The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders.
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"A Centerless Euro Cannot Hold" by Kenneth Rogoff | Project Syndicate - 0 views
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With youth unemployment touching 50% in eurozone countries such as Spain and Greece, is a generation being sacrificed for the sake of a single currency that encompasses too diverse a group of countries to be sustainable?
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What of Nobel Prize winner Robert Mundell’s famous 1961 conjecture that national and currency borders need not significantly overlap? In his provocative American Economic Review paper “A Theory of Optimum Currency Areas,” Mundell argued that as long as workers could move within a currency region to where the jobs were, the region could afford to forgo the equilibrating mechanism of exchange-rate adjustment.
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if intra-eurozone mobility were anything like Mundell’s ideal, today we would not be seeing 25% unemployment in Spain while Germany’s unemployment rate is below 7%.CommentsView/Create comment on this paragraph
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Peter Kenen argued in the late 1960’s that without exchange-rate movements as a shock absorber, a currency union requires fiscal transfers as a way to share risk.
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Europe, of course, has no significant centralized tax authority, so this key automatic stabilizer is essentially absent.
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Many Germans today rightly feel that any system of fiscal transfers will morph into a permanent feeding tube, much the way that northern Italy has been propping up southern Italy for the last century. Indeed, more than 20 years on, Western Germans still see no end in sight for the bills from German unification.
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Later, Maurice Obstfeld pointed out that, in addition to fiscal transfers, a currency union needs clearly defined rules for the lender of last resort. Otherwise, bank runs and debt panics will be rampant. Obstfeld had in mind a bailout mechanism for banks, but it is now abundantly clear that one also needs a lender of last resort and a bankruptcy mechanism for states and municipalities.
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A logical corollary of the criteria set forth by Kenen and Obstfeld, and even of Mundell’s labor-mobility criterion, is that currency unions cannot survive without political legitimacy,
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European policymakers today often complain that, were it not for the US financial crisis, the eurozone would be doing just fine. Perhaps they are right. But any financial system must be able to withstand shocks, including big ones.
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Europe Can't Handle the Euro - 0 views
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When leaders of the 11 nations that agreed to combine their currencies gathered in January 1999, they predicted great things: the single currency would shift global portfolios to euro assets, depressing the value of the dollar relative to the euro, and the new eurozone would be a strong player in the global economy, reflecting the size of an integrated European market. Instead the euro plummeted, Europes economy remains weak, and unemployment is more than twice the U.S. level.
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The ECB will eventually be judged not by its words but by whether it achieves low inflation and does so without increasing cyclical unemployment. I am not optimistic about either part of this goal.
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The ECB must make monetary policy for "Europe as a whole," which in practice means doing what is appropriate for Germany, France and Italy, the eurozones three largest countries. Last year demand conditions in those countries were relatively weak, while demand conditions in Spain and Ireland were very strong. That meant a monetary policy that was too expansionary for Spain and Ireland, causing a substantial acceleration of their inflation and threatening their competitiveness.
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Such disparities of demand conditions will undoubtedly persist in the future because European countries differ substantially in industrial composition and in a variety of economic policies.
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the time will come when the ECB will set a policy that is too tight for the outliers, leading to substantially higher unemployment than if they were free to set their own monetary policies. Even without discretionary monetary policies, the interest rates in countries with weak demand would naturally decline, and the external values of their currencies would fall, both acting as offsetting stabilizers of the countries weak demand. But this will not be possible within the EMU, where a single interest rate and a single exchange rate prevail. Result: higher average cyclical unemployment.
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In the U.S., a fall in regional demand leads to lower wages, which help to maintain employment; to movements of labor to regions where demand is stronger; and to a net fiscal transfer from Washington (because lower regional income means lower federal tax liability). None of this happens in Europe, where wages are inflexible, mobility is severely limited by language and custom, and there are no significant fiscal transfers.
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Politicians can now blame the ECB for high unemployment and complain that it is a powerful force beyond national control. Instead of seeking to make labor markets more flexible, European governments are talking more about "social wages," about mandatory 35-hour workweeks, and about rolling back even the small reductions in social benefits Germany achieved under Helmut Kohls government. Worse yet, there are attempts to eliminate differences in labor practices and even differences in wages among the EMU countries.
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Moreover, these policies reduce the international competitiveness of many European industries and encourage the adoption of protectionist policies to keep out non-European products.
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Forcing a single monetary policy on all of Europe will cause the countries that suffer what they regard as unnecessarily high unemployment to resent the actions of others. Attempts to force a Europewide tax system, especially if taxes are used to redistribute incomes among European countries, will compound the potential for conflict.
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EMU is meant to be a marriage made in heaven with no possibility of divorce.
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Op-Ed Contributor - The Greek crisis shows why Germany should leave the European Moneta... - 0 views
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THE European Monetary Union, the basis of the euro, began with a grand illusion. On one side were countries — Austria, Finland, Germany and the Netherlands — whose currencies had persistently appreciated, both within Europe and worldwide; the countries on the other side — Belgium, France, Greece, Italy, Portugal and Spain — had persistently depreciating currencies.
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Rather than pulling the lagging countries forward, the low interest rates of the European Central Bank have lured governments and households, especially in the southern part of the euro zone, into frivolous budgetary policies and excessive consumption.
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the solution is clear: the only way to avoid further harm to the global economy is for Germany to lead its fellow stable states out of the euro and into a new and stronger currency bloc.
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Unlike their northern neighbors, the countries in the zone’s southern half have difficulty placing bonds — issued to finance their national deficits — with international capital investors. Nor are these countries competitive in the global economy, as shown by their high trade deficits.
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If Greece were outside the euro zone, for example, it could devalue its currency
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Instead, the fiscal strictures of the euro zone are forcing the country to curtail public expenditures, raise taxes and cut government employees’ salaries, actions that may push Greece into a deep depression and further undermine its already weak international credit standing.
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In short, th
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e euro is headed toward collapse.
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hat opportunity and pull out of the euro, it wouldn’t be alone. The same calculus would probably lure Austria, Finland and the Netherlands — and perhaps France — to leave behind the high-debt states and join Germany in a new, stable bloc, perhaps even with a new common currency.
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If Germany were to take t
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A strong-currency bloc could fulfill the euro’s original purpose. Without having to worry about laggard states, the bloc would be able to follow a reliable and consistent monetary policy that would force the member governments to gradually reduce their national debt. The entire European economy would prosper. And the United States would gain an ally in any future reorganization of the world currency system and the global economy.
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German exporters were major beneficiaries of this growth. German banks and financial institutions helped finance the growth.
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Exports have provided the majority of Germany’s growth in recent years. Germany is heavily reliant on a narrowly based industrial sector, focused on investment goods—automobiles, industrial machinery, chemicals, electronics and medical devices. These sectors make up a quarter of its GDP and the bulk of exports.
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Germany’s service sector is weak with lower productivity than comparable countries. While it argues that Greece should deregulate professions, many professions in Germany remain highly regulated. Trades and professions are regulated by complex technical rules and standards rooted in the medieval guild systems. Foreign entrants frequently find these rules difficult and expensive to navigate.
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Despite the international standing of Deutsche Bank, Germany’s banking system is fragile. Several German banks required government support during the financial crisis. Highly fragmented (in part due to heavy government involvement) and with low profitability, German banks, especially the German Länder (state) owned Landsbanks, face problems. They have large exposures to European sovereign debt, real estate and structured securities.
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Prior to 2005, the Landesbanken were able to borrow cheaply, relying on the guarantee of the state governments. The EU ruled these guarantees amounted to subsidies. Before the abolition of the guarantees, the Landesbanks issued large amounts of state-guaranteed loans which mature by December 2015.
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While it insists on other countries reducing public debt, German debt levels are high—around 81% of GDP. The Bundesbank, Germany’s central bank, has stated that public debt levels will remain above 60% (the level stipulated by European treaties) for many years.
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Germany’s greatest vulnerability is its financial exposures from the current crisis. German exposure to Europe, especially the troubled peripheral economies, is large.
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German banks had exposures of around US$500 billion to the debt issues of peripheral nations. While the levels have been reduced, it remains substantial, especially when direct exposures to banks in these countries and indirect exposures via the global financial system are considered. The reduction in risk held by private banks has been offset by the increase in exposure of the German state, which assumed some of this exposure.
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For example, the exposure of the ECB to Greece, Portugal, Ireland, Spain and Italy is euro 918 billion as of April 2012. This exposure is also rising rapidly, especially driven by capital flight out of these countries.
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Germany is now caught in a trap. Irrespective of the resolution of the debt crisis, Germany will suffer significant losses on its exposure – it will be the biggest loser.
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Once the artificial boom ends, voters will discover they were betrayed by Germany’s pro-European political elite. There will be an electoral revolt and, as in the rest of Europe, a strong challenge from radical political forces with unpredictable consequences.
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In late May 2012, French President Francois Hollande provided a curious argument in support of eurozone bonds: “Is it acceptable that some sovereigns can borrow at 6% and others at zero in the same monetary union?”
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Political will for integration
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In the peripheral economies, continued withdrawal of deposits from national banks (a rational choice given currency and confiscation risk) may necessitate either a Europe wide deposit guarantee system or further funding of banks.
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A credible deposit insurance scheme would have to cover household deposits (say up to euro 100,000), which is around 72% of all deposits, in the peripheral countries. This would entail an insurance scheme for around euro 1.3 trillion of deposits.
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Given that the Spanish Economy Ministry reports that euro 184 billion in loans to developers are “problematic,” the additional recapitalization needs of Spain’s banks may be as high as euro 200-300 billion in additional funds (20-30% of GDP)
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A Greek default would result in losses to Germany of up to around euro 90 billion. Germany’s potential losses increase rapidly as more countries default or leave the eurozone.
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Austerity or default will force many European economies into recession for a prolonged period. German exports will be affected given Europe is around 60% of its market, including around 40% within the eurozone. In case of a break-up of the euro, estimates of German growth range from -1% to below -10%. It is worth remembering that the German economy fell in size by around 5% in 2008, the worst result since the Second World War, mainly on the back of declining exports.
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For example, Greece owes about euro 400 billion to private bondholders but increasingly to public bodies, such as the IMF and ECB, mainly due to the bailouts. If Greece walks away as some political parties have threatened, then the fallout for the lenders, such as Germany, are potentially calamitous.
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But the largest single direct German exposure is the Bundesbank’s over euro 700 billion current exposure under the TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to other central banks in the Eurozone.
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by Satyajit Das
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Colm McCarthy: The eurozone is still at risk and we need to get our house in order - An... - 0 views
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Friday's two-notch downgrade of Italy by ratings agency Moody's explicitly mentions default risk and eurozone fracturing.
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History teaches that muddle rather than conspiracy lies behind even the greatest turning points and the doubters are being too quick on the draw.
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accompanied by some rowing back from the apparently significant decisions taken at the summit on June 28 and 29.
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These thoughts are spurred by the rather weak communique, which followed the meeting earlier last week of eurogroup finance ministers in Brussels,
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There is, as yet, no mechanism in place to ensure bond market support to Spain and Italy and nobody, except the ECB, has the funds to keep their governments funded, should they be forced from the market. The ECB has suspended its bond-buying programme so the high-wire act continues, without a safety net.
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The eurozone could face a major crisis at short notice if either country experiences serious trouble selling government paper, which both must do in large volume and on a continuing basis.
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The avoidance of default on the core sovereign debt, the debt undertaken without duress by the Irish State, is a legitimate objective of national policy.
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It had become clear, early in 2010, that the blanket bank guarantee would bankrupt the Irish State, and the Government finally began to acknowledge that haircuts for senior, but unsecured, bank bondholders had become unavoidable.
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As far as I am aware, this is the first time in the history of central banking that a sovereign state has been compelled, to the point of national insolvency, and by its own central bank (by our Government's choice, the ECB), to make whole those who foolishly purchased bonds issued by private banks, which had gone bust and been closed down.
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The Nation: Who Will Avert A Euro Collapse? : NPR - 0 views
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Even as the mainstream media warned that Hollande's populism would be punished by the bond markets, the IMF's chief economist, Frenchman Olivier Blanchard — who is closer to Hollande's heterodoxy than might be expected — confessed that "schizophrenic" investors are now as scared by the impact of austerity on growth as they are of fiscal largesse.
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"With zero growth and rising interest costs in Spain and Italy, no debt is sustainable," Fitoussi said. "Even France will be challenged if it goes into recession."
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which, despite their recently elected conservative governments, are aware that only pan-European investment, eurobonds and the full support of the ECB can save the eurozone.
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"Which Eurobonds?" by Jeffrey Frankel | Project Syndicate - 0 views
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Any solution to the eurozone crisis must meet a short-run objective and a long-run goal. Unfortunately, the two tend to conflict.Illustration by Paul LachineCommentsView/Create comment on this paragraphThe short-run objective is to return Greece, Portugal, and other troubled countries to a sustainable debt path (that is, a declining debt/GDP ratio). Austerity has raised debt/GDP ratios, but a debt write-down or bigger bailouts would undermine the long-term goal of minimizing the risk of similar debt crises in the future.CommentsView/Create comment on this paragraph
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it is hard to commit today to practice fiscal rectitude tomorrow. Official debt caps, such as the Maastricht fiscal criteria and the Stability and Growth Pact (SGP), failed because they were unenforceable.
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The introduction of Eurobonds – joint, aggregate eurozone liabilities – could be part of the solution, if designed properly. There is certainly demand for them in China and other major emerging countries, which are desperate for an alternative to low-yielding US government securities.
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But Germany remains opposed on moral-hazard grounds: a joint guarantee of Eurozone members’ liabilities would strengthen individual national governments’ incentive to spend beyond their means.
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The German Council of Economic Experts has proposed a European Redemption Fund (ERF). The plan would convert into de facto 25-year Eurobonds the existing sovereign debt of member countries in excess of 60% of GDP, the threshold specified by the Maastricht criteria and the SGP.
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But this seems upside down.
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it offers absolution precisely on the 60%-of-GDP margin where countries will have the most trouble resisting temptation.
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the main explanation for the absence of US moral hazard is that the right precedent was set in 1841, when the federal government let eight states and the Territory of Florida default.
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Ever since 1841, the market requires that US states running up questionable levels of debt pay an interest-rate premium to compensate for the default risk.
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Had the ECB operated from the outset under a rule prohibiting it from accepting SGP-noncompliant countries’ debt as collateral, the entire eurozone sovereign-debt problem might have been avoided.
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the expansion in the US took place at the federal level, where spending today amounts to 24% of GDP, compared to just 1.2% of GDP for the European Union budget.
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The version of Eurobonds that might work as the missing long-term enforcement mechanism is almost the reverse of the Germans’ ERF proposal: the “blue bonds” proposed two years ago by Jacques Delpla and Jakob von Weizsäcker. Under this plan, only debt issued by national authorities below the 60%-of-GDP threshold could receive eurozone backing and seniority. When a country issued debt above the threshold, the resulting “red bonds” would lose this status.
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The point is that the enforcement mechanism would be truly automatic: market interest rates would provide the discipline that bureaucrats in Brussels cannot.
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Of course, the eurozone cannot establish a blue-bond regime without first solving the problems of debt overhang and troubled banks. Otherwise, the plan itself would be destabilizing, because almost all countries would immediately be in the red.
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But one thing seems clear. German taxpayers, whose longstanding suspicion of profligate Mediterranean euro members has been vindicated, will not be happy when asked to pay still more for the cause of European integration. At a minimum, they will need some credible reason to believe that 20 years of false assurances have come to an end – that this is the last bailout.
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National Classifications
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Bershidsky on Europe: Euro Crisis Nations Turn Tax Havens - Bloomberg - 0 views
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Foreign dividends transferred to an ETVE are not taxed in Spain if their recipient paid corporate tax in the country of the dividends' origin, and the money can then be moved to the U.S. and many other countries without incurring withholding tax. ExxonMobil used its ETVE to receive dividends from its Luxembourg profit center and then transfer them tax-free to the U.S
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RealTime Economic Issues Watch | Transatlantic Economic Sanctions Against Russia - 0 views
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Transatlantic Economic Sanctions Against Russia
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First, I have recommended to government officials that US and EU negotiators give priority to energy cooperation and promotion of US exports of liquefied natural gas to Europe during the fourth round of talks on the Transatlantic Trade and Investment Partnership (TTIP) that start on March 10 in Brussels. Efforts should be made to conclude this part of the agreement quickly and immediately implement the obligations on a provisional basis
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Second, the United States and the European Union should call for special consultations in the International Energy Agency (IEA) to review current oil and gas supply arrangements and reserves in Europe. The IEA should also be called on to assess the implications of the crisis in Ukraine for member and nonmember countries and their options for dealing with potential supply disruptions. Ukraine participates in consultations with IEA members on a regular basis anyway and clearly should be doing so now.
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they would help inoculate European economies against the adverse effects of energy disruptions in the medium term.
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Consideration should be given to invoking GATT Article XXI, which provides exceptions for national security reasons from rights and obligations under the World Trade Organization (WTO), for example. Invoking this WTO exception would allow across-the-board actions against Russia without prior notification or even justification. The national security exception of Article XXI is that broad. In brief, the United States and the European Union could remove in one step all the WTO benefits they accorded Russia when it acceded to the WTO in August 2012. Doing so would disrupt bilateral trade and investment, possibly kicking tariffs back up to Smoot-Hawley levels of the 1930s.
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Why Do Americans Stink at Math? - NYTimes.com - 0 views
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Why Do Americans Stink at Math?
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The Americans might have invented the world’s best methods for teaching math to children, but it was difficult to find anyone actually using them.
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In fact, efforts to introduce a better way of teaching math stretch back to the 1800s. The story is the same every time: a big, excited push, followed by mass confusion and then a return to conventional practices.
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Carefully taught, the assignments can help make math more concrete. Students don’t just memorize their times tables and addition facts but also understand how arithmetic works and how to apply it to real-life situations. But in practice, most teachers are unprepared and children are baffled, leaving parents furious.
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On national tests, nearly two-thirds of fourth graders and eighth graders are not proficient in math. More than half of fourth graders taking the 2013 National Assessment of Educational Progress could not accurately read the temperature on a neatly drawn thermometer.
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On the same multiple-choice test, three-quarters of fourth graders could not translate a simple word problem about a girl who sold 15 cups of lemonade on Saturday and twice as many on Sunday into the expression “15 + (2×15).” Even in Massachusetts, one of the country’s highest-performing states, math students are more than two years behind their counterparts in Shanghai.
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A 2012 study comparing 16-to-65-year-olds in 20 countries found that Americans rank in the bottom five in numeracy.
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On a scale of 1 to 5, 29 percent of them scored at Level 1 or below, meaning they could do basic arithmetic but not computations requiring two or more steps.
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One study that examined medical prescriptions gone awry found that 17 percent of errors were caused by math mistakes on the part of doctors or pharmacists.
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“I’m just not a math person,” Lampert says her education students would say with an apologetic shrug.
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In the 1970s and the 1980s, cognitive scientists studied a population known as the unschooled, people with little or no formal education.
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For instance, many of the workers charged with loading quarts and gallons of milk into crates had no more than a sixth-grade education. But they were able to do math, in order to assemble their loads efficiently, that was “equivalent to shifting between different base systems of numbers.”
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Studies of children in Brazil, who helped support their families by roaming the streets selling roasted peanuts and coconuts, showed that the children routinely solved complex problems in their heads to calculate a bill or make change.
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The cognitive-science research suggested a startling cause of Americans’ innumeracy: school.
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The answer-getting strategies may serve them well for a class period of practice problems, but after a week, they forget. And students often can’t figure out how to apply the strategy for a particular problem to new problems.
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In the process, she gave them an opportunity to realize, on their own, why their answers were wrong.
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At most education schools, the professors with the research budgets and deanships have little interest in the science of teaching
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Only when the company held customer focus groups did it become clear why. The Third Pounder presented the American public with a test in fractions. And we failed. Misunderstanding the value of one-third, customers believed they were being overcharged. Why, they asked the researchers, should they pay the same amount for a third of a pound of meat as they did for a quarter-pound of meat at McDonald’s. The “4” in “¼,” larger than the “3” in “⅓,” led them astray.
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Some of the failure could be explained by active resistance.
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A year after he got to Chicago, he went to a one-day conference of teachers and mathematicians and was perplexed by the fact that the gathering occurred only twice a year.
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More distressing to Takahashi was that American teachers had almost no opportunities to watch one another teach.
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In Japan, teachers had always depended on jugyokenkyu, which translates literally as “lesson study,” a set of practices that Japanese teachers use to hone their craft. A teacher first plans lessons, then teaches in front of an audience of students and other teachers along with at least one university observer. Then the observers talk with the teacher about what has just taken place. Each public lesson poses a hypothesis, a new idea about how to help children learn.
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The research showed that Japanese students initiated the method for solving a problem in 40 percent of the lessons; Americans initiated 9 percent of the time.
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Similarly, 96 percent of American students’ work fell into the category of “practice,” while Japanese students spent only 41 percent of their time practicing.
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Finland, meanwhile, made the shift by carving out time for teachers to spend learning. There, as in Japan, teachers teach for 600 or fewer hours each school year, leaving them ample time to prepare, revise and learn. By contrast, American teachers spend nearly 1,100 hours with little feedback.
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“Sit on a stone for three years to accomplish anything.”
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In one experiment in which more than 200 American teachers took part in lesson study, student achievement rose, as did teachers’ math knowledge — two rare accomplishments.
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Examining nearly 3,000 teachers in six school districts, the Bill & Melinda Gates Foundation recently found that nearly two-thirds scored less than “proficient” in the areas of “intellectual challenge” and “classroom discourse.”
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Apple's Tax Strategy Aims at Low-Tax States and Nations - NYTimes.com - 0 views
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How Apple Sidesteps Billions in Taxes
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Learning about global value chains by looking beyond official trade data: Part 1 | vox - 0 views
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Gross trade accounting: A transparent method to discover global value chain-related information behind official trade data: Part 1
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With the rapid increase in intermediate trade flows, trade economists and policymakers have reached a near consensus that official trade statistics based on gross terms are deficient, often hiding the extent of global value chains. There is also widespread recognition among the official international statistics agencies that fragmentation of global production requires a new approach to measure trade, in particular the need to measure trade in value-added. This led the WTO and the OECD to launch a joint “Measuring Trade in Value-Added” initiative on 15 March 2012, which is designed to mainstream the production of trade in value-added statistics and make them a permanent part of the statistical landscape.
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All the estimation methods used in recent efforts to measure trade in value-added are rooted in Leontief (1936). His work demonstrated that the amount and type of intermediate inputs needed in the production of one unit of output can be estimated based on the input-output structures across countries and industries.
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If one is only interested in estimating the domestic value-added embedded in a country’s or sector’s gross exports, applying Leontief’s insight is sufficient. However, for many economic and policy applications, one also needs to quantify other components in gross exports and their structures. In such circumstances Leontief’s original insight is not sufficient, as it does not provide a way to decompose intermediate trade flows across countries into various value-added terms according to their final absorption,
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Our gross trade accounting framework in fact allows one to further decompose each of the four major parts of gross exports above into finer components with economic interpretations
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By the gross statistics, presented in column 1 of Table 1, the trade is highly imbalanced – Chinese exports to the US ($176.9 billion in 2011) are five times that of US exports to China ($35.1 billion in 2011). If we separate exports of final goods and of intermediate goods (reported in columns 2a and 2b of Table 1), we see that most of the Chinese exports consist of final goods, whereas most of the US exports consist of intermediate goods.
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In other words, the US exports rely overwhelmingly on its own value-added (only 2.1% from China and 5.8% from other countries in 2011), whereas the Chinese exports use more foreign value-added, especially value-added from third countries (with 3.2% from the US and 23.1% from Japan, Korea, and all other countries).
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As a consequence of these differences in the structure of value-added composition, the China–US trade balance in this sector looks much smaller when computed in terms of domestic value-added than in terms of gross exports.
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By identifying which parts of the official data are double counted and the sources of the double counting, our gross trade accounting method provides a transparent way to bridge official trade statistics (in gross terms) and national accounts (in value-added terms) consistent with the System of National Accounts standard.
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Are National Champions Really Winners? by Michael Hüther - Project Syndicate - 0 views
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Are National Champions Really Winners?
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Although the proportion of imported intermediate goods in German manufacturing exports has risen from around 19% to 30% since 1995, the globalization of value chains during this period has improved competitiveness, and dramatically increased manufacturing value.
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Rent Seeking: The Concise Encyclopedia of Economics | Library of Economics and Liberty - 0 views
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Tullock’s insight was that expenditures on lobbying for privileges are costly and that these expenditures, therefore, dissipate some of the gains to the beneficiaries and cause inefficiency. If, for example, a steel firm spends one million dollars lobbying and advertising for restrictions on steel imports, whatever money it gains by succeeding, presumably more than one million, is not a net gain. From this gain must be subtracted the one-million-dollar cost of seeking the restrictions. Although such an expenditure is rational from the narrow viewpoint of the firm that spends it, it represents a use of real resources to get a transfer from others and is therefore a pure loss to the economy as a whole.
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For India in 1964, for example, Krueger estimated that government regulation created rents equal to 7.3 percent of national income; for Turkey in 1968, she estimated that rents from import licenses alone were about 15 percent of Turkey’s gross national product.
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Euro zone, IMF agree on Greece aid deal - The Washington Post - 0 views
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To reduce Greece’s debt pile, ministers agreed to cut the interest rate on official loans, extend their maturity by 15 years to 30 years, and grant Athens a 10-year interest repayment deferral.
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They promised to hand back $14 billion in profits accruing to their national central banks from European Central Bank purchases of discounted Greek government bonds in the secondary market.
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They also agreed to finance Greece to buy back its own bonds from private investors at what officials said was a target cost of about 35 cents in the euro.
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Draghi
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a break from the era of missed targets and loose implementation towards a new paradigm of steadfast reform momentum,
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Greece, where the euro zone’s debt crisis erupted in late 2009, is the currency area’s most heavily indebted country, despite a big “haircut” this year on privately held bonds.
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The key question remains whether Greek debt can become sustainable without euro-zone governments having to write off some of the loans they have made to Athens.
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Treat debt with caution: SARB - Times LIVE - 0 views
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"Be extremely cautious that you don't take more than you can service. Try to issue liabilities that involve an element of risk sharing between the creditor and the debtor," he said.
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"As for international contracts, be very careful that you treat the business cycle symmetrically. If you stimulate and borrow when the economy goes down then you must tighten... when the economy grows."
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He said governments of developing nations needed to be innovative in borrowing contracts they devised to grow their infrastructure.
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"Give, for instance, a 50 percent equity stake in some infrastructure project so that you share the risks as well as the returns. There you don't have the bankruptcy threats and the default threats which come with debt contracts."
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Buiter urged South Africans and the rest of the continent to "wear helmets for the rest of the decade". "The world is going to be a very dangerous place for the next 10 years, with advanced economies still needing about a decade, if you count the US and Japan, to get out of the debt problem that they got into," he said.
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"So there is going to be a fallout for developing economies like South Africa."