A repository of solutions to global problems

For two years now, leading policy makers, academics and businessmen have been meeting for discussions in the Global Economic Symposium to provide concrete solutions for the most pressing global governance issues the world will be facing this century. Here is the result of these discussions: a repository of concrete policy proposals.

No German miracle

By: Wolfgang Munchau

The bottom line is that Germany’s economic performance will almost certainly improve relative to the eurozone average in the years ahead, but also that the current wave of enthusiasm is much exaggerated.

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.

WSJ: The stress tests were essentially a fraud – revelation sends bond spreads to new records

Many European banks understated their bond holdings in the stress test examination; the revelation renders the stress tests essentially worthless; there is also a massive discrepancy between the stress test data and the BIS data on government bond holdings by banks; the revelations had a severely negative impact on the markets, as the bank shares fell; 10-year sovereign spreads rose to new records – 372bp for Ireland, 355bp for Portugal; Ecofin effectively killed the German idea of a financial transactions tax; but reached agreement on a European semester to coordinate fiscal policy; 1m people turn out in protests against French pension reforms; Barroso delivers a pompous state of the union address to 100 MEPs in Strasbourg; Martin Wolf says Germany is the biggest beneficiary of the euro; John Plender, meanwhile, argues that Merkel’s political future may depend on her not understanding the economics of the crisis.

The case against speed

The appropriate option would be that those countries in Europe which are not under pressure from financial markets compensate for the restrictive impact of tighter fiscal policies in highly indebted countries. Germany, in particular, should take the lead in designing an adequate European response to the current public debt crisis that goes well beyond the emergency measures already taken.

Illusions of Safety

By: Satyajit Das

Pre-summer debt concerns of Greece, Spain and Portugal have receded. Market volatility and angst have eased. As Northern hemisphere markets return after the summer break and normal activity resumes, caution is the watchword.

Policy Makers of Last Resort

By: Barry Eichengreen

It is clear that the risk of a double dip is now high. While I am mindful of the eminent forecaster Edgar Fiedler’s admonition that he who lives by the crystal ball soon learns to eat ground glass, I would now put the odds of a double dip at 3 to 1. The recent data flow, from home sales and new unemployment claims to exports and manufacturing activity, leave no doubt that U.S. growth will be less than 1 per cent in the second half of the year. That could be stall speed.

Fiscal adjustment in Germany: No risk for the euro-area’s recovery, but for its long run stability

By: Sebastian Dullien

The German budget cuts may not be not big enough to derail the recovery in the euro-zone, but they will lead to renewed current account imbalances. The latest data confirm that nominal unit labor costs are set to drop drastically in Germany this year, wiping out most of the progress which has been made in correcting the divergences in price competitiveness since 2008.

German miracle or mirage?

By: Wolfgang Münchau

If you compare German and US real GDP, say over the last 10 years, the US is faring better both in terms of the total period, but, most importantly, also in terms of catch up to the pre-crisis level of real GDP. The data, at least up until the first quarter, do not suggest that there is a particular German miracle.

Europe’s Stress Tests: Only One Step Toward Banking Repair

By: Nicolas Véron

Ultimately, history’s verdict will depend on what happens now. First, Europe’s banks still need to raise more capital, and authorities must find a way to encourage this even after having ostensibly given them a clean bill of health.

Stress test for major European Banks: what is it good for?

By: Jan Pieter Krahnen

We find two good reasons for cheering the ongoing stress test of banks in Europe. Provided that there is government backed support in capital restructuring –either directly via capital injection or indirectly via insisting on additional equity issues-, the test is expected to raise the confidence of market participants, and to stabilize the interbank market. In addition, the test offers the opportunity for preventive capital restructuring, thereby strengthening the country’s financial architecture.

Detailed disclosure is the key to stress-test success

By: Nicolas Véron

The European decision to publish stress-test results is momentous. If its outcome is to be credible, it will necessarily reveal significant capital shortfalls in a number of banks. Otherwise, the gap with market perceptions, anecdotal evidence, and past top-down assessments by the International Monetary Fund and European Central Bank will be impossible to reconcile, and will increase market distrust and volatility.