Some thoughts on macroeconomic models

By: Paul De Grauwe, K.U. Leuven and CEPS

The limits of DSGE models as tools of analysis for central banks.

Germany's nuclear paranoia

By: Wolfgang Münchau

In my latest FT Deutschland column, I argue that the German Social Democrats are in a right mess over nuclear. This entry contains an English synopsis, and the original column in German.

Austria’s Grand Coalition collapses after EU referendum row

New election will be held in September; Chancellor Alfred Gusenbauer will definitely quit; the G8 has reached a climate deal breakthrough with a commitment to a 50% cut in emission targets by 2050; German coalition quarrels over nuclear energy; German industrial production, meanwhile, falls sharply in May; Nicholas Sarkozy, meanwhile, suffers his first presidency defeat.

$1.6 trillion – the estimated costs of the credit crisis are rising by the week

Most of the pain in the credit crisis is still ahead of us, according to a Bridgewater study; Abu Dhabi may drop the dollar peg, and link to a basket instead; Kenneth Rogoff says recession is necessary for the world to avoid a big political and economic crisis; Germany’s finance minister Peer Steinbruck, meanwhile, says French EU presidency degenerates into crisis management.

A rate rise, plus a neutral bias – a typical European compromise

ECB raises rates to 4.25%, Riksbank raises to 4.5%; euro falls against the dollar, as policy bias becomes neutral; ECB expresses concern about wage indexation in euro area; there is rising popular support for nuclear energy in the EU; Poland’s President Lech Kaczynski, meanwhile, explained his refusal to sign the Lisbon treaty as a means to protect Ireland from being bullied.

Draghi criticises Berlusconi's economic policy

Bank of Italy governor attacks Robin Hood tax, and failure to cut and reform public spending; Spain’s labour market worsens dramatically; Ireland revises growth forecast to 0.5% this year, price indexation will drive up Belgian prices and wages by close to 5% this year; Lech Kaczynski, meanwhile, said he will only sign the Lisbon treaty after Ireland has done so.

ECB’s rate rise – critisised by Sarkozy, backed by Merkel

Ahead of the immanent interest rate rise Sarkozy started another attack on the ECB while Merkel gave some support; IMF says the euro's share in global reserves is now 26.8%; Poland's president Lech Kaczinski refuses to ratify of the Lisbon Treaty; remarks by French officials, meanwhile, that EU enlargement was a catastrophic mistake have failed to raise Polish enthusiasm.