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An ocean apart: Comparing transatlantic responses to the financial crisis

Has the EU-US relationship become a sideshow or is it still central to the global economy? Conflicting signals have been sent out since the outbreak of the global crisis. The creation of the G20 and its designation as ‘the premier forum for international cooperation’ suggest that attention and priorities have moved away from the traditional […]

By: , and Date: March 12, 2011 Topic: Finance & Financial Regulation

Has the EU-US relationship become a sideshow or is it still central to the global economy? Conflicting signals have been sent out since the outbreak of the global crisis. The creation of the G20 and its designation as ‘the premier forum for international cooperation’ suggest that attention and priorities have moved away from the traditional G7 focus on the transatlantic economy. But most of the key policy debates of the last two years have retained a characteristically transatlantic flavour. This applies to the controversy about the pace of consolidation which resulted in an open US-German rift at the Toronto summit in June 2010; to the discussion on the new bank capital ratios which again was essentially a euro- American affair; and to the broader conversation on the priorities of financial regulatory reform, for which the big action agendas have been the US Dodd-Frank Act and the European endorsement of a blueprint for coordinated supervision and a single European macroprudential body.

True, other issues – the global rebalancing, or the creation of global financial safety nets – have had a distinctive G20 scope. But at least a fair share of the international debate has been transatlantic.

There are reasons for this state of affairs. To start with, what is known as the global crisis has been first and foremost a transatlantic crisis. As discussed in several contributions in this volume, the wake of the crisis financial integration through portfolio diversification essentially remained an EU-US phenomenon.

Accordingly the subsequent financial turmoil primarily affected the European and American financial systems, and other economies indirectly only, through trade or capital outflows. It is therefore natural to see the same two regions take the lead in setting the agenda for financial reform. Second, the problems they are facing in the aftermath of the shock – the travails of deleveraging, unemployment, the need for unconventional policy responses, the lowering of the growth potential, the rise of public debt, political pressures for protection – are largely common. Third, while they are not the main contributors to world growth, the EU and the US still constitute the bulk of the global economy, and what happens to them matters considerably for all.

The US and the EU however are not responding to the same shock in the same way and this is what makes the comparison interesting. It is telling that the sovereign debt crises developed in Europe in the first half of 2010 and triggered a move towards consolidation while the US fiscal situation is by most standards worse than the aggregate European situation. It is telling also that the priorities of financial reform have not been the same. Clearly neither the policy space nor the policy traditions are identical and this portends significant divergence across the Atlantic. How far this divergence will go and whether policymakers on the two continents will disagree or agree to disagree is one of the key questions for the future of the global economy in the years to come.

All this justifies a revival of the transatlantic economic conversation. The joint Banca d’Italia-Bruegel-Peterson Institute conference, held in Rome on 10-11 September 2009 with the support of the European Commission, aimed to contribute to the conversation through research and policy discussions. We hope that the papers collected in this volume will help foster a fact-based, analytically sound discussion.


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Working Paper

China and the world trade organisation: towards a better fit

China’s participation in the WTO has been anything but smooth, as its self-proclaimed socialist market economy system has alienated its trading partners. The WTO needs to translate some of its implicit legal understanding into explicit treaty language, in order to retain its principles while accommodating China.

By: Petros C. Mavroidis and André Sapir Topic: Global Economics & Governance Date: June 13, 2019
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Jun
20
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Sound at last? Assessing a decade of financial regulation

What has changed since the financial crisis of 2008 that makes the financial system sound at last? Is regulatory reform going in the right direction? Has it run its course? 

Speakers: Patrick Bolton, Rebecca Christie, Maria Demertzis, Mathias Dewatripont and Xavier Vives Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Blog Post

The inverted yield curve

Longer-term yields falling below shorter-term yields have historically preceded recessions. Last week, the US 10-year yield was 21 basis points below the 3-month yield, a feat last seen during the summer of 2007. Is the current yield curve a trustworthy barometer for future growth?

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: June 11, 2019
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Past Event

Past Event

EU-LAC Economic Forum 2019: New perspectives in turbulent times

The third edition of the EU-LAC Economic Forum.

Speakers: Diego Acosta Arcarazo, Ignacio Corlazzoli, Maria Demertzis, Mauricio Escanero Figueroa, Alicia García-Herrero, Carmen González Enríquez, Bert Hoffmann, Edita Hrdá, Matthias Jorgensen, Juan Jung, Tobias Lenz, Carlos Malamud, J. Scott Marcus, Elena Pisonero, Belén Romana and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 11, 2019
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Jun
24
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China’s investment in Africa: consequences for Europe

How is Chinese investment impacting Africa, and what could be the consequences for Europe?

Speakers: Solange Chatelard, Maria Demertzis, Alicia García-Herrero and Abraham Liu Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Upcoming Event

Jun
21
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Financial inclusion of SMEs for growth and job creation

How can increased access to finance benefit SMEs in the Middle East and Central Asia? What reforms are needed to encourage SME financial inclusion?

Speakers: Jihad Azour, Bruno Balvanera, Zsolt Darvas, Barbara Marchitto, Anta Ndoye and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Upcoming Event

Jun
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Policy options for new tech-enabled payment processes

What challenges does a shift towards new payment processes imply for EU financial services policy?

Speakers: Rebecca Christie and Chirag Patel Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Opinion

Too crowded bets on “7” for USDCNY could be dangerous

The Chinese yuan has been under pressure in recent days due to the slowing economy and, more importantly, the escalating trade war with the US. While the Peoples Bank of China has never said it will safeguard the dollar-yuan exchange rate against any particular level, many analysts have treated '7' as a magic number and heated debates have begun over whether the number is unbreakable.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: June 6, 2019
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Upcoming Event

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The 4th industrial revolution: opportunities and challenges for Europe and China

What is the current status of EU-China relations concerning innovation, and what might their future look like?

Speakers: Elżbieta Bieńkowska, Chen Dongxiao, Eric Cornuel, Ding Yuan, Jiang Jianqing, Pascal Lamy, Li Mingjun, Signe Ratso, Reinhilde Veugelers, Wang Hongjian, Guntram B. Wolff and Xu Bin Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Blog Post

The 'seven' ceiling: China's yuan in trade talks

Investors and the public have been looking at the renminbi with caution after the Trump administration threatened to increase duties on countries that intervene in the markets to devalue/undervalue their currency relative to the dollar. The fear is that China could weaponise its currency following the further increase in tariffs imposed by the United States in early May. What is the likelihood of this happening and what would be the consequences for the existing tensions with the United States, as well as for the global economy?

By: Inês Goncalves Raposo Topic: Global Economics & Governance Date: June 3, 2019
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Podcast

Podcast

Backstage: Ukraine's economic and political outlook

In this episode of ‘The Sound of Economics’, Giuseppe Porcaro hosts Hlib Vyshlinsky, executive director of the Centre for Economic Strategy, and Bruegel fellow Marek Dabrowski to discuss what the new Ukrainian government should do to meet the challenges facing the country’s economy.

By: The Sound of Economics Topic: Global Economics & Governance Date: May 31, 2019
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Opinion

Expect a U-shape for China’s current account

As the US aims to reduce it's bilateral trade deficit, China's current-account surplus is back in the headlines. However, in reality China’s current-account surplus has significantly dropped since the 2007-08 global financial crisis. In this opinion piece, Alicia García-Herrero discusses whether we should expect a structural deficit or a renewed surplus for China's current-account.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: May 28, 2019
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