More than Just debt

Europe’s Orphan: The Future of the Euro and the Politics of Debt. By Martin Sandbu. Princeton: Princeton University Press, 2015. 313 pp. $29.95. ISBN: 978-0-691-16830-2 (cloth).

The euro did not cause Europe’s economic crisis; policymakers did. By focusing too much attention on debt, by demanding that existing obligations be met in full (and creditors made whole), and by doing so against a backdrop of coordinated macroeconomic tightening, Europe’s policymakers ensured that the downturn in European macroeconomic performance would be deep, long, and destructive. These same policymakers only narrowly avoided disaster when they began to loosen monetary policy and to accept the need for some debt restructuring. Nevertheless, these efforts did not come soon enough, they were no comprehensive enough, and they were not applied consistently enough to prevent Europe from coming to the edge of disaster as elite macroeconomic ideology finally collided with the requirements for democratic legitimacy in Greece (and Germany) during the summer of 2015. This is the diagnosis Martin Sandbu offers to explain what went wrong.

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Central Banking Divergence Means Market Volatility

There are three divergences in the art of central banking. The most obvious is between the monetary tightening expected in the United States and the loosening expected in Europe. A second divergence is between the prudential oversight of the banking system and the conduct of macro-economic demand stabilization – particularly quantitative easing. A third divergence is between the communication of forward looking policy intentions and the practice of monetary policy decision-making. Each of these divergences acts as a constraint on the conduct of monetary policy; the juxtaposition of all three increases the risk of significant market volatility.

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Market Infrastructures: The Ties that Bind

Roughly nine thousand members of the global finance community gathered in Singapore last week at a conference devoted to ‘market infrastructures’ – meaning the plumbing (communication, clearing, settlement, depository) that makes finance work. On one level it was a very geeky affair with its own confusing jargon. The name of the conference, SIBOS, refers to another acronym, SWIFT. There was a whole forum devoted to standards – which are precise definitions for how things should look and work. If you wanted to fill a room, all you had to do was shout ‘block chain’ or ‘distributed ledger’. But the buzz was not only about technology. You could pack the room talking about China’s strategy to internationalize the renminbi just as easily. Market infrastructure is about power as well as plumbing. More important, the power and the plumbing tend to work at cross purposes.

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