A service of the

Forum · Issue 5 · 2022
 The Return of the Eurozone Crisis?

In the past few years and months, a number of subsequent shocks have hit the European economies. A combination of high levels of public debt, stagflation as well as the announcement of a joint return to contractionary monetary and fiscal policy could be a challenge for the EMU given that interest rates on government bonds, in particular in southern Europe, increased substantially in recent weeks. This Forum takes a look at the factors that have contributed to the recent return of interest rate spreads, analyses the new developments in macroeconomic aggregates and considers how the EU should respond to the emerging crisis.

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Forum · Issue 4 · 2022
 EU Enlargement in a New Light

On 23 June, EU leaders converged to throw their unanimous support behind the candidacy for EU membership of Ukraine and Moldova and acknowledge the eligibility of Georgia. Still, the path to EU membership is long and fraught. This moment and these new candidates present the EU with an opportunity to reform, redefine and recreate itself to meet the new challenges that lay ahead, conceptualise joint foreign and security policy and carve out its place as a geopolitical actor in its own neighbourhood and beyond.

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Forum · Issue 3 · 2022
 The Ripple Effects of the War in Ukraine

As the war in Ukraine continues with no feasible solution in sight, economists and policymakers are considering the ripple effects of the conflict in numerous sectors: energy, food and agriculture, raw materials and technology, security and defence, migration, and the global world order. This Forum examines the impact of the war on the European economy and society, how to address the fall out in the hardest hit sectors and the deep-seated ramifications that will play out in the years and decades to come.

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Editorial
 The Leopard: How a Post-Fascist Party Rose to Power

Mario Draghi never had a vision for Italy to achieve sustainable and inclusive growth while relaunching innovation and productivity, write Giovanni Dosi and Andrea Roventini. Indeed, the only opposition able to capture a good deal of social discontent during this period of rising inflation and plunging real wage levels has been the post-fascist right.

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Eurozone Fragility
 Towards a New Euro Crisis?

Have we done enough to strengthen the eurozone so that we can now be sure it is prepared to face future crises, in particular the inflation crisis that we are confronting today? Paul De Grauwe analyses what has been done to the governance of the eurozone over the years to reduce its fragility and make it more sustainable.

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Sanctions on Russia
 The Economic Effects of Potential EU Tariff Sanctions

Olim Latipov, Christian Lau, Kornel Mahlstein and Simon Schropp use a sector-specific partial-equilibrium model to quantify the impact of sanctions that mirror punitive import tariffs implemented by the US. The authors find that while EU mirror sanctions would induce large welfare losses for Russia in some sectors, they would bring significant inefficiencies for the EU in others.

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Letter from America
 The Most Consequential Midterms in History

The November midterm elections will be the first since Trump's 2020 loss and the proliferation of his "big lie". Trump's unsubstantiated claims of voter fraud have planted seeds of doubt among many voters that threaten, more than topics like high inflation or abortion rights, to further divide the country to the point of unraveling, writes Jiffer Bourguignon.

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National Security
 The New Cold War and the Return of History

The Russian invasion of Ukraine has marked the rebirth of a new era of conflict, the end of the late 20th century unipolar international security architecture under the hegemony of the United States, the end of globalisation and the beginning of a new cold war between the West and the East, writes Christian Breuer.

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Forum
 Euro Conditionality Hinges on Positive Convergence

Once the euro area debt crisis faded, so too did the sense of urgency to complete the banking union and deepen the capital markets union, commonly agreed necessary to foster positive convergence, writes Michala Marcussen. This is a concern as the cornerstone of conditionality, which underpins the toolkit keeping euro area spreads in check, ultimately depends on economic growth.

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Quote of the Month

"With the ongoing monetary policy normalisation putting upward pressure on interest rates, anchoring market expectations regarding public debt sustainability has become an additional policy objective in high-debt countries."

Christina Checherita-Westphal, Sebastian Hauptmeier, Nadine Leiner-Killinger

The Euro Area in Between Crises? Considerations on Fiscal Policies and Rules

 

Current Issue

Volume 57
2022
Issue 5

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Figure of the Month

Spread of 10-year sovereign bonds over Bund, basis points

ECB purchases have permitted low interest rates, which has made large debt burdens manageable. But low interest rates have an adverse side effect. They drive away private buyers, who see low yield levels as incompatible with perceived risks. It is also possible that low interest rates discourage needed structural reforms in the euro area periphery and embolden populist politicians, who come to see de facto spread control as a safety net. This is the euro periphery debt “conundrum”. On the one hand, low interest rates are needed to keep things going. On the other hand, they make it harder to ever exit an equilibrium where the ECB is increasingly on the hook for deficit financing.

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