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Monday, 30 November 2015

More Europe, anyone?

Robin McConnachie (Oxford Anylitica; Former Senior Adviser, Bank of England) 

The PEFM seminar series at St Antony's continued last Monday evening with another look at the causes of the 2007 /08 financial crisis and the various attempts to deal with the consequences for Europe. What happens now to take this forward? The discussion was led by Lorenzo Codogno, currently a visiting Professor at the LSE , but at the time Chief Economist at the Italian Treasury, who represented Italy on a number of the key committees servicing European Finance Ministers.

Lorenzo's thesis was that contagion from the US sub – prime mortgage failure quickly infected a number of European financial sectors causing a number of different problems which were difficult to deal with simultaneously in the absence of Europe - wide bodies to produce an effective response. He showed a number of useful charts using Italy as an example – in fact Italy had been less severely affected than many other European countries. But there had been a collective deficiency in the European response to the spread of the crisis, which he called a crisis of governance. For the future the answer was to have more effective European institutions rather than a plethora of rules which could not be enforced. The macro imbalances procedures currently being developed should enable countries to see in advance and hopefully take action to avert crises but this approach was not agreed by all, with resistance to large fines being levied on non-complying countries with excessive deficits, the perversity of this throwback to the SGP being particularly objected to. What was agreed was the need for debt deleveraging but this had hardly begun. European growth should be stimulated by exploiting the opportunities created by the single market e.g. the proposed capital markets union but the existing European authorities apart from the ECB were in a state of collective paralysis: there was strong resistance in many countries on important issues like bailing in lenders or creating yet more (costly) European institutions. An agreed roadmap was required to revive the European project.

Monday, 2 November 2015

Waiting for the recovery: Europe’s financial crisis and the fragile recovery

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Presentation: Jeffrey Frank, Director, IMF Offices in Paris and Brussels
Blogpost: Alexandra Zeitz, St. Antony’s College

The numbers are striking and disheartening. Seven years on from the onset of the global financial crisis, Europe’s recovery remains shallow and vulnerable. Real GDP is ten percentage points higher in the US than it was in 2008. In the UK it is five percentage points higher. In Europe, by contrast, it is three percentage points lower than in 2008.

Unemployment in Europe remains extremely high. In August 2015, the average unemployment rate for the Eurozone was 11%. In Spain it was over 22%, having come down slightly from a height of 26.3% in early 2013.  Estimated potential output growth, already lower in Europe than the US prior to the crisis, fell sharply during the crisis, from 1.3% in 2006-2007 to 0.6% in 2008-2010. It has remained low, sparking fears of a European slide into stagnation.

Why has the recovery in the Eurozone been so much more sluggish than in the neighboring UK and in the US? And what tools are available to policymakers to encourage a more robust recovery, improving the livelihoods of Europeans still afflicted by the aftermath of the crisis?