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In RealTime posts, PIIE senior staff and colleagues discuss the fast-moving economic news, financial developments, and public policy choices confronting the United States and the world.
My RealTime posting on March 25 about the potential precedent set by the Cyprus bailout deal provoked much commentary focusing on the impact in the euro banking system. Let me elaborate. The precedent of imposing losses on uninsured depositors in Laiki Bank and the Bank of Cyprus was a sound one, but that does not [...]
In the past couple weeks, there have been signals that change is coming to the forecasting and monetary policy process of the Bank of England—incremental change, but change nonetheless. Last year, the Court of the Bank of England commissioned three reviews of various aspects of the Bank’s performance during and after the financial crisis, which [...]
After a week of threats, protests, and alarm in financial markets, Cyprus and its bailout partners reached a deal early Monday morning that was far better than the outcome negotiated earlier in the month. Instead of socializing the costs of their failure across the entire Cypriot population, [pdf] Cyprus and the Troika (consisting of the [...]
The late Mike Mussa of the Peterson Institute, a former Chief Economist of the International Monetary Fund (IMF), noted about some episodes of the late-1990s Asian financial turmoil that “there are three types of financial crises: crises of liquidity, crises of solvency, and crises of stupidity.” This quip comes to mind when considering the developments [...]
The review [pdf] of the United Kingdom’s monetary policy framework published alongside the budget on March 20 reveals that the UK Treasury has ruled out replacing inflation targeting with nominal GDP targeting. That is a shame. Nominal GDP targeting would provide more space for the Bank of England to support the recovery in the near [...]
Suddenly, Russia has become a central player in the Cypriot financial crisis. On the very evening after the Cypriot parliament rejected a proposed levy on bank deposits that the Cypriot president had previously accepted as a condition for a bailout package of €10 billion, Finance Minister Michael Sarris flew from Nicosia to Moscow. The next [...]
This is the third in a series of postings by Mr. Aslund about debt and fiscal issues in Europe. A previous essay, “EU Countries Know How to Slash Public Expenditures,” was posted March 11. Natalia Aivazova has provided able research assistance. A proposition widely shared among economists is that it is very difficult for western [...]
The latest policy debate on the euro area debt crisis concerns whether austerity has gone too far too soon, causing excessive recessions in some countries and making them less creditworthy rather than more so. The International Monetary Fund (IMF) has found that it had been underestimating the multiplier and therefore overstating projected output paths of [...]
Second in a series of postings on the European economic and budget situation. I am grateful to Natalia Aivazova for valuable research assistance. See also A Reassuring Choice for the Central Bank of Russia. Corporate profit taxes have fallen like stones throughout Western Europe in the last three decades. At the same time, their revenues [...]
The decision in Europe to tax depositors in Cypriot banks, forcing them to share in the cost of the latest euro area bailout, has sparked anger in Cyprus and concern that a run on Cypriot banks could spread to Spain, Italy, and other troubled countries. But the so-called “stability levy” on all depositors, not even [...]