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.

Markets attacks euro, Portugal and Spain

Investors bet €7.6bn against euro, the highest ever short position on any currency; CDS spreads on sovereign bonds continue to rise for Greece, Portugal and Spain; Jose Zapatero under pressure to demonstrate leadership; A Spanish PR campaign to smooth the markets backfired; Marco Annunziata says eurozone needs institutional overhaul to deal with internal imbalances and moral hazard; Michael Arghyrou and John Tsoukalas propose a two-currency regime as a way out of the crisis; Spanish government blames economic commentators for speculative attack; ECB says private financial institutions should contribute to crisis resolution; A French trade union warned the government not to use the speculative attacks as excuse for austerity measures; Das Kapital argues that such an attack could also happen to the US.

Europeans want to tough it out

Europeans want Greece to help themselves without external aid – for now; Wolfgang Munchau argues why the EU should not let the IMF bail out Greece; Deutsche Bank warns that the speculative attacks on Greece and Spain are a dress rehearsal for the US; G7 fails to agree on prop trading regulation; Euro continues to fall against dollar and yen; Jean Quatremer says one investment bank and two hedge funds are behind the most recent price movements in sourthern European bonds; Jose Luis Zapatero is losing public support; Germany’s manufacturing recovery seemed to have stalled in the last quarter; Paul Krugman, meanwhile, says the euro area is one monetary union too far.

Markets are starting to bet on Euro area disintegration

Plunging stock markets all over the world, particularly in Southern Europe; the euro fell below $1.38; Investors concerned about a string of potential state insolvencies in euro area; The Spanish finance minister critisises the Commissioner Joaquin Almunia for equating Greece, Portugal and Spain; Strikes in Greece is widening; Jean Claude Juncker in denial of eurozone crisis; Peter Bofinger said that the EU can shoulder a default of a small member state; Gillian Tett argues that the current crisis is related to the ECB’s exit strategy; the Economist discusses EU crisis management options; Germany’s stability programme is short on details; Dominique Strauss Kahn, meanwhile, said he might consider running for French presidency.

Greece’s new promises provokes anger at home

In a new attempt to calm down markets Greece promised to increase fuel taxes, raise retirement age and cut wages; The European Commission approved the plan but puts Greece under closer surveillance; Greek trade unions plan a mass strikes for later this month; Rumours prompted crisis to spread to Iberian peninsula, with Portugal’s bond spreads up 144bp; Portugal’s prime minister Socrates optimistic that he can bring down deficit; Spanish government backed off a proposal to extend pension calculation period from 15 to 25 years; European credit default swaps reached record volumes last week; Bulgaria is determined to adopt euro by 2013; John Authers says eurozone membership has nothing to do with the crisis of peripheral EU countries; David McWilliams says crisis management of the Irish government has been a catastrophe so far; Wolfgang Munchau, meanwhile, argues that the German merciless crackdown on tax evasion – though morally justified – is a de facto tax increase on businesses and wealthier middle classes.

Towards a bond market crisis

Euro area governments have borrowed €110bn so far this year, producing a crowding-out effect to the deteriment of weaker EU countries; EU wants to put Greece on a short leash, forcing the country to make real-time adjustment whenever the budget gets blown off-course; Jean Pisani Ferry and Andre Sapir argue why the best way to help Greece is through the IMF because the EU cannot impose the same of conditionality; Pierre Briancon says a European bailout of Greece comes for sure; Austria is planning a number of increases in indirect taxes; Germany wants to buy a stolen data CD, listing 1500 potential tax evaders; the euro area manufacturing sector grew at its fastest rate in January; Olivier Blanchard, meanwhile, pleads for a continuation of low interest rates to allow for a solid recovery of private consumption.