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  • Unemployment Drops in Europe

    In a bit of welcome news, unemployment in Europe is down. The number of unemployed men and women across Europe, as estimated by Eurostat , dropped by 151,000 across the EU and by 76,000 in the euro area in April. Even better, the number of unemployed is 1.167 million less across the EU than in April 2013, and 487,000 less across the euro area. The unemployment rate is now at 10.4% across the EU 28 (compared to 10.5% in March) and 11.7 % in the euro area (11.8% in March). Austria and Germany is the only member states below 5.0% unemployment. The unemployment rate in Greece and Spain remains above 25%. Eighteen of the 28 EU member states saw a decline in the unemployment rate compared to April 2013. Unemployment among young workers remains a major problem, but even in that group there is improvement. From the report: In April 2014, 5.259 million young persons (under 25) were unemployed in the EU28, of whom 3.381 million were in the euro area. Compared with April 2013, youth unemployment decreased by 415 000 in the EU28 and by 202 000 in the euro area. In April 2014, the youth unemployment rate5 was 22.5% in the EU28 and 23.5% in the euro area, compared with 23.6% and 23.9% respectively in April 2013. In April 2014, the lowest rates were observed in Germany (7.9%), Austria (9.5%) and the Netherlands (11.0%), and the highest in Greece (56.9% in February 2014), Spain (53.5%) and Croatia (49.0% in the first quarter of 2014). Read the full report here .
  • Benefits of EU Membership for Poorer Nations

    Yesterday, European economists Nauro Campos , Fabrizio Coricelli , and Luigi Moretti posted some of their findings on the benefits of EU membership to rich nations. Today, they share some of their findings--again at Vox --on the benefits to poorer nations. They focus on two periods of enlargement: the 1980s and 2004. And they find that there are clear benefits to every nation except one. This column presents new estimates of the economic (monetary) benefits from EU membership. The main finding is that of substantial and positive pay-offs, with approximately 12% gain in per capita GDP. Despite substantial differences across countries, there are clear indications that the benefits of EU membership have significantly outweighed the costs (except for Greece). An important question is to identify factors that allow countries to better exploit EU entry. Campos et al. (2014) began investigating this issue and their preliminary findings highlight the role of financial development (i.e., more financially developed countries growing significantly faster after EU membership) and, somewhat less surprisingly, trade openness. Read How much do countries benefit from membership in the European Union? here .
  • Planet Money: Greece's Economy May Stop Shrinking

    Greece's economy has a had a bad six years. At times, very very bad. But it may be getting better. The latest Planet Money podcast focuses on Greece, because the government there has put out a less-than-bad economic forecast. If the forecast is accurate, "the amazing shrinking economy will finally stop shrinking."
  • Jeffrey Frankel on Europe's Need to Ease

    Europe needs to do something, according to Jeffrey Frankel . Specifically, the European Central Bank needs to do something about low inflation, which could soon become deflation in some EU economies. So Frankel is advocating for easing monetary policy. Does that mean quantitative easing? Not so much. Frankel: QE would present a problem for the ECB that the Fed and other central banks do not face. The eurozone has no centrally issued and traded Eurobond that the central bank could buy. (And the time to create such a bond has not yet come.) That would mean that the ECB would have to buy bonds of member countries, which in turn means taking implicit positions on the creditworthiness of their individual finances. Germans tend to feel that ECB purchases of bonds issued by Greece and other periphery countries constitute monetary financing of profligate governments and violate the laws under which the ECB was established. The German Constitutional Court believes that OMTs would exceed the ECBs mandate, though last month it temporarily handed the hot potato to the European Court of Justice. The legal obstacle is not merely an inconvenience but also represents a valid economic concern with the moral hazard that ECB bailouts present for members’ fiscal policies in the long term. That moral hazard was among the origins of the Greek crisis in the first place. Fortunately, interest rates on the debt of Greece and other periphery countries have come down a lot over the last two years. Since he took the helm at the ECB, Mario Draghi has brilliantly walked the fine line required for “doing what it takes” to keep the eurozone together. (After all, there would be little point in preserving pristine principles in the eurozone if the result were that it broke up. And fiscal austerity by itself was never going to put the periphery countries back on sustainable debt paths.) At the moment, there is no need to support periphery bonds, especially if it would flirt with unconstitutionality. What, then, should the ECB buy, if it is to expand the monetary base? It should not buy Euro securities, but rather US treasury securities. In other words, it should go back to intervening in the foreign exchange market. Here are several reasons why. First, it solves the problem of what to buy without raising legal obstacles. Operations in the foreign exchange market are well within the remit of the ECB. Second, they also do not pose moral hazard issues (unless one thinks of the long-term moral hazard that the “exorbitant privilege” of printing the world’s international currency creates for US fiscal policy). Third, ECB purchases of dollars would help push the foreign exchange value of the euro down against the dollar. Such foreign exchange operations among G-7 central banks have fallen into disuse in recent years, in part because of the theory that they don’t affect exchange rates except when they change money supplies. There is some evidence that even sterilized intervention can be effective, including for the euro. But in any case we are talking here about an ECB purchase of dollars that would change the euro money supply. The increased supply of euros would naturally lower their foreign exchange value. Read the full post here .
  • Unemployment Picture in Europe Stable but Bleak

    The number of unemployed men and women across Europe, as estimated by Eurostat , increased by about 17,000 in January. The unemployment rate is now at 10.8% across the EU 28 (compared to 10.7% in December) and 12.0 % in the euro area (11.9% in December). Austria and Germany are the only members states to be at 5.0% unemployment or less. The unemployment rate in Greece and Spain remains above 25%. And while there was some improvement for workers under 25, jobs remain particularly hard to come by for young workers. From the report: In January 2014, 5.556 million young persons (under 25) were unemployed in the EU28, of whom 3.539 million were in the euro area. Compared with January 2013, youth unemployment decreased by 171 000 in the EU28 and by 87 000 in the euro area. In January 2014, the youth unemployment rate5 was 23.4% in the EU28 and 24.0% in the euro area, compared with 23.7% and 24.1% respectively in January 2013. In January 2014, the lowest rates were observed in Germany (7.6%), Austria (10.5%) and the Netherlands (11.1%), and the highest in Greece (59.0% in November 2013), Spain (54.6%) and Croatia (49.8% in the fourth quarter of 2013). Read the full report here .
  • Bloomberg: 'The European Debt Crisis Visualized'

    The European debt crisis is old news. And while the heat may have come down in the last year, it is not over. The interactive team at Bloomberg News has put together a new way of telling the story of the debt crisis. Some students may find the debt crisis easier to understand through this visualization. And we appreciate that this telling of the story goes back almost a century, so there students get the deeper context of Europe's current challenges.
  • Unemployment in Euro Zone Remains Flat

    The number of unemployed men and women across Europe, as estimated by Eurostat , was at 26.2 million in December. That works out to an unemployment rate across the EU28 of 10.7%. Technically that is an improvement from November, when the rate was 10.8%. But it signals that employment has been flat for a few months now. In the euro area, the unemployment rate was 12.0%, down from 12.1% in November. In December 2012, the unemployment across the euro area was 11.9%, and it was 10.8% in the EU28. From the report: Among the Member States, the lowest unemployment rates were recorded in Austria (4.9%), Germany (5.1%) and Luxembourg (6.2%), and the highest in Greece (27.8% in October 2013) and Spain (25.8%). Compared with a year ago, the unemployment rate increased in fourteen Member States, fell in thirteen and remained stable in Sweden. The highest increases were registered in Cyprus (13.9% to 17.5%), Greece (26.1% to 27.8% between October 2012 and October 2013), the Netherlands (5.8% to 7.0%) and Italy (11.5% to 12.7%) The largest decreases were observed in Ireland (14.0% to 12.1%), Latvia (14.0% to 12.1% between the third quarters of 2012 and 2013), Portugal (17.3% to 15.4%), Hungary (11.0% to 9.3% between November 2012 and November 2013) and Lithuania (13.0% to 11.4%). Read the full report here .
  • Draghi Stands By European Central Bank Reform Policies

    European Central Bank head Mario Draghi deserves some credit for starting the year off with courage. He sat down for a candid interview with German newspaper Der Spiegel, and answered some tough questions. Darghi defended the ECB's approach to crises in Greece and other struggling EU nations. And he took on criticism coming from German politicians and pundits. Here is an excerpt: SPIEGEL: We have a feeling that the number of governments which can no longer hear your tune is growing. The new coalition government in Germany, for example, wants to undo the pension reforms made by the former coalition government comprised of the center-left Social Democrats and the Green Party years ago and introduce a universal minimum wage of €8.50 ($11.67). Are these policies that help the euro? Draghi: It is too early to assess the policies of the new German government. I can only say that the crisis has shown that the monetary union is incomplete and that the weaknesses need to be remedied. Germany helps the euro best by further strengthening its competitiveness and promoting growth. Whatever helps that process is right, everything else is wrong. SPIEGEL: Many economists represent a completely different theory. They regard Germany's competitiveness as the real problem of the euro area and are calling for state curbs on exports. What do you think of that? Draghi: Not much. It's a mechanistic perspective of economic activity, and there's little I can do with it. We won't make the weak stronger by making the strong weaker, as a very wise man once said. That applies to the economy as well. If Germany were less competitive, the euro area as a whole would lose, because less could be produced then. SPIEGEL: In Germany, ECB policy is unpopular because you have now pushed the interest rates for investments down so far that they are often no longer enough to compensate for inflation. In other words, only fools save. Draghi: That's not the fault of the ECB The link between the short-term interest rates set by the ECB and the long-term interest rates paid on investments which are relevant for savers in Germany is not very strong. SPIEGEL: Really? It's a stated goal of your policy to indirectly suppress long-term interest rates. Draghi: No, especially in recent years, we were unable to control long-term interest rates -- because investors were very unsettled by the euro crisis. That's why everyone has been taking money into Germany to buy safe German government bonds. That's why the interest rates in Germany have fallen. We take the concerns of savers very seriously. But how can we respond? We run monetary policy for the entire euro area, not for a single country. If we are able to dispel the uncertainty, many investors will again take their money out of Germany and back to their home countries and interest rates will rise again. Read the full interview here . Hat tip Antonio Fatas .
  • Unemployment Rate Sitting at 12.1% in Euro Area

    On Friday, the Labor Department will release employment data for December. We have some unemployment news to tide us over, as Eurostat just put out the November data for the EU. Overall, the unemployment rate across the euro area came in at 12.1%, essentially the same level (give or take 0.1%) it has been at since the second quarter of 2013. So if this is the peak, it is looking a lot like a plateau. Across the full EU28, the unemployment rate was 10.9%. In November 2012, the unemployment across the euro area was 11.8%, and it was 10.8% in the EU28. Unemployment rate remains below 6% in Austria and Germany. Greece and Spain continue to struggle with unemployment above 26%. Here's a look at the breakdown of unemployment by country: Many young workers remain without jobs across the continent: In November 2013, 5.661 million young persons (under 25) were unemployed in the EU28, of whom 3.575 million were in the euro area. Compared with November 2012, youth unemployment decreased by 46 000 in the EU28 and increased by 2 000 in the euro area. In November 2013, the youth unemployment rate5 was 23.6% in the EU28 and 24.2% in the euro area, compared with 23.4% and 23.9% respectively in November 2012. In November 2013, the lowest rates were observed in Germany (7.5%) and Austria (8.6%), and the highest in Spain (57.7%), Greece (54.8% in September 2013) and Croatia (49.7% in the third quarter of 2013). Read the full report here .
  • Lagarde: "A failure to revive investment and employment will not bode well for Europe’s future"

    Speaking in Brussels yesterday, IMF Managing Director Christine Lagarde noted that while the European economy is "on the right track," it is too early to declare things well again. She pointed to unemployment--unemployment among young workers in particular--and uneven growth as the primary challenges for her organization and for Europe's leaders. And she outlined four priorities to jump-starting growth. First priority: Reviving credit ; A second priority: Supporting demand ; A third priority: Reducing debt ; and A fourth priority: Fostering growth-friendly labor and product markets : The goal of reform is to break down barriers to growth. There is no “silver bullet.” This means taking on entrenched positions and vested interests. It means bringing in more competition and flexibility to spark innovation, boost competitiveness, and enable resources to go where they are most productive. But it also means helping labor markets to support growth and adjustment. To be clear, reforms are needed across all of Europe. For example, in countries with large external surpluses, reforms should be targeted to boost investment to ensure that resources are invested where they will maximize returns. In countries with external deficits, prices must be adjusted through improvements in productivity of workers and firms; this would make the tradable sector more competitive and generate more demand. Can this really work? Yes, reforms do pay off. There is growing evidence that significant reforms in product and services sectors can lead to sizeable productivity gains, which eventually creates room for higher wages and more job opportunities. IMF staff has estimated that eliminating just half of the euro area’s gap with the best practices in labor market and pension policies of OECD countries could raise the level of real GDP by almost 1½ percent after 5 years, and by another 1¾ percent through product market reforms that reduce the regulatory burden. Revenue-neutral tax reforms that shift the tax burden away from labor-based taxes to other taxes, including indirect taxes, would raise GDP by ¾ percent over the same time period. And combining all of these reforms would result in a 4 percent boost. These are big gains! Read the full speech here .
  • Stiglitz Offers Up Prescription for EU Woes

    Writing at Project Syndicate , Joseph Stiglitz warns us not to celebrate Europe's exit of a double dip recession, given that there are EU states "with per capita GDP still below pre-2008 levels, unemployment rates above 20%, and youth unemployment at more than 50%." He is calling for "fundamental reform," in the euro zone. He does not chalk up the EU's economic woes to the euro zone itself being a bad idea. Rather, the design was the problem. Stiglitz: Much of the euro’s design reflects the neoliberal economic doctrines that prevailed when the single currency was conceived. It was thought that keeping inflation low was necessary and almost sufficient for growth and stability; that making central banks independent was the only way to ensure confidence in the monetary system; that low debt and deficits would ensure economic convergence among member countries; and that a single market, with money and people flowing freely, would ensure efficiency and stability. Each of these doctrines has proved to be wrong. The independent US and European central banks performed much more poorly in the run-up to the crisis than less independent banks in some leading emerging markets, because their focus on inflation distracted attention from the far more important problem of financial fragility. Likewise, Spain and Ireland had fiscal surpluses and low debt/GDP ratios before the crisis. The crisis caused the deficits and high debt, not the other way around, and the fiscal constraints that Europe has agreed will neither facilitate rapid recovery from this crisis nor prevent the next one. Finally, the free flow of people, like the free flow of money, seemed to make sense; factors of production would go to where their returns were highest. But migration from crisis-hit countries, partly to avoid repaying legacy debts (some of which were forced on these countries by the European Central Bank, which insisted that private losses be socialized), has been hollowing out the weaker economies. It can also result in a misallocation of labor. Internal devaluation – lowering domestic wages and prices – is no substitute for exchange-rate flexibility. Indeed, there is increasing worry about deflation, which increases leverage and the burden of debt levels that are already too high. If internal devaluation were a good substitute, the gold standard would not have been a problem in the Great Depression, and Argentina could have managed to keep the peso’s peg to the dollar when its debt crisis erupted a decade ago. Read An Agenda to Save the Euro here .
  • Euro Area Unemplyoment Rate Remains at 12.2%

    We will get an official jobs report from the Labor Department this week. But what is the story across the Atlantic? According to Eurostat , the unemployment rate across the euro area was 12.2% in September. Bad news. But the good, or not-so-bad news is that the rate has been either 12.1% or 12.2% for the last half year. Only time will tell whether we are looking at the peak. The unemployment rate across the EU's full 28 member nations is 11.0%. A year ago, unemployment in the euro area was 11.6%, while it was 10.6% across all of the EU. Unemployment rate remains below 6% in Austria, Germany, and Luxembourg, and above 26% in Spain and Greece. Here's a look at the breakdown of unemployment by country: The jobless numbers for young workers across Europe remain staggering: In September 2013, 5.584 million young persons (under 25) were unemployed in the EU28, of whom 3.548 million were in the euro area. Compared with September 2012 youth unemployment decreased by 57 000 in the EU28, but increased by 8 000 in the euro area. In September 2013, the youth unemployment rate5 was 23.5% in the EU28 and 24.1% in the euro area, compared with 23.1% and 23.6% respectively in September 2012. In September 2013, the lowest rates were observed in Germany (7.7%) and Austria (8.7%), and the highest in Greece (57.3% in July 2013), Spain (56.5%) and Croatia (52.8% in the third quarter of 2013). Read the full report here .
  • IMF: 'More Fiscal Integration to Boost Euro Area Resilience'

    In a new paper out this week, IMF researchers call for "deeper fiscal integration" among euro area countries. In reading the paper, it appears IMF researchers view the euro experiment as incomplete. Despite struggles during the global economic crisis and global recession, there is confidence in the euro area, but no so much in its current "architecture." From the paper: Large country-specific shocks. While it was recognized that countries joining the euro area had significant structural differences, the launch of the common currency was expected to create the conditions for further real convergence among member countries. The benefits of the single market were to be reinforced by growing trade, and financial, links—making economies more similar and subject to more common shocks over time (Frankel and Rose, 1998). In that context, these common shocks would be best addressed through a common monetary policy. Instead, country-specific shocks have remained frequent and substantial (Pisani-Ferry, 2012; and Figure 1). Some countries experienced a specific shock through a dramatic decline in their borrowing costs at the launch of the euro, which created the conditions for localized credit booms and busts. The impact of globalization was also felt differently across the euro area, reflecting diverse trade specialization patterns and competitiveness levels (Carvalho, forthcoming). These country-specific shocks have had lasting effects on activity. And divergences in growth rates across countries have remained as sizeable after the creation of the euro as before (Figure 2). Deeper into the paper we start to see some proposed solutions: Long-term options for the euro area. Cooperative approaches to foster fiscal discipline have shown their limits in the first decade of EMU. On that basis, and in light of international experience, two options emerge to foster fiscal discipline in the euro area in the longer term. One could be to aim to restore the credibility of the no bailout clause, including through clear rules for the involvement of private creditors when support facilities are activated. But the transition to such a regime would have to be carefully managed and implemented in a gradual and coordinated fashion, so as to not trigger sharp readjustments in investors’ portfolios and abrupt moves in bond prices. Another option would be to rely extensively on a center-based approach and less on market price signals. This would, however, have to come at the expense of a permanent loss of fiscal sovereignty for euro area members. In practice, the steady state regime might have to embed elements of both options, with market discipline complementing stronger governance. Read a summary of the paper, and download the full paper, here .
  • Unemployment in Euro Area Up to 12.2%

    As we await tomorrow's monthly U.S. jobs report, we thought it might be time to check on the situation in Europe. According to Eurostat , the unemployment rate across the euro area ended May at 12.2%, up from 12.1% in April. The unemployment rate across the EU is now 11.0%. A year ago, unemployment in the euro area was 11.3%, while it was 10.4% across all of Europe. Unemployment rate remains below 6% in Austria, Germany, and Luxembourg, and above 26% in Spain and Greece. Here's a look at the breakdown of unemployment by country: Unemployment remains severe among young workers in the euro area: In May 2013, 5.525 million young persons (under 25) were unemployed in the EU27, of whom 3.555 million were in the euro area. Compared with May 2012, youth unemployment decreased by 53 000 in the EU27 and increased by 84 000 in the euro area. In May 2013, the youth unemployment rate was 23.1% in the EU27 and 23.9% in the euro area, compared with 22.8% and 23.0% respectively in May 2012. In May 2013, the lowest rates were observed in Germany (7.6%), Austria (8.7%) and the Netherlands (10.6%), and the highest in Greece (59.2% in March 2013), Spain (56.5%) and Portugal (42.1%). Read the full report here .
  • OECD's International Migration Outlook Shows Pickup in Immigration, But Siginficant Unemployment for Immigrants

    In the U.S., immigration stories have been the domain more of the political press than business and econ journalists. But mobility issues are one measure of economic changes. For example, worker migration within Europe all bu shut down during the recession--declining nearly 40% between 2008 and 2009, according to the OECD. It has since recovered in a big way, even if the workers migrating within Europe are having trouble finding jobs. The OECD 's International Migration Outlook shows a slow rise of migration into OECD nations--a rate of 2% the last two years. Here is a look at inflows across OECD member nations: Read the full report here . And learn about the key takeaways in the report from this short video:
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