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.

Bundesbank asks President Wulff to fire Sarrazin

Germany’s absurd “Jewish gene” scandal takes a decisive turn, as the board of the Bundesbank gave a unanimous recommendation that President Wulff should fire Thilo Sarrazin; Wulff like to accept the recommendations, but formidable legal obstacles remain; the ECB extended the unlimited liquidity support operations until early next year, but decision was not unanimous; a deal in principle was finally agreed on EU banking supervision, which marks a victory for those opposed to a better coordinated EU system; the European Commission’s proposals on naked short are much closer to Germany’s law than meets the eye; Eurostat confirms 1% growth for eurozone in Q2; French trade unions consider Woerth a liability in pension reform debate; President Giorgio Napolitano said the fight against youth unemployment should become Italy’s key strategic priority; Paul Krugman said Germany has done worse than the US on growth, since the crisis, but much better on employment; Peter Boone and Simon Johnson, meanwhile, argued that Ireland is essentially insolvent.

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.

Why the euro should prevail

By: Eric Chaney

Will the euro area survive its debt crisis? The short answer is yes. The longer answer is, this is a conditional probability, not a certainty. The conditions are an orderly resolution of the current tensions and the implementation of three sets of reforms.

G20 should worry about global imbalances not exit strategies

By: Marco Annunziata

The problem with the G20 is not the failure to co-ordinate exit strategies. That failure might have a positive effect on world growth. The real problem is the persistent failure to address beggar-thy-neighbour problems, and the return of global imbalances.