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The saver’s dilemma

By Daniel Gros BRUSSELS: Interest rates are now close to zero throughout the developed world (the United States, Europe, and Japan). But the global economy is slowing down, and financial markets went into a tailspin during the summer. This suggests that the problem is more profound than one of insufficient monetary stimulus. The heart of any …


From pain to gain on the EU frontier

By Daniel Gros BRUSSELS: The first act of the eurozone debt drama was about whether any European Union member country could ever become insolvent. It ended when the highest EU authority, the European Council, officially recognized in late July that Greece does need a reduction in its debt obligations. But that acknowledgement of reality does not …


A tale of two defaults

By Daniel Gros BRUSSELS: Once upon a time, there was a country plagued by large deficits, high inflation, and decades of economic stagnation. When economic problems once again became particularly acute, the country’s leadership embraced a radical approach to achieving price stability. A new currency was introduced and pegged to the US dollar at a one-to-one …


Debt and taxes in the Eurozone

By Daniel Gros BRUSSELS: The current crisis in the eurozone is known around the world as the “euro sovereign-debt crisis.” But the crisis is really about foreign debt, not sovereign debt. The importance of foreign debt is well illustrated by the case of Portugal: although the country’s public-debt and deficit ratios are broadly similar to those …


Europe’s subprime quagmire

By Daniel Gros BRUSSELS: Back in 2007-2008, when the financial crisis was still called the “subprime” crisis, Europeans felt superior to the United States. European bankers surely knew better than to hand out so-called “NINJA” (no income, no job, no assets) loans. These days, however, Europeans have little reason to feel smug. Their leaders seem unable …


The EU’s band-aid on a bullet hole

By Daniel Gros BRUSSELS: Is the euro crisis any closer to a resolution? Europe’s leaders have promised to devise by the end of this month a comprehensive package not only to end the crisis, but also to preserve the euro’s stability. Unfortunately, they are unlikely to succeed, because most of the elements of the package revealed …


The Japan myth

By Daniel Gros BRUSSELS: The first decade of this century started with the so-called dot-com bubble. When it burst, central banks moved aggressively to ease monetary policy in order to prevent a prolonged period of Japanese-style slow growth. But the prolonged period of low interest rates that followed the 2001 recession instead contributed to the emergence …


What size the fire exit?

By Daniel Gros BRUSSELS: The eurozone is being thrown into turmoil by a collective rush to the exits by investors. Yields on government debt of peripheral eurozone countries are skyrocketing, because investors do not really know what the risks are. Officials want to be reassuring. Investors should not worry, they argue, because the current bailout mechanism …


The cost of America’s free lunch

By Daniel Gros BRUSSELS: For decades, the world has complained that the dollar’s role as global reserve currency has given the United States, in a term usually attributed to Charles de Gaulle but actually coined by his finance minister, Valery Giscard d’Estaing, an “exorbitant privilege.” As long as exchange rates were fixed under the Bretton Woods …


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