Commentaries

I blog occasionally in various outlets. Here you find a collection of links to op-eds that I have published recently:

Will a president Macron be able to reform the eurozone?
May 3, 2017, from: The Conversation, Global Edition
European financial markets are already betting on the victory of centrist French presidential candidate Emmanuel Macron in the country’s May 7 second-round election. Are investors right to believe that the eurozone – the monetary union of countries that have incorporated the euro as their national currency – will gain new momentum with Macron in the Élysée Palace?

In this piece, written for The Conversation, I argue that Macron will have better chances to reform the Eurozone by pushing for a rebalancing of Eurozone governance rather than advocating “to set up a common eurozone treasury with a single finance minister”.

Instead, while in some areas centralization is needed to ensure stability, in particular with respect to a central bank that can effectively backstop financial crises and a full banking union, it might be advisable to renationalize fiscal policy.

The reasons are twofold: First, the political chances to install a European finance minister are minimal. Therefore, there is a high risk that Mr. Macron might achieve little or no progress in his term, eventually increasing the chances for populist in the next presidential election. Second, giving back full control over the budget to the national authorities also means transferring back the responsibility for solid finances and replacing the various fiscal pacts, which never have really worked.

Of course, this may require to reduce the debt overhang of the past. But by doing it, this would give more room for a sustained Eurozone recovery and – eventually – even more widespread support for new Eurozone-wide fiscal mechanism for burden sharing. Read more… 

Finally, some good economic news from the Eurozone – but will it last?
April 10, 2017, from: LSE EUROPP European Politics and Policies
Finally, good news from the Eurozone. Unemployment rates fell to 9.5% in February 2017. According to Eurostat, this is the lowest rate since May 2009. The 19 countries that have adopted the common currency are thus returning back to the unemployment level they experienced before the outbreak of the Eurozone crisis. In the last 12 months, the Eurozone recovery has lifted 1.25 million people out of unemployment.

This long-awaited decrease in unemployment is highly welcome; every person back in work is good news, even though it took nine years to recover. Yes, many economists believe that the recovery could have been faster with much less pain if there had been less initial emphasis on austerity and less reluctance “to do what it takes” at the ECB before Mario Draghi made that move in 2012. But that said, the Eurozone must now look forward.

So, is the worst over? Is wealth and prosperity – the ultimate promise of the EU to its citizens – finally coming back to the Eurozone? And is the fragility of the Eurozone that brought the crisis and the dramatic rise in unemployment a thing of the past?

In this piece, written for LSE EUROPP, I will argue that much more needs to done to return to the pre-crisis level and to make the European Monetary Union waterproof against future shocks. Read more…

 

Rebalancing EU governance could help rebuild support for the EU
August 31, 2016, from: LSE EUROPP European Politics and Policies
The impact of Brexit on the future of the EU lies in the hands of European policymakers. In a best case scenario, Brexit will serve as a forceful push toward reforming European governance. The British vote has highlighted the political limits of ever-deeper economic integration and challenged the view that an ever-closer European Union is the best answer to it. However, the concept of national sovereignty is illusive in the presence of (financial) globalisation. Rather than simply opting out of integration, policymakers should focus instead on rebalancing European governance and national sovereignty.

In this piece, written for LSE Europp I argue that re-nationalization of fiscal policy is vital for regaining support for the Europen project, while in other areas such as banking union centralized or co-operative approaches are needed to maintain financial stability and revive the European economy…read more

The use of overly intrusive conditionality in Greece is threatening the European project
June 1, 2015, from: LSE EUROPP European Politics and Policies
A Greek default may be only a matter of weeks away unless an agreement on the reform programme between Greece and “the institutions” will be reached. But Greece demands to renegotiate the whole programme, while the institutions, fearing a precedent, insist on sticking to the obligations. Thus, a default could simply result from a fundamental disagreement on the institutions’ conditionality, finally triggered by a deliberate decision of the creditors. Prominent economists like Barry Eichengreen, Paul Krugman, or those organised in the Eiffel Group have recently urged for a less intrusive conditionality and more self-responsibility of debtors, though with varying intensity and differing arguments. What is wrong in asking Greece to fulfil its obligations as articulated forcefully by German finance minister Wolfgang Schäuble? Or it should we agree with Yanis Varoufakis who blames austerity as the only deal-breaker?

Against this background, this piece for LSE EUROPE I argues that using deeply intrusive policy conditionality is a flawed approach in the context of European integration for at least three reasons: first and most evidently, the institutions’ conditionality has often proven dysfunctional and too painful for debtor countries; second, the use of extensive policy conditionality is an ad-hoc approach with unequal burden sharing between debtors and creditors; third, too intrusive conditionality is in conflict with democratic decisions in debtor countries, which can put the idea of a Europe in which nations participate as equals in jeopardy…read more

The ‘Juncker plan’ does not offer a genuine path to boosting the Eurozone’s recovery
March 19, 2015, from: LSE EUROPP European Politics and Policies
The €315 billion European investment initiative – the so called ‘Juncker plan’ – was accepted by EU finance ministers on 10 March and is expected to go operational as a new “European Fund for Strategic Investment” (EFSI) by mid-2015. Is this finally good news for Eurozone recovery? Unfortunately, the Juncker plan has been widely misunderstood as a recovery programme for the crisis-ridden Eurozone: it is in fact no more and no less than a (welcome) investment initiative for Europe. The Juncker plan should be welcomed as a long-run strategy to address investment weakness and to promote (green) growth in Europe. But since Lord Keynes constantly reminds us that in the long run we are all dead, it must be made crystal clear that the plan does not solve the Eurozone’s current economic problems.

In this piece, written for LSE EUROPP, I review the pro and cons of the Juncker initative as an investment plan and discuss why it will not boost the Eurozone’s recovery. I conclude that a fiscal pillar of a Eurozone recovery plan would look quite different and there is widespread consensus among many economists as to what it would entail: fiscal stimulus from countries that can afford it, the return of the golden rule of public finance at the national level, which allows for debt finance of public investment if required, thus giving more fiscal leeway beyond the Maastricht rules, and an additional boost in European/Eurozone public investment…read more

Quantitative easing: Germans have nothing to lose but their fears!
January 21, 2015, from: The Conversation
The European Central Bank is due to decide whether and how to undertake quantitative easing (QE) via large-scale purchases of government debt on secondary markets. For Germany – as the Eurozone’s largest economy and one with a decidedly conservative monetary stance – this seems to be the ultimate nightmare. But the markets are already betting that QE will come. With the Eurozone sitting close to deflation, the ECB must react to reach its inflation target of 2%. What are the German fears and do they withstand serious scrutiny?

In this piece, written for The Conversation, I discuss the validity of the these fears and their potentially negative impact on the details of a QE program…read more

On the road to Asia: why Germany and the Eurozone want a trade deal with Australia
December 23, 2014, from: The Conversation
Shortly after the G20 summit in Brisbane, German Chancellor Angela Merkel and Australian Prime Minister Tony Abbott announced initiatives to increase trade and investment relations between Germany and Australia. Both parties agreed to set up a joint working group to identify future initiatives. What can we reasonably expect from it?

In this piece, written for The Conversation, I discuss three major motivations behind the initiative from the German and European point of view…read  more

The case for using public investment to boost growth in the Eurozone is overwhelming
October 28, 2014, from: LSE EUROPP European Politics and Policies
One year after the Eurozone’s much hyped ‘recovery’, signalled by some green shoots in the second quarter of 2013, the region’s quarterly economic growth is flat again. Even Germany’s growth prospects have been revised downward, and recent IMF estimates point to an almost 40 per cent chance of recession for the Eurozone. The main reason is the lack of determination of policy makers to end the Eurozone crisis. Will they continue to muddle through and pave the way for decades of low growth? Or will governments and the European Commission do ‘whatever it takes’ and change the fiscal stance as demanded recently also by ECB president Mario Draghi?

In this piece, written for LSE EUROPP, I review three different explanations for the lack of recovery in the Eurozone, and argue that there is now an overwhelming case or using public investment to boost growth in the Eurozone, both at the regional and at the national level. However, while economically the case for public investment is crystal clear, I also note that policy makers need now to find ways to communicate to their electorates that it is time to change both faulty narratives about the Eurozone crisis, debts and deficits, and faulty policies…read more

Draghi calls for spending to rescue Euro – but will governments do ‘whatever it takes’?
September 4, 2014, from: The Conversation
In July 2012 European Central Bank president Mario Draghi famously announced that the ECB would do “whatever it takes” to rescue the Euro. And he added: “Believe me, it will be enough.” In fact, it has so far been enough to avoid the break-up of the eurozone. It has, however, not been enough to push the eurozone out of the recession. On August 22, 2014, Draghi again suggested something remarkable, which has not been in his initial official script: fiscal policy should take a much more active role in ending the recession.

Does the eurozone need a different fiscal policy? And if yes, will European politicians do whatever it takes? And will it be enough? In this column, written for The Conversation I will argue, that Draghi’s call is ultimately a call for changing Eurozone governance also with respect to fiscal policy … read more

Potentially less austerity for the troubled Eurozone
November 4, 2013, from: The Conversation
The EU Commission’s autumn economic forecasts are due tomorrow. What makes this event special this year is that there are rumours about a possible change in the Commission’s approach to calculating the so-called ‘output gap’. An EU working group has now proposed changed to the calculation of this metric – but these are yet to be approved. What sounds like a very technical issue could not only have important economic consequences for crisis-affected Eurozone countries, such as Spain, Ireland, Portugal and Greece. It may also have serious political implications for the entire Eurozone. … The real challenge for Eurozone deleveraging is not only to return to sustainable fiscal balances, but to do it without compromising the self-determination and sovereignty of member countries. At the same time it must be ensured that, in future, countries comply with the fiscal obligations they have agreed to… read more

The Eurozone may have exited recession, but the crisis is far from over
August 20, 2013, from: LSE: EUROPP European Politics and Policies
Recent figures from Eurostat show that the Eurozone emerged from its recession in the second quarter of 2013. Harald Sander argues that while there are some ‘green shoots’ of recovery, the Eurozone crisis is far from over. He notes that there are still a number of key challenges to be overcome, with Eurozone unemployment levels and debt to GDP ratios sitting at an all time high, and anti-euro sentiment brewing in several countries. There remains an urgent need for substantial institutional reforms, and bold policies aimed at promoting growth and reducing unemployment… read more
Originally published as “Good new from the Eurozone…Or is it?”, August 19, 2013, in: The Conversation

The Euro crisis has arrived in Germany: but is a recession scenario plausible?
January 23, 2013, from: The Conversation
Last week the German government’s economic forecasts for 2013 have made clear that the Euro crisis will have a serious economic impact on Germany, with the economic growth projection cut down to a mere 0.4 %. The main reason behind this cut is the lower than expected increase in exports – the main driving force behind Germany’s excellent economic performance in the past years. With a now somewhat lower economic growth in China, the recessions in many Eurozone crisis countries will finally be felt in Germany. …Yet, exactly this situation entails the chance that Germany and other core countries will change their approach to Eurozone crisis management… read more

Balancing stability and sovereignty will prove challenging for the Eurozone
September 14, 2012, from: The Conversation
The past few days have seen economic crisis management — if not the political landscape in the Eurozone — change fundamentally. On September 6, the ECB announced it would buy-back unlimited government bonds if need be. …As long as the new ECB policy is perceived as credible, the ECB might not even have to make bond purchases to bring the rates down. The announcement of the new policy could be sufficient and the ESM might not be needed… read more

It will take courage to end the Eurozone crisis
June 28, 2012, from: The Conversation
Today Eurozone leaders will meet in Brussels. On the agenda is nothing less than the survival of the euro. Officially, it is about Spain: Spain’s economic and financial woes show the urgency. Moody’s drastically downgraded Spanish banks this week; bank runs could be a possibility and are likely to spread to Italy and other countries – even to France. … The crisis will go on as long as it is unclear whether the Eurozone will protect the common currency and its member countries by all means or not… read more

The ECB’s long-term refinancing operations: a solution to debt crisis or doomed to fail
April 23, 2012, from: The Conservation
In November 2011, the Eurozone crisis reached a climax with interest rates on sovereign debt of Eurozone problem debtors soaring. Fear of sovereign defaults spilled over into the interbank markets as Eurozone banks, especially in problem countries (Greece, Ireland, Italy, Portugal, Spain), where the home bias of banks in sovereign bond holdings is particularly severe. …the ECB has done as much as she could under the present political constraints to avoid a breakdown of the Eurozone. While the risk of inflation with LTROs is low, the risk of failure is still acute. It would have been much better to allow the ECB to act as a lender of last resort in conjunction with a realistic and workable fiscal compact that provides a growth perspective and a unified European banking market regulation, supervision and crisis resolution mechanism… read more

Green Growth After Debt? Euroland Needs a Different Golden Rule (with Sergio Rossi)
March 12, 2012, from: Economonitor
The euro area urgently needs growth perspectives. While the OECD and other international organizations advocate a green growth strategy, at the moment the euro area contributes mostly to the greening by shrinking its economy. In this column we argue in favour of a classic “golden rule” rather than the one proposed by the fiscal compact. By focusing on European “green” public investment financed via the issuance of euro bonds Euroland could spur green growth and – at the same time – make an important step towards a workable fiscal union… read more

After the Greek rescue package: will Portugal be the next to fall?
February 29, 2012, from: The Conversation
Greece is rescued, for now…maybe. Perhaps it’s time to move on to the next basket case. So, which of the PIIGS is the next Greece? For the moment, Portugal looks to be the front-runner. … If the pain that has to be shouldered by the Portuguese people is too high in relation to uncertain gains in a far-off distant future, there will be political resistance against the adjustment program and a reconsideration of the Euro exit option. Thus, Portugal needs more financial support to initiate programs to revive economic growth. Finally, to survive as an attractive future option, Europe needs to provide a convincing solution on how to fix the current flaws of the common currency area … read more

Europe must grapple with debt crisis now
May 18, 2011 in: The Conversation
The Euro, Europe’s adolescent single currency, is in rough waters. This week European finance chiefs signed off on a 78 billion Euro bail-out for Portugal, while calling for Greece to accept stringent austerity measures. For more than a year, Euro area member countries such as Greece, Ireland, Portugal and most recently Spain have come into the focus of financial markets increasingly unwilling to finance the government debts of these countries. … the overriding issue is that Europe has to address the issues imposed by the political trilemma. How much national determination in exchange for effective European governance are the member states ready to give up in order to make European integration achievements work in rough times too? Whatever the decisions will be, Europe’s core value is democracy and “more Europe” will therefore also require a democratic foundation of European governance… read more

Does Europe need a lender of last resort?
August 25, 2011 in: The Conversation
German Chancellor Angela Merkel and French President Nicolas Sarkozy appear to hope their recent Summit will avoid further increasing Euro rescue fund, the European Financial Stability Facility (EFSF), or issuing joint Eurobonds. Both measures are extremely unpopular in Germany, which sees itself as the financier of spendthrift southern Euro zone member countries. Germans are only willing to pay with “their” money in “return” for strict austerity measures. And, as Merkel has said, Eurobonds would only be considered as last means. … Establishing a lender-of-last-resort function is surely the cheapest, fastest and easiest way to solve the problem. In the best case no cost will have to be borne by the taxpayers. Merkel may recall her courageous 100% guarantee of bank deposits in the midst of the financial crisis… read more

Heart of darkness – entering the Eurozone’s endgame
November 18, 2011 in: The Conversation
Early this week, sovereign bonds spreads for France and other Euro-core countries peaked. Around noon on Tuesday the spreads on French and Austrian 10-year government bonds exceeded the German bund rate by some 1.9 percentage points. This was higher than the spread for Italian bonds in July 2011. It goes almost without saying that the spreads for the southern countries, in particular Spain (4.57%) and Italy (5.32%), soared despite the fact that (according to market participants) the ECB intervened and bought Spanish and Italian government bonds. … the markets are not simply betting against countries, they are betting on a break-up of the Eurozone. …Policy makers have to make their decision on whether and how they will address the political trilemma in each of the four major steps to overcome the crisis: The ECB must assume the role of a lender of last resort. … Fiscal coordination and strict and enforceable rules for medium-run budget discipline. … A Eurozone banking market regulation, supervision, and resolution regime. … A Eurozone growth strategy to align national competitiveness. … All these steps require giving up at least some national self-determination (and in some cases deeply ingrained national convictions) in exchange for an effective Eurozone governance. It may, however, not need full harmonisation of (economic) policies as some politicians and observers suggest. Europe and the Eurozone are not ready for that and will probably never be. But to make the Eurozone work some tough decisions will have to be made soon if it wants to rescue its single currency. … read more