Monthly Archives: July 2011

By Eswar Prasad and Mengjie Ding

Our analysis paints a sobering picture of worsening public debt dynamics and a sharply rising debt burden in advanced economies. These rising debt levels combined with heightened concerns about fiscal solvency now constitute a major threat to global financial stability.

Recent events in Greece, Ireland, Portugal and other economies on the periphery of the eurozone show the risks of debt buildups that are not tackled. Bond investors can quickly turn against a vulnerable country with high debt levels, leaving the country little breathing room to balance its fiscal books and precipitating a crisis.

Overall, the worldwide picture of government debt is not pretty. Read more

The agreement that eurozone leaders reached last week has succeeded in engaging the private sector in the Greek rescue. The package represents a sensible compromise: eurozone countries will provide some sort of guarantee for the collateral provided by Greek banks, which has been downgraded to default status. In turn, this will allow the European Central Bank to continue to refinance the Greek banking system, in keeping with its de facto role as lender of last resort which has led it to fill an institutional and political vacuum since the onset of the crisis. Read more

The US fiscal stimulus, we argue, led primarily to increasing imports and suppression of export growth.  Read more

The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. Read more

By Domenico Lombardi

The IMF has just elected the first woman to its managing directorship, and already Christine Lagarde’s new desk in Washington is piling up with folders eagerly awaiting her arrival. Read more