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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.
Installation of a new government in Italy and the first effects of the newly approved bailout in Cyprus provide some modestly optimistic data points for an otherwise weak euro area outlook. For Italy, a Fresh Start, a Youthful Team, but No Guarantees of Success In Italy, Enrico Letta has taken office as the prime minister, [...]
Just as suddenly as it arose, the Cyprus financial crisis has passed by. The banks have opened and so has the stock market without undue panic. A few steps remain in the euro crisis, but this crisis is abating, and however messily Europe has handled it. Today, the questions are what we have learned, and [...]
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 [...]
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 [...]
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 [...]
In the first round of the presidential election in Cyprus on February 17, Nicos Anastasiades, the center right presidential candidate, won 45.5 percent of the vote, setting up a final round against Stavros Malas from the communist AKEL party of the incumbent president, Demetris Christofias. Malas garnered 27 percent of the vote. The new frontrunner [...]
Industrial policy, in which governments seek to support certain industrial sectors, has made a comeback. It has attracted new respectability with the economic rise of China. Justin Lin, the recently departed World Bank chief economist, has made the intellectual and empirical case for industrial policy. The essence of his industrial policy is to identify comparative [...]
As indicated by Spanish and Italian secondary market 10-year bond yields of 6 to 7 percent, the euro area remains a work in progress. Italy, on the other hand, seems capable of issuing new bonds, at least to domestic buyers, at slightly lower rates, despite its recent Moody’s downgrade. Because the European Central Bank (ECB) [...]
When a minister of finance and economics states that his country “does not need a rescue at this time” and the central bank governor cautions that banks will need more capital “if the economy worsens more than expected,” private bondholders are likely to take notice. As someone who has repeatedly maintained that a prolonged crisis [...]