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Jacob Funk Kirkegaard

Jacob Funk Kirkegaard

Senior Fellow at the Peterson Institute For International Economics

Articles by Jacob Funk Kirkegaard

Macron’s Outsized Role in European Governance in 2019

May 25, 2018

The coming shakeup in the leadership of top positions in the European Union has given President Emmanuel Macron of France an unusually strong hand in determining its future. The question of how he will play that hand looms over the next European elections in May 2019, where—as in 2017 when he denied Marine Le Pen the French presidency—his main task may become to help secure a pro-European majority in the European Parliament.
The next European Commission president is likely to be selected by securing majority support in the European Parliament to be elected next year. Under the Spitzenkandidat principle, as recently confirmed by the European Parliament, the next European Commission president must have been nominated by one of its nine political groups. In 2014, the “lead candidate” chosen

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Italy’s New Government: Bad News for Europe But No Cause for Panic in Markets

May 23, 2018

The prospect of a new populist government in Italy consisting of the Five Star Movement (MS5) and the anti-immigrant League parties has caused increased trading activity in financial markets, as investors seek to incorporate this new information into the price of Italian assets and especially government bonds. Although the beginnings of a selloff in Italian government bonds raises questions about Italy’s debt sustainability and possible contagion in other euro area countries, current and past bond yield trends suggest panic is not in order.
Will the New Government Be Able to Govern?
The MS5 and League parties are both politically untested and could not even quickly agree on a credible candidate for prime minister. A coalition government of the two does not seem likely to be able to agree

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Europe’s Coming Game of Musical Chairs

May 15, 2018

The distribution of jobs in the superstructure of European-wide government is due for a shakeup in the next year, determining who will set the pace of the region’s integration at a time of intermittent economic growth. Personalities always matter in the jockeying for these jobs, and the political views of the various candidates also matter.
But the selection process for Europe’s top jobs is driven more by the broad political circumstances at the time of transition than the attractiveness of individual candidates. Several subtleties play an important role in determining the next leaders of the most important European institutions.
National Balance. The nations of Europe adhere to the principle that no single country may monopolize too many positions in government and that no country has a

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The Politics of Selecting a New ECB President in 2019

May 7, 2018

As the global economy continues its upswing, central banks in advanced economies face the challenge of returning monetary policy to a level enabling them to combat the next cyclical downturn. The recent selection of Jerome Powell, John Williams, and Richard Clarida to leading positions at the US Federal Reserve System, the reappointment of Bank of Japan governor Haruhiko Kuroda for a second term, and the promotion of deputy governor Yi Gang as governor of the People’s Bank of China (PBOC) all reflect policy continuity at three of the four major global central banks.
But top leadership transitions at the European Central Bank (ECB), as a multilateral institution, always have to contend with politics. This makes the selection process of the central bank’s new leadership in 2019 less

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New Governments in Germany and Italy: Fears of Rampant Populism May Be Exaggerated

March 23, 2018

In their most recent elections, Germany has chosen continuity and Italy has taken a big jump into the unknown. In early March, German social democrats voted to support another grand coalition under the leadership of Chancellor Angela Merkel, while empowering anti-immigrant and far-left parties as the main opposition. At the same time, Italy’s voters elected a new but hung parliament dominated by populist parties. In both cases, most media commentary has focused on the anxiety over surging voter support for populism and anti-European, anti-immigrant sentiment. But these concerns are overblown. Neither Germany nor Italy appears on the brink of political crisis.
Germany: Grand Coalition Ends Power Vacuum
Yes, the two-thirds of German social democrats who supported the new grand coalition

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EU Member States Continue to Dictate Brexit

March 22, 2018

The Chief European Commission Brexit negotiator, Michel Barnier, is often described in the media as the source of the European Union’s tough stance on the Brexit negotiations. But it is increasingly clear that EU member states and their chief representative, EU Council president Donald Tusk, former prime minister of Poland, are the ones tightening the screws on Prime Minister Theresa May’s government over the terms of Brexit.
In Dublin, standing next to the Irish prime minister, Tusk essentially froze the Brexit negotiations when he noted that Britain rejected a customs and regulatory border and also the EU single market. "While we must respect this position, we also expect the UK to propose a specific and realistic solution to avoid a hard border," he said at the March 8 meeting. "As long

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Positive Signs in European Labor Markets in 10 Charts

February 20, 2018

The European Commission estimates the euro area economy grew at 2.5 percent in 2017, an upward revision of its previous estimates, suggesting that the pattern will continue in 2018. This trend is at least one percentage point above reasonable estimates of the euro area’s potential growth rate. The still subdued levels of headline (and core) inflation in the euro area remain well below the ECB’s target, indicating that significant unused capacity remains a problem after the euro area crisis. But at least the strong cyclical recovery is finally pushing the European economy back towards full utilization.
Since the 2012–13 recession, the strong euro area growth numbers have been driven by domestic demand increases in consumption and investment, while contributions from net exports have

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Coming Soon: More Brexit Confrontations

January 29, 2018

Since early December, phase 1 of Britain’s negotiation with the European Union over the terms of its exit have seemed to be on track, thanks to Prime Minister Theresa May’s capitulation on payments to the European Union, citizens’ rights, Northern Ireland, and other issues. But a number of factors are at work to ensure that the calm will not last. The European Union’s greater economic and political strength and negotiating leverage will come into play in coming months.
The Brexit negotiations are unfolding according to the EU27’s time plan. In December 2017, the EU Council agreed to a transition agreement with the United Kingdom, and said it would release guidelines for these negotiations by the end of January, and then another set of guidelines to define a future relationship with the

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Earmarked Revenues: How the European Union Can Learn from US Budgeting Experience

January 25, 2018

New challenges facing the European Union—immigration pressures, the need to decrease security dependence on an increasingly erratic United States, and the United Kingdom’s exit from the European Union (Brexit)—are compelling EU leaders to consider overhauling the revenue side of the European Union’s existing budget. To deal with these challenges in the future, the European Union will need resources—at a time when Europeans are increasingly skeptical about the effectiveness of budget-making in Brussels. Longstanding US budgetary procedures of trust fund accounting and earmarking government revenue towards specific priorities can provide a template for European policymakers. Shifting the EU budget towards more earmarked resources would reduce distrust among taxpayers by limiting Brussels’

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A New Roadmap for EU Reform in 2018

December 22, 2017

Despite the political stalemate in Germany, the recent publication of the European Commission’s new roadmap for completing the Economic and Monetary Union (EMU) signals that progress toward economic reform in Europe is on track for 2018.
The Commission’s new proposals follow the 2015 Five Presidents’ Report with short-term steps in the next 18 months and medium-term steps for 2019–25. Ultimately, the political power to reform European institutions lies with member states, but the Commission would not be making these suggestions if there were not a reasonable chance of agreement on them. But the coming 18 months will test the EU’s capacity for reform in the absence of a crisis. Like previous structural reforms, the next important steps on banking and fiscal union are likely to come with a

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Britain Opts for “Brexit in Name Only”

December 11, 2017

The agreement reached on December 8 between the United Kingdom and the Europeans on phase 1 of the British exit from the European Union (EU) reveals a familiar chorus just in time for the holidays. While Prime Minister Theresa May invokes the voters’ mandate to make a clean break, hard economic realities have now dictated that it will be a “Brexit in Name Only” (BINO).
If the music is familiar, you might ask Swiss or Norwegian officials, whose countries contribute to the EU budget and institutional upkeep, implement all relevant EU legislation, but have no say in how these rules are written. The refrain consists of them saying, “We have to protect our economies and also comply with our publics’ desire to appear sovereign.”
A detailed look at the agreement confirms the de facto capitulation

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The Brexit Process: A Hard Exit vs. No Exit at All?

November 14, 2017

The increasingly fraught talks over Brexit between the European Union and UK Prime Minister Theresa May’s battered government have reached a critical fork in the road. The most likely course is for Britain to capitulate to most of the EU-27 demands, leading to a hard British exit postponed by a few years. But the chances that Brexit will ultimately be reversed are also rising from their previously very low probability.
The EU and the UK have until mid-December to reach “sufficient progress” in their divorce negotiations before they can begin to talk about the future trade relationship between the two. The three main issues to be resolved are (1) how much the UK will have to pay to settle its EU accounts, (2) the rights of EU/UK citizens post-breakup, and (3) the management of Northern

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Can the US Spend Like Denmark without Taxing Like It?

October 23, 2017

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At a recent CNN town hall debate between Senators Bernie Sanders and Ted Cruz, Jacob Funk Kirkegaard questioned the validity of Senator Sanders’ policy proposals to spend like a Scandinavian country while only raising taxes on the wealthiest citizens. In this Peterson Perspectives interview, Kirkegaard discusses Denmark’s effective tax rate where middle class citizens are taxed nearly 50 percent of their income.October 23, 2017

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Tax Overhaul Risks Making the US Tax and Transfer System (Even) More Regressive

October 23, 2017

US policymakers should be particularly concerned about the effects of any new tax legislation on the incomes of individuals and businesses because of rising income inequality in the United States and the relatively limited US social safety net financed with government taxes. The evidence gathered in this Policy Brief shows that among the world’s high-income countries, the United States has the least redistributive government tax and transfer system, mainly because it chooses to redistribute relatively less through direct tax collection and government transfers to low-income American families. Therefore, any proposed revenue generation measures involving federal value-added taxes or general sales taxes, unless supplemented with increases in government transfers or designed to be less

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Prime Minister May’s Offer on EU Citizens’ Rights

June 26, 2017

Peterson Institute For International Economics
The Peterson Institute for International Economics is a private nonpartisan nonprofit institution for rigorous, intellectually open, and indepth study and discussion of international economic policy.

1750 Massachusetts Avenue, NWWashington, DC 20036

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Are Germany and France Trying to Get the UK to Rescind Brexit?

June 15, 2017

Bolstered by his likely parliamentary election victory on Sunday, President Emmanuel Macron of France appears poised to join with the increasingly formidable Chancellor Angela Merkel of Germany to launch a new drive for European integration in the coming years.
If—or rather when—that happens, the British confusion over how to proceed with negotiations to exit the European Union will take on an entirely new dynamic, weakening Prime Minister Theresa May’s negotiating position to the point of near paralysis.
So far, most analysis of the UK election has been about what it will do to the UK position in the Brexit negotiations. By undermining any claim of strong leadership for May and compelling her to rely on an untested regional Northern Irish fringe party for her parliamentary majority, the

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A Defeated UK Leadership Clouds the Brexit Outlook

June 9, 2017

The surprise rejection of UK Prime Minister Theresa May’s Conservative Party by British voters reveals the great difficulties in achieving a national consensus on almost any major policy issue facing the United Kingdom (UK), not least the imminent negotiations on Brexit with the rest of the European Union (EU). As a result, Britain enters into the Brexit negotiations with the weakest possible hand, a fact not likely to be lost on the politically strong leaders of France and Germany.
Despite May’s declared intention to continue in office, the perception that the loss resulted from her personalized, scripted, and negative campaign means that she is unlikely to last as party leader and prime minister. She may hang on to power for a while because of the lack of obvious alternatives, fear of

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How to Make Immigration the Bridge to an Orderly and Timely Brexit

May 10, 2017

In March, UK Prime Minister Theresa May formally initiated a two-year negotiation period for the United Kingdom to leave the European Union under the EU Treaty’s Article 50. Since the June 2016 Brexit referendum, she has missed several good opportunities to generate the necessary political goodwill across the EU-27 and is now running out of time as the EU-27 impose their priorities on the Article 50 negotiations, one of which is settling the UK immigration status of EU workers. One way the prime minister could generate goodwill would be to unilaterally announce that her government will grant all EU citizens living in the United Kingdom full UK citizenship, except voting rights. Such a status would be a UK equivalent of a US green card. Under such a step, EU-27 citizens would acquire all

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Macron’s Victory Signals Reform in France and a Stronger Europe

May 8, 2017

Emmanuel Macron’s victory in the French presidential election clearly demonstrates that the populist dominos in advanced economies outside the Anglo-Saxon world were not even close to falling. The decisive vote also improves Macron’s chances of winning a majority in Parliament that could enact his agenda of comprehensive French labor market and pension reforms. Successfully addressing the decades-old sclerosis in the domestic economy would prove the best (if not only) way to ultimately reduce the political appeal of the right-wing National Front party in the long run.
Macron’s triumph with a margin of about 32 percent of the vote—66 percent to 34 percent for his opponent Marine Le Pen—came with a participation rate of only 74 percent, a rate that while low for France was predicted by

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How a British Bid on Immigration Can Facilitate Brexit

March 27, 2017

British Prime Minister Theresa May will soon launch divorce proceedings from the European Union under the so-called Article 50 process. Her objective is to leave the Internal Market and the EU customs union, take back control over immigration, and be free of the jurisdiction of the European Court of Justice while maintaining as free a future trading relationship with the EU-27 as possible. Her goal in the two-year timetable called for by Article 50 could not be more different from European negotiators, and therein lie her basic difficulties.
EU-27 leaders are insisting on a settlement of  UK financial liabilities clarifying the future status of EU citizens living in the UK—and UK citizens living in the EU-27—before discussing the future economic relationship. Their leverage is that there

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Is Italy Europe’s Next Big Worry?

March 21, 2017

Despite the prospects of a good year economically and politically for the euro area in 2017, uncertainty hangs on the horizon over Italy. Once the French election in May is over, investors’ attention will likely turn to Italy, where an election is due no later than May 2018. But the country may not be capable of forming a new viable government in an uncertain economic environment: With a recovering euro area economy, the European Central Bank (ECB) may reduce its asset purchases to zero in 2018, driving up Italian (and Portuguese) bond yields and spreads.
If that happens, ECB President Mario Draghi and his governing council will be torn between pressure to resist doing Rome any favors and the need to stabilize the third largest euro area economy.
Italy’s governing Democratic Party (PD)

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Fears of Right-Wing Populism May Be Overblown in Europe

March 13, 2017

Europe faces a series of crucial elections this year, kicking off with the Netherlands on March 15 and followed by France, Germany, and potentially Italy and the United Kingdom if Brexit negotiations break down. The widely assumed risk of success by populist parties could prove overstated, however.
The Netherlands
In the Dutch elections, the populist Freedom Party, led by Geert Wilders, has surged in public attention. But opinion polls paint a different picture. The strictly proportional Dutch electoral system is predicted to send perhaps 12 different parties to parliament with no single party receiving more than 16 to 17 percent of the vote.
According to polls, the Freedom Party may increase its vote from 10 percent in 2012 to 16 percent this year, falling short of becoming the largest

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Will Scotland Secede from a Post-Brexit UK?

March 11, 2017

Peterson Institute For International Economics
The Peterson Institute for International Economics is a private nonpartisan nonprofit institution for rigorous, intellectually open, and indepth study and discussion of international economic policy.

1750 Massachusetts Avenue, NWWashington, DC 20036

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May’s Brexit Will Be Both Hard and Risky

January 18, 2017

British Prime Minister Theresa May presented her opening gambit on January 17 for the upcoming Brexit negotiations. She signaled  that her government strives for a clean and hard Brexit, including a UK departure from the EU Internal Market and—apparently—the EU Customs Union. Control over immigration, an end to the jurisdiction of the European Court of Justice, and stopping UK contributions to the EU budget are also among  her political priorities.
May confirmed “that the Government will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament before it comes into force,” but in contrast to what many observers believe, a no vote in parliament would not kill Brexit and continue the status quo. Rather the UK would experience an even harder Brexit, as

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Austria and Italy Votes Show European Nationalism Not Unchecked

December 5, 2016

Rumors of Europe’s imminent demise—or right-wing nationalist takeover—have been greatly exaggerated, it turns out.
Voters in Austria and Italy went to the polls this weekend. Austrians chose the establishment candidate Alexander van der Bellen as their next president—a largely ceremonial role—while Italians emphatically rejected Prime Minister Matteo Renzi’s plan to reform the Italian constitution, driving him to resign. Neither of the two elections, however, was an embrace of populism, even though in Italy the weakest banks there now face an uncertain future.
In Austria, van der Bellen received 53.3 percent of ballots from the 74.1 percent of the electorate who voted against 46.7 percent for his far-right opponent Norbert Hofer. This is a far clearer result than the initial election in

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What Is at Stake in Italy’s Upcoming Referendum?

December 1, 2016

Video of What Is at Stake in Italy’s Upcoming Referendum?

Jacob Funk Kirkegaard breaks down this weekend’s vote in Italy, which, despite its rather technical nature, has financial markets concerned about another flare up in the country’s slow-burning banking crisis. December 1, 2016

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Europe’s migration crisis of 2016

January 25, 2016

Following the ultimately overwhelming rejection by Greek voters of euro exit, the sudden rise in migrant inflows in the autumn quickly rose to the top of the European political agenda towards the end of 2015. Migration replaced Greece as the topic for special meetings of the EU Council in September (European Council 2015a) and November (2015b), which also included a meeting with Turkey (2015c). Migration was also top of the agenda for the regular EU Council meetings in October (2015d) and December (2015e), European justice and home affairs ministers replaced finance ministers in the media spotlight (2015f), and the European Commission presented a new reform package to allegedly solve the crisis (European Commission 2015a).
Yet, reminiscent of the futile efforts by European leaders early in the Eurozone Crisis, this initial flurry of political and diplomatic initiatives will likely not solve the dangerous political crisis currently facing Europe. Left unaddressed, the migration crisis is as politically potent as the Eurozone Crisis itself in its capacity to undermine current mainstream politics in the region.
Yet, as in 2010-12, publics will in all probability have to steel themselves for an even deeper crisis to force the political wheels of Europe into motion towards solutions possible only in the direst of emergencies.

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