The euro was planned during a period in which economic policy making was driven by a deep belief in market liberalism and the near impossibility of systemic financial crises. This belief has been brought into question since the euro crisis, which showed that panics do happen. New thinking needs to focus on developing mechanisms to protect eurozone countries from such panics and to foster economic convergence between members.
The ECB’s continuing program of bond purchases and its emergency lending to struggling banks show the underlying instability of the eurozone.
What Went Wrong
A deep belief in self-regulating markets and market-driven integration failed to lead to convergence. It instead led to divergence and major imbalances.
New Economy in Progress
New research focuses on the policies – macroeconomic, institutional and regulatory – needed to ensure convergence, prevent shocks and improve crisis management.
5 WAYS THAT ARE DISCUSSED TO STRENGTHEN EUROPE
Make the ECB’s role as lender of last resort an explicit part of its mandate, not an implicit political deal as it is at present.
Establish a common European safe asset in place of the current de facto safe asset - the 10-year German government bond.
Establish pan-eurozone deposit insurance and with it the risk of deposit flight, and self-fulfilling runs on banks.
Reform fiscal rules so that governments are not forced to cut spending in economic downturns.
Introduce much tougher penalties for countries running persistent trade imbalances, be they surpluses or deficits.
UNEMPLOYMENT RATES IN EUROPE (%, AVAILABLE WORKFORCE), 1995 - 2018
Towards new fiscal rules for the euro zone?
Prominent French economists around Macron have written a reform proposal for the European Stability and Growth Pact and have discussed it at the VIII. New Paradigm Workshop.
Preview: Should Germany issue perpetual bonds for European solidarity? - Discussion of the proposal by George Soros
On December 4 at 4 pm CET, INET and the Young Scholars Initiative will host a discussion on the future of European fiscal capacity.
Recap and Video: Forum Seminar – A European Hamilton Moment
German-French alternative to Euro-Bonds
What's behind Merkel and Macron's 500 billion-dollar proposal. Our update on the reconstruction plans for Germany and Europe.
Forum Seminar: The Economics of the EU‘s Green Deal – Highlights
The EU’s Green Deal is one of the most ambitious EU endeavours to fight climate change. Nevertheless, it still needs more to be more impactful and tangible for people. This has been one of the main common insights of our seminar on the economics of the deal this week in Berlin.
The EU’s Green Deal – on its Macroeconomic Potential
The announcement of a Green Deal for Europe as introduced by the European Commission made huge headlines. Now there is a trillion Euro question to be answered. Is it in reality only a 7.5 billion Euro question? We try to bring clarity with this Framing Paper which we wrote to complement our Green Deal seminar hosted on the 18th of February.
Forum New Economy hosts Green Deal Seminar
Video: Carlo Jaeger – EU needs a new Innovation Strategy
The Green Deal as currently designed is a big chance but not enough. Carlo Jaeger (Global Climate Forum) advocates for more public investments and a redirection in the innovation strategy in Europe.
The proposed reform of the European Stability Mechanism must be postponed
Eurozone finance ministers reached a preliminary agreement on a reform of the European Stability Mechanism in June, but failed to conclude it last week. The reform is now set to be discussed during the European Council meeting on 12-13 December. Shahin Vallée, Jérémie Cohen-Setton, Paul De Grauwe and Sebastian Dullien write that the proposal should not be endorsed in its current form. They argue it would represent a missed opportunity to secure a broader and more ambitious reform package.
OTHER MAIN TOPICS
After decades of overly naive market belief, we urgently need new answers to the great challenges of our time. More so, we need a whole new paradigm to guide us. We collect everything about the people and the community who are dealing with the question of a new paradigm and who analyze the historical and present impact of paradigms and narratives – whether in new contributions, performances, books and events.
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THE ROLE OF
For decades, there was a consensus that reducing the role of the state and cutting public debt would generate wealth. This contributed to a chronic underinvestment in education and public infrastructure. New research focuses on establishing when and how governments need to intervene to better contribute to long-term prosperity and to stabilize rather than aggravate economic fluctuations.
More than a decade after the financial crisis there still seems to be something seriously wrong with the financial system. Financial markets still tend to periodically misprice risk and contribute to boom and bust cycles. A better financial system needs to discourage short-termism and speculative activity, curtail systemic risk and distribute wealth more broadly.
During the high point of market orthodoxy, economists argued that the most 'efficient' way to combat climate change was to simply let markets determine the price of carbon emissions. Today, there is a growing consensus that prices need to be regulated and that a carbon price on its own might not be enough.
The rising gap between rich and poor has become a threat to social cohesion in most rich countries. To reverse this trend it will be crucial to better understand the importance of different drivers of income and wealth inequality.
Do we need a whole new understanding of economic growth? What would be a real alternative? How viable are alternatives to GDP when it comes to measuring prosperity? These and other more fundamental challenges are what this section is about.
After three decades of poorly managed integration, globalization is threatened by social discontent and the rise of populist forces. A new paradigm will need better ways not only to compensate the groups that have lost, but to distribute the gains more broadly from the start.
The current Corona crisis is probably the worst economic crisis of the post-World War 2 era. Economists are working hard on mitigating the economic effects caused by COVID-19 to prevent a second Great Depression, the break-up of the Eurozone and the end of globalisation. We collect the most important contributions.