The Hour of the Technocrats has arrived. In desperation from debt crises that their gridlocked political systems have created, Italy and Greece both in November chose new Prime Ministers who are technocratic economists rather than politicians: Mario Monti and Lucas Papademos, respectively. One can even describe them as professors: Monti has been president of the prestigious Bocconi University when not a European Commissioner in Brussels, and Papademos has been my colleague at Harvard Kennedy School in the year since he finished his term as Deputy Governor of the European Central Bank (even teaching a class I usually teach).
Tag Archives: EMU
How Europe Should Treat Sovereign Debt in the Future
My preceding blogpost identified three mistakes made by leaders of the European Economic and Monetary Union in dealing with Greece. But what is done is done. The mistakes now lie in the past. How can Europe’s fiscal regime be reformed to avoid future repeats of this crisis?
The reforms that are now underway are not credible. (“We are going to make the fiscal rules more explicit and make sure to monitor them more tightly next time.”) Similarly, most proposals for how to put teeth into the rules are not credible — penalties such as monetary fines or loss of voting privileges.
The ECB’s Three Mistakes in the Greek Debt Crisis
By now just about everybody agrees that the European bailout of Greece has failed: The debt will have to be restructured. As has been evident for well over a year, it is not possible to think of a plausible combination of Greek budget balance, sovereign risk premium, and economic growth rates that imply anything other than an explosive path for the future ratio of debt to GDP.
There is plenty of blame to go around. But three big mistakes can be attributed to the European leadership. This includes the European Central Bank – surprisingly, in that the ECB has otherwise been the most competent and successful of Europe-wide institutions.