Archive for February, 2011
Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by “too big to fail” financial institutions.
By Jeffrey J. Schott and Barbara Kotschwar
Whoever emerges on top of the unfolding political crisis in Egypt, there is little doubt that the country is in need of fresh economic policies as well as fresh leadership. One year ago, we argued in Reengaging Egypt: Options for US-Egypt Economic Relations that the United States should pursue programs that help Egypt “create a better environment for expanding economic opportunities and promoting democratic processes in Egypt.” In the event, both sides dithered. Economic reforms were pursued in half-steps and too slowly to address some of the underlying economic factors that have contributed to the political rebellion now spreading across Egypt.
The European Union Council, meeting in the first week of February, did not produce the “comprehensive long-term solution” to the eurozone’s debt crisis that some had hoped. Yet, EU leaders did agree on a deadline to produce their version of such a solution at the next Council in late March 20111, and they offered the general policy direction of the content of this long-term package. The EU and eurozone in particular are finally approaching the end of the beginning of the euro crisis, which is gradually being reflected in the calming eurozone financial markets.
There are encouraging signs that a breakthrough may have been achieved in the long-running debate over the exchange rate of China’s currency, the renminbi. Its real rate against the dollar is now rising at an annual rate of 10 to 12 percent, which if continued would complete the needed correction of 20 to 30 percent over two to three years, and official US reactions suggest that assurances that the adjustment will continue may have been received. This movement appears to derive from effective US pressure, increasing expressions of concern about the issue from other countries (especially a number of major emerging markets) and, most importantly, changes in economic conditions in China itself.