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Focus Summer 2011
We present and discuss current research and economic policy related topics in International Economics. This quarter about:
Debt crisis in Europe and the U.S.
At what point does indebtedness become a problem? In the study “Growth in a Time of Debt,” by Carmen M. Reinhart and Kenneth S. Rogoff they found relatively little association between public liabilities and growth for debt levels of less than 90 percent of GDP. But burdens above 90 percent are associated with 1 percent lower median growth.
Guido Tabellini (Professor of Economics at Bocconi University and CEPR Research Fellow) argues that the crisis no longer involves a single country. The very foundations of the Economic and Monetary Union are being shaken. These foundations must be modified in order to survive, and this must be done now, not in a few years.
French banks’ Italian debt holding is more than their combined exposure to Spain, Portugal, Ireland and Greece, which stood at $253.8 billion at the end of 2010.
Financial Times interactive info graph regarding the debt situtation of the Euro members and their ratings by the "big three" agencies.
This week starts with another crisis-meeting. Commissioner Rehn expressed his deep concerns regarding Greece and also Italy. Contagion is threatening. Italys debt: 120% of GDP.
Financial Times Deutschland (German)
"Die Welt" reports a possible debt cut for Greece until December 2011 according to some high ranked EU offical.
Despite the french plans of rollovers of greek debt into new instruments and another EU aid programme, Moody´s warns of a possible default.
An informative detailed article of the FTD series "Amerikas Schuldenkrise" about the impending US-insolvency. S&P threatens with "D" rating, a situation like in Greece?
Financial Times Deutschland (German)
Treasury Secretary Timothy F. Geithner has signaled to White House officials that he’s considering leaving the administration after President Barack Obama reaches an agreement with Congress to raise the federal debt limit. Financial Times Deutschland (German)
Greek lawmakers passed legislation implementing a crucial five-year, €28.4 billion ($40.99 billion) austerity plan, paving the way for the country to receive fresh aid from its international creditors.
The french government and banks apparently aggreed on the participation of the private finance sector in the next Greece bail out. Some of the invested capital will remain there to subscribe to new bonds with 30 years maturity.
Financial Times Deutschland (German)
There are two possible responses to the Greek debt crisis: ‘Plan A’, continued official lending, for as long as needed, with possible voluntary private sector involvement, and ‘Plan B’, coercive pre-emptive or post-default restructuring with significant face value reduction. Both options have risks, but it is necessary to move to Plan B sooner or later, Zsolt Darvas (bruegel) says.
Kenneth Rogoff guest commenting in the Financial Times Deutschland about rescue packages, institutional difficulties and the claim for a European fiscal union.
Financial Times Deutschland (German)
After a meeting with the French president, Nicolas Sarkozy, in Berlin on Thursday, the German chancellor said they had agreed that any contribution from private creditors to the package would have to be voluntary, stressing that there was no legal way in which banks could be forced to play along.
Europe´s energy transition
Poland files an action against the new European emission directive because it fears competitive disadvantage.
Research shows green investment in Europe dropped by one-fifth in 2010 while developing countries surge ahead.
A predicted oversupply of 1.9 billion tonnes of carbon permits in the EU's emissions trading scheme (ETS) between now and 2020 is risking a carbon price slump, according to a report by the environmental NGO Sandbag. "We urge politicians across Europe to support tightening the cap so that the emissions trading system can deliver a low-carbon Europe."
Germany should coordinate their energy policy with EU partners. This should reduce the risk of sharp price hikes for consumers and allay the doubts about the impact this will have on other countries that import German electricity.
The German parliament votet for the nuclear power exit. It´s not clear yet how much this will cost. At the moment consumers do not face rising prices, but this will be inevitable in the long run. Renewable energy should account for 35% of energy production by 2020.
Frankfurter Allgemeine Zeitung (German)
Germany's own carbon emissions will rise, because the phase-out of nuclear power between now and 2022 will force an increased reliance on fossil fuels, such as coal and gas. Reliance on fossil fuels will raise price of carbon permits, prompting switch to gas which produces fewer emissions. The use of renewables is also likely to increase as a result of the changes.
Plans by the German government to axe all the country's nuclear power stations by 2022 are under threat from legal action by aggrieved energy companies that claim Berlin's plans are unconstitutional.
In a bruegel policy contribution Reinhilde Veugelers describes which challenges Europe has to master regarding investments in clean environmental technologies.
An internal research report of the European comission states that if the EU member states reduce their consumption of energy by 20% - as energy commissioner Oettinger demanded - this could have direct impacts on the price of emission trading.