Preguntas a los expositores

Prof. Beatrice Weder Di Mauro.

What is the greatest risk for the world economy?

Continued volatility and uncertainty because a chaotic exit strategy from the ultra loose monetary policy in the US. Second largest risk is that the US is so afraid of turning that it misses the right exit.

How can peripheral countries in the Eurozone regain competitiveness? Are they viable at an USD/EUR or 1,35?

Most trade of Eurozone countries is inside the area. Here the way of regaining competitiveness is through lower wage and price growth than in the core. This is happening. At the same time peripheral countries are reforming labor markets and liberalizing goods markets, which will eventually improve potential growth rates. Some peripheral countries lost market share to rising Asian economies and regaining competitiveness for them means more than just containing costs. Improving productivity will require larger on firm size and stronger internationalization strategies. 1,35 is roughly in the range of the equilibrium exchange rate for the area. But, of course, in any larger currency union, there are always differences in the cycle across regions, which cannot be buffered by the common exchange rate. This is also true in the US or in Argentina.

Can the Euro be sustainable without a political union?

In many ways, Europe is already a political union. Sovereignty is shared in many areas and as a consequence of the Eurocrisis the Eurozone has set up a much tighter framework of fiscal control and of mutual assistance (through the ESM, ESFS and now banking union). The two speed Europe is already a reality. What remains to be decided is how far the of fiscal integration will go. I do not think that in 20 years the Eurzone will look like the US. The Eurozone will remain more decentralized but it will have a mechanism that limits bailouts credibly.

Is it possible to undo the Eurozone? What would happen to the German share prices

It is possible, of course. The question is at what cost. And there is certainly no smooth way. Even the rumor that a reintroduction of a national currency was planned in a specific country would lead to massive capital outflows, shut/down of banks and large parts of trade. Some have suggested that the Euro could be unwound by introducing a parallel currency, which gradually would take over. However, this scheme is not convincing since nobody would want to hold the depreciating parallel currency unless forced to do so.

For German shares a chaotic breakdown of the Euro would certainly be very negative. German trade with Europe would collapse both because of the fall in demand in trading parters as the massive appreciation the German currency would experience.

Argentina and NML

In the CIEPR report we discuss the case in detail (see chapter 3). Our message is that as a consequence of this case the problem of holdouts is vastly amplified and this will severely restrict the possibilities of future debt restructuring. This is why we suggest that the IMF should play a central role in both facilitating restructuring and immunizing the payments systems against attachment. Of course, this is a reform that should curb the power of holdouts in the future which does not really help Argentina today. But it suggests that Argentina is right in holding out against the holdouts.

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