A showdown is looming at the World Bank over whether to discontinue or water down the Bank’s annual “Doing Business” Report.  As reported here, and blogged about here, and here, China is leading the charge against the report, which is one of the Bank’s most controversial and influential projects.  The U.S. government has been lobbying in favor of Doing Business, but so far has failed to generate the degree of high-level support from other G-20 countries or thought leaders that will likely be needed to save the report.  A committee established by the Bank and headed by South African Planning Minister (and former finance minister) Trevor Manuel to assess the future of Doing Business will report as early as next week.  Based on comments from advisors to the Manuel Committee, it looks as if its conclusion will be negative.  After the report is received, President Kim will make his recommendation, which could involve eliminating the report or gutting it through presenting its results qualitatively or in buckets that reduce the transparency that is at the core of the exercise.

Read more »

My conversations with investors on the margins of the IMF/World Bank meetings shows a broad anxiety about growth.  Europe is first on the list of concerns, along with a slowdown in China and US fiscal drag.  You would think that it would be easy, therefore, to produce G-7 and G-20 communiques that were pro-growth and highlighted the need for countries to act where they have the space.  Apparently, that’s not the case, with the key players as divided as ever. Read more »

European best practice in crisis management is on display again with a mass of leaked documents–primarily on Cyprus–ahead of today’s Eurogroup meeting.  I’d note a few things

Read more »

Long-term budget forecasts are more art than economics.  Small changes in assumptions and initial conditions, extrapolated over 25, 50 or 75 years, produce dramatically different outcomes.  Should one assume current law remains in effect, producing structural improvement in the deficit over time, or rather that Congress acts as in the past in extending temporary cuts, adjusting tax brackets, and easing spending constraints as new needs arise? Will the recent slowdown in the rate of increase in health care costs persist? Your answer to these questions can swing the budget in the long term from unsustainable deficit to surplus.  Still, these forecasts matter, as a statement of principle, as a description of philosophy, and in framing the debate.

Read more »

The banks in Cyprus reopened today, with severe capital controls in place.  Withdrawals by residents are limited to €300 per day; local businesses are limited to a maximum of €5,000 per day.   Cross-border credit card transactions are limited to €5,000 per month, and border controls prevent travellers from taking more than €1,000 in bank notes out of the country per trip.  Beyond these totals, payments for imports are subject to strict documentation. The Cyprus stock market remains closed until next week.

Read more »

One of the striking features of the Cyprus crisis is the extent to which the ECB is driving the process.  It was their threat to stop the flow of easy money to Cyprus that forced agreement on the earlier failed tax plan.  Now, their threat to cut Cyprus’ access to Emergency Liquidity Assistance (ELA) if the government does not have an EU-IMF approved program in place by Monday accelerates events. With the banks closed and cross-border payments suspended, the immediate impact of a decision to terminate ELA would be muted.  But without such funding, it will be virtually impossible for the major banks to restore normal operations, and reopening the banks would result in cascading failures through the entire financial system and the real economy.  The intent clearly seems to be to force the government to the table. Will it do the trick?  By next week, we may well know if there is a path for Cyprus to remain in the Eurozone.

Read more »

Over the weekend, Cyprus agreed to a package of measures in order to receive a €10 billion rescue package.  Most significantly, they agreed to a tax of 6.75 percent on all bank deposits under €100,000 while accounts over that threshold would be hit with a 9.9 per cent levy.

Read more »

Cyprus measures 0.2 percent of the Eurozone economy.  A proposed rescue package is only €17 billion, of which perhaps €9 billion will be used to recapitalize banks weighed down by bad loans and losses on the Greek government debt.  A new government has signaled its commitment to reform, and creditors want to get a deal done by end month, before government cash reserves run out and well ahead of a €1.2 billion June debt maturity.  Yet, as European leaders meet, negotiations look to be deadlocked.  What happens next matters:  because of concerns about contagion and for what it tells us about the future course of European policy, Cyprus punches above its weight.

Read more »

The Bipartisan Policy Center today has produced a package of charts on the debt limit. Their bottom line isn’t shocking, but it’s persuasively laid out: Read more »

My intent in starting this blog is to look at how macroeconomic policies are set in a complex and interdependent global economy, and how market forces constrain or reinforce those policies.  We will look at policies in both industrial and emerging market economies, though in the current environment we will pay special attention to the policy challenges and key risks to an already fragile outlook coming from Europe and the United States.

Read more »