Why EMU is irrelevant for the German economy

No one seems to be neutral about the effects of EMU on the German economy. Roughly speaking, there are two camps: those who see the euro as the advent of a newly open, large, and efficient regime which will lead to improvements in European and in particular in German competitiveness; those who see the euro as a weakening of the German commitment to price stability. From a broader macroeconomic perspective, however, it is clear that EMU is unlikely to cause directly any meaningful change either for the better in Standort Deutschland or for the worse in the German price stability. There is ample evidence that changes in monetary regimes (so long as non leaving hyperinflation) induce little changes in real economic structures such as labor or financial markets. Regional asymmetries of the sorts in the EU do not tend to translate into monetary differences. Most importantly, there is no good reason to believe that the ECB will behave any differently than the Bundesbank

Is Germany Turning Japanese?

After the recent IT bubble, Germany alone among OECD countries is beginning to share Japan's political-economic profile: too many banks with too little capital, macroeconomic policy division and deflationary bias, and financially and politically passive households. Germany has been spared Japan's fate of persistent stagnation so far because of its long-standing openness and commitment to international economic integration. But this commitment is newly in jeopardy, as Germany backs an approach to the European Union's enlargement that would elevate the power and interests of larger incumbent nations - a shift from Germany's traditional support for EU federalism. The change in the German approach to EU enlargement could well tip the country into a full-fledged Japan syndrome.Germany, Japan, economy, banks, banking, macroeconomic, international economic integration

The Looming Japanese Crisis

After more than a decade of economic stagnation and minimal structural change, Japan stands on the brink of outright financial crisis--the only debate is whether the Japanese government can dodge its imminent economic threats for another six months at most, or ride the wave of global expansion to throw still more money at these problems with decreasing effectiveness until the public debt becomes unsustainable (which should be no later than 2005). Either way, volatility in Japanese asset markets will be extremely high for the next 36 months, with significant declines on average in asset prices and the yen.

Finance and Changing US-Japan Relations: Convergence Without Leverage--Until Now

In the postwar era, US-Japan economic relations have been characterized by substantial tensions, yet this has not damaged the underlying security relationship or critically harmed the multilateral economic framework. In fact, these two economies have become more integrated over time even as these tensions played out. These tensions, however, have required an enormous expenditure of political capital and officials' time on both sides of the Pacific and have led to foregone opportunities for institution building and policy coordination. They have deepened since Japan "caught up" with the United States around 1980, and Japanese and US firms began increasingly to compete for profits and market share in the same sectors. Moreover, as both the US and Japanese economies continue to mature - both in terms of the age of their populations and their industrial mix - they will likely face even greater tensions between them over allocating the management and costs of industrial adjustment. Financial liberalization and integration could change all this. At present, US and Japanese corporate governance and investment behavior appear to be converging towards the arms-length, market-based, US approach to financial markets. If this trend continues, it will not only reduce tensions in the near term by facilitating the resolution of specific disputes, but it could also forge common interests between domestic interest groups across the Pacific while giving those groups more power relative to their respective governments. Over the longer-term, convergence would also produce common US and Japanese policy goals in relation to international capital flows and investment. Finally, for a transitional period, convergence should simultaneously increase US influence and improve Japanese economic performance, a combination that has been difficult to attain since the first oil shock. Convergence between the US and Japanese financial systems, however, is not a foregone conclusion. The general question of whether the decline of national models is inevitable remains open - and the specific outcome of the interaction between Japanese political economy (arguably the most distinctive among industrial democracies) and financial liberalization (arguably the most transformative aspect of globalization) already is unfolding as a critical case study. Even if most would agree that some form of liberalization has taken place in Japanese as well as American financial markets, scholars disagree over whether the Japanese form of liberalization is distinct from the American, whether this liberalization is likely to be the victim of political backlash (in either country), or whether financial sector change is likely to transform the rest of Japan's economy. This essay is focused on a related but more policy-oriented question: If we assume that the current trends toward liberalization in and convergence between the United States and Japanese financial system persist, how will this affect US-Japan relations? I will present evidence of convergence toward the increasingly deregulated US system over the past 15 years, and I will argue that this trend is likely to persist and probably accelerate. I assume as well that the case need not be made here on the pure economics why the more liberal model is likely to confer efficiency gains (at least in the short-run). I do not presume that the ongoing academic discussion of globalization and its effects has been settled. For purposes of policymaking, however, if this convergence assumption proves incorrect in the coming years, it almost certainly would mean that financial factors would be only a very minor factor in US-Japan relations (as it was until recently), or simply one of many sectoral disputes with dynamics with which we are familiar, having no special implications. Several hundred billion dollars have already been bet by Japanese and American investors on the belief that financial liberalization and convergence will occur, so it seems worth exploring the implications of this, I would argue, likely possibility.

Does it pay to be transparent? international evidence form central bank forecasts - commentary

Banks and banking, Central ; Forecasting

The United States Needs German Economic Leadership

Only together can the United States and Germany keep the global economy integrated--by removing agricultural roadblocks to a WTO deal, coordinating on relations with China, and securing the flow of international investment. The new German chancellor, Angela Merkel, could save the Doha Round by reinterpreting the budget deal just made on agricultural support funds at the EU summit, something US pleas and attempts to shame France cannot achieve. Both countries have an interest in making a common front toward China. If the United States continues to face China alone, the Chinese government is unlikely to move the yuan peg meaningfully. Chancellor Merkel should take advantage of the American bad cop role to play good cop. In particular, under German urging, the eurozone can offer to shift several percent of its shares in the IMF and World Bank to China and other Asians in return for a revaluation of the yuan and a eurozone seat at the institutions. Both President Bush and Chancellor Merkel could also cooperate to defuse mounting economic nationalism that hampers cross-border investment. Merkel should secure opportunities for the export-dependent German economy and advance European integration, and the Bush administration should welcome German leadership and thus validate European partnership in international policy.

A solution for Europe's banking problem

Nicolas Véron and Adam Posen believe Europe should build new long term European joint-action to face the likely high rising number of insolvent banks on the continent. The authors propose on the one hand, a centralised triage and restructuring process of bad European banks lead by a new temporary European Institution, a European Bank Support Authority (EBSA), and on the other hand, long-term EU Institutions dedicated to the completion of an integrated market.

How Flexible Can Inflation Targeting Be and Still Work?

This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a target. The empirical analysis uses the speed of inflation forecast convergence, estimated from professional forecastersÂ’ predictions at successive forecast horizons, to gauge the perceived flexibility of the central bankÂ’s response to macroeconomic shocks. Based on this criterion, there is no evidence to suggest that the Bank of EnglandÂ’s inflation target has compelled it to be more aggressive in pursuit of low inflation than the Federal Reserve.

Has EMU had any Impact on the Degree of Wage Restraint?

We find in cross-sectional investigations that wage restraint is either unchanged or increased following EMU in the vast majority of countries. This contradicts the predictions of a widely-cited family of models of labor market bargaining. In those, Germany would have been expected to display the greatest decline in wage restraint post-EMU, and we find no indication of such a decline. The time-series evidence on Italy shows a significant increase in wage restraint after eurozone entry. This pattern is consistent with the models that emphasise the gains from monetary credibility. The eurozone increase in wage restraint is matched by the increase seen in the UK and Sweden after adopting inflation targeting, another means to credibility.EMU, wage bargaining, monetary credibility, productivity