Monetary and macroeconomic policies at the crossroads
Bruegel Annual Meetings, Day 2- In this session we would like to discuss monetary and macroeconomic policies after Covid-19.

Speakers: Grégory Claeys, Per Callesen, Gita Gopinath, Jorge Sicilia Serrano and Lawrence H. Summers
Topic: Finance & Financial Regulation
Location: PALAIS DES ACADEMIES, RUE DUCALE 1
Date: September 2, 2021

Between 2007 and 2020, the balance sheets of the European Central Bank, the Bank of Japan, and the Fed have all increased about sevenfold. But inflation stayed low throughout the 2010s. This was possible due to decreasing money velocity and the money multiplier. However, a continuation of asset purchasing programs by central banks involves the risk of higher inflation and fiscal dominance.
By:
Marek Dabrowski
Date: September 28, 2021
Topic: European Macroeconomics & Governance

Fiscal and monetary policy responses to the 2007-2009 global financial crisis (GFC) and the 2020-2021 COVID-19 crisis led to rapid increases in public debt and central bank balance sheets in most advanced economies. However, inflation remained at record-low levels until early 2021. At first glance, this

Even if a sovereign debt crisis is avoided, the public debt burden will negatively impact growth.

The dominant role of the U.S. dollar can be traced back to the end of World War II or even earlier to the interwar period when it gradually dethroned the British pound. Since the collapse of the Bretton Woods system in 1971 (in fact, this was a crisis of the U.S. currency), there has been continuous speculation about the imminent fall of the dollar in its global role. However, this has not happened yet despite numerous macroeconomic and financial shocks, including the global financial crisis in 2007–2009, and the mixed fortunes of the U.S. economy and politics. Most likely, the current crisis also will not undermine the dollar’s dominance, at least in the short-term.
The dollar’s resilience

The ‘new enlargement methodology’ may help overcome the impasse triggered by the inability of the European Council to open accession negotiations with North Macedonia and AlbaniaOn 5 February 2020, the European Commission published a communication on the EU accession process of Western Balkan countries[1], called as the ‘new enlargement methodology’[2]. This may be the good news as the step towards overcoming the impasse in the EU enlargement process triggered by the inability of the Council to open accession negotiations with North Macedonia and Albania in October 2019. Whether it will happen will depend on the position of France and other enlargement-skeptic countries (Denmark and the Netherlands opposed starting the talks with Albania).Emmanuel Macron explained his desire to reform the

This paper’s main conclusion is that Russia’s economy cannot grow at the pace recorded in the early and mid-2000s because of the different external environment, the different stage of development and serious demographic headwinds.In the decade of the 2010s, the pace of economic growth in Russia slowed down to an annual rate of below 2% and most forecasts suggest that this is will be the new “normal” for the Russian economy at least in the medium-term. While politically and socially disappointing, such a growth slowdown is unavoidable due to adverse demographic trends.A combination of a shrinking working-age population and population aging must lead to a lower growth pace as compared to the period when the working-age population was still increasing and the effects of population aging were

In the last decade, most advanced economies have grown more slowly than before. Slower growth has frequently been seen as a legacy of financial crises, especially that of 2007–2009.In the last decade, most advanced economies have grown more slowly than before. In Japan, a slowdown began in the 1990s. Slower growth has frequently been seen as a legacy of financial crises, especially that of 2007–2009. Indeed, shocks generated by that crisis in particular include a far reaching financial disintermediation that depressed demand in short term. However, it coincided with a deterioration of several supply-side factors. The first was related to demography, that is, the stagnation or decline of working-age population and population aging. So far, the United States has been less affected than

Historically, the EU enlargement process played a powerful role in encouraging the EU candidates and potential candidates to conduct fundamental political, economic and institutional reforms. This has also happened with the Western Balkan countries once they received the EU membership perspective in 2003. However, in the last few years, preparations for their accession slowed down, as a result of limited progress in domestic reforms, unresolved regional conflicts and limited appetite for further enlargement among EU member states. By: Marek Dabrowski Date: September 30, 2019 Topic: European Macroeconomics & Governance The mission letter of the President-elect of the European Commission Ursula von der Leyen to the Commissioner-designate Laszlo Troscanyi[1] sets the imperative of

According to popular perception, emerging-market economies have not experienced serious macroeconomic and financial turbulence since the beginning of this century. This perception was not entirely correct because it disregarded spill-over effects of the global financial crises of 2008–2009, the consequences of the decline of oil and other commodity prices in 2014–2016, economic and financial troubles caused by violent conflicts and regional political instability.

After two turbulent decades (1980s and 1990s) when emerging-market economies were frequent victims of financial crises, in the first two decades of the 21st century their macroeconomic performance improved. Nevertheless, there were three crisis episodes that hit some of these countries: (i) the spill-over effects of the

Developments in digital technology have prompted a ‘tabloidisation’ of traditional media, created opportunities for the misuse of information online, and closed the decision-making horizon for politicians.

This article was first published by The International Economy.

Looking only for economic roots of the recent wave of populism may lead to a one-sided diagnosis. It is true that many countries suffer from slow or no growth, financial turbulence, excessive polarisation of income and wealth, a crisis of the welfare state, structural costs of globalisation, technical innovations, and other economic difficulties. However, these difficulties were also experienced in the past and did not lead to such strong political polarisation, at least not in advanced economies.
Furthermore, if we

In the highly interdependent modern world, a country’s economy and its foreign policy are strongly linked. A country’s foreign-policy ambitions should correspond to its economic potential, but Russia’s over-ambitious foreign ventures have exacerbated the negative effects of the numerous economic headwinds it faces.

Interrelation between economic and foreign policy
In the contemporary highly interdependent world, the foreign policy of a country has an important role to play. It is connected to a country’s economy; a country’s foreign-policy ambitions should correspond to its economic potential, or else it can be a costly and usually counterproductive overstretch for the country.
Russia’s place in the world
Russia is a good example of an imbalance between economic potential and

For a long time, southern and eastern Mediterranean countries struggled with serious socio-economic challenges and dysfunctional economic systems and policies. Marek Dabrowski reviews the challenges the region has to face to get out of a low growth trap.

For a long time, southern and eastern Mediterranean countries (henceforth SEMC)[1] struggled with serious socio-economic challenges and dysfunctional economic systems and policies. In the 2010s their macroeconomic performance further deteriorated due to the global and European financial crises, the decline of commodity prices, and the failure of the Arab Spring, which triggered a new wave of intra-regional conflicts and added to the already high geopolitical and security risks. Finally, the badly needed economic and governance

Bruegel Annual Meetings 2018
The 2018 Annual Meetings will be held on 3-4 September and will feature sessions on European and global economic governance, as well as finance, energy and innovation.

Speakers: Maria Åsenius, Richard E. Baldwin, Carl Bildt, Barbara Botos, Maria Demertzis, Benjamin Denis, Lowri Evans, Mariya Gabriel, Svend E. Hougaard Jensen, Joanne Kellermann, Jörg Kukies, Emmanuel Lagarrigue, Philippe Lespinard, Rachel Lomax, Dominique Moïsi, Jean Pierre Mustier, Ana Palacio, Jean Pisani-Ferry, Lucrezia Reichlin, Norbert Röttgen, André Sapir, Johan Van Overtveldt, Martin Sandbu, Margrethe Vestager, Reinhilde Veugelers, Nicolas Véron, Thomas Wieser, Guntram B. Wolff and Georg Zachmann
Topic: Energy & Climate, European Macroeconomics & Governance,

Since the beginning of 2018, currencies of two large emerging-market economies – Argentina and Turkey – suffered from substantial depreciation. Other currencies also recorded losses. Which factors are determining macroeconomic and financial stability in emerging-market economies? And what can be done to prevent a crisis and avoid its economic, social and political costs?

The essence of the this-time-is-different syndrome is simple. It is rooted in the firmly held belief that financial crises are things that happen to other people in other countries at other times; crises do not happen to us, here and now. We are doing things better, we are smarter, we have learned from past mistakes.
 (Reinhart and Rogoff, 2009, p. 15)
_________________

Summary
Symptoms of currency crisis in

Democracy has not always accompanied market economy. But in modern societies, economic and political freedoms are increasingly interconnected. Democracy and market economy can support each other. This is particularly true in post-communist economies of Central and Eastern Europe and the former Soviet Union. Thus, authoritarian tendencies observed in these and other regions can negatively affect quality of economic policy and governance.

Retreat of democracy
After the worldwide triumph of democracy in the 1980s and 1990s, one can observe its partial reversal in the New Millennium. This is the conclusion of two leading global political surveys – the Freedom House’s Freedom in the World (FHFiW) 2018 (Abramowitz, 2018) and the Bertelsmann Foundation’s Transformation Index (BTI) 2018

The modernisation of the Ukrainian economy and state continues to develop at an unsatisfactory pace due to a lack of pro-reform political consensus. The two upcoming election campaigns in 2019 (presidential and parliamentary) make the reform process even slower and additionally puts its effectiveness and sustainability under risk. The international community has a limited toolkit to overcome this stalemate.

Introduction
In the Bruegel Policy Contribution series published in September 2017, I analysed the economic and institutional reforms in Ukraine which followed the so-called “Euromaidan” or “Revolution of Dignity” of 2013-2014 (Dabrowski, 2017). The conclusion from my contribution stated that, despite substantial progress achieved since 2014, reforms remained incomplete in many

8 of the EU27 have not yet joined the Euro, and progress in euro-area enlargement seems to have stalled. Commission President Juncker wants to give new momentum to the process, but the path is full of political and technical hurdles. The Euro is unlikely to have any new members soon.
By:
Marek Dabrowski
Date: November 2, 2017
Topic: European Macroeconomics & Governance

In his State of the Union speech on 13 September, European Commission president Jean-Claude Juncker raised the prospect of further enlargement of the euro area. He noted that all EU countries – apart from Denmark and the United Kingdom, which have opt-outs – are “required and entitled to join the euro once they fulfil all conditions”. He even proposed the idea

Ukraine’s late and incomplete economic reform created a class of super-wealthy oligarchs who now stand in the way of further liberalisation. The oligarchs’ oversized influence only deepens public distrust in a structurally weak political system. Nevertheless, Ukraine is making some attempts to uproot corruption and the next steps are clear.
By:
Marek Dabrowski
Date: October 3, 2017
Topic: European Macroeconomics & Governance

The slow-reform trap
Ukraine’s reform record has long been disappointing on both the economic and political fronts. While Ukraine avoided falling into full authoritarianism, like many of its post-Soviet neighbours, it nonetheless failed to build a transparent and stable democratic order. Thus, through

At this January’s Davos meeting, Chinese President Xi Jinping announced to a surprised audience that China would be the world’s new champion of globalisation. Bruegel scholar Marek Dabwoski agrees that a functioning global trade system is in China’s interest.

The speech of President Xi Jinping in Davos should not surprise anybody. For the last thirty years, the Chinese economy has benefited enormously from free trade and financial globalisation. During this period, it moved up from the group of low-income countries to the upper middle-income group and eradicated most of its extreme poverty. According to the IMF World Economic Outlook database, when Chinese market reforms started in 1980, country’s GDP per capita in purchasing power parity terms was equal to only 2.5 percent of that of the United States. In 2015, it reached the level of 25.6 percent of U.S. GDP per capita in PPP terms. In 2014, China became the largest world economy as estimated in PPP terms.
As an upper-middle-income country, China is even more dependent on the uninterrupted functioning of global markets than it was thirty, twenty, or even ten years ago. A substantial part of the Chinese manufacturing industry has become part of global value chains. Moving up within these chains, Chinese enterprises are interested in increasing imports of new technologies.

External Publication

Post-CommunIst tRansItIon and monetary dIsintegration

By:
Marek Dabrowski
Date: March 15, 2017

This essay, published by CESifo, aims to summarise the experiences of the two monetary disintegration episodes, i.e. termination of settlements in TR since 1 January 1991 and the gradual collapse of the Soviet ruble area in 1990–1993. The second section of this paper is devoted to demise of CMEA and TR. The third section describes the collapse of the ruble area in the former USSR based on my earlier publication (Dabrowski 1995). The fourth section analyses macroeconomic consequences of monetary disintegration in the former USSR; and the fth section examines the policy lessons that can be drawn from both episodes.

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If the US moves ahead with Republican plans to introduce a border adjustment tax, the EU will need to decide on its response. Marek Dabrowski argues that the EU would be unwise to retaliate with its own anti-import policies: the border adjustment tax would be difficult to implement and damaging to the global trade order. Instead the EU should build a broad coalition of allies to defend free trade.

Trump’s protectionist challenge
Mark Hallerberg is right to warn that policies from the new US administration may pose ‘…a challenge to the liberal economic order, of which free trade is the most emblematic tenet’. President Donald Trump already withdrew the US from the unratified Trans-Pacific Partnership and threatens to withdraw from NAFTA.
Meanwhile, the Republican majority in the US House of Representatives has advocated the idea of destination based cash flow tax (DBCFT, called also ‘border adjustment tax’ because it would tax imports and exempt exports). This would replace the current corporate income tax. Whether and when such a tax can be approved remains a big question. However, given Trump’s protectionist views on trade and the House Republicans’ push tolower the tax burden on corporate profits, it may happen in the near future.

The principle of voluntary membership is a central value of the EU project, but it is also a source of many of its problems. How can the member states address those problems in order to repair the EU’s integration architecture?

The European Union and its institutions are often criticised for their supposed ineffectiveness, slowness in responding to various challenges, lack of transparency in decision making and lack of democratic legitimacy. All those who levy such criticisms should remember, however, that many of the weaknesses of the EU institutional setting arise from its voluntary character and the reluctance of EU countries to transfer more powers to the Union. Nevertheless, it is in the interest of all member states to have an effectively functioning Union, which will be able to deliver European public goods to their citizens. Therefore, the member states should be ready to repair the EU’s architecture even at the cost of sharing more sovereignty.
The voluntary principle
As a voluntary union of sovereign and democratic countries, the EU has few historical precedents and contemporary equivalents. Most other federations and confederations, historical or contemporary, were created, at least partly, as a result of wars, conquests, colonisation or other means of coercion.

The gross general government debt-to-GDP ratios in many advanced economies have reached the highest levels in peacetime history and continue to grow, putting into question sovereign solvency in these economies.

Rapid expansion of sovereign debt
The gross general government debt-to-GDP ratios in many advanced economies have reached the highest levels in peacetime history and continue to grow (Table 1), calling into question sovereign solvency in these countries. This worrying picture can be seen as the consequence of the global financial crisis of 2007-2009 and policy response to this turmoil, including large-scale bailouts of financial institutions and active use of countercyclical fiscal measures. However, in a few of the largest economies (the US, Germany, France, the UK) expansion of public debt had already started in the early 2000s or even earlier (Japan). In 2015, only Belgium, Denmark, Israel, Malta, Sweden and Switzerland recorded a lower debt-to-GDP-ratios as compared to 1999.

Source: IMF WEO, April 2016. Note: cells in yellow indicate IMF staff estimates.

In the same year, general government gross debt approached 250 percent of GDP in Japan, and exceeded 100 percent of GDP in Greece, Italy, Portugal, Cyprus, Belgium and the US, in some cases by large margins.

One of the consequences of the global financial crisis has been rapid growth in public debt in most advanced economies. This Policy Contribution assesses the size of public debt in advanced economies
and considers the potential consequences of sovereign insolvency.

The gross general government debt-to-GDP ratios in many advanced economies have reached the highest levels in peacetime history and continue to grow, putting into question sovereign solvency in these economies.
In case of new adverse shocks, whether economic or political, global or country-specific, which result in the deterioration of growth prospects or higher real interest rates, or both, the situation could easily get out control.
Apart from the risk of sovereign default, excessive public debt might also have a negative impact on the stability of financial sector and on economic growth in the medium and long term.
Debt sustainability simulations for the group of highly-indebted advanced economies – those in which the general government gross public debt-to-GDP ratio exceeded 80 percent in 2015 – suggest that benefits of the current record-low interest rates and post-crisis growth recovery should be used for fiscal consolidation.
The aim of this should be not only to stop further expansion of debt-to-GDP ratios, but also to gradually reduce them.

This paper offers an updated and comprehensive analysis of the currency crises in Russia and the former Soviet Union economies.

Since the collapse of the Soviet Union, its successor states have suffered from cyclical currency crises. The most recent episode of 2014–2016 was caused by a combination of external and domestic factors.
The former include tighter US monetary policy, slower global growth, and declining commodity prices, whereas the latter include the former Soviet Union (FSU) economies’ extreme macroeconomic fragility (a legacy of past crises), numerous microeconomic rigidities and structural distortions in addition to governmental deficits.
In addition, the Russian–Ukraine conflict dealt a heavy blow to both economies and their neighbors. Effective anti-crisis policies must aim at eliminating all deep-rooted causes of repeated financial and macroeconomic turbulence and must involve deep structural and institutional reforms in the entire region.

With some sanctions temporarily lifted, now is the chance for Iran to reintegrate into the global economy and political system. But comprehensive economic and political reforms are needed.

Iran, together with the five permanent members of the United Nations Security Council and Germany, signed a Joint Comprehensive Plan of Action (JCPOA) in July 2015, allowing the EU and US sanctions related to Iran’s nuclear program to be temporarily lifted. This has opened the door to Iran’s gradual reintegration into the global economic and political system (Blockmans et al., 2016).
Reintegration may offer substantial benefits for Iran, its neighbours, and other major economic players, including the EU. However, to grasp the potential benefits of such cooperation, Iran and its partners must bring down existing barriers to trade and investment flows. In particular, Iran should continue its comprehensive economic reforms and abandon the protectionist policies it has conducted since 1950s[1].
Basic facts
Iran has the 18th largest population in the world (approaching 80 million) and the 18th largest economy, with a GDP close to 1.4 trillion international $ in purchasing power parity (PPP) terms[2], just behind Canada, Spain and Turkey. It represents 1.2% of the world’s GDP.

The concessions granted to the United Kingdom will encourage euroskeptic forces to demand special institutional solutions for other countries.

This text was published in the Spring 2016 issue of The International Economy.

The debate on Brexit focuses on the consequences for the United Kingdom, but largely ignores the impact of the new EU-UK agreement on the European Union. If the “remain” camp succeeds on June 23, 2016, this agreement will be activated with serious consequences for the prospects of the European project.
The most important concession concerns suspension of the reference to “…ever closer union among the peoples of Europe” in the Treaty’s Preamble with respect to the United Kingdom and acceptance that this country “…is not committed to further political integration into the European Union.” Given that each new area of integration within the European Union may involve a transfer of a certain degree of national sovereignty to the EU governing bodies, this means that no substantial treaty changes (of the sort similar to the Maastricht, Amsterdam, Nice, or Lisbon treaties) will be possible in the future (treaty change requires unanimity of all member states).

Compared with the ‘core’ of the world economy, emerging markets have limited room for manoeuvre when it comes to applying unconventional monetary policy measures.
In the aftermath of the global financial crisis of 2007-2009, central banks in a number of advanced economies rapidly expanded their reserve (base) money and resorted to various unconventional monetary policy measures. Quantitative easing (QE), a massive purchase of securities including Treasury bonds, has played a prominent role in this new toolkit. These new practices have been closely watched by policymakers in emerging-market economies, where there is a temptation to follow the example of ‘core’ central banks such as the US Federal Reserve Board (Fed). This should not be surprising because easing measures always look more attractive for an average politician than austerity. However, it has become clear that the room for policy manoeuvre in the ‘periphery’ is much more limited than in the ‘core’ of the world economy. In this commentary, I will try to explain why[1].
Consequences of financial globalisation
Since the 1980s, the rapid integration of financial markets has had numerous consequences for macroeconomic policy making at the national level.

Ukraine’s closer ties with the EU have been controversial. The Association Agreement is now facing a referendum in the Netherlands. But what exactly is in the agreement, and what could it mean in practice?
On 6 April the Netherlands will hold a referendum on the new EU-Ukraine Association Agreement. In the meantime, full ratification and implementation is on hold. The EU intended that this agreement would be the blueprint for a new kind of partnership with its Eastern neighbours. It entails substantial political cooperation and includes the creation of a Deep and Comprehensive Free Trade Area (DCFTA). There is no explicit mention of EU membership, but some fear that an Association Agreement will de facto mark the start of EU accession for a large, poor and geopolitically challenging country.
How did we get here?
The EU’s first pact with Ukraine was a Partnership and Cooperation Agreement signed in 1994. In 2007 Ukraine and the EU began negotiating a new form of cooperation, which was given Association Agreement status at the EU-Ukraine Summit in Paris in September 2008. This was also when it was confirmed that the agreement would incorporate a DCFTA, which was made possible by Ukraine’s accession to the World Trade Organisation in February 2008.
Negotiations were completed in December 2011, but it took more than two years before the political and trade sections were signed.

Presentation at the European Parliament – Delegation for Relations with Belarus.
Marek Dabrowski delivered a presentation on the Belarussian economy for the European Parliament’s Delegation for Relations with Belarus, on 3 March 2016.

Guntram Wolff participated in the enquiry EU Economic and Financial Affairs Sub-Committee organised by the House of Lords EU Financial Affairs Sub-Committee.

Prospects for regulatory convergence under TTIP
This Policy Contribution was prepared for the European Union Committee’s inquiry into the Transatlantic Trade and Investment Partnership. Regulatory harmonisation under TTIP may not lead to emerging markets automatically upgrading to the higher TTIP standards. Domestic priorities and the high demand from a rising price-sensitive group of consumers will likely result in a dual regulatory regime in emerging markets in the medium-term.
By: Suparna Karmakar Topic: European Macroeconomics & Governance, Global Economics & Governance, House of Lords Date: November 4, 2013