What went wrong in Greece and how to fix it: Lessons for Europe from the Greek crisis

Greece’s problem came from the bursting of a debt-financed growth bubble inflated with the help of EZ membership. This column argues that the inevitable adjustment was more painful than necessary. The fiscal consolidation was too tight and too front-loaded, and, importantly, structural reform wasn’t properly sequenced. By concentrating on labour market rather than product market […]

What went wrong in Greece and how to fix it: Lessons for Europe from the Greek crisis

Greece’s problem came from the bursting of a debt-financed growth bubble inflated with the help of EZ membership. This column argues that the inevitable adjustment was more painful than necessary. The fiscal consolidation was too tight and too front-loaded, and, importantly, structural reform wasn’t properly sequenced. By concentrating on labour market rather than product market […]

Time to Scrap the Stability and Growth Pact

Today’s Eurozone fiscal discipline is the amalgamation of reforms implemented over ten years, with the latest and largest changes agreed in crisis settings. This column argues that the result fosters neither growth nor stability since actual fiscal policy has been powerfully procyclical. The focus on intermediate targets has distracted attention from the final objectives – […]

Italy and the Euro: Myths and Realities

With Tommaso Nannicini and Alessandro Saia The euro’s impact on southern EZ members is a key topic in national and European debates. This column argues that the economic evidence is twisted to fit preconceptions. It presents evidence based on the ‘synthetic control’ approach, finding that the euro raised trade, lowered interest rates and inflation, but had […]

Wages, Productivity and Employment in Italy: Tales From a Distorted Labor Market

Italy’s labour market productivity has been stagnating in the past decade despite numerous reforms. This column gives an explanation why this is so. By focusing exclusively on flexibility, past labour market reforms have completely neglected incentives. There is severe allocative malfunctioning in the Italian labour market. Wages do not reflect sector productivity in the short […]

Privatizations and Debt : Lessons From The Greek Fiasco

 In the midst of the European Debt Crisis, it is tempting to think that high-debt countries could alleviate the recessionary impact of the budget consolidation process by selling (poorly managed) assets and stakes in their state owned enterprises (SOEs), and by using the proceeds to buy back their debts. In addition to providing a cushion […]

What Is Wrong With Europe?

Unlike the US, Europe is struggling to recover from the crisis. This is especially the case in certain European countries. This column discusses why the process of convergence in the Eurozone has slowed down. It proposes a way for European institutions to cope with the structural problems – with individual country-level reforms and a federal […]

Assessing the Probability of an Italian Political Crisis

How likely is it that the forthcoming decision of the Parliamentary Committee to ban Silvio Berlusconi from the Senate will lead to a political crisis, prompting a strong rise in Italian yields? In my opinion, the probability today is slightly above 50%. Rather than hinging upon the survival of the Letta government, however, the likelihood […]

The Consensus for The Letta Government Is Crumbling

The consensus for the Letta government is crumbling. Political shocks are adding to paralysis and economic stagnation. Shocks On July 30th the Supreme Court (Corte di Cassazione) will have the last say on Berlusconi’s recourse against the Appeal Court which sentenced the ex Prime Minister to four years in prison and to a five/three years […]

The Roots of the Italian Stagnation

It’s currently very trendy in Italy to blame Angela Merkel, Mario Monti, and austerity measures for the current recession. This column argues that while the severity of the downturn is clearly a cyclical phenomenon, the inability of the country to grow out of it is the legacy of more than a decade of a lack […]

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