Italy’s new Minister for EU affairs Paolo Savona is the main author of an eight-point plan for Italy’s exit from the euro. In this opinion piece EconPol expert Daniel Gros sheds some light on the Italian government’s strategy. In his view, the Plan seems designed to confirm Germany’s worst fears: exit would be accompanied by a massive default on public debt, including foreign official debt like Target2 balances. But the Plan would also enable rich Italians who have considerable assets abroad to hold onto their euros tax-free. ...Details
This EconPol Policy Brief reassesses the relationship between inequality and growth. In their empirical analysis network members Clemens Fuest, Florian Neumeier and Daniel Stöhlker show that there is no robust negative correlation between inequality and growth. For OECD countries, they find that higher inequality coincides with higher, not lower economic growth. The authors also caution against giving the observed correlation between inequality and economic growth a causal interpretation. Both inequality and economic growth are influenced by many policy variables, including education and redistributive taxation. In their view, portraying one of these outcomes as being ‘caused’ by the other is unconvincing. ...Details
What are the implications of Trump’s trade follies with tariffs for the rest of the world? EconPol network member Daniel Gros examines the nature of today’s trade wars by focusing on the high tech sector. He explains why differences in profit opportunities tend to escalate trade conflicts in a ‘winner takes all’ economy. Today, the US government is essentially lining up its diplomatic guns behind its internet giants, while Europe and China are baying for their monopoly profits. This is a zero-sum game, warns Gros, which can only turn negative sum through the collateral damage that it causes to the global trading system. ...Details
Zareh Asatryan, Xavier Debrun, Annika Havlik, Friedrich Heinemann, Martin G. Kocher and Roberto Tamborini
TheEuropean Commission has proposed to inaugurate a European Minister of Economy and Finance with the broad purpose of streamlining the complex and fragmented decision-making processes within the European Monetary Union. This policy report discusses the potential role the Minister could play in the development of the European Fiscal Union. The report lays out the main challenges along the current institutional solutions facing several dimensions of the Fiscal Union, in particular related to fiscal sustainability, macroeconomic shocks, incentives of structural reforms, and the optimum provision of European public goods. The report then discusses whether and to what degree the new European Minister of Economy and Finance can provide appropriate solutions to these challenges for the Fiscal Union.
The panel will discuss what reform and future governance of the euro area should look like in order to achieve a sustainable and incentive-compatible architecture, prosperous development and greater cohesion among its members. The panel will address questions like: are the euro area and the European financial sector stabilised and sustainable – where do we stand? How can the fiscal discipline of sovereigns be strengthened? Do we need more elements of risk-sharing or a focus on risk reduction? How can risk-sharing and market-discipline be reconciled with achieving an incentive-compatible architecture in the currency union? Should the European Stability Mechanism (ESM) be transformed into a European Monetary Fund? Does the currency union need an exit clause and viable insolvency procedure for its member states? How should TARGET-II imbalances be managed in the future?
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