Structural Reform and Economic Sustenance in European Austerity

Speaking at the World Economic Forum in Davos, Switzerland on January 25, 2013, Mario Draghi, president of the European Central Bank(ECB), said the bank’s program to buy the bonds of heavily indebted E.U. states had been “very helpful” in reducing the perception that the euro was on the verge of collapse. He also pointed to the structural reforms that heavily indebted states had enacted as “now bearing fruit.”[1] He urged those governments to continue to implement structural reforms so those states could take advantage of the ECB’s low interest rates and easy credit to banks. In short, the strategy of the ECB was to use monetary policy as leverage for long-term-oriented structural reforms at the state level. Political risk analysts listening to the central bank official likely came away with a more optimistic stance on the long term prospects for the E.U. economy.

The full essay is at "Structural Reform and Economic Sustenance."

 1. “Davos: ECB’s Draghi Says ‘Real’ Economy Still Stagnant,” Deutsche Welle, January 25, 2013.

                                                                                                       

When 4.3% Is below Full Employment

CNN reported that the U.S. economy added “a strong 209,000 jobs” in July of 2017, with the unemployment rate falling to 4.3% to match a 16-year low. Unemployment had peaked at 10% in 2010, after the financial crisis of 2008. CNN cited many economists as saying that the 4.3% rate was “at or near” full employment, meaning that the rate would not go down to a significant degree.[1] Yet even within CNN’s own reporting, we can find reason to doubt this claim.

The full essay is at "When 4.3% Is below Full Employment."

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[1] Patrick Gillespie, “Milestone for Trump: 1 Million New Jobs in Six Months,” CNN, August 4, 2017.

Should the ECB Buy State Bonds and Encourage State Deficits?

In remarks at Jackson Hole, Wyoming, European Central Bank president Mario Draghi urged greater fiscal and monetary coordination to boost the E.U.’s economy. A ship cannot move along at full speed if all the sails are not coordinated so that each is poised at its optimal angle to the prevailing winds. So too, various policies in a political economy must all sail in the same direction for a full-sail recovery to really take off. Just as a sailing ship must avoid jagged pitfalls lurking in rocky waters, so too must policy makers; for it is all too easy in focusing on one point on the horizon to ignore or dismiss baleful downsides to the dominant policies.

The entire essay is at "Should the ECB Buy State Bonds and Encourage State Deficits?"