"..... the master economist must possess a rare combination of gifts. (...) He must be mathematician, historian, statesman, philosopher - in some degree.

(...) No part of man's nature or his institutions must lie entirely outside his regard." ... (Keynes, 1924, p. 322)


DASHBOARD | 1945 and earlier (Hayek, Keynes, Adam Smith, Malthus) | Economy (GDP, ESG, CSR, PRI) | EMU | geo-economics | capitalism | ABOUT BUBBLES (George Soros, Prof Robert J. Shiller and Jean-Paul Rodrigue), DEBT (Carmen Reinhart), STAGNATION (Summers) and GROWTH (Barroso, M. El-Erian, De Grauwe) | outwards | SDGs | the Great Depression


single market (European Economic Area):

free trade in goods, in services,
free movement of capital, of people, and a say on the rules

free trade agreement:
free trade in goods, set own rules,
no free trade in services.

foreign direct investments <------------>
businesses, industry & manufacturing (pay money to households in exchange for work)
---------> exports
<--------- imports
.. ....... ..|............ ......... ..|............ |
finance industry
(saving and investment)

banking union against unwanted entanglement
governments (taxation & spending) trade
.............|....... .. .........| ..|
households (earn money in exchange for work to be able to pay for goods and services)
opportunities in

digital agenda


The CESifo Group, consisting of the Center for Economic Studies (CES), the Ifo Institute and the CESifo GmbH (Munich Society for the Promotion of Economic Research) is a research group unique in Europe in the area of economic research. It combines the theoretically oriented economic research of the university with the empirical work of a leading Economic research institute and places this combination in an international environment.
EU economic governance
economics & money

closing the funding gap
(ECMI conference 2013)

rethinking capitalism
Capital markets
World Economic Forum
Emile Durkheim

social scopes

Shortage of plenty
(IRIS report
December 2007)


industry and
28-02-2013 Speech by President of the European Council: Britain in Europe: channelling change together
Institute for
New Economic Thinking
Acting now for a positive 2018
US makes government-held data more accessible to the private sector as fuel for innovation and economic growth
A Liberal European Reform Agenda (ALDE)
Greyston Bakery

Its profits go to its
non-profit parent organization, where they are used on behalf of the local community

how to get the European economy on track (2011)
Click for the website
implementation of EU CSRs strongest for financial sector reforms and public finances
investment plan
for Europe

how much is enough
(R. Skidelsky)

'Give me where to stand and I will move the earth',


third industrial revolution, Jeremy Rifkin
finance industry

rating agencies


(European Commission)


Economy (household), part of the social sciences, today is a topic for a set of human and social activities in various cultures, societies and spheres of life. Macroeconomics, microeconomics, econometrics, national and political economy are some subgroups. GDP, an economic measure, is the market value of all final goods and services officially made within the borders of a country in a year. Between GDP and money supply in circulation correlation should be present. The theory that the state could pimp up the economy through making debts is called Keynesianism. In the late 1950s the economic growth in America and Europe—often called Wirtschaftswunder—brought up a new form of economy: consumption. In order to involve economic and social interest groups in the establishment of the common market and to provide institutional machinery for briefing the European Commission and the Council of Ministers on European Union issues, EESC (European Economic and Social Committee) was set up. In England the ideas of Adam Smith became reality while the economization—the process of always diminishing the efforts of production—lead to mass poverty, starvation, urbanization and pauperization of the population.
In order to build up the countries being destroyed in two World Wars new definitions of economy were needed. Amoung others,
  • Milton Friedman (1912-2006) pleaded for a global free trade and are supposed to be the fathers of the so called neoliberalism. In opposite, John Maynard Keynes (1883-1946) argued for a stronger control of the markets by the state. According to Hayek, who had to deal with turbulent social, political and economic developments, there was need for the necessity of the cultural context of an economy. Karl Marx (1818-1883) and the British industrialist Friedrich Engels (1820-1895) described economy as the "system of capitalism". The exploitation of labour and nature by the capitalist is creating a surplus value. The capital will accumulate itself and finally destroy the competition. Therefore the system of communism should deliberate the economy from the reign of capital, and
  • Jeffrey Sachs, in contemporary time discussing a new economic science and cirriculum.

Economy of Francesco (a different economy today)

"We need to correct models of growth incapable of guaranteeing respect for the environment, openness to life, concern for the family, social equality, the dignity of workers and the rights of future generations. Universities, businesses and organizations are workshops of hope for creating new ways of understanding the economy and progress, for combating the culture of waste, for giving voice to those who have none and for proposing new styles of life. Only when our economic and social system no longer produces even a single victim, a single person cast aside, will we be able to celebrate the feast of universal fraternity" (LETTER SENT BY THE HOLY FATHER FOR THE EVENT “ECONOMY OF FRANCESCO” Assisi, 26 - 28 March 2020).

Angus Deaton, March 2024

At present, GDP is considered insufficient as a measuring instrument to indicate the level of well-being; environmental, social and governance aspects (ESG) now also count. These aspects refers to the three central factors in measuring the sustainability and societal impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies (return and risk). Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report. Numerous institutions are working to form standards and define materiality to facilitate incorporation of these factors into the investment process.

The United Nations has agreed on how to measure the value of nature, which methodology can be used in addition to the traditional GDP measure. Or, even better, as a correction to GDP or as a precondition for economic development. The System of Environmental-Economic Accounting (SEEA) is a framework that integrates economic and environmental data to provide a more comprehensive and multipurpose view of the interrelationships between the economy and the environment and the stocks and changes in stocks of environmental assets, as they bring benefits to humanity. It contains the internationally agreed standard concepts, definitions, classifications, accounting rules and tables for producing internationally comparable statistics and accounts. The SEEA consists of three parts:

  • The SEEA Central Framework, which was adopted by the UN Statistical Commission as the first international standard for environmental-economic accounting in 2012.The SEEA Ecosystem Accounting, which offers a synthesis of current knowledge in ecosystem accounting.
  • The SEEA Applications and Extensions, which illustrates to compilers and users of SEEA Central Framework based accounts how the information can be used in decision making, policy review and formulation, analysis and research.

This helps investors, civil society organisations, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business.

Directive 2014/95/EU – also called the Non-Financial Reporting Directive (NFRD) – lays down the rules on disclosure of non-financial and diversity information by certain large companies. This directive amends the Accounting Directive 2013/34/EU.


The so-called centrally planned economy was firstly established during the Russian Revolution in 1917 by Lenin. The other states acted by launching social security systems in order to minimize the effects of an uncontrolled capitalism, called Manchester capitalism.

In modern consumer societies' economies there is a growing part played by knowledge economy (services, finance, technology). As this process was far from being homogenous geographically, the balance between those sectors and harms due to shadow economy, and differs widely between the various regions of the world.

In many countries the economic system is called a social market economy, one of the features of capitalism, the politico-economic system that is characterized by private ownership of means of production and free markets and that seeks to profit and to accumulate capital. The state has thereby no dominant role. The system concerns a process of economic, social and technological changes that finds its way to where they are not hindered by religious or political authorities.

The model was born and formed in times of severe economic, but equally socio-political crises (the thirties) and led to the eventual development as a viable socio-political and economic alternative between the extremes of laissez-faire capitalism and the collectivist planned economy not as a compromise, but as a combination of seemingly conflicting objectives namely greater state provision for social security and the preservation of individual freedom. A rather new system is an impact economy, a very different kind of system from a traditional capitalist economy that prioritizes only financial returns. In an impact economy, consumers and shareholders will challenge entrepreneurs and executives to show that they generate their profits in a manner that contributes to the public good.

According to Ernst Fehr's 'A Theory of Fairness' the puzzles can be resolved if some people care about equity. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior.

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games.

Towards genuine social market economy in Europe at the Spinelli group with Elsa Fornero, Fintan Farrell, Jo Leinen, Ulrich van Suntum and others. During a forum in 2013 from the Spinelli group, it was discussed what it means to follow the road towards a genuine social market economy.

Bishop Robert Barron is author of 11 books, host of television and radio programs, and the award winning series, Catholicism. He is also the founder of Word on Fire Catholic Ministries and is the Auxiliary Bishop of the Archdiocese of Los Angeles. He was one of the keynote speakers at our Fourteenth Annual Conference of Business & Ethics. The Catholic Church’s social teachings about capitalism were the topic of Bishop Barron’s keynote address.

“Every single pope in the church has affirmed the most central element of the market economy: private property,” he said. “Private property is grounded in the dignity and freedom of the individual. Private property allows the diffusion of power, not concentration in the hands of a few. The Church likes the entrepreneurial spirit.” Yet the popes have noted that because God made the world for everyone, the common good must be uppermost in the minds of capitalist Christians.

As topics were mentioned that it should be possible to regulate and control for instance labour costs, that attention should be given to the shortage of natural resources in relation to waste, (the interpretation of) the role of the public sector and the redistribution of rights.

A perspective on Economics:

"Government is not a solution to our problem, government is the problem. ... Government does not solve problems; it subsidizes them. Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it. ... The problem is not that people are taxed too little, the problem is that government spends too much."

Ronald Reagan


The idea of an Economic and Monetary Union (EMU), was sealed with the Maastricht Treaty. Later, in 1999, an agreement was concluded that launched the single currency and was the euro introduced from 2001. The idea was political. Shortly after the fall of the Berlin Wall in 1989, Helmut Kohl was out on the reunification of Germany. Because France could never touch the economic strength of Germany, Mitterrand wished to form a monetary union with a common currency. The German mark would thus be dethroned. As price for German unification, Kohl promised that his country by means of a monetary union would commit themselves firmly in European cooperation. In 1991, through the Maastricht Treaty, it was decided.

In 1997, Helmut Kohl has said no EMU without an European Political Union. But that EPU did not occur. It was expected that EMU would enforce the EPU automatically. As known, it has not yet come so far. Ultimately, this open end was closed with the wrong outcome; the credit crunch, which showed the hard reality.

Already before, during and soon after the introduction of the euro, there was discussion on adverse effects and design errors, but recommendations of these studies were not (sufficiently) arrested. Since end 2007, when the debt issue was outlined, many experts let their knowledge shine on the origin and further processes. A number of articles from these experts is inserted on the separate page about the euro.

The social market economy faded away the last 10 years in favor of a free market economy; systems for pensions, minimum income, to fight corruption are needed. A true economic union is the key. Social inequalities need to be addressed and bureaucratic obstacles overcome. There should be concern for perspective for the young generation, Europe should be made more social and acceptable, there must be jobs and a debt brake in the constitutions.

Governments around the world continue to focus on how to handle the short term pressures associated with the present global economic downturn amid concerns about a double-dip recession. But it is vital to look to the longer term to ensure that economies, enterprises and industry are in a strong position to wheather multiple forces set to bear down on GDP growth. To achieve these goals and to provide a strong economy:
  • the Economic and Monetary Union (EMU) emerged, what union was sealed with the Maastricht Treaty and later, in 1999, acknowledgement was launched by an agreement to introduce the single currency, the euro from 2001;
  • Europe recognizes 'Horizon Europe', the research and innovation framework programme running from 2021-2027 and common instruments, systems and mechanisms to strengthen economic governance;
  • an investment plan for Europe is developed to mobilise finance for investment, to make finance reach the real economy and to improve investment environment. The Plan aims to mobilise public and private investments of at least € 315 billion over the next three years (2015-2017) to boost projects through European Investment Bank (EIB), . The three angles of the Investment Plan for Europe are:

Mobilising Investment Finance.
The aim is to provide potential investors (public and private), as well as those seeking to benefit from funding in the future, with practical information on how the new European Fund for Strategic Investments (
EFSI) will work and how to get involved.With strong political support from Member States and the European Parliament, the new European Fund for Strategic Investments could be established in June 2015, with financing available for projects in autumn 2015. Funding could be available even earlier for SMEs as the existing European Investment Fund gets reinforced;

The new Project Pipeline.
A pipeline of trustworthy, viable projects will be created under the Investment Plan - screened by independent experts - which are attractive to investors. The roadshow will provide information on how interested parties, including Member States, regions or project promoters can submit projects for screening, as well as the service which will be provided by a new technical assistance hub, to ensure that projects are well structured and comply with regulatory requirements

The Regulatory reforms.
The roadshow will gather political support for regulatory reforms, at EU and national level which are critical to removing barriers to investment, opening new investment opportunities (in sectors such as digital, energy and capital markets) and changing permanently the investment environment in Europe

BTTD 2015: Katainen on EFSI
There is a tough road ahead. A broader view of the contours of the future global economy is required. Changes are shaping our future. Policymakers must seize this chance. The IMF will support them in building a fairer and more prosperous future.

November 2018, Leiden University organized the workshop The EMU at twenty. It has been twenty years since the start of Economic and Monetary Union (EMU) in the European Union (EU). In this public panel we look back particularly at the second decade: how has the euro area done? How has it survived the financial crisis and the euro debt crisis? Are there still issues that need to be overcome?

Monetary policy-making is one of the most far-reaching areas of European integration and Economic and Monetary Union (EMU) stands as one of the European Union’s (EU) flagship integration achievements. Set up in 1999, with the large majority of EU member states, EMU involved asymmetric levels of integration with a less-centralised form of ‘economic integration’ on the one hand and highly centralised ‘monetary integration’ on the other. Although it has been clear from the outset that the asymmetrical EMU of the Maastricht Treaty was a fair-weather design, it was widely thought that either there would be plenty of time to reinforce economic integration as required, or EMU would eventually collapse due to its design flaws (Feldstein 1992; 1998). Few expected that the EU would be confronted with a full-on financial crisis and subsequent recession of the magnitude witnessed between 2007-2015. During this time, many member states, particularly in the euro area periphery, experienced severe recessions, with unemployment skyrocketing and debt levels reaching unsustainable levels. There was talk of whether Greece would be allowed to default. If left to its own devices it could have opted to leave the euro, which in turn could have created contagion, forcing the departure of other member states.

Many observers believe that EMU, as a whole or in some part, could have collapsed if the EU member state leaders did not demonstrate the political will to rescue Greece and other peripheral states. However, with the decision to adopt a number of emergency measures to protect the euro area and prevent the default of at least four periphery countries, the awareness grew of the need to set up new frameworks and modes of governance to complement the institutional structures that had been designed at the time of the Maastricht Treaty and had only experienced minor changes with the adoption of the Lisbon Treaty.
Confronted with a lack of will to restructure the Lisbon Treaty, a number of other policy and institutional mechanisms were conceived—thus the Six Pack (the European Semester), the Macroeconomic Imbalances Procedure, the Fiscal Compact, the Two Pack, the European Financial Stability Facility, the European Stability Mechanism and the elements of Banking Union—and subsequently adopted to deal with the incomplete economic (and financial) integration that undermined the viability of EMU.
Stock indices

Key ECB interest rates

Euro Area
inflation dashboard

important X-rates EUR/
MKIT and CIVETS countries

Taylor rule: A monitary policy rule that stipulates how much the central bank would or should change the nominal interest rate in response to divergences of actual inflation rates from target inflation rates and of actual GDP from potential GDP.

The workshop brought together scholars who are undertaking empirical fieldwork into questions about EMU in light of on-going theoretical debates in the literature. The authors in this workshop adopt a variety of approaches to theory and methods, applying a variety of conceptual lenses to illuminate this complex and rapidly moving development in European integration and allowing the authors to choose a methodology that best suits their research question. Taken together, the papers discussed offer an authoritative state-of-the-art analysis of the institutional design of EMU, the challenges of the past decade, and the issues with which scholars are confronted in studying the multifaceted institutional phenomenon that is EMU. Using distinct methodologies, each paper seeks to answer—or at least shed new light on—some of the pressing questions that have emerged over the past decade.

The asymmetrical nature of EMU became very much apparent in the wake of the financial and sovereign debt crises, in response to the growing realisation that existing EU governance arrangements were ill-equipped to deal with the challenges faced. Looking back at the second decade of EMU compared to the first, we notice that while some issues are similar; others have changed considerably. EMU has generated redistributive effects. During the first decade of EMU, these effects did not translate into decreased legitimacy or an intensified perception of a democratic deficit. However, during its second decade, the intense difficulties facing EMU and institutional responses to these difficulties have intensified legitimacy and democratic concerns. During its first decade, EMU coped well with an asymmetrical institutional framework, with EMU largely decoupled from political union. During its second decade, however, the need for political integration has intensified given the risks of disintegration.


Rise of geo-economics threatens world economy

The world is witnessing a rise in ‘geo-economics’ that could lead to the unravelling of the world economy, according to new report produced by the World Economic Forum’s Global Agenda Council on Geo-economics. ECFR Director Mark Leonard has been invited to chair this group, and oversaw the development of this report. He said: “As tensions between great powers rage, global businesses feel like pawns in a game over which they have little control.  Political risk is no longer just instability in the developing world or avoiding war-zones. The global financial system has become a battleground that affects every company from Audi to Lego and McDonalds to Zara. Sanctions, consumer boycotts, preferential treatment for national champions, and the creation of gated markets can see long nurtured investments disappear overnight. Corporate leaders must speak out for open globalization, as well as hedging against the brave new world of geo-economics”.

The report was written by a group of 20 leading thinkers and practitioners around the world.  Among members of the Council are heads of central banks, former IMF board members, former finance and foreign ministers, heads of multinational consultancy firms, senior bankers and a former US deputy trade representativeThe new publication from the World Economic Forum suggests that with great powers reluctant to risk nuclear war, the main global battlefield between major powers is economic rather than military.  Sanctions are taking the place of military strikes, competing trade regimes are replacing military alliances, currency wars are more common than the occupation of territory, and the manipulation of the price of resources such as oil is more consequential than conventional arms races.


ABOUT BUBBLES, DEBT, STAGNATION and GROWTH (developments from 2000):

Europe must not cut, but spend money'. The financial crisis was caused by too much confidence, too much money lending and to much spending, but the irony is that the crisis can only be solved by more confidence, even more more money to lend and spend, says Larry Summers, the former US Minister of Finance October 29, 2014 during the annual Tinbergenlecture at the Dutch National Bank.
The former Harvard president and economic advisor to President Obama is known as a gifted economist. Summers was named last year as the new chairman of the Federal Reserve, the US central banking system. He is known for his direct and sometimes blunt manner. Summers brought his message outspoken. The US economy is performing 'properly', but not great, he said. Certainly not given the massive stimulus the central bank has taken since the outbreak of the crisis. The eurozone economy is doing even "lousy" and remains far behind the expectations. Europe has not yet noticed that it is on the Japanese road
.Browse the presentation on 'Reflections on Secular Stagnation'There is the situation of prolonged underperformance, where interest rates of around 0 percent and deflation seems inevitable. Japan is trying to turn the tide by creating large amounts of money, but so far only partly succeeds. Recently the central bank announced to pump tens of billions a year extra into the economy. In the eurozone too, the inflation is coming closer to zero.There is talk of "secular stagnation" says Summers: 'sickly recovery that dies in infancy', he quoted Alvin Hansen, the Keynesian economist who described the mechanism in 1938. According to Hansen, the only way is that governments start issuing a lot of money in order to stimulate investment and spending. Of course it feels counter-intuitive, he said, to provide just more money in tough times. When I ask an American audience who is proud of Kennedy airport no one raises his hand. I say: now you can fixing up 'with money you borrow at negative rates. When will there be again an opportunity pass?' But instead to invest in infrastructure, governments choose for cutting and advancing investment. Policies that they can not justify to the younger generations, Summers said. They will then have a carry a much heavier bvurden than an interest rate of zero percent, he predicts. 'The three percent norm by the European Union for the budgets of the Member States is therefore absurd. France had just at this point quite right, when earlier this month a too broad a budget proposal was submitted to Brussels and was rebuffed. Demanding structural reforms from France, the European Union and Germany ahead, are not the solution for secular stagnation'.
'It has just as good as nothing to do with it', says Summers. Moreover, it is attempted in the eurozone for years. Also, monetary policy can not offer a real solution, the economist thinks. It is questionable whether a major expansion program, such as has just finished in America and Japan is performing now, is effective in the eurozone. I have no objection, but the knowledge we now have notes that more public investment would be better.
Whether this is politically feasible in Brussels, depends on who it represents, says Summers. If it comes from an Italian career civil servant, it is taken a lot less serious than when it is suggested by someone from a country where the budget is generally in order


George Soros, Prof Robert J. Shiller and Jean-Paul Rodrigue, (dept. of Global Studies & Geography, Hofstra University) claims that stages in bubble business cycles are a well understood concept.
Soros lectured 17-04-2008 that markets are not out of trouble yet. What we see now is a period of instability (and uncertainty). Maintaining stability has to be the objective of the authorities by a more semantic rule of regulations. Not only money supply but also credit supply and hedgefunds need to be controlled. He also stated there is a commodities bubble still in the growth phase.
Prof Shiller stated that the huge rise in house prices in the U.S. can not be
explained by interest or demographics, but by presence of areal bubble which can be compared to epidemics and Jean-Paul Rodrigue claims claims that stages in a bubble business cycles are commonly linked with technological innovations, which are often triggering a phase of investment and new opportunities in terms of market and employment.

bubble business cycles

The sovereign debt crisis placing a curb on growth 26-09-2014: Adjustment in Euro Area deficit countries: progress, challenges and policies. IMF and CEPS meeting
The “08 crisis” was caused by a lot of different factors, as Geithner is quick to point out. There was the predatory lending, a revolving door at the SEC that resulted in regulatory failure, and plenty of abuse and excess across the board. No one seemed to think that the party would ever end. “The most damaging thing was the power of that simple belief that because the world had been relatively stable, it would be stable in the future,” he says. "Severe [crises] happen pretty rarely. Again for the United States it wasn’t since the Great Depression. [We had] no living memory of that. And in some ways it’s when you lose the memory of it that you become more vulnerable to it." In this Big Think’s interview, Geithner discusses decision-making in the darkness of a panic and how to stop a financial stampede headed off a cliff.

IMF, Pennsylvania Ave Washinghton
19-03-2010: SOUNDBITE (English) by Dominique Strauss-Kahn, Managing Director of International Monetary Fund (IMF): regulation and supervision are OK. It is on track. Maybe discussion about technical points. I am confident that the target will be reached. But I do not sense the same momentum in the area of crisis management and resolution. The existing arrangements have proven to be inadequate. Taxpayers in many countries are paying the price for crisis management and resolution frameworks that insufficiently protected their interests. What is needed in our view is a European resolution authority with the mandate and the tools to deal with failing cross-border banks. It has to be part of an integrated system of crisis prevention and management. It should cover the major cross-border banking groups and other banks running large-scale cross-border operations under the single European passport

Read the brochure Europe 2020 strategy: for smart, susutainable and inclusive growth

Bitcoin, a cryptocurrency and worldwide payment system and the first decentralized digital currency, as the system works without a central bank or single administrator, may now be the biggest financial bubble of all time. bitcoin now looks to be bigger than any of the 10 other market bubbles it studied including the the tech bubble, beanie babies, the Dow in 1929 and the silver bubble of the late 1970s.


On the debt issue, Prof.dr. Carmen Reinhart (Harvard University, University of Maryland and PIIE), e.g. co-author of 'This Time is Different: Eight Centuries of Financial Folly' (with Kenneth Rogoff) delivered Friday 19 October 2012 the lecture 'A Decade of Debt' by which she addressed the variations on debt themes such as debt overhang, deleveraging, unemployment and double dips in most advanced economies, the European risks from financial crash to debt crisis and more restructurings, the 'capital inflow problem' of the major emerging markets and a global issue of the return of financial repression.The developed countries must find a way to navigate between the Scylla of insufficient stimulus for their weak economies and the Charybdis of excessive issuance of public debt, which would endanger its risk-free status and thus deprive their economies of an indispensable benchmark. To ward off the threat of a worldwide depression that loomed at the end of the 2000s, governments opted to run up substantial fiscal deficits. In doing so, they sowed the seeds of the sovereign debt crisis.Saddled with often high debt burdens and modest growth prospects, developed countries’ governments must now rebalance their budgets. Doing so too rapidly, however, will choke growth.

Faced the debt dilemma, Japan and the United States have pursued growth policies while the euro area members are quickly trying to rebalance their budgets. There are respective risks associated with these two strategies and for the international monetary and financial system of developing countries.

On 1 July 2011 CEPS delivered the commentary 'History repeating itself: from the Argentine default to the Greek tragedy?' Since the onset of the debt crisis in late 2009, the comparisons between Greece and Argentina have multiplied, with an emphasis more on the similarities than the differences. This is not surprising given the stunning parallels.

The commentary draws a systematic comparison between the two countries over the decade before the crisis and the management of the crisis. Overall it suggests that there may be little left to do for Greece to avoid a repeat of the Argentine default, but in larger scale.Debt reduction without default? This paper by Daniel Gros and Thomas Mayer proposes a two-step, market-based approach to debt reduction: offer holders of debt of the countries with an EFSF programme an exchange into EFSF paper at the market price prior to their entry into an EFSF-funded programme and once the EFSF had acquired most of the debt, it would assess debt sustainability country by country. Key characteristic of a boom is the expansion of leverage (i.e. private debt). The key characteristic of the subsequent bust is the explosion of public debt as private debt cannot be serviced. The economies of Ireland and Latvia (and to some extent Spain) offer good examples of this trend of adjustment difficulties in the piigs club.

Within the euro area, however, it is no longer possible to make such a clear distinction between public and private debt given that no euro area country has access to the printing press. Imbalances within the euro area have been a defining feature of the crisis. The paper 'Adjustment in Euro Area Deficit Countries' provides a critical analysis of the ongoing rebalancing of euro area “deficit economies” (Greece, Ireland, Portugal, and Spain) that accumulated large current account deficits and external liability positions in the run-up to the crisis. It shows that relative price adjustments have been proceeding gradually. Real effective exchange rates have depreciated by 10-25 percent, driven largely by reductions in unit labor costs due to labor shedding. While exports have typically rebounded, subdued demand accounts for much of the reduction in current account deficits. Hence, the current account balance of the euro area as a whole has shifted into surplus. Internal rebalancing has come with subdued activity—notably very high unemployment in the deficit economies—and made continued adjustment more difficult. To advance rebalancing further, the paper emphasizes the need for:

  1. macroeconomic policies that support demand and bring inflation in line with the ECB’s medium-term price stability objective;continued EMU reforms (banking union) to ensure proper financial intermediation; and
  2. structural reforms in product and labor markets to improve productivity and support the reallocation of resources to tradable sectors.

Already much is written about macroeconomic imbalances in the euro area and symmetry in the eurozone. Lax financial conditions can foster credit booms, that led to large capital flows across the world, including large movements of resources from the Northern countries of the euro area towards the Southern part. After 2009, these flows have suddenly stopped, creating severe adjustment pressures. The challenge is to strike a delicate balance between providing liquidity for solvent institutions while keeping the overall pressure on for a rapid correction of the imbalances.The divergence of the competitive positions that have built up since the early 2000s is one of the major problems of the eurozone. This divergence has led to major imbalances in the eurozone where the countries that have seen their competitive positions deteriorate (mainly the ‘PIIGS’ – Portugal, Ireland, Italy, Greece and Spain) have accumulated large current account deficits and thus external indebtedness, matched by current account surpluses of the countries that have improved their competitive positions (mainly Germany).


Both President Barroso and M. El-Erian addressed the dilemma of expansion versus austerity. Barrosso during the Brussels Think Tank Dialogue 2013 and M. El-Erian in June 2010: In one corner stand the “growth now” camp, arguing that expansion is a pre-requisite to service their debt sustainably. Without it tax receipts implode, investment is turned away, and meeting future debt payments is harder. Against them stand the “austerity now” camp. By the Wall Street Journal, March 13, 2013 the to austerity related interesting article ‘EU fires back in Austerity Debate’ from Matthew Dalton was posted: The economists of the European Commission are under fire. Critics are blaming them for pushing austerity policies that are partly responsible for Europe’s dreadful economic situation. Worst of all, Paul Krugman is comparing their ideas to disgusting insects.

On Wednesday, commission economists fired back at their critics in nearly 3,000 eye-glazing words of economics jargon. Here are their basic points, in relatively plain English: The commission responds to an argument by the economists Paul De Grauwe and Yuemei Ji that Europe’s austerity policies were an overreaction to the market panic that hit Greece, then Ireland and Portugal starting in 2010. Supporting De Grauwe and Ji is the fact that the relative market calm the euro zone now enjoys arrived only after the European Central Bank announced it would buy unlimited quantities of bonds of countries that sign up for a bailout program. If only the ECB had made that pledge at the beginning of the debt crisis, maybe drastic austerity wouldn’t have been necessary, or so the argument goes.

Not so, the commission says. Falling government borrowing costs in the euro-zone periphery aren’t just the ECB’s doing: “The growing perception that adjustments are underway likely also contributed to the improvement in markets,” according to the paper, which was written by Marco Buti, the top civil servant in the commission’s economics division, and Nicolas Carnot, an adviser at the division.

Budget deficits in the periphery are falling; so are current-account deficits, suggesting an improvement in the underlying competitiveness of these countries. But the paper doesn’t really elaborate on that argument. The burden of proof seems to lie with the commission on this one, since the effect of the ECB pledge was so dramatic. Was budget austerity – or rather “fiscal consolidation” – necessary at all in Europe? The commission believes yes, and it notes the International Monetary Fund and the Organization for Economic Cooperation and Development believe so too. Therefore budget austerity is, in fact, necessary?

“Once it is admitted that fiscal adjustment is due, the issue becomes not one of principle but of degree,” according to the paper. But what if it is not admitted? What if instead it is argued that the euro zone as a whole shouldn’t have reduced its deficit? Clearly Greece, Portugal and Ireland, facing severe market pressure, needed to cut. But did Germany, the Netherlands, Finland, Austria or even France? All of these countries faced low funding costs throughout the crisis and no immediate need for austerity.

Having Germany, the Netherlands, Finland and Austria – the euro zone “core” – run bigger deficits would have softened the euro zone’s budget stance; stimulus in the core would at least have prevented the euro-zone budget deficit from falling as fast as it did, or falling at all. Doing so would also have increased long-dormant domestic demand in the euro-zone core and helped the periphery recover through export-led growth. The commission is on board with this point. “We would agree that the symmetry of the adjustment is a legitimate concern,” they write, “There are ways to favour a coordinated approach to rebalancing, but the currently available tools also present limitations.” The commission notes that Germany is edging towards better policies. The government’s budget stance is now basically neutral – neither cutting nor stimulating. German officials have said they are willing to allow stronger wage increases, which will help German consumers buy goods made by Greek, Italian, Portuguese, Spanish and Irish factories. The problem is, this is arguably too little, too late. Germany has been cutting its deficit for the last two years. German wage inflation or overall inflation hasn’t been much higher than in the periphery. And that continues to be the case. Without higher inflation and stronger domestic demand in the euro-zone core, the periphery is facing a long, nasty period of adjustment. The commission also defends itself against the charge of being inflexible. Over the last year, it has given more time to Spain, Portugal and Greece to cut their budget deficits, because weak growth has undermined deficit targets.  “Further extensions of deadline may be recommended in the near future,” Messrs. Buti and Carnot write.

“The simple allegation that the Commission pursues austerity inflexibly does not hold.” Over the last two years, we have faced the world's worst economic crisis since the 1930s. This crisis has reversed much of the progress achieved in Europe since 2000. We are now facing high levels of unemployment, sluggish structural growth and excessive levels of debt. The economic situation is improving, but the recovery is still fragile. At the same time, the world is moving fast and long-term challenges – globalisation, pressure on resources, climate change, ageing – are intensifying.

Europe can succeed if it acts collectively, as a Union. The Europe 2020 strategy put forward by the Commission sets out a vision of Europe's social market economy for the 21st century. It shows how the EU can come out stronger from the crisis and how it can be turned into a smart, sustainable and inclusive economy delivering high levels of employment, productivity and social cohesion. To deliver rapid and lasting results, stronger economic governance will be required.Following the Commission's communication "Europe 2020" and the discussions held in the Council, on the 25-26 March 2010, the European Council reached an agreement on the new strategy, which was formally adopted on 17 June. Europe has identified new engines to boost growth and jobs. These areas are addressed by flagship initiatives:

Within each initiative, both the EU and national authorities have to coordinate their efforts so they are mutually reinforcing. The recent financial crisis came about because a bubble burst. Keeping this in mind leads us to important considerations Daniel Gros wrote January 2010 in a paper 'The impact of the crisis on the real economy'. November 2008 the Commission framed A European economic recovery plan, that has two key pillars, and one underlying principle.


Some other countries makes fast growth and have to taken into consideration. These countries are known as the BRIC-countries (Brazil, Russia, India and China). Recently, the same is also pronounced concerning Mexico, Korea, Indonesia and Turkey (MKIT) and CIVETS-countries. In 2006 Goldman Sachs' made up a paper 'Dreaming with BRIC's, The Path to 2050':
  • Over the next 50 years, Brazil, Russia, India and China—the BRIC's economies—could become a much larger force in the world economy. We map out GDP growth, income per capita and currency movements in the BRIC's economies until 2050. But not only the BRIC's could grow, also the 'MKIT' countries (Mexico, Korea, Indonesia and Turkey) and CIVETS-countries (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa are factors to deal with in future.

    The results are startling. If things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms. By 2025 they could account for over half the size of the G6. Of the current G6, only the US and Japan may be among the six largest economies in US dollar terms in 2050.

  • The list of the world’s ten largest economies may look quite different in 2050. The largest economies in the world (by GDP) may no longer be the richest (by income per capita), making strategic choices.