The Swiss National Bank's January 2015 decision to abandon the Swiss franc's peg to the euro led to short-term chaos in exchange markets and had a dampening effect on the Swiss economy. Some economists suggested Switzerland was poised to enter a sustained period of stagnation à la Japan. The decision also reignited policy debate on the benefits and drawbacks to central bank intervention in currency markets. While such intervention can be justified in certain situations, such as if the market is producing the "wrong rate", it can also impose significant economic costs. The ECB's recently implemented quantitative easing programme has been regarded by many as a thinly disguised attempt to weaken the euro in order to improve the eurozone's competitiveness. However, the euro's recent weakening began well before the ECB announced its programme; moreover, previous rounds of quantitative easing by other central banks have had minimal impact on exchange rates.
This figure from Cinzia Alcidi, Mikkel Barslund, Willem Pieter De Groen and Daniel Gros’s Forum article The Fall in Long-term Interest Rates: Quantitative Easing Effect or Trend? shows the decades-long drop in bond yields in Germany, the US and the UK. Click on the figure for further information.
The current complicated economic situation in Greece – and the rising political uncertainty that once again accompanies it – has important repercussions for growth, incomes, employment and the banking system in both the short and long term. Theodore Pelagidis and Michael Mitsopoulos write that the new Greek government is trying to perform a balancing act that will on the one hand satisfy its electorate and the more extreme fractions within the Syriza party and on the other hand offer a number of key concessions to the country’s European partners. It is thus imperative to carefully select which concessions the EU should make towards the new government.
EU policy documents commonly contain boilerplate text about closing the gender pay gap, but in practice, the EU has had little success on this front. Jill Rubery (Manchester Business School) outlines five problems with the EU’s policy approach. These include the misguided focus on gaps (which may be narrowed through a decline in men’s earnings rather than from gains in women’s earnings), the failure to take a strong position on general wage inequality (a major driver of the gender pay gap), and the current push for public sector cutbacks (which affect women more than men).
"EU policy, if it is serious about closing the gender pay gap, needs to take a position on general wage inequality in the member states."
- from Jill Rubery's Editorial Closing the Gender Pay Gap in the EU
Standard macro theory claims that fiscal contractions are recessionary in the short run, but that in the long run the supply side determines the trend rate of growth. Mark Blyth (Brown University) write that the eurozone has recently shown that you can contract so severely on the demand side that the supply side of the economy can be permanently damaged, which may have lowered inflationary expectations to a deflationary equilibrium point. This is extremely dangerous – more so for political than economic reasons. Greece is insolvent, and a continuation of the current regime of debt servitude will only fan the flames of debtor-friendly populism – not only in Greece but throughout the eurozone.
American commentators frequently criticised European leaders for failing to deal firmly and swiftly with the eurozone's sovereign debt crisis when it first struck. As Alasdair Roberts details in this 2010 paper, these commentators forget the lessons of American history. The United States experienced a similar crisis following the financial panic of 1837. Eight states defaulted and political turmoil intensified, undermining stability in several states and the federal system itself. The restoration of economic and political order was a prolonged and painful process, as enraged voters confronted the costs of inaction and accepted new constraints on democratic processes. Will the European crisis play out similarly?
by Jill Rubery
by Daniel Gros, Cinzia Alcidi, Mikkel Barslund, Keith Pilbeam, Arturo Bris, Willem Pieter de Groen
by Ansgar Belke
by Theodore Pelagidis, Michael Mitsopoulos
by Karl Heinz Hausner, Silvia Simon
by Francesco Bogliacino, Cristiano Codagnone, Giuseppe Alessandro Veltri
by Mark Blyth
Vassilis Monastiriotis, Niamh Hardiman, Aidan Regan, Chiara Goretti, Lucio Landi, J. Ignacio Conde-Ruiz, Carmen Marín, Ricardo Cabral
Francis Jacobs, Yves Bertoncini, Valentin Kreilinger, Stijn van Kessel, Andrea L.P. Pirro, Simon Otjes, Sonia Piedrafita, Vilde Renman
Vanessa Rossi, Carmen M. Reinhart, Vincent Reinhart, Klaus Abberger, Dean Baker, Justin Yifu Lin
Louise Curran, Hubert Escaith, Jean-Jacques Hallaert, Claude Barfield, Simon J. Evenett, Georg Koopmann