A couple of months ago, financial markets realised that the developed economies were slowing sharply, while the policy response from central banks and finance ministries was slow, or confused, or in some cases, like the debt ceiling debacle in Washington, directly damaging. Since then, some policy makers have woken up and smelled the coffee. There have been significant policy shifts in the US, and at the ECB. But there has been no progress whatsoever in the eurozone sovereign debt crisis. Last week, that became by far the most urgent problem facing the global economy. Read more

There have been definite signs of progress this week on European sovereign debt. The ECB is pressing governments to get “ahead of the markets” and come up with a comprehensive solution to the crisis in the next few weeks. Meanwhile, there is talk that Germany may have at last decided that its own narrow national interest would be best served by agreeing to a larger and more generous package of European support for the troubled nations.

Although the optimists may be over-stating the degree to which German thinking has actually changed, something is clearly afoot. For the first time since the crisis started last May, there is a chance that the EU could surprise the markets with a coherent response to the problem. Read more

Although the European Summit reached agreement on how to develop the bail-out mechanism for sovereign countries after 2013, it was an agreement about process rather than content. Germany remained adamant that there would be no fiscal transfers to troubled economies, and that the best way forward is further fiscal consolidation, along with plans for the private sector to share in any losses after a sovereign default. EU finance ministers have been charged with filling in the blanks by 31 March, 2011 – if the markets are ready to wait that long. I am not confident that they will be. Nor do I believe that the present path is necessarily in the best interests of Germany itself, let alone other EU member states. Read more

The proposal to issue E-bonds, made in the FT last week by Jean-Claude Juncker and Giulio Tremonti, has sparked widespread controversy. Some observers (for example, Wolfgang Münchau) have said that it contains the kernel of a solution to the European debt crisis – which, under some circumstances, it might. Read more

There are two massive fixed exchange rate blocks operating in the world economy today, and both of them are facing severe strains and conflicts.  Read more

The exceptionally strong German GDP figures for 2010 Q2 have triggered a lot of commentary on whether Germany has coped better with the recent recession than other countries, especially the US. Read more