The issue is not simply the number of negotiators. It is the wide range of political values and interests represented around the G20 table. It is not the “rise of the rest” that has shifted the terms of debate but the “rise of the different”. In the 1950s and 60s, the world saw the emergence (really the re-emergence) of West Germany and Japan. Though Japan’s surge created genuine anxiety in the US during the 1980s, fears were limited by the recognition that the Japanese, like the Germans and all other G7 members, were believers in free market democracy. There is no such consensus among today’s rising powers. As importantly, G20 members stand at quite different levels of development. Even where they have common political and economic values, poor countries have quite different hopes, fears, needs and plans from rich ones. Read more >>

Keynesian economists blame the sluggish US growth and lack of job creation on the insufficiency of stimulus measures. If only Congress had agreed with President Obama to greater stimulus, they say, the current US recovery would have been much stronger. This is a dubious proposition. The deeper problem lay in the limitations of fiscal stimulus as a response to the 2008 crisis. Read more >>

So far, emergency European funding has been impossible to exit. Rather than act as a catalyst for crowding in private capital needed to restore growth, and financial viability, public money has provided the private sector with the possibility to exit programme countries at a much lower cost; and exit it did. As a result, governments have become highly dependent on official aid to cover their budget needs, meet interest obligations and roll over maturing debt; and domestic companies have been starved of the oxygen that is so critical for investment and job creation. Read more >>

The way in which the Bankia – and other – cases have been managed over the past few weeks confirms that banking supervision in the euro area cannot continue to be implemented in a decentralised way. The incentives of the national authorities to free ride are simply too high and undermine the stability of the entire euro financial system.

The traditional argument put forward in defense of conducting prudential supervision at the national level is that supervisory authorities have to be accountable to taxpayers, who ultimately bear the economic consequences of bank failures. As long as bank rescue operations are financed by taxes collected at the national level, so goes the argument, supervision should remain national. Read more >>

There is only one thing worse than preparing for a crisis that does not happen; and that is not preparing for a crisis that does. It appears that American politicians not only lack plans to deal with adverse European contagion but are also on course to expose the country to additional self-inflicted challenges. Friday’s disheartening data are a timely reminder that these are enormous risks to take with what is already a very fragile employment situation. Read more >>

The eurozone crisis narrative is based on the idea of good creditors and bad debtors. The idea is simple. It is also dangerously wrong. Spanish yields are high, apparently, because Spain finds itself in a poor fiscal and banking position whereas German yields are remarkably low because the Germans have delivered the right reforms. It follows, therefore, that other countries in the eurozone should become more Germanic. Read more >>

Whichever way you look at this troubling situation, last week’s intensification of deposit flight in Greece is much more than just a new wrinkle in what has become a protracted European crisis. If the phenomenon spreads, and it will in the absence of a credible region-wide policy response, control of Greece’s destiny within the eurozone would slip even further away from politicians and policymakers and more directly into the hands of a population that is in a rejectionist mood. Already this rejection is not that far from tipping Greece into a classic funding panic and the eurozone into real turmoil. Read more >>

The relationship between Greece and the rest of the eurozone is increasingly reminiscent of the cold war’s balance of terror. Greece is not the Soviet Union, and this is a financial rather than a nuclear crisis, but the mechanics are strikingly similar. Read more >>

The bank panic is Greece is now accelerating, and could easily push Greece out of the Eurozone unless decisive actions are taken to prevent a massive run on the Greek banks. If such a run occurs, and drives Greece to leave the euro, Greece’s exit would most likely create an even greater calamity, as Portugal, Spain and perhaps Italy, suffer rapid withdrawals of bank deposits as well. The Eurozone’s unwillingness to keep Greece in the union would create a powerful one-way bet against the survival of the currency union in several other countries as well. Read more >>

Anyone who believes that US decline is inevitable ignores history. The US will almost certainly not face market pressure this year, or for several years to come. But there’s a catch: the very absence of market pressure makes it much harder for US policymakers to reach difficult compromises. This safe-haven curse imperils US efforts to foster robust economic growth and fiscal sustainability. Read more >>

In 1931, Austria was attempting to deliver the kind of austerity now being witnessed in parts of southern Europe. Under the Gold Standard, the only option to regain competitiveness was to force domestic prices and wages lower. In the process, businesses failed, non-performing loans rose and the banking system began to look incredibly vulnerable. The crisis culminated in the failure of Creditanstalt, a major Viennese bank – the 1931 equivalent of Lehman Brothers. What had up until then been only a Great Recession turned into the Great Depression. A handful of years later, Hitler was welcomed by cheering crowds in Vienna. Read more >>

The eurozone economy is projected to be in recession this year and to barely stabilise in 2013. This should provide grounds for a depreciation of the Euro against other major currencies.

Yet such a depreciation is not happening. The reason is that several foreign official institutions, notably the central banks of emerging markets such as China, are continuing to intervene in the foreign exchange market to buy Euro-denominated assets at a pace which more than compensates the sales of private market participants. Read more >>

The move would signal a long-overdue shift towards aproactive strategy vis-à-vis IMF governance reforms whereby Europe could finally break with the current “wait-and-delay” tactic, precisely at a moment when it needs powerful allies within the fund membership in order to erect a credible global firewall. France, Germany, and Italy would together help set the right tone for ongoing G-20 and IMF negotiations, where many non-European shareholders are expected to contribute to a sizable increase in the IMF’s financial capacity. This would, as well, jumpstart the forthcoming round of negotiations on the redistribution of the voting rights that will have to be finalized by January 2014, with Europe, this time, no longer in a defensive mode. Read more >>

During his first 100 days in the office, the new president has a golden opportunity to earn the respect of the world by ensuring that the next selection of the World Bank is indeed open, transparent and merit-based.

Don’t under-estimate the importance of such a step. With so many people watching around the world, renewed failure to move forward with reforms at this critical juncture would accelerate the gradual disengagement from the two institutions by a growing number of countries. It would also undermine their standing in the court of public opinion at a time when both need to be viewed as “trusted advisors” and respected promoters of the global public good. Read more >>

In domestic election campaigns European politicians display a kind of cognitive dissonance. They must be aware that any propositions on European policy will be subject to close reading in the embassies and chancelleries of their partners, yet they tend to talk as if they will only be heard by a domestic audience. The French Presidential campaign, which officially began on Monday, is a case in point. All the major candidates have made commitments on their European policies – to renegotiate this, or abandon that – which may appeal to elements of their target market, but which will not go down well with the Chablis at the first EU summit after their election.
 Read more >>