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.
Additional Highlights from the Current Issue
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).
Michael Mitsopoulos (SEV Hellenic Federation of Enterprises) and Theodore Pelagidis (Brookings Institution) argue that 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. 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.
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.
Quote of the Month
from Jill Rubery's Editorial Closing the Gender Pay Gap in the EU
About Intereconomics – Review of European Economic Policy
Intereconomics is jointly produced by ZBW – Leibniz Information Centre for Economics and the Centre for European Policy Studies (CEPS). The journal appears bimonthly and features papers by economists that deal with economic and social policy issues and trends in Europe or affecting Europe. To submit a paper for publication, please visit the Call for Papers section of our website for relevant information.
Intereconomics is published by Springer-Verlag Berlin Heidelberg.
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