Peterson Institute Update

Washington Post's Neil Irwin's Must Reads

Neil Irwin lists PIIE Senior Fellow Joseph Gagnon's Policy Brief, "The World Needs Further Monetary Ease, Not an Early Exit," as a "must read" in the debate on whether the largest economies in the world should continue or end government stimulus.

The EU Stress Tests and the Experience in Spain

In the days following publication by the European Union of the long-awaited stress tests of its banking sector, the market reaction—judged by the evolution of the euro, bank stocks, and peripheral spreads—has looked positive. This makes sense. The hundreds of pages of analysis of the impact of the stress tests have focused on individual banks, criticized the scenarios used in the stress test as overly harsh or not harsh enough, and as more or less adequate or stressful.

RealTime post by Angel Ubide.

The "Shamed Seven" EU Banks Open Their Books

On Monday, July 26, a memorable exercise in market power and the power of persuasion of those who favor financial market transparency took place. It came in the form of the last 7 remaining EU banks out of the total of 91 participating in the stress test reluctantly releasing their individual exposures to European sovereign debts. The "Shamed Seven" included 6 German banks—Deutsche Bank, Landesbank Berlin, Hypo Real Estate (failed the stress tests), DZ Bank, WGZ Bank, and Deutsche Postbank—as well as one Greek bank that had also failed the stress tests: ATEBank.

RealTime post by Jacob Funk Kirkegaard.

The Kremlin's New Policy in Its Near Abroad

In August 2008, Russia's relations with its post-Soviet neighbors reached an all-time low in the aftermath of the Russia-Georgia war. Not one single country in the region recognized the independence of Abkhazia and South Ossetia because it would have endangered its own claim to territorial integrity.

The Commonwealth of Independent States (CIS) achieved its height of ridicule at its annual summit in Chisinau, Moldova, on October 9. The headline in Nezavisimaya Gazeta said it all: "Summit in 30 Minutes. The CIS Leaders Had Nothing to Tell One Another." Of the 11 CIS members, only 6 arrived—Russia, Belarus, Ukraine, Armenia, Azerbaijan, and Kyrgyzstan, while Moldova temporarily had no president. Only one of five Central Asian presidents bothered to come. Needless to say, nothing was accomplished. To aggravate things further, President Dmitry Medvedev refused to meet Ukrainian President Viktor Yushchenko or Belarusian President Alexander Lukashenko. Everybody left quickly after the half-hour meeting. The scheduled gala dinner was canceled. The CIS is both Russia's baby and failure.

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Op-ed by Anders Åslund.

India's Inflation Puzzle

We may not know the diagnosis but the Reserve Bank of India (RBI) has administered, and has no choice but to administer, the only cure it knows: tighten monetary policy by raising interest rates and squeezing liquidity. Even if the cure works, and especially if it does only partially, it is critical to understand the underlying disease.

Op-ed by Arvind Subramanian.

Europe's Stress Tests: Only One Step Toward Banking Repair

The European banking stress test results announced on July 23 combined encouraging features with disappointing ones, which explains the paradoxical mix of reactions: Markets rose, even as many analysts denounced what they saw as a sham. Their publication is unlikely to single-handedly bring the interbank market back to soundness. But it may prove an important step, depending on what policy initiatives come next.

RealTime post by Nicolas Véron.

The EU Bank Stress Tests--What Have We Learned?

On Friday, July 23, the Committee of European Banking Supervisors (CEBS), along with national EU bank regulators and—crucially—most of the affected individual banks, finally released new data to the public regarding the stress testing of the European banking system.

What have we learned?

Appearances matter—especially for bank stress tests. So first it is clear that whoever has been in charge of media relations and communication at CEBS, the EU Commission, and elsewhere must immediately be fired (and denied any EU pension)! Despite the still fresh memory of what happened at the publication of the US Supervisory Capital Assessment Program (SCAP) tests in May 2009, which were roundly (but erroneously) criticized in the financial media and by pundits as too lenient toward the 19 banks tested, CEBS and other EU authorities carried out an inadequate and incoherent media strategy that condemned the EU stress tests to a similar fate. This is very unfortunate, as there is a lot of new value in the new data.

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RealTime post by Jacob Funk Kirkegaard.

Event: Two Years after the Crisis: The Global Economic Agenda

Undersecretary of the Treasury Lael Brainard addressed the topic of "Two Years after the Crisis: The Global Economic Agenda" at an event held July 26, 2010, at the Peterson Institute. The Under Secretary discussed the prospects for maintaining the economic recovery, repairing the global financial system and rebalancing the world economy in light of the latest G-20 meetings and recent international economic developments.

Event materials are available online.

Paul Krugman: Joe Gagnon Is Right

Paul Krugman writes that implementing PIIE Senior Fellow Joe Gagnon's suggestions to the Fed are worth trying and may have large potential benefits.

Interview: Europe's Stress Tests: Not Reassuring

Morris Goldstein finds that the stress tests announced July 23 indicate a reluctance in Europe to admit the seriousness of the banks' difficulties.

Interview: European Bank Stress Tests Succeed By Falling Short

Anders Åslund says the long-awaited stress test results, released July 23, were too easy on the banks but provide useful data that could strengthen the system.

Interview: Lessons from China's Housing Bubble

Nicholas R. Lardy explains China's nuanced approach to letting the air out of its housing bubble, providing potential lessons for the United States.

Policy Brief: Revisiting the NAFTA Agenda on Climate Change

The three NAFTA signatories have a shared interest in harmonizing climate change policy, and while they have made steps in that direction, there is still much that can be done to promote renewable energy development and other measures to reduce greenhouse gas emissions.� Authors Jeffrey J. Schott and Meera Fickling examine channels for energy and environmental cooperation among the three North American countries in light of limited progress in international climate talks and scaled back energy legislation being vetted in the US Senate. Suggestions include: harmonizing renewable energy standards and trading of renewable electricity credits, improving cross-border transmission capacity between the United States and Mexico, and using NAFTA institutions for data collection and monitoring of regional climate policies and for capacity building in Mexico.

Policy Brief by Jeffrey J. Schott and Meera Fickling.