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Blog Post
What’s at stake: The ECB has announced “Outright Monetary Transactions” (OMT) on 6th September. Comprising of potentially unlimited purchases of government bonds, it is the largest ECB intervention so far. In the blogosphere, OMT is mainly evaluated as intended to prevent market panic from pushing otherwise solvent governments into bad equilibria, insolvency due to mounting interest payments. Criticism focuses on either conditionality requiring more austerity, stopping growth or on conditionality being not fully credible as OMT support cannot easily be withdrawn from non-compliant countries.
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In the context of Russian involvement in Ukraine and the annexation of the Crimea, the EU, US and other countries have announced sanctions against Russia. Russia has retaliated by imposing bans on the import of food from Western countries.
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What’s at stake: The European Union and the USA are currently negotiating a free trade agreement, known as the Transatlantic Trade and Investment Partnership (TTIP). After a draft has been leaked to the public, an intensive public debate over possible advantages and disadvantages of such a deal has erupted. While there is some debate over how large the economic benefit of such a free trade agreement can be in face of already relatively low trade barriers between the EU and USA, critics claim that the deal will lower standards of consumer protection, provision of public services and environmental protection in the EU.
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What’s at stake: With the referendum on Scottish independence scheduled for September 2014 coming closer, the debate about the economics of Scottish independence is intensifying. Last week, the UK and Scottish governments both published papers on the effects of Scottish independence on public finances. While Danny Alexander, Chief Secretary of the UK Treasury argued that there is a “UK Dividend” worth around £1400 per capita per annum, the Scottish First Minister Alex Salmond claims, based on the Scottish government’s calculations, that an “independence bonus” would be worth £2000 per person and year.
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Thomas Piketty, probably the leading researcher on inequality, has recently published his magnum opus “Capital in the twenty-first century”. The book, which is the culmination of years of research, paints a rather bleak picture of the future of capitalism.
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What’s at stake: Recent events in Ukraine have been and continue to be of great importance on a geopolitical scale. This review focuses on the economic dimension of the issue. Probably cut off from further Russian support, Ukraine faces urgent economic problems, particularly with regard to its international financial obligations and reviving its economy through reforms long overdue.
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What’s at stake: From January 2014, full freedom of movement – the right to move, reside and work freely in any EU country– applies to citizens of Bulgaria and Romania. This has not been universally welcomed. Political opposition to freedom of movement has seen a resurgence. In the UK, Prime Minister David Cameron has sharply tightened the policy on immigration, restricting benefit access for foreigners and campaigning for caps on inflows to be allowed in the EU. In Germany, cities sounded the alarm bell, warning of burdens created by poor – mainly Roma – immigrants. And in Switzerland, a referendum has been passed calling for restrictions on the number of foreigners allowed to live and work in the country.
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What’s at stake: Managing Germany’s highly ambitious plans for a transition to electricity generation from renewable sources will be a main task of the incoming German government. The aims for the “Energiewende” in the new coalition agreement are for renewable energy to account for 40-45% of energy consumption in 2025 and 55-60% in 2035. A key challenge will be to implement a new market design in the electricity market that allows a cost-effective integration of energy from renewable sources, as the current subsidy scheme is coming under increased pressure, both from domestic consumers and companies for its costs and from the European Commission for its compatibility with state aid regulations.
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What’s at stake: The debate about what determines the expectations of economic agents and what model of expectations to use in macroeconomic models has been central to economics since the 1970s. Rational expectations, equal to the statistical expected values of the variables in question, opposed to adaptive expectations that are determined by past observations of the variables, were a central component of the New Classical critique of Keynesian economics and the debate has been active ever since. Recently, a post by Lars Syll, in which he attacks Simon Wren-Lewis for his continued defence of rational expectations, has provoked a reaction by Wren-Lewis, sparking a debate involving heterodox and mainstream economists.
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What’s at stake: Despite indications of a possible deal between President Obama and the Republicans in the US Congress, there is still a risk that the US Treasury hits the debt ceiling sometime after October 16th unless it is raised in time. A default on US government debt may result. Despite general optimism that a deal will be reached in time, discussion about what such a default would imply for financial markets and the global economy, as well as about creative solutions to the problem and the consequences of policy uncertainty abounds in the blogosphere.
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What's at stake: The emerging economies are currently being watched with increased anxiety in the context of the possible harmful effects of monetary policy tightening in the US on their ability to serve as the world’s growth engine. India is under particular scrutiny at present. With a reduced reform momentum ahead of the 2014 general elections, expected GDP growth slowed to around 4% for 2013 – down from an average of around 9-10% in previous years – a widening current account deficit of now 5% of GDP and increased controls for capital outflows by Indian individuals and firms, some commentators are afraid the “Hindu growth rate” of 3-4% during the 90’s may be about to return.
Blog Post
What’s at stake: In his State of the Union Address, US President Barack Obama resurrected a pledge to raise the minimum wage he had made during the 2008 campaign. In an effort to fight inequality, alleviate poverty and make work more attractive President Obama proposed proposed a $9 federal minimum wage, indexed to inflation. This has generated a lot of writings in the blogosphere, with the main issues revolving around the classic questions of the employment effect of the minimum wage as well as its efficacy as a means of redistribution.
