A Coordinated Fiscal Response to Revive the Euro Area Economy

The worsening of the economic situation in the euro area raises serious questions about the capacity of policymakers to get the situation under control.  Member States have limited room of manoeuvre to implement a counter-cyclical budgetary policy under the Stability and Growth Pact (SGP).  The European Central Bank (ECB) is confronted the zero bound interest […]

Five Reasons Not to Fear Deflation: Which Ones Make Sense?

In a post earlier this week, I explained why a majority of economists fear deflation. They argue that deflation disrupts the operation of financial markets and labor markets in a way that risks touching off a downward spiral. At the same time, they say, deflation weakens the power of monetary policy to reverse the downward […]

Does a New Eurozone Recession Threaten U.S. Growth?

It’s a perfect score for Germany’s economic reports so far this week—perfectly negative. In two days we’ve seen two macro updates for Europe’s biggest economy and in both cases the numbers were deeply disappointing. Yesterday we learned that new manufacturing orders suffered a substantially larger-than-expected decline in August, followed by today’s news that industrial output plunged 4% during that […]

Draghi Delivers!

After much fanfare, the ECB has surprised the market.  It delivered a 10 bp cut in key rates and committed itself to a ABS/covered bond purchase scheme to start next month.  The euro sold off, dragging down other European currencies, and sparked a dramatic bond and stock rally. The decision to cut rates today was […]

European Doldrums

European economies are faltering.  The German economy contracted in the second quarter, as did those of France and Italy. Growth in Spain and the Netherlands was not enough to offset the slowdown in the Eurozone’s largest members.  An escalation in the confrontation with Russia would send shockwaves rippling from the Ukraine westwards that world worsen the situation. […]

Germans Happily Pay More For Renewable Energy, But Would Others?

By Chris Dalby: While Germany is breaking world records for the amount of sustainable energy it uses every year, German energy customers are breaking European records for the amount they pay in monthly bills. Surprisingly, they don’t seem to mind. In the first half of 2014, Germany drew 28 percent of its power generation from renewable energy […]