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June 3, 2008
Seismic Change in the Middle Kingdom - and why we should take note
In the wake of the tragic Sichuan earthquake, something big is astir in China. It was not just the earth that shook on this peaceful afternoon of May 12, 2008. Society and political world moved as well. Future historians may well remember this month as a watershed moment. The time has come for us to take note and change course in our understanding of China. This is probably one of the most important tasks in front of us when we map out our future decades. The stakes could not be higher. read more
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May 21, 2008
Is Sarkozy’s Fiscal Policy Supporting reforms?
The ‘fiscal package’ passed on 21 August 2007 (known in France under its acronym ‘TEPA’) was sold by the new government as an important tool to bolster confidence and thus make reforms easier. Since then, it has become the main target of the government critics in the French political debate. When the project was made public, we had concluded that, from a strict economic angle, the fiscal side of the first reforms announced by PM Francois Fillon was ‘an unnecessary fiscal stimulus without long-term merits’. Real life has confirmed this diagnosis: the ‘fiscal shock’ was based on flawed economics, namely that fiscal stimulus generate high growth returns, and proved counter-productive in the French political debate. Yet, the new government’s fiscal policy is not as negative as some critics are saying, and it is not too late to re-design it so that budget decisions would support structural reforms. read more
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April 23, 2008
Databasing Life Patterns
Over the last two decades, many of us have felt the gradual and expanding involvement of technological information and the internet in our lives. However, more often than not, we fail to appreciate the subtle and pervasive implications these developments may have for the ways we think and behave. The accumulation of information, from the growing expansion of the trivial to the serious aspects of life that are recorded in databases (e.g. financial, medical or legal records, online habits) and the increasing sophistication of computer technology converge to confer to data and information a new and interesting role in the lives of people and the functioning of institutions. Information is not any longer confined within the world of computer-based experts. read more
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Feb. 15, 2008
Normative Empire
On October 25th 2007 the Wall Street Journal published a blistering attack on Europe entitled “Regulatory Imperialism”. The editorial took issue with Europe’s intent to force its norms on the rest of the world by taking advantage of the dynamism of its internal market both affluent and attractive and in addition highly organized. Examples cited included the Microsoft Affair, the ban on the importation of chlorine-rinsed poultry, the Reach legislation on chemical products, as well as the plan to tax airline companies as part of the battle against climate change. read more
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Dec. 19, 2007
Minimum wages, maximum wages and the level of economic discourse in Germany
The past few weeks have been economically challenging for economists who live in or deal with Germany. For starters, the parliament just passed a minimum wage for postal workers. Second, the country is in the grips of a national discussion of “the excesses of managerial pay”- and a significant number of politicians have argued for caps on executive pay – maximum wages! And precisely because the quality of economic discourse surrounding these issues is so abysmal, one may need to think twice when assessing whether Germany has made any fundamental progress on labor market reforms. read more
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Oct. 13, 2007
The French Mark on Globalization
On September 28, Dominique Strauss-Kahn became the new Managing Director of the International Monetary Fund. He follows in the footsteps of his French predecessors, Pierre-Paul Schweitzer (1963-1973), Jacques de la Rosière (1979-1987) and Michel Camdessus (1987-2000). Indeed, French bureaucrats have led the IMF for almost half of its existence. Look beyond 19th Street, and you will find the mark of Frenchmen in many more of the world's most influential economic organizations, from Pascal Lamy, who has been Director General of the World Trade Organization since 2005, to Jean-Claude Trichet, who has headed the European Central Bank since 2003. read more
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Oct. 10, 2007
Financial crisis: why it may last
Since the month of August, economists have been trying to understand why something that was supposed to be positive for global growth, namely the diversification of risk through securitization, had turned out to be the source of the recent crisis. The first reaction was to characterize this as a liquidity crisis - some banks were having undue difficulties in securing funds in the interbank market, and thus central banks reacted by providing liquidity through open market operations. Many central bankers and academics started smiling with an "I told you so, there was so much excess liquidity, this was bound to happen", and adopted a tough anti-moral hazard stance. More than a month, and many billions of dollars of extra liquidity injections, later the situation in money and credit markets has not improved. Central banks have added liquidity to a situation of already "excess liquidity" to tackle an apparent liquidity crunch, and yet nothing has got better. Perhaps it was not about liquidity, after all. read more
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July 11, 2007
Unemployed: are sanctions efficient?
In the 1990s, a number of European countries undertook far-reaching labour market reforms to combat high unemployment. At their heart, these reforms were essentially a “carrot & stick” approach, where the “carrot” consisted of (mandatory) activation measures such as job search assistance, on-the-job training, or subsidized employment, while the “stick” consisted of sanctions on unemployment benefits for failure to comply with job search requirements. Specific sanctions ranged from the short-term discontinuation of benefits to permanent and in some cases substantial benefits reductions. As I read the current evaluation literature especially combinations of “assistance and sanctions” were successful in increasing the exit rate to work. --> read more
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June 30, 2007
EU Foreign and Security Policy with the Mini-Treaty
The prescriptions of the 2004 Constitutional Treaty which proved to be the least controversial were, paradoxically, those in the field of the common foreign and security policy (CFSP). The arrangements agreed to in Berlin last weekend represent little change from the 2004 text. The most important elements are the creation of the new post of “High Representative”, the post of President of the Council and the development of a European diplomatic service. These measures will not, by themselves, turn the EU into a new type of international power-broker, but they will help the Union formulate joint policy and, above all, will assist in the coherent presentation of that policy to the outside world. read more
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June 30, 2007
The European Treaty: why France wants to move quickly
The election of Nicolas Sarkozy as President of the French Republic has been widely regarded as the signal of a shift in France’s policy towards Europe. In a campaign where European issues were conspicuous by their absence, Mr Sarkozy was by far the clearest of all the principal candidates regarding his ideas for the EU. A quick fix was needed to overcome the stalemate created by the French and Dutch rejection of the draft constitutional treaty. Turkey, as an Asian country, had no justification to join the EU: instead, a type of “privileged partnership” had to be established to anchor this country to the Union. Having settled these two thorny issues, Europe should then focus on topics that matter most to ordinary citizens, such as how to create growth and jobs. read more
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June 25, 2007
Thanks, Asia, for your prudent policies
Economists tend to say that markets have short memories, in an attempt to explain why, seemingly, markets do not apply large enough discounts to some asset prices even after episodes of turmoil. However, economists typically ignore the fact that they also seem to have short memories and that, often, simplification prevails over careful analysis. A clear example is the ongoing commentary bashing Asian countries for a variety of assorted reasons: adopting mercantilist policies, having learnt the wrong lessons from the 1997 crisis, risking heavy capital losses from their exchange rate reserves, managing their currencies, self-inflicting standard of living costs, etc. While this commentary is largely the result of the fashionable discussion on the global imbalance, and while this is a very convenient way of providing arguments for politicians so that they can tackle, in a partial, biased and inefficient way, the problem of rising income inequality in the Western world, the truth of the matter is that few people seems to remember the conclusions of the post-crisis analysis back in 1997-98 and the policy implications of such conclusions. Ten years later, the Asian crisis feels like a very old event and memories seem to be blurring. read more
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June 14, 2007
Tax-free extra hours worked: not such a bad idea, after all
As a candidate, Sarkozy promised to reform labour markets. His first move concerns the infamous 35 hours workweek, not really a surprise. The shorter workweek had been introduced by the socialist government of Jospin with the explicit aim of sharing work to increase employment. It followed on earlier moves under President Mitterrand in the 1980s and under President Chirac in the 1990s. That the idea was mistaken may be obvious to (non-French) economists, but it remains controversial in France because substantial subsidies, introduced when the Jospin government realized that the measure could, well, actually reduce employment, make it difficult to identify its effects. read more
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May 24, 2007
Where is the end of the EU-rope?
Formal criteria don’t define the limits of Europe; they only delay the membership of determined applicants. The true limit is the EU’s capacity to absorb newcomers. Eastern enlargement challenged this capacity, but the forthcoming institutional reforms that allow the EU27 to function will – quite inadvertently – make it easier to enlarge the EU further. EU42 anyone? read more
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March 19, 2007
Treaty of Rome: the bud that unfolded into the European Union
The EU started life in circumstances that are almost unimaginable in today’s world. These irreproducible circumstances led to the creation of supranational institutions and rules – the 1957 Treaty of Rome – that are central to almost all of the EU’s difficulties as well as much of its strength. It also accounts for the fact that European integration has rarely stalled or been reversed. read more
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Feb. 7, 2007
Unemployement: France should follow European ways
The labour force in Britain has grown by 212 percent since 1851; over the same period, the number of jobs has grown by 212 percent. So - ignoring the business cycle - a market economy always provides more jobs, if there are more people «effectively» seeking work. The issue is how to increase the «effective» supply of labour. So let me focus mainly on the supply side of the labour market and, especially, on the problem of mobilising the unemployed in France. I will accordingly say a little about wage flexibility, which should be central to the demand side, and about skills. read more
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Jan. 11, 2007
Europe Needs Policies on Russia and Energy
A year ago, the European Union was at a loss when Russia cut gas supplies to Europe through Ukraine and thus to Europe. Exactly one year later, Russia cuts oil supplies to Europe through Belarus, and the EU is equally lost. Seldom haws Russia so clearly displayed its principles. It is time for the EU to adopt policies on both Russia and energy. Otherwise, the cost of Europe's disorientation may grow exponentially. -->Russia is a market economy, and even its state sector is highly commercialized. In the last few years, the Kremlin has successfully focused on boosting the price of Gazprom stocks, rendering it the third most valuable publicly traded company in the world. Part of this endeavor has been to abolish political subsidies to friendly former Soviet republics and let gas and oil prices approach market prices. Belarus was the last country to enjoy oil subsidies from Russia, and now they are gone. read more
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Nov. 30, 2006
A Stronger Euro Would Not Help Reforms
As currency markets start to question the soft landing scenario for the US economy and are impressed by growth prospects in Europe, the volatility of exchange rates is increasing and the euro is on the rise, both on a trade weighted basis and against the US dollar. Whether the rally will last or not is a relative issue. Assuming that the US housing market downturn remains contained and does not spread over the whole US economy, markets should be mostly sensitive to the news flow from Europe. In this regard, the latest batch of business surveys, starting with the Ifo index, was bullish for the European currency. So was the conspicuous silence of ECB's President Jean-Claude Trichet who, although repeating that Asian currencies should be more flexible, has not commented on the recent strength of the euro. read more
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Nov. 22, 2006
Europe and Chindia
Overseas acquisitions by Indian companies have suddenly gone on top gear. In the first nine months of 2006, there were 112 foreign acquisitions by Indian companies with a combined deal value of $7.2 billion. Last year it was $4.5 billion, which was itself several times more than the figure for 2004. What is triggering this surge, why now, and why it should worry the Europeans? -->Let us examine the combination of the four factors which seems to interplay in this sharp turnaround: read more
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Nov. 15, 2006
De-constructing the European Union's 'absorptive capacity'
The tendency in some political discourse now is to say that, because the Constitution that was meant to prepare for enlargement failed to be ratified, this shows that the enlargement process has now hit a roadblock called 'absorptive capacity', with the European polity suffering from a malady called 'enlargement fatigue', and therefore it would be best to call a stop and define the EU's 'final frontiers'. read more
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Nov. 13, 2006
America Votes: What next for the WTO?
The Doha Round of trade negotiations was suspended in July 2006. Soon thereafter leading trade negotiators hoped that talks could resume -even be completed- in early 2007. This timetable allowed for a short "cooling off" period but, more importantly, envisaged the resumption of negotiations after the U.S. Congressional elections. These elections were thought to be one factor stopping American negotiators from making further concessions on agricultural trade subsidies during 2006. Well, the elections have now come and gone but will we see the resumption and conclusion of the WTO's Doha Round negotiations? read more
