Greek tragedy end?

By: Wolfgang Münchau

Greek tragedies do not end well, and this one won't either. This week's much trumpeted deficit-reduction plan by George Papandreou, Greek prime minister, was a huge disappointment. He slapped a 90 per cent on bonuses. I have no problem with a bonus tax, but this has nothing to do with the Greek fiscal situation. He also decided to cut the number of board members in public companies. Again, this may or may not be justified, but it has nothing to do with the crisis. Freezing the wages of a small group of well-paid civil servants may be a just thing to do, or not. But it won’t make a dent.