Crisis

In recent years, the Baltic States have been showcased as an austerity success story. While the whole world has seen countries such as Greece, Spain and Portugal struggling to reduce their public spending, Lithuania has been hailed as an austerity example. Lithuanian success in public spending cuts has been widely acknowledged; yet simultaneous tax increases and their harmful effects have received less attention. Since the end of 2011, however, the country once again found itself embroiled in a budget crisis and is now moving down the dangerous road of tax hikes.

If adopted as a new own resource of the EU budget the financial transaction tax (FTT) will significantly reduce the contributions of member states to the EU budget, according to estimates presented yesterday by the European Commission. Member States’ contributions would be slashed by €54bn in 2020.The Commission proposes that two thirds of the revenues of the FTT go to the EU budget, reducing by the same amounts Member States’ contributions based on their GNI, with the remaining one third being retained by Member States.

In March 2010, when the Greek debt crisis was heating up, then-ECB president Jean Claude Trichet declared to the EU parliament that the “monetary Union in Europe is far more than a monetary arrangement. It is a union of shared destiny”. Less than two months later the ECB reversed its refusal to monetize debt and openly started buying government bonds in violation of its own charta. Germany also gave up its reservations about bailing out other countries. A first aid deal for Greece was signed and, because that didn’t help for long, a Euro rescue package to the tune of € 750 billion was put in place.

France is famous for its wine, cheese and…unions. It is well established now that any reform considered by any government, left or right, has to be approved by unions (or, at least, not strongly opposed) in order to have a chance to be passed. Strange situation in a country where less than 8% of all employees have a union membership card–the lowest rate in the EU. Despite the poor legitimacy that such a low membership rate implies, unions are getting important grants and allowances from the state as well as from businesses.

Will the European Central Bank turn to Quantitative Easing ? This is the question haunting all analysts and governments and, if one were to make a bet, better put it on the YES answer. Yes, the ECB will most probably end up doing just what the FED has been doing for years. The main reasons put forward in support of that policy is that there is no much choice: no one wants to lend to EU states and EU banks any more, not even the Chinese government, and the German economy doesn’t have the power to support everyone.

A widespread understanding of the 2007-2008 crisis places the origins of the crisis in a capture of global economy by the finance industry. The “occupy Wall Street” group would surely agree, as well as most of those who get their economics from the general media. And President Sarkozy in his recent Toulon’s speech did confirm the thesis. If this understanding is correct then it is natural to call for further regulation of the finance industry. But not everyone agrees, and some economists favor another understanding.

According to a recent economic outlook from Standard&Poor’s, high frequency indicators in the past month continue to depict Europe’s “darkening economic landscape”. Apart from being a problem by itself, a…

In one of the first studies critically to examine the Basel Accords, Engineering the Financial Crisis reveals the crucial role that bank capital requirements and other government regulations played in the recent financial crisis. Jeffrey Friedman and Wladimir Kraus argue that by encouraging banks to invest in highly rated mortgage-backed bonds, the Basel Accords created an overconcentration of risk in the banking industry.

is the amount of exposition of French banks to European countries’ private and public debt. They own for instance $106 billion of Italian public debt (which is six times higher…

Until now, the debt crisis seemed to spare the biggest European economy. But the country everybody is relying on starts to meet difficulties to refund its debt. The sale of German benchmark bonds on Wednesday turned to a disaster and the Bundesbank has been forced to hold on to record amounts (39% of the €6 billion Germany had hoped to sell) to ensure the auction did not fail. However, this is not so surprising if one takes a look on German 10-year real bond yield that turns to be negative: