Can Europe recover without credit?

Data from 135 countries covering five decades suggests that creditless recoveries, in which the stock of real credit does not return to the pre-crisis level for three years after the GDP trough, are not rare and are characterised by remarkable real GDP growth rates: 4.7 percent per year in middle-income countries and 3.2 percent per year in high-income countries. However, the implications of these historical episodes for the current European situation are limited, for two main reasons. First, creditless recoveries are much less common in highincome countries, than in low-income countries which are financially undeveloped. European economies heavily depend on bank loans and research suggests that loan supply played a major role in the recent weak credit performance of Europe. There are reasons to believe that, despite various efforts, normal lending has not yet been restored. Limited loan supply could be disruptive for the European economic recovery and there has been only a minor substitution of bank loans with debt securities. Second, creditless recoveries were associated with significant real exchange rate depreciation, which has hardly occurred so far in most of Europe. This stylised fact suggests that it might be difficult to re-establish economic growth in the absence of sizeable real exchange rate depreciation, if credit growth does not return

Functional differentiation within the monkey cortex as revealed by near-infrared spectroscopy

The role of prefrontal cortex in working memory (WM) is well established. However, questions remain regarding the topography and “domain-specific differentiation” of different types of information processing in the cortex. While it has been theorized that dorsolateral (DPFC) and ventrolateral (VPFC) prefrontal cortex preferentially process spatial and object WM, respectively, both electrophysiological evidence in the monkey and neuroimaging in the human have largely failed to demonstrate such regional differentiation. In this study we use near-infrared spectroscopy (NIRS) to detect functional changes, across relatively large cortical cell populations, simultaneously from prefrontal and posterior parietal cortices. Imaging data were recorded from a Rhesus macaque performing two types of WM tasks: a spatial task in which the animal had to retain the spatial position of a visual stimulus, and a non-spatial task where he had to retain its color (red or green) during a 20s delay. During performance of the spatial WM task, cerebral activation trends were found in which DPFC exhibited stronger activation than did the VPFC, and posterior parietal cortex maintained higher delay activation than did frontal regions. These differences were less pronounced during performance of the non-spatial task. Additionally, incorrect trials generally elicited lower activations during the delay period than did trials ending with a correct response. Furthermore, NIRS data collected during the performance of a haptic WM task also appear to exhibit inter-regional differences in delay activation. The data thus suggest the presence of preferential cognitive processing between and within posterior and frontal cortical regions

The financial stability risks of ultra-loose monetary policy

Ultra-loose monetary policies, such as very low or even negative interest rates, large-scale asset purchases, long-maturity lending to banks and forward guidance in central bank communication, aim to increase inflation and output, to the benefit of financial stability. But at the same time, these measures pose various risks and might create challenges for financial institutions. By assessing the theoretical literature and developments in the United States, United Kingdom and Japan, where very expansionary monetary policies were adopted during the past six years, and by examining the euro-area situation, we conclude that the risks to financial stability of ultra-loose monetary policy in the euro area could be low. However, vigilance is needed. While monetary policy should focus on its primary mandate of area-wide price stability, other policies should be deployed whenever the financial cycle deviates from the economic cycle or when heterogeneous financial developments in the euro area require financial tightening in some but not all countries. These policies include micro-prudential supervision, macro-prudential oversight, fiscal policy and regulation of sectors that pose risks to financial stability, such as construction

Poor and under pressure: The social impact of Europe's fiscal consolidation

Europe faces major challenges related to poverty, unemployment and polarisation between the south and the north, which impact adversely the current living conditions of many citizens, and also negatively impact medium- and long-term economic growth. Fiscal consolidation exaggerated social hardship. In vulnerable countries there was no alternative to fiscal consolidation, but in most EU countries and at aggregate EU level, consolidation was premature when the cyclical position of the economy was deteriorating. Spending on social protection was shielded relative to other spending categories, but public bank rescue costs were high. While the changes in the tax mix favoured job creation, the overall tax burden become more regressive. There is an increasing generational divide between the elderly and the young in terms of social indicators. Social spending on elderly people was favoured relative to spending on families, children and education. There is now a serious danger that a lost generation might develop in several member states. Forceful policies should include bold structural reforms, better use of the European economic governance framework, more demand promotion, and a revision of national tax/benefit systems for fair burden sharing between the wealthy and poor

The limitations of policy coordination in the euro area under the European Semester

The European Semester is a yearly process of the European Union to improve economic policy coordination and ensure the implementation of the EU's economic rules. Each Semester concludes with recommendations for the euro area as a whole and for each EU member state. We show that implementation of recommendations was poor at the beginning of the Semester in 2011, and has deteriorated since. The European Semester is not particularly effective at enforcing even the EU's fiscal and macroeconomic imbalance rules. We find that euro-area recommendations with tangible economic goals are not well reflected in the recommendations issued to member states. Finally, we review various proposals to improve the efficiency of the European Semester and conclude that while certain steps could be helpful, policy coordination will likely continue to have major limitations

Molecular dynamics simulations of the water adsorption around malonic acid aerosol models

Water nucleation around a malonic acid aggregate has been studied by means of molecular dynamics simulations in the temperature and pressure range relevant for atmospheric conditions. Systems of different water contents have been considered and a large number of simulations have allowed us to determine the phase diagram of the corresponding binary malonic acid–water systems. Two phases have been evidenced in the phase diagrams corresponding either to water adsorption on a large malonic acid grain at low temperatures, or to the formation of a liquid-like mixed aggregate of the two types of molecules, at higher temperatures. Finally, the comparison between the phase diagrams simulated for malonic acid–water and oxalic acid–water mixtures emphasizes the influence of the O : C ratio on the hydrophilic behavior of the aerosol, and thus on its ability to act as a cloud condensation nucleus, in accordance with recent experimental conclusions

A proposal to revive the European fiscal framework

[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU’s fiscal framework in achieving its two main objectives - public debt sustainability and fiscal stabilisation. In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilisation during a recession. However, implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts, leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque. The current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with. The best option, re-designing the fiscal framework from scratch, is currently unrealistic. Therefore we propose to eliminate the structural balance rules and to introduce a new public expenditure rule with debt-correction feedback, embodied in a multi-annual framework, which would also support the central bank’s inflation target. A European Fiscal Council could oversee the system

The effects of ultra-loose monetary policies on inequality

Low interest rates, asset purchases and other accommodative monetary policy measures tend to increase asset prices and thereby benefit the wealthier segments of society, at least in the short-term, given that asset holdings are mainly concentrated among richest households. Such policies also support employment, economic activity, incomes and inflation, which can benefit the poor and middle-class, which have incomes more dependent on employment and which tend to spend a large share of their income on debt service.Monetary policy should focus on its mandate, while fiscal and social policies should address widening inequalities by revising the national social redistribution systems for improved efficiency, intergenerational equity and fair burden sharing between the wealthy and poor

Regional and global financial safety nets: The recent European experience and its implications for regional cooperation in Asia

This paper compares financial assistance programs of four euro-area countries (Greece, Ireland, Portugal, and Cyprus) and three non-euro-area countries (Hungary, Latvia, and Romania) of the European Union in the aftermath of the 2007/08 global financial and economic crisis - which were supported by the International Monetary Fund (IMF) and various European financing facilities. These programs have distinct features compared with assistance programs in other parts of the world, such as the size of imbalances, financing, unique cooperation of the IMF and various European facilities, and membership of a currency union in the case of euro-area countries, in which countries faced adjustment through low inflation. We evaluate the programs by assessing their success in creating conditions to regain market access, the degree of compliance with loan conditionality, and actual economic performance relative to program assumptions. We conclude that the rate of compliance with loan conditionality was not a good predictor of program success and that deviations from gross domestic product program assumption correlate strongly with fiscal performance and unemployment, highlighting the key role of macroeconomic projections in program design. While the Troika institutions had reasonably good cooperation, there were major disputes among them in some cases, primarily related to the assessment of fiscal sustainability and cross-country spillovers. Asian countries can draw several lessons from European experiences, including the coexistence of the IMF and regional safety nets, cooperation issues, systemic spillovers, and social implications of program design

HyPLC: Hybrid Programmable Logic Controller Program Translation for Verification

Programmable Logic Controllers (PLCs) provide a prominent choice of implementation platform for safety-critical industrial control systems. Formal verification provides ways of establishing correctness guarantees, which can be quite important for such safety-critical applications. But since PLC code does not include an analytic model of the system plant, their verification is limited to discrete properties. In this paper, we, thus, start the other way around with hybrid programs that include continuous plant models in addition to discrete control algorithms. Even deep correctness properties of hybrid programs can be formally verified in the theorem prover KeYmaera X that implements differential dynamic logic, dL, for hybrid programs. After verifying the hybrid program, we now present an approach for translating hybrid programs into PLC code. The new tool, HyPLC, implements this translation of discrete control code of verified hybrid program models to PLC controller code and, vice versa, the translation of existing PLC code into the discrete control actions for a hybrid program given an additional input of the continuous dynamics of the system to be verified. This approach allows for the generation of real controller code while preserving, by compilation, the correctness of a valid and verified hybrid program. PLCs are common cyber-physical interfaces for safety-critical industrial control applications, and HyPLC serves as a pragmatic tool for bridging formal verification of complex cyber-physical systems at the algorithmic level of hybrid programs with the execution layer of concrete PLC implementations.Comment: 13 pages, 9 figures. ICCPS 201