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Too Big to Fail: The Transatlantic Debate
Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by “too big to fail” financial institutions.
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What the United States Can Do to Help a Post-Mubarak Egypt
By Jeffrey J. Schott and Barbara Kotschwar
Whoever emerges on top of the unfolding political crisis in Egypt, there is little doubt that the country is in need of fresh economic policies as well as fresh leadership. One year ago, we argued in Reengaging Egypt: Options for US-Egypt Economic Relations that the United States should pursue programs that help Egypt “create a better environment for expanding economic opportunities and promoting democratic processes in Egypt.” In the event, both sides dithered. Economic reforms were pursued in half-steps and too slowly to address some of the underlying economic factors that have contributed to the political rebellion now spreading across Egypt.
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The End of the Beginning for the Euro Crisis
The European Union Council, meeting in the first week of February, did not produce the “comprehensive long-term solution” to the eurozone’s debt crisis that some had hoped. Yet, EU leaders did agree on a deadline to produce their version of such a solution at the next Council in late March 20111, and they offered the general policy direction of the content of this long-term package. The EU and eurozone in particular are finally approaching the end of the beginning of the euro crisis, which is gradually being reflected in the calming eurozone financial markets.
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A Breakthrough on the Reminbi?
There are encouraging signs that a breakthrough may have been achieved in the long-running debate over the exchange rate of China’s currency, the renminbi. Its real rate against the dollar is now rising at an annual rate of 10 to 12 percent, which if continued would complete the needed correction of 20 to 30 percent over two to three years, and official US reactions suggest that assurances that the adjustment will continue may have been received. This movement appears to derive from effective US pressure, increasing expressions of concern about the issue from other countries (especially a number of major emerging markets) and, most importantly, changes in economic conditions in China itself.
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US-China Trade Disputes Could Grow
Gary Clyde Hufbauer says that while the specific trade disputes the United States has with China are in line with the levels experienced with other countries, those with China are likely to grow.
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How Europe Can Muddle Through Its Crisis
As Europe’s financial market contagion spreads to systemically important eurozone members, the region is echoing with “end-game scenarios” and demands for major new steps by European policymakers. Among these would be a European “fiscal transfer union,” a new common eurozone bond, action by the European Central Bank (ECB) to monetize sovereign debts, and finally a eurozone breakup itself.
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Getting Surplus Countries to Adjust
It has been 80 years since John Maynard Keynes first proposed a plan that would have disciplined persistent surplus countries. But the Keynes Plan, like the subsequent Volcker Plan in 1972–74, was defeated by the major surplus country of the day (the United States and Germany, respectively), and today China (not to mention Japan or Germany) exhibits no enthusiasm for new revisions of these ideas.
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10 Reasons Why the Russian Economy Will Recover
Op-ed in the Moscow Times
November 25, 2010
In my September 3, 2008, column titled “10 Reasons Why the Russian Economy Will Falter,” I saw no reason why economic growth would continue. At the time, most economic analysts argued that Russia was a safe haven and predicted growth of 7 percent to 8 percent in 2009. Instead, gross domestic product plummeted by 8 percent in 2009.
During the past two years, the mood in Russia has changed profoundly. Euphoria and complacency have been replaced with cynicism and pessimism. A broad conviction has spread that the country is condemned to a growth rate of, at most, 3 percent to 4 percent a year.
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The Eurozone: Can’t Live Within It, Can’t Live Without It
Jacob Funk Kirkegaard says talk of debt restructuring or “haircuts”” for creditors is inevitable but is also fanning the flames of contagion and discord in Europe.
Edited transcript, recorded November 30, 2010.
Steve Weisman: First Greece, then Ireland, then maybe Portugal and Spain. What next for the contagion in Europe? We’ve had Jacob Kirkegaard of the Peterson Institute here on these developments a number of times. Thanks for coming again today.
Jacob Kirkegaard: My pleasure.
Steve Weisman: Give us a snapshot of the state of play at the end of November and beginning of December.
Jacob Kirkegaard: First of all one thing that is clear, the thing that everybody feared so to speak, which is contagion to a systemically important eurozone country—whether it’s Spain or Italy doesn’t really matter—has already materialized. That really is a significant change of events in the last couple of days.
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Obama Has to Tell Beijing Some Hard Truths
With policymakers failing to make progress on the critical issue of global imbalances, America has no alternative but to put China on notice. Privately but promptly, Washington has to inform Beijing it will label it as a currency manipulator, back legislation treating the manipulation as an export subsidy, and take it to the World Trade Organization (WTO) if it does not let the renminbi rise significantly.
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Thomas Grennes
Thoughts From Across the Atlantic
Thomas Grennes is a professor of economics at the North Carolina State University and a former visiting faculty member at the Stockholm School of Economics in Riga. His research has dealt with various aspects of international economics, including open economy macroeconomics, international finance, and international trade in agricultural products. Recent research topics have included macroeconomic aspects of the Great Moderation, offshore outsourcing, sovereign wealth funds, and the relationship between government debt and economic growth. Earlier work dealt with emerging market issues in the Baltic countries and Russia and trade and macro policies in Sub-Saharan Africa. Economic history topics include the Columbian Exchange of plants and animals, the effects on food markets of introducing mechanical refrigeration, and the integration of Tsarist Russia into the world grain market. When he is not involved in economics, he enjoys mountain hiking.
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