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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.
European short-term economic growth prospects remain weak because of rampant fiscal consolidation, private sector deleveraging, and the temporary unsettling effects of structural reforms. But European leaders continue to take important and constructive decisions on bailouts and the banking union, suggesting that recovery will eventually get on track. At least three such decisions occurred at the [...]
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 [...]
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 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 [...]
Note: Natalia Aivazova has provided me with valuable research assistance, elaborating on all the statistics. In early 2009, the International Monetary Fund (IMF) and the European Bank of Reconstruction and Development (EBRD) raised a cry of despair. They feared that several of the 15 Western European banks that dominated the banking system of Central and [...]
The recent election and political confusion in Italy indicate that political risk is back in Europe. Yet what is the real scope of the danger, and where do we go from here? To answer, it is worth noting that there were two elections in Europe, one in Cyprus and one in Italy, and in many [...]