A parallel currency for Greece. CEPS High-level Brief, 20 May 2015

Greece and its creditors seem to be engaged in a game of chicken: both sides expect the other to yield at the last moment. The game will almost certainly end with each side deviating somewhat from its preferred course. This High-Level Brief discusses how a parallel currency could contribute to a resolution of the conflict. In the author's view, it would be the least-bad option for both sides among three possible options on the table.

Puerto Rico and Greece: A Tale of two defaults in a monetary union. CEPS High-Level Brief. 18 June 2015, Update 30 June 2015

It is widely argued that the problems of Greece in the eurozone derive not only from mistakes made by successive Greek governments, but from deep-seated problems with the design of the euro area. The euro area is judged to be incomplete because it does not have any fiscal shock absorbers, nor a federal transfer system, and, according to many, it has imposed senseless austerity on the country. The US, by contrast, is often held up as an example of a complete monetary union in this type of problem could not arise. However, the working of the US is much less perfect than it appears from afar. The ‘genuine’ economic and monetary union, which undoubtedly exists in the US, also has problems in dealing with low-performing states in terms of productivity and governance. Puerto Rico exemplifies these difficulties and shows that in such an integrated area similar problems, including a fiscal crisis can arise. Both Puerto Rico and Greece are very special and extreme cases within their respective unions, but the strength of a system can be measured by how it deals with these cases.

Larry Summers’ interest rate conundrum. CEPS Hi-level Brief, 16 January 2014

Larry Summers has attracted much attention recently for invoking old theories of secular stagnation to explain the persistence of low interest rates in the recent past. The German economist Carl Christian von Weizsäcker has pointed to a retirement savings glut as the cause for low rates. In the view of Thomas Mayer, however, as expressed in this High-Level Brief, these theses lack both theoretical and empirical support and he offers as an alternative explanation the fall-out from the recent credit boom-bust cycle.

The Fate of Greece in a ‘Genuine Economic and Monetary Union’: Lessons from a small island state. CEPS Hi-Level Brief, 19 June 2015 Friday, 19 June 2015

As the Greek debt drama reaches another supposedly decision point, Daniel Gros urges creditors (and indeed all policy-makers) to think about the long term and poses one key question in this CEPS High-Level Brief: What can be gained by keeping Greece inside the euro area at “whatever it takes”? As he points out, the US, with its unified politics and its federal fiscal transfer system, is often taken as a model for the Eurozone, and it is thus instructive to consider the longer-term performance of an area of the US which has for years been kept afloat by massive transfers, and which is now experiencing a public debt crisis. The entity in question is Puerto Rico, which is an integral part of the US in all relevant economic dimensions (currency, economic policy, etc.). The dismal fiscal and economic performance of Puerto Rico carries two lessons: 1) Keeping Greece in the eurozone by increasing implicit subsidies in the form of debt forgiveness might create a low-growth equilibrium with increasing aid dependency. 2) It is wrong to assume that, further integration, including a fiscal and political union, would be sufficient to foster convergence, and prevent further problems of the type the EU is experiencing with Greece.