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Jorg Bibow

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Jörg Bibow

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Jörg Bibow

This paper investigates the spread of what started as a crisis at the core of the global financial system to emerging economies. While emerging economies had exhibited some resilience through the early stages of the financial turmoil that began in the summer of 2007, they have been hit hard since mid-2008. Their deteriorating fortunes are only partly attributable to the collapse in world trade and sharp drop in commodity prices. Things were made worse by emerging markets' exposure to the turmoil in global finance itself. As ›innocent bystanders‹, even countries that had taken out ›self-insurance‹ proved vulnerable to the global ›sudden stop‹ in capital flows. We critique loanable funds theoretical interpretations of global imbalances and offer an alternative explanation that emphasizes the special status of the US dollar. Instead of taking out even more self-insurance, developing countries should pursue capital account management to enlarge their policy space and reduce external vulnerabilities.

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Jörg Bibow

This paper analyses the issues of public finance sustainability and suitability of strategies aimed at fiscal consolidation, contrasting growth-based versus thrift-based strategies. Empirically, this study investigates the experiences with consolidation over the 1990s in the U. S., Japan, and the eurozone while scrutinizing disparities within Europe. It is argued that neither Germany's virtuous stability-oriented past, which in many ways provided the blueprint for the Maastricht regime's design, nor any other small economy's peculiar record with consolidation offers any guidance to the EMU today. For that purpose only the case of the US case may be relevant, featuring cooperative macroeconomic policies geared at steering domestic demand growth, with sustainable public finances as a consequence of their success. Reforms should thus focus on securing cooperation and proper growth orientation in macroeconomic policymaking, which may be achieved through committing fiscal and monetary policies to common goals and a nominal GDP targeting strategy.

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Jörg Bibow

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Jörg Bibow

The euro crisis remains unresolved and the euro currency union incomplete and extraordinarily vulnerable. The euro regime's essential flaw and ultimate source of vulnerability is the decoupling of central bank and treasury institutions in the euro currency union. We propose a Euro Treasury scheme to properly fix the regime and resolve the euro crisis. The Euro Treasury Plan would establish a rudimentary fiscal union that is not a transfer union. The core idea is to create a Euro Treasury as a vehicle to pool future eurozone public investment spending and have it funded by proper eurozone treasury securities. The Euro Treasury could fulfil a number of additional purposes while operating mainly on the basis of a strict rule. The plan would also provide a much-needed fiscal boost to recovery and foster a more benign intra-area rebalancing.