Tag Archives: European Union

From SMP to OMT: ECB commits to destroy monetary transmission

This is not a humorous title, and this is not a funny post. A couple of days ago, the ECB announced after its Governing Council meeting that it would initiate a new program of sovereign debt purchases. The program is named Outright Monetary Transactions, which adds OMT to the endless list of acronyms that has emerged after the onset of the financial crisis. The program replaces the Securities Markets Programme (SMP), or, rather, extends it in a number of directions. As mentioned in my post on the last ECB policy meeting, its need for emphasizing that what it does is not illegal strikes me as odd if not suspicious. At … Continue reading

Posted in Economics, Macroeconomics, Monetary policy | Tagged , , , , , , , , , , | Leave a comment

That strange feeling of Déjà Vu: EU’s New Fiscal Compact

The new “Fiscal Compact” of the European Union is now ready to be signed. The purpose of the compact is to strengthen fiscal discipline among member countries (at least those who sign). The desire for enhancing discipline is obviously triggered by the debt crises felt by many EU countries recently. It is, however, still an open question to which extent the current debt performance is due to the global recession or prior fiscal indiscipline. As debt is cumulated deficits it is hard to separate these matters. As seen in the data, it is nevertheless clear that the crisis itself is associated with a substantial worsening of the average government deficit … Continue reading

Posted in Economics, Macroeconomics | Tagged , , , , , | Leave a comment

Aaa – aaa – PLUS! Gesundheit!

Rating agencies dominate the financial markets and the news these days. Standard & Poor’s recent downgrading of French, Spanish, Austrian (and other, but not German) government bonds from “AAA” to “AA+” caused waves in media and markets even before they were official. But maybe it is much ado about nothing. Bond yields didn’t go up in France and Spain, as markets have seemed to downplay the downgrade. Maybe common sense is ticking in? Because, what is it that these rating agencies can? They could rate junk financial instruments “AAA” before the financial crisis. Standard & Poor’s rated Lehman Brothers “A” in September 2008 (just before Lehman went bankrupt). This rating … Continue reading

Posted in Economics, Macroeconomics, movies | Tagged , , , | Leave a comment

Structural Divergence in Europe: Death Foretold

One of my mantras is that doing economics is not about “being right,” but about getting wiser all the times. Note that the two things may not overlap. I, for example, would rather be wrong all of the time but know why I am being wrong instead of being right without having a clue as to why. So, I think it is a good mantra, and I will stick with it. Now, after the beginning of the current financial crisis and recession, more or less prominent economists lined up to tell the world that they were “right” as they had seen the crisis coming. Some actually had something to back … Continue reading

Posted in Economics, Macroeconomics, Monetary policy | Tagged , , , , , , , | Leave a comment

The Taylor Plot: A European View

January this year, John Taylor posted a scatterplot on his blog. He plotted quarterly US unemployment against fixed investment as a fraction of GDP for 1990q1-2010q3, and found a very strong negative correlation (jpg ). In contrast, the relationship between government spending and unemployment tended to be positive, albeit not so strong. On the latter finding he notes that “the correlation is not due to any reverse causation from high unemployment to more government purchases”. Overall, he therefore concludes that “Encouraging the creation and expansion of businesses should be the focus on government efforts to reduce unemployment” and further: “The recent compromise agreement to prevent the increase in tax rates … Continue reading

Posted in Economics, Economists, Macroeconomics | Tagged , , , , , , , , | Leave a comment

No Weber after Trichet: Politics 1, Treaty 0

Jean-Claude Trichet steps down as President of the European Central Bank this October. So much is certain, if things go according to the statutes of the ECB. Things do not necessarily go according to the statutes, but it seems a certain bet that Trichet will step down as planned. A question of much concern is who will succeed him? There has been much speculation that the next President would have to come from Germany. (A common conclusion derived from the hypothesis that the Germans and French battle over ECB leadership and influence, with the first President Duisenberg, a Dutch promising to step down after a half term, being a compromise … Continue reading

Posted in Economists, Monetary policy | Tagged , , , , , , | Leave a comment