The Week That Was in Europe

The Inflation Reduction Act (IRA) has recently been signed into law by U.S. President Biden. We discuss its economic consequences for European industry and how the EU might have to respond to the IRA.

We review and discuss the important decisions taken by the ECB in its December 2022 monetary policy meeting.

We discuss about inflation, fiscal policy and labor markets in France and about the future of European fiscal rules.

We discuss with Alicia Garcia Herrero, Head of the Asian economic research platform of Natixis: (i) why the EU-China relationship has deteriorated, (ii) the Chinese perspective on this relationship, and (ii) how the relationship might develop going forward.

We discuss under what circumstances and how the aggregate price level responds to fiscal decisions. We highlight the conditions under which the so-called Fiscal Theory of the Price Level applies and to what extent the data supports this theory.

We discuss with Ulrich Bindseil, Director General at the European Central Bank, about central bank balance sheets and the role of upcoming central bank losses, associated with past expansion of central bank balance sheets and rising short-term interest rates.

We review and evaluate the main monetary policy decisions taken in the ECB meeting on Oct 27, 2022.

We discuss with Prof. Stefan Reichelstein about cost effective ways to achieve the Green Transition in Europe and the U.S.. Prof. Reichelstein is Director of the Mannheim Institute for Sustainable Energy Studies (MISES) and was formerly professor at Stanford & Berkeley. More information about MISES is available here: https://www.uni-mannheim.de/en/mises/

European governments have become accustomed to running persistent primary deficits. This is only sustainable for debt dynamics if interest rates R are below the economy's growth rate G. We check if R < G was satisfied over the past 20 years and the discuss the outlook for this relationship in the future. Papers we mention in the podcast are: Atif Mian, Ludwig Straub, and Amir Sufi. Forthcoming....

What factors are driving price formation in European gas markets? And which ones will drive prices near-term, i.e., in the upcoming winter, and beyond? Natixis commodity expert Joel Hancock succinctly provides us with his insights.

Federal elections in Italy and fiscal measures announced in the U.K. raised new questions about fiscal sustainability in both economies. We compare the medium-term growth outlook and the underlying fiscal position in Italy with that in the U.K.

We discuss the economic costs of a permanently high inflation rate. Economic theory suggests that inflation affects economic outcomes along a number of channels. We evaluate the quantitatitve importance of these channels and the empirical evidence that exists in their support. Papers mentioned in the podcast: Nakamura & Steinsson (Quarterly Journal of Economics, 2018), The Elusive Costs of Inf...

We discuss how a large manufacturing share and large trade exposure affect Germany in times of high energy prices & deglobalization risk.

We discuss the main aspects around the European Central Bank's decision from September 8 2022, and the outlook for policy rates going forward.

We critically review and discuss the major decisions elements of the important July 2022 ECB Governing Council meeting.

We discuss whether the ECB tightening path implied by current market prices is sufficient for getting inflation under control in the Euro Area. We highlight the role played by the neutral real rate, the slope of the Phillips curve and inflation expectations for inflation dynamics going forward. The ECB working paper by Marta Banbura und Elena Bobeica that we mention in the podcast is available her...

Periods of high real interest rates are historically associated with high productivity growth and a high marginal product of capital. We discuss to what extent this implies that the expected increase in real interest rates due to ECB tightening measures will increase the marginal product of capital and productivity growth.

We talk with Klaus Regling, Head of the European Stability Mechanism (ESM), about the ESM's financial support programs, the OMT program, conditionality in these programs, and about fiscal rules in Europe.

We dicuss whether Euro Area sovereign bond spreads behave in unusual ways, whether or not the ECB should do something about them, and the potential pitfalls of ECB interventions. The academic paper mentioned in the podcast is available here: https://doi.org/10.1515/ger-2018-0094

We review the ECB decision to end asset purchases and to embark on an interest rate hiking cycle, in light of record high Euro Area inflation rates. We focus on the likely path forward for interest rates and the challenges associated with seeking to contain interest rate spreads across Euro Area member countries.

The share of national income going to workers has been trending downwards over time in many advanced economies, including in Europe. We discuss to what extent this development is really there in European data and what economic mechanism can account for it. We draw on insights provided by the following articles: Gutierrez & Piton, "Revisiting the Global Decline in the (Non-Housing) Share of Inc...

We discuss with Lars Feld about a recent paper published by the German Finance Ministry outlining guideposts for economic and fiscal policy the German view on the reform of fiscal rules in Europe the role of gas and oil embargos the outlook on the German Green transition

We discuss the main indicators providing information about the short-term Euro Area economic outlook. We also discss why forecasting is generally difficult and why standard forecasting tools do not perform well during the current period and what can be done about it. We mention two academic papers: "Nowcasting with Large Bayesian Vectorautoregressions", by Cimadomo, Giannone, Lenza, Monti & So...

We discuss with Mark Schieritz about the political approach, personal traits, and recent political decisions of Germany's new Chancellor Olaf Scholz. Mark Schieritz is a leading journalist at Germany's weakly newspaper "Die Zeit" and the author of a recent book about Germany Chancellor Olaf Scholtz, titled "Olaf Scholz - Wer ist unser Kanzler?".

We discuss how ECB policy will be affected by #1 the likely acceleration of the Green transition, triggered by the Russian invasion & high prices for fossil fuel, and #2 the international economic decoupling between Western economies and Russia/China, as triggered by the same geopolitical tensions. We argue that both developments will require an increase in real interest rates in the short ter...