Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Fiscal Policy"

Brexit, Emerging Markets, and Venezuela in the News

by Robert Kahn

Three things to think about today.

  1.  If you haven’t already done so, subscribe now to my colleague Brad Setser’s blog, which provides excellent commentary on global macro issues. His most recent piece makes a compelling case for European fiscal action against the backdrop of a meaningful UK and European growth shock, a point that I very much agree with (listen also to my conversation with Jim Lindsay and Sebastian Mallaby here).
  2. I remain puzzled that this industrial country growth shock has not had a broader effect on emerging markets. Reports are that portfolio outflows from EM were minor on Friday, with some recovery this week. One view is that as long as China’s economy remains on track, commodity prices hold up, and the Fed is on hold, emerging markets should weather the Brexit shock. Conversely, the IMF has worried that declining trend growth in the emerging world reflects a rising vulnerability to globalization.
  3. The humanitarian situation in Venezuela has become critical. I have focused in past blogs on the severe economic consequences of the crisis, and the need for a comprehensive, IMF-backed reform effort, supported by substantial financing and debt restructuring. China’s recent agreement to push back debt payments due recognizes the inevitable but is unlikely to provide additional free cash flow to the government or the state energy company PDVSA. For investors, default now looks to be coming soon.

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Brexit’s Threat to Global Growth

by Robert Kahn

Thursday’s Brexit vote wasn’t a “Lehman moment”, as some have feared. Instead, it was a growth moment. And that may be the greater threat. If policymakers respond effectively, the benefits could be substantial: a stronger global economy, and an ebbing of the political and economic forces now pressuring UK and European policymakers. Conversely, failure to address the growth risks could cause broader and deeper global economic contagion.

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Addressing Economic Populism in Europe

by Robert Kahn

My latest global economic monthly looks at rising economic populism in Europe and how it constrains the capacity of policymakers to get a robust recovery going and deal with shocks. Some of the drivers of populism—on the left and right, in creditor and debtor countries—are cyclical but many including globalization, income inequality and insecurity are likely to be more persistent and resent a long-term threat to greater European integration. The strong showing of the National Front in last weekend’s French regional elections, Denmark’s referendum rejection of further EU integration, and Britain’s debate over its EU future are recent reminders of the fraying consensus on further integration, which has strong implications for economic cooperation. Easy money from the European Central Bank (ECB) can only do so much, and a broader policy response including a faster pace of economic integration and more flexible fiscal policies now are needed.

Ukraine’s Decisive Moment

by Robert Kahn

Budget debates are often dry affairs, but not so in Kiev. By the end of this month, the Ukrainian parliament (Verkhovna Rada) must decide on a budget that will have profound effects on the future course of the government. The Ministry of Finance has proposed a budget that sets most tax rates at 20 percent, while closing loopholes and holding the deficit to an estimated 3.7 percent of GDP.  The International Monetary Fund (IMF) has endorsed the plan, and the passage of the bill, or something close to it, is essential to completing the IMF review and keeping the government’s adjustment program on track.

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A U.S. Budget Deal that Matters

by Robert Kahn

This is what governing looks like.

When outgoing speaker John Boehner promised to “clean the barn up a little bit” before leaving, there was understandable skepticism that a large number of must-pass pieces of legislation could be sheparded through a sharply divided congress.  From that perspective, last night’s agreement on a budget framework—if it holds—looks to be an important step forward. While far from ideal budgetary policy, it removes substantial tail risk from U.S. economic policymaking between now and the election.

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Ukraine Needs a Moratorium

by Robert Kahn

After months of standoff, the Ukraine government appears to be making halting progress towards an agreement restructuring its external private debt. On hopes of a deal, and ahead of an IMF Board meeting next week to review its program, the government reportedly has decided that it will make a $120 million payment to creditors due tomorrow. It is possible that decision to repay will be seen as a signal of good faith and create momentum towards an agreement, but I fear it’s more likely we have reached a point where continuing to pay has become counterproductive to a deal. Absent more material signs of progress in coming weeks, there is a strong case—on economic, political and strategic grounds—that a decision to halt payments and declare a moratorium gives Ukraine the best chance of achieving an agreement that creates the conditions for sustainable debt and a growing economy in the medium term.

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Greece’s Program: First Hurdle Cleared

by Robert Kahn
Prime Minister Alexis Tsipras battled to win lawmakers' approval on July 16 for a bailout deal to keep Greece in the euro. (Alkis Konstantinidis/Reuters) Prime Minister Alexis Tsipras battled to win lawmakers' approval on July 16 for a bailout deal to keep Greece in the euro. (Alkis Konstantinidis/Reuters)

The Greek parliament last night passed the first package of measures required by the government’s agreement with European governments reached over the weekend, winning 229 of 300 votes in the parliament. There were a large number of Syriza defections (39) that would appear at minimum to require a cabinet reshuffling. Some local analysts predict the government could fall, though most expect that if that happened Prime Minister Tsipras would reemerge as prime minister in a new coalition government.

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Greece and Europe: A Deal to Talk About a Deal

by Robert Kahn
Greek Prime Minister Alexis Tsipras speaks with German Chancellor Angela Merkel and French President Francois Hollande at a eurozone leaders' summit in Brussels on July 12, 2015. Greek Prime Minister Alexis Tsipras speaks with German Chancellor Angela Merkel and French President Francois Hollande at a eurozone leaders' summit in Brussels on July 12, 2015.

European leaders, meeting tonight in Brussels, appear to have given Greece something close to a take-it-or-leave-it offer.  If the Greek government can pass far-reaching reforms by Wednesday, creditors will provide bridge financing to meet near-term debt payments and cash to reopen the banks.  These steps also would allow a rebuilding of trust and allow negotiations on a third bailout that could total €86 billion to proceed.

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