The end of muddling through is nigh

By: Wolfgang Münchau

One of the aggravating problems in this crisis is the financial illiteracy of Europe's political classes.

Why the European Debate on Competitiveness is going nowhere

Raising competitiveness has been the prime goal of economic policy in Europe. But is it a sensible goal? Those who favour a competitiveness-based approach often make false analogies between enterprises and countries. Countries do not compete in the way companies do. Trade among countries is not about profit but about the division of labour. It can benefit all by raising productivity. A more meaningful concept of competitiveness at the national level defines a competitive country as one that can maintain high rates of growth and employment in the medium term. This concept focuses on the country’s ability to provide its citizens with high and rising standards of living in the medium and long...

IMF says EU stress tests not transparent enough

Fund says full disclosure necessary to make the tests credible; says uncertainty about the stringency of the tests remain; advocates fiscal consolation and growth enhancing reforms; also a unified labout market critical for long-term success of monetary union; Schauble takes part in French cabinet meeting, and hears Sarkozy calling for a complete tax harmonisation between the two countries; the two sides agree on a framework for more sanctions, and withdrawal voting rights for deficit sinners (in other words on something that stands no chance of adoption); Calculated Risk reports that the US housing market is about to suffer a double-dip recession, as inventories are rising again; James Hamilton reports on research, according to which Chinese land prices rose 400% over the last two years; Jeffrey Sachs, meanwhile, says the austerity vs stimulus debate misses the point that investment, not consumption spending, is what matters.

A new breed of fiscal watchdogs

By: Lars Calmfors, George Kopits, and Coen Teulings

Faced with a looming debt sustainability problem, EU member governments have been left to their own devices. Both inside and outside the euro area, they are weighing well-known options for reforming entitlement programs and the tax system, to be complemented with the introduction of a new breed of independent fiscal institutions at the national level. Inspired by the experience of the US Congressional Budget Office (CBO) and the Netherlands’ Central Planning Bureau (CPB), in recent years, Belgium, Canada, Sweden, Hungary, and Slovenia have adopted similar institutions, in some cases under the aegis of a council of fiscal experts.

Merkel's expensive dirty weekend

By: Wolfgang Munchau

It was all a big bluff, a giant political miscalculation, costing the eurozone a cool €750bn.

When financial markets force too much austerity

By: Paul De Grauwe

This time financial markets do exactly the opposite of what they did prior to the eruption of the crisis. They now judge an increasing number of government bonds to be highly risky, leading investors to sell these bonds and precipitating a debt crisis in the Eurozone. But if financial markets and rating agencies were so spectacularly wrong prior to the crisis, when they underestimated risks, why would they be right now?

The numbers still do not add up

The aim of the rescue package agreed for Greece cannot conceivably have been to prevent a default. For all the daunting austerity and structural reform it requires, the numbers do not add up. The main purpose I can detect is to reverse the rise in Greek bond yields and stop contagion.