Commentary
Before the next wave of EU enlargement takes place, the union needs to grapple with thorny questions of how power is distributed among its members.
Emil Sondaj Hansen, Ditte Brasso Sørensen
{
"authors": [
"Hans Timmer",
"Uri Dadush"
],
"type": "other",
"centerAffiliationAll": "",
"centers": [
"Carnegie Endowment for International Peace"
],
"collections": [],
"englishNewsletterAll": "",
"nonEnglishNewsletterAll": "",
"primaryCenter": "Carnegie Endowment for International Peace",
"programAffiliation": "",
"programs": [],
"projects": [],
"regions": [
"North America",
"United States",
"Western Europe"
],
"topics": [
"Economy"
]
}
Source: Getty
Other
The Biggest Global Economic Concern
While the global economic crisis runs deeper than the euro, the inadequate institutional set up of the European Monetary Union greatly complicates matters.
Published on Dec 20, 2011
What is the biggest global economic concern today?
The biggest global economic concern today is the health of financial institutions. The health of the banking sector is incredibly difficult to control given the global nature of the sector and huge size of institutions. And we all know that the consequences for the real economy are enormous.
We don’t have the oversight and institutions to respond to these problems and to a certain extent we’ve made it worse over the last decade. Governments, to some degree, have reinforced the problem and are not strong enough to react, especially in Europe. This is a sign that there is not enough Europe, instead of a sign that there is too much Europe.
We don’t have the oversight and institutions to respond to these problems and to a certain extent we’ve made it worse over the last decade. Governments, to some degree, have reinforced the problem and are not strong enough to react, especially in Europe. This is a sign that there is not enough Europe, instead of a sign that there is too much Europe.
Read more
There is a lot more going on than the euro, of course, but the big difference now versus ten years ago is that major European countries at risk had more instruments at their disposal. They could devalue their currency and print money. These were important safety valves that countries in the eurozone no longer enjoy—and this greatly exacerbates the worries in the markets.
So while the problem runs deeper than the euro, the inadequate institutional set up of the European Monetary Union greatly complicates matters.
I don’t buy the argument that there wouldn’t have been a problem if European countries had flexible exchange rates and I also don’t buy the argument that a flexible exchange rate is needed to accommodate the structural differences across European countries. I agree more with the thinking that many of the countries were too small or the economies were too integrated to have independent currencies and monetary policies.
This would have been messy anyhow. The real problem is not that the countries don’t have the tools to react, but what happened in the boom period that led to this crisis. For all kinds of reasons, there was over-borrowing and an underpricing of risk. We are seeing the nasty consequences today. MORE►
————————
Hans Timmer is the director of the World Bank's development prospects group.
So while the problem runs deeper than the euro, the inadequate institutional set up of the European Monetary Union greatly complicates matters.
I don’t buy the argument that there wouldn’t have been a problem if European countries had flexible exchange rates and I also don’t buy the argument that a flexible exchange rate is needed to accommodate the structural differences across European countries. I agree more with the thinking that many of the countries were too small or the economies were too integrated to have independent currencies and monetary policies.
This would have been messy anyhow. The real problem is not that the countries don’t have the tools to react, but what happened in the boom period that led to this crisis. For all kinds of reasons, there was over-borrowing and an underpricing of risk. We are seeing the nasty consequences today. MORE►
————————
Hans Timmer is the director of the World Bank's development prospects group.
About the Authors
Hans Timmer
Uri Dadush
Former Senior Associate, International Economics Program
Dadush was a senior associate at the Carnegie Endowment for International Peace. He focuses on trends in the global economy and is currently tracking developments in the eurozone crisis.
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
More Work from Carnegie Endowment for International Peace
- The Uncomfortable Truth About EU Enlargement
- What to Watch When Trump and Xi Meet in WashingtonCommentary
The real test may come after the leaders leave the room.
- +1
Sheena Chestnut Greitens, Oriana Skylar Mastro, Yukon Huang, …
- The Denmark-Greenland-U.S. Agreement Needs to Stand the Test of TimeCommentary
The new U.S.–Denmark–Greenland agreement will help Washington exert political, economic, and financial dominance under the guise of security. Yet, it acknowledged Copenhagen’s and Nuuk’s sovereignty on the island.
Marc Pierini
- Untangling the Nuclear Knot: A Constructive Agenda for Managing China’s Nuclear Relations with the United States and Its AlliesPaper
The nuclear relationship between China and the United States is increasingly shaped by widening perception gaps rather than deliberate strategic design.
Tong Zhao
- Recasting American Power in Latin AmericaPaper
Washington needs to recognize that influence in the Western Hemisphere comes from presence, delivery, and reliability. It also must recognize that while the United States remains the key external actor, it no longer operates in a permissive environment and cannot presume deference from regional players who have other options, namely China.
Juan S. Gonzalez
