In this Commentary, CEPS Director Daniel Gros takes a look at the quality of Greece’s official fiscal adjustment programme and concludes that a substantial part of the projected revenue increases are unlikely to materialise and that the hard choices and unavoidable cuts have been postponed. In his view, it is not a credible instrument in the longer-run perspective, which is what is needed given that the required long-term adjustment is a reduction in the deficit worth over 10% of GDP.

On March 24th the members of ASEAN plus three other major Asian economies (China, Japan and Korea) began operations of a fund from which member countries can swap their national currencies for US dollars within a pre-determined limit. This so-called “Chiang Mai Initiative Multilateralization” or CMIM will essentially become an Asian Monetary Fund, once its institutional structure is in place. This paper draws lessons from the Asian experience for the recent debate in Europe over the feasibility and desirability of creating a European stability fund.

The stand-off among the members of the eurozone over whether to come to the aid of fellow member Greece has prompted a lot of speculation that Greece might turn to the IMF for support, an approach that now seems to be favoured by the German government. This Commentary by CEPS Director Daniel Gros finds, however, that while the IMF may have fewer political constraints in giving cheap money, it is unable to provide enough to make a lasting difference to Greece.

Economics of Monetary Union enables students to gain a firm understanding of the theories and policies relating to monetary unions. The author analyses the costs and benefits associated with having one currency, as well as the practical workings and current issues involved with the Euro.

As a rule, multinational enterprises (MNEs) are taxed separately by the countries in which they operate on the basis of the income produced in each jurisdiction. While being in operation for several decades, the system has never worked satisfactorily. Integration is only serving to amplify these difficulties, since intra-firm transactions take on increasing importance in the operations of MNEs, and financial market integration is expanding the opportunities for tax-planning in profit allocation and the debt-financing of capital spending.

Did allowing financial institutions to become ‘too big’ play a role in the financial crisis? This Commentary by CEPS Director Daniel Gros argues that being ‘too interconnected’ is also a factor, and that US accounting standards should recognise exposure of gross derivatives on the balance sheet to make this interconnectedness, and the resulting exposure, clear.

The recent financial crisis was caused by a combination of asset price bubbles, mainly in the real estate sector, and a credit bubble that led to excessive leverage. A recurrent theme of this paper is that an appropriate assessment of the crisis should be made in light of the bubble that preceded it. Accordingly, the current situation should be compared to a ‘no-bubble’ benchmark rather than the pre-crisis period.

Even more spectacular than the recent decline of the dollar against major world currencies has been the long-run decline of the US currency: since 1960 the dollar has lost two-thirds of its value against the Japanese yen, the Swiss franc and the German mark (since 1999, the euro). At the same time, however, at least since the early 1990s, the US has been seen to produce superior economic results, i.e. a higher productivity growth than most of Europe and Japan with more or less the same rates of inflation.

This study attempts to assess the extent to which the financial crisis has damaged citizens’ trust in public institutions, especially the confidence that European citizens invest in the European institutions. The results of major public opinion surveys show a severe decrease in citizens’ trust in the immediate aftermath of the financial crisis with a slight recovery nine month later. In particular, citizens’ net trust in the European Central Bank hit an historical low point in the aftermath of the financial crisis with a majority of people distrusting that institution.

Many commentators have recently argued that Germany should rethink its export-led growth model because it did not prevent a fall in its GDP, which was even larger than that experienced in the US or France. In this Commentary, CEPS Director Daniel Gros explores whether this model is truly so bad if it has allowed Germany to carry on consuming while consumers elsewhere have had to tighten their belt considerably.

The basic error of modern macroeconomics is the belief that the economy is simply the sum of microeconomic decisions of rational agents. But the economy is more than that. The interactions of these decisions create collective movements that are not visible at the micro level.

This paper explores the question of whether there is a trade-off between maintaining price stability and financial stability (much in the same way as there can be a trade-off between price stability and output stability when supply shocks occur) and if so, which of the two objectives should take precedence. The authors analyse how such a trade-off can arise and further examine the issue of how to define and monitor financial stability and assess which policy instruments the ECB could deploy to maintain financial stability.

In his latest Policy Brief, Daniel Gros gives a new angle on why the existence of current account ‘imbalances’ should provoke the greatest financial crisis in living history if the raison d’être of a financial system is to deal with imbalances (between savers and investors). He argues that one has to take into account the way current account deficits are financed and how flow imbalances accumulated into large stock disequilibria.

In this new commentary, CEPS Director Daniel Gros looks at the threat posed to EU banks by their exposure to capital flights and currency attacks in Eastern Europe, recommending the creation of a large scale, temporary European Financial Stability Fund to deal with the crisis.