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WP 2021-04.

We recently wrote about the extraordinary increases in debt financed by seemingly circular transactions between member state borrowing agencies and the ‘Eurosystem’ – the ECB and all the national central banks. A recent paper by Magnin and Nenovsky considers monetary data from Q4 2007 (when the financial system began to wobble) to Q2 2020. In this period, the euro area monetary base grew by 330%, money supply by 61%, and yet the CPI inflation metric was up only by 17%. Seeking to answer the question as to why such a low observable level of inflation has resulted from this “avalanche of public debt increases in the euro area”, the authors examined the institutional structure behind Eastern Europe’s socialist economies, in force for between 45 and 70 years, until ending around 1989.

Edmund Burke once said that “No government ought to exist for the purpose of checking the prosperity of its people or to allow such a principle in its policy”. In contrast to this principle, however, in June and July finance ministers and central bankers met in London and Venice to check the prosperity of “their” peoples and of the entire planet by proposing a universal corporate tax rate of at least 15%. According to media reports, the words “at least” were added on the insistence of the EU ministers.

IREF is a free-market oriented think tank. It promotes ideas, events, and academic research.

With regard to research, IREF supports original projects that lead to the production of papers of academic quality of at least 7,000 words. This support is not a prize to published work, nor is it an encouragement to “work in progress”.

In spite of the attacks it has suffered in the past years, globalization is doing well. In particular, last November free trade supporters celebrated the birth of the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement that includes the members of the Association of Southeast Asian Nations (ASEAN), plus China, Japan, South Korea, Australia, and New Zealand. India initially took part in the negotiations but later decided to leave. The 15 RCEP member countries account for about 30% of the world population and 30% of global GDP, and are the largest trade bloc in history, larger than the US-Mexico-Canada Agreement and the European Union. The deal will take effect 60 days after ratification by at least six ASEAN and three non-ASEAN signatories. Thus far, it was ratified by Japan, China, Singapore and Thailand. Presumably, RCEP will be operational by the end of this year.

„I hope that our government, more enlightened and more liberal than in the past,
will be in the future the true friend of the best and noblest cause that exists;
and that the name of England will forever be dear to the Greeks.“

Mary Wollstonecraft Shelley in a letter to Alexandros Mavrokordatos (February 22, 1825)

The European Banking Authority (EBA) has been aware of the growing problem of non-performing loans (NPLs), especially in Italy, which quickly built up in the recessionary environment following the sovereign debt crisis from 2010. The EBA, hoping that banks could demonstrate solvency, introduced in 2014 new definitions of forbearance and of non-performance, aimed at relaxing the problem. However, despite the EBA’s efforts, Italian NPLs continued to grow at a rate of about 20% each year and peaked in 2015-16, when €341 billion, or about 17% of all Italian bank loans were classified as non-performing. In 2018 international accounting standard changes led to stricter rules requiring provisioning and loss recognition.[[IFRS9, implemented in Italy 2018]] The EBA then pressed banks to maintain more realistic valuations for NPLs on their balance sheets, making provisions which reduced profits and capital. However, these provisions were typically applied by banks to the most severe category of NPLs.

‘Towards a zero-risk society’ might be thought as the manifesto of a dishonest politician who tries to win voters’ support by promising to free them from any possible risk. A deceitful manifesto, however: although it could attract plenty of people and gather widespread consensus, the promise would be absurd.

For some years, they have been the undisputed queens of political talk shows, the master key used by most commentators to explain the whatever. There was no election in which they did not make their triumphal appearance: The «leave» won at Brexit? Fault of fake news! Trump becomes president? The same! True, fake news, a catch-all term referring to intentionally fabricated information characterized by politically charged content, suffered a first backlash in conjunction with the 2019 European elections, where the expected populist tide ultimately failed to come about. But with Joe Biden at the White House the miracle seems to have materialised: all of a sudden, fake news and their thaumaturgical role in influencing the vote vanished (or almost did).

In the last European elections, the so-called green parties won a record number of seats and became the fourth largest bloc in the European parliament. The Greens are now seen as pivotal political allies for passing EU legislation.

Not surprisingly, climate issues have become central to the EU decision-making. As soon as she took office, President Ursula von der Leyen unveiled the European Green Deal, a set of initiatives aiming at making Europe climate-neutral by 2050. However, the deal has already faced criticism and generated tensions between the greener western half of the Continent and the coal-dependent east, between corporations and NGOs, and also between the EU and its trading partners.