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Monday, 7 December 2015

The IMF in the Balkans: Recent experience

Alexandra Zeitz, St. Antony’s College, Oxford

Speakers: Adam Bennett, St. Antony’s College, Oxford and Robin McConnachie, Oxford Analytica
Chair: Stewart Fleming, St. Antony’s College, Oxford

When the IMF is called in during a time of economic crisis, the programme agreed is often politically contentious. One of the defining questions in the aftermath of the IMF’s intervention is frequently: “did it work?” In late November, PEFM heard from Adam Bennett, formerly of the IMF, about the effectiveness of IMF programmes in a region where the Fund has played a prominent role in recent decades: the Balkans. Robin McConnachie, who has acted as an advisor to governments in the region, contributed his insights into what makes for successful reform programmes. 

How does one capture the impact of an IMF programme? Bennett explained that the Fund itself has grappled with the numerous measurement challenges of evaluating effectiveness. Simple measures comparing indicators before and after an IMF programme neglect the counterfactual of how the country would be faring in the absence of an IMF programme. Comparisons between countries with and without IMF programmes cannot account for the fact that countries with IMF programmes often faced worse conditions than those that received no programme.

The Fund has responded to these measurement concerns by building complex models that attempt to capture the impact of policy interventions. These models, however, can only be as accurate as the assumptions they are built on. For his evaluation of the IMF’s programmes in the Balkans, therefore, Bennett used simple comparisons between those Balkan countries with and without IMF programmes and contrasted countries’ actual performance with the targets set in the programme.

Thursday, 3 December 2015

What is needed for EU competitiveness? The view from Croatia

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Speaker: Boris Vujčić, Governor, Croatian National Bank
Chair: Gillian Edgeworth, Wellington Management and St. Antony’s College, Oxford 

What will it take to boost the EU’s competitiveness and firm up a shaky economic recovery? In late November, PEFM hosted Governor Boris Vujčić of the Croatian National Bank, who presented his views on the roadblocks to productivity in the EU and argued for structural reforms to encourage convergence among different European regions and increase competitiveness.

There are many explanations for Europe’s competitiveness woes, particularly for why it lags behind the United States across indicators of productivity. Indeed, Jeffrey Franks’ PEFM presentation in October outlined how the IMF accounts for Europe’s flagging competitiveness.

In his account, Governor Vujčić stressed the importance of the revolution in information and communications technology, which has made huge contributions to private sector productivity in the US, but lagged in Europe. He also highlighted the problem of financing – without well developed equity markets and venture capital funders, young European entrepreneurs often lack the investment to get their ideas off the ground. Europe has also been slow, Governor Vujčić argued, to bring research and expertise from academia into the private sector. While Europe’s universities are well represented on global league tables, transfer of knowledge into business is still lacking.

Monday, 30 November 2015

More Europe, anyone?

Robin McConnachie (Oxford Anylitica; Former Senior Adviser, Bank of England) 

The PEFM seminar series at St Antony's continued last Monday evening with another look at the causes of the 2007 /08 financial crisis and the various attempts to deal with the consequences for Europe. What happens now to take this forward? The discussion was led by Lorenzo Codogno, currently a visiting Professor at the LSE , but at the time Chief Economist at the Italian Treasury, who represented Italy on a number of the key committees servicing European Finance Ministers.

Lorenzo's thesis was that contagion from the US sub – prime mortgage failure quickly infected a number of European financial sectors causing a number of different problems which were difficult to deal with simultaneously in the absence of Europe - wide bodies to produce an effective response. He showed a number of useful charts using Italy as an example – in fact Italy had been less severely affected than many other European countries. But there had been a collective deficiency in the European response to the spread of the crisis, which he called a crisis of governance. For the future the answer was to have more effective European institutions rather than a plethora of rules which could not be enforced. The macro imbalances procedures currently being developed should enable countries to see in advance and hopefully take action to avert crises but this approach was not agreed by all, with resistance to large fines being levied on non-complying countries with excessive deficits, the perversity of this throwback to the SGP being particularly objected to. What was agreed was the need for debt deleveraging but this had hardly begun. European growth should be stimulated by exploiting the opportunities created by the single market e.g. the proposed capital markets union but the existing European authorities apart from the ECB were in a state of collective paralysis: there was strong resistance in many countries on important issues like bailing in lenders or creating yet more (costly) European institutions. An agreed roadmap was required to revive the European project.

Monday, 2 November 2015

Waiting for the recovery: Europe’s financial crisis and the fragile recovery

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Presentation: Jeffrey Frank, Director, IMF Offices in Paris and Brussels
Blogpost: Alexandra Zeitz, St. Antony’s College

The numbers are striking and disheartening. Seven years on from the onset of the global financial crisis, Europe’s recovery remains shallow and vulnerable. Real GDP is ten percentage points higher in the US than it was in 2008. In the UK it is five percentage points higher. In Europe, by contrast, it is three percentage points lower than in 2008.

Unemployment in Europe remains extremely high. In August 2015, the average unemployment rate for the Eurozone was 11%. In Spain it was over 22%, having come down slightly from a height of 26.3% in early 2013.  Estimated potential output growth, already lower in Europe than the US prior to the crisis, fell sharply during the crisis, from 1.3% in 2006-2007 to 0.6% in 2008-2010. It has remained low, sparking fears of a European slide into stagnation.

Why has the recovery in the Eurozone been so much more sluggish than in the neighboring UK and in the US? And what tools are available to policymakers to encourage a more robust recovery, improving the livelihoods of Europeans still afflicted by the aftermath of the crisis?

Friday, 30 October 2015

Learning from Confucius? Lessons from Chinese law for rebuilding trust in the global economy

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Presentation: Nicholas Morris, Balliol College
Blogpost: Alexandra Zeitz, St. Antony’s College

What is the relationship between trust and law? And is it possible that some systems of law are better able to encourage trust than others? In a PEFM seminar in October, Nicholas Morris presented a research project investigating the role of Chinese legal traditions in cultivating trust, examining whether tenets of Chinese law can be adopted globally in order to rebuild trust in the economy, particularly in the financial sector.

Morris’ comparative work on Chinese legal traditions and trustworthy behavior is part of a larger research project, led by Morris together with David Vines, on rebuilding trust in the financial sector in the aftermath of the global financial crisis. Vines and Morris have presented their work at PEFM in the past (see discussions of their presentations in these two previous posts) and the circle of experts and academics linked to PEFM continue to engage with this promising interdisciplinary research endeavor.

In order to function equitably and effectively, financial markets require strong trust among participants. This was Morris’ starting point. Merely relying on individuals’ desire for approbation and maintaining their reputation is insufficient to ensure robust trust. Instead, he argued, moral and normative structures are necessary to set out accepted and approved patterns of behavior.

Friday, 23 October 2015

The Troika – Past and Future? A view from Washington

Alexandra Zeitz, St. Antony’s College, Oxford

Speaker: Russell Kincaid, PEFM Associate, Former senior IMF official
Chair: David Vines, Balliol College, Oxford

In late 2009, when the extent of Greece’s debt problems first became clear, there were no established rules for coordination between the IMF and the Eurozone institutions. While special mechanisms for surveillance of the Eurozone existed, there were no guidelines for lending to countries within the currency area, an event that was considered “extremely unlikely”.

And yet, over the course of the Eurozone crisis, four countries borrowed from the IMF (Cyprus, Greece, Ireland and Portugal). And with Greece’s future still uncertain, the Fund looks set to play a continued role in the Eurozone for the foreseeable future. In October 2015, Russell Kincaid, a former senior IMF official and current PEFM Associate, gave a rich and novel account of the cooperation and coordination among those three institutions that were at the forefront of stemming the crisis from 2009 onwards: the Troika.

Kincaid suggested that the groundwork for coordination among the IMF, the European Commission and the European Central Bank was laid during earlier programs in Hungary (2008), Latvia (2009) and Romania (2009). In these earlier programs, patterns appeared that would also characterize the later dynamics between the later institutions.

Sunday, 18 October 2015

Bringing trust (back) into finance: a research agenda on trustworthiness in the financial sector

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Presentation: Nicholas Morris and David Vines

Late last month a scandal was splashed across the pages of global newspapers: deliberate deception of consumers and regulators, with culpability running all the way up to senior management. For once, however, the scandal was not in the financial sector, but rather in the auto industry. The financial sector is not alone, clearly, in struggling with trustworthiness. And yet there are reasons that the financial sector should be singled out for concerns about trust: the string of scandals and revelations over the last decade speak to the potentials for abuse in opaque markets selling highly complex products.

In 2014, Nicholas Morris and David Vines published Capital Failure: Rebuilding Trust in Financial Services. The book brought together philosophers, economists, lawyers, historians, and financial practitioners to explain the massive violations of trust that had taken place in the financial industry and explore ways in which trust could be rebuilt. A year on, the next challenge has arisen: how to turn ideas about trustworthiness into plans for action? On October 12, Morris and Vines presented their current agenda for research, how they plan to build an evidence base for rebuilding trustworthiness.

Monday, 27 July 2015

How to measure financial integration?

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Speaker: Professor Jennifer Corbett, Australian National University
Chair: Robin McConnachie, Oxford Analytica

Though we know financial integration is deepening, we still know woefully little about how to measure or observe financial integration. In a seminar at PEFM in June, Professor Jennifer Corbett introduced a new research project that uses network analysis to try to address this gap and reveal patterns of financial interconnection.

The motivation for Corbett’s research is clear, given her focus on the East Asian economy and financial system. In the aftermath of the 1997 Asian financial crisis, many regional analysts concluded that the risks had stemmed from dependence on foreign intermediation. The policy prescription was thus to increase regional financial integration, especially in local currencies, with deeper, more tightly integrated markets seen as a driver of stability.

But, as Corbett pointed out in her presentation, the repercussions of tighter integration remain understudied. In part, this is because existing models of financial integration remain simplistic.

Wednesday, 8 July 2015

Truths, partial truths and myths: Inside the Irish ‘bailout’

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Speaker: Patrick Honohan, Governor, Central Bank of Ireland
Chair: David Vines, Balliol College, University of Oxford

For a second year in a row, Ireland will be the fastest growing economy in Europe in 2015. Unemployment remains in the double digits and public debt is high at 115% of GDP, but the country’s recovery from its banking-cum-sovereign debt crisis in 2008 has been remarkable.

It was an honor for PEFM to host Patrick Honohan, Governor of the Central Bank of Ireland in May to hear the story of both the crisis and the ‘bailout’ from the inside.

The recovery package Ireland received from its international creditors remains contentious, its legacy hotly debated in Ireland and across Europe, since Ireland offers possible lessons for the contemporary Greek experience. Governor Honohan waded directly into the debate, structuring his remarks around the truths, partial truths and myths of the Irish bailout.

Did the government’s decision to guarantee Ireland’s banks cripple the Irish economy and directly lead to austerity?

In September 2008, the Irish government issued a broad state guarantee for all Irish banks for a year. The decision remains controversial, with critics claiming that the blanket bank guarantee was responsible plunging the country into recession as sovereign borrowing costs soared, ultimately prompting the international recovery programme and a harsh period of austerity.

Culture as the basis for trust: Rebuilding trust in banks

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Speaker: Peter Montagnon, Associate Director, Institute of Business Ethics
Chair:  Adam Bennett, St. Antony’s College, University of Oxford

Scandals continue to wrack the finance industry. On May 20, six banks were fined $5.6 billion over rigging of the foreign exchange markets. The need to address corporate culture in the finance sector seems clear.

The PEFM series has tackled culture and finance repeatedly over the past year. And the industry itself hasn’t been silent on the question of culture. Barclays, for instance, launched the ‘Transform’ programme to restore trust in the bank and place its values at the centre of its operations. 

But are attempts to reform culture genuine? And can they have an impact? In early May, PEFM hosted Peter Montagnon, Associate Director of the Institute for Business Ethics to discuss rebuilding trust in banks on the basis of cultural change. 

Montagnon’s core point was a simple but important one: culture must be understood as belonging at the heart of business, not a peripheral PR gloss. Culture, in the Institute for Business Ethics framework, is made up of core values, the ethics they imply, and the conduct that follows from those ethics. The values of a company set the tone for the behavior of all employees.

Tuesday, 30 June 2015

Innovations in monetary policy measures: The view from Slovenia

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

On Tuesday May 5, PEFM was treated to a rare and candid insight into non-standard monetary policy measures, as Governor Boštjan Jazbec of the Bank of Slovenia discussed the effectiveness of these policies both at the European and national level.

How to evaluate European experiments with unconventional monetary policy measures? On the one hand, some analysts claim that the European Central Bank’s (ECB) experimentation was too little too late, lagging behind the quantitative easing (QE) programmes of the US Federal Reserve and the Bank of England. And yet, the most far-reaching of these policy measures, the expanded asset purchase program was launched just under four months ago, too little time to evaluate its effectiveness.

Jazbec has been governor of Slovenia’s central bank since July 2013. He insisted that non-standard policy measures in the Eurozone must be understood as a whole package, encompassing a range of temporary measures aimed at shoring up the effectiveness of monetary policy in a context of financial system distress: refinancing operations, currency swap arrangements, collateral requirements, securities purchase programmes, and negative deposit rates and forward guidance.

Friday, 19 June 2015

Too big to jail? Prosecuting financial misconduct in the US

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Speaker: Brandon L. Garrett, Professor of Law, University of Virginia
Chair: Stewart Fleming, Senior Member, St. Antony’s College, University of Oxford

There are several tools for improving conduct in the financial industry: addressing culture and ethics, improving supervisory oversight, tightening regulation. But when a pattern of misconduct has occurred, it becomes time for law enforcement to step in.

Over the last years there have been high profiles cases of investigations and prosecutions into criminal misconduct by banks. This has been most frequent in the US, leading the Financial Times to dub the American Department of Justice “the harshest prosecutor of corporate offences in the world”.

Yet all is often not as it seems with these high-profile cases and penalties, as Brandon Garrett, Professor of Law at the University of Virginia, explained at a PEFM seminar in early June. Garrett recently published a book on the matter, Too Big to Jail: How Prosecutors Compromise with Corporations.

Thursday, 21 May 2015

Jump-starting infrastructure investment in Germany: what role for public private partnerships?

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Speaker: Jeromin Zettelmeyer, Director-General, Economic Policy, Ministry of Economic Affairs and Energy, Germany
Chair: David Vines, Department of Economics, University of Oxford

Germany is considering restructuring how it finances domestic infrastructure. This is of interest to non-Germans too, since infrastructure spending could eat into some of Germany’s 8% current account surplus, helping to correct the macroeconomic imbalances currently plaguing Europe.

But while that might be a pleasant side effect, that’s not the German motivation for this investigation. Instead, Germany wants to rejuvenate its domestic infrastructure, some of which is languishing after municipalities’ spending on construction and maintenance dropped to an all-time low.

In May, Jeromin Zettelmeyer, currently Director-General of the Economic Policy unit at the Ministry of Economic Affairs and Energy in Germany, delivered an excellent PEFM seminar on strategies for fuelling infrastructure investment in Germany.

In the World Economic Forum’s 2014-2015 competitiveness rankings, Germany’s infrastructure ranks 7th globally, ahead of France (8), the UK (10), the USA (12) and Canada (15). But a gap has accumulated between the desired and actual infrastructure stocks: the German infrastructure is in some cases not meeting the public or the economy’s needs.

Thursday, 16 April 2015

Lessons from Ireland’s financial crisis

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

What lessons can be learned from the Irish financial crisis? The question is particularly pressing as negotiations continue over the terms of the Greek bailout. Speaking at PEFM in early March, Ajai Chopra offered an insider’s perspective on the crisis and rescue, and shared words of caution about treating the Irish experience as a model that can be replicated elsewhere. Chopra, now with the Peterson Institute for International Economics, was head of the IMF’s mission in Ireland and had a front seat to the crisis and negotiations over policies for recovery.

Linking corporate governance to financial crisis?

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

Popular accounts of the 2008-2009 financial crisis have squarely blamed the crisis on shoddy corporate governance; newspaper headlines targeted greedy bankers and sloppy executives. Academic analysts have sought to investigatethe relationship between management and financial stability in a more nuanced fashion, studying how corporate governance structures might affect risk-taking, short-sightedness, and other behaviours contributory to crisis. In Kevin James and Dimitrios Tsomocos’ February 26 PEFM presentation and the subsequent discussion, it became clear that economists have yet to settle on an empirical account of exactly how governance matters. While most in the room agreed that corporate governance matters for financial stability and growth, the challenge appears to be how to measure and encourage good corporate governance.

Monday, 23 February 2015

Has financial globalization changed the context for US international policy?

Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)

That financial globalization presents constraints as well as opportunities has been frequently
demonstrated with regard to smaller states. Consider, for example, Greece’s current predicament. But what about consequences of financial integration for the most powerful state in the international system, the United States? On Thursday, February 12, Caroline Atkinson, Deputy Assistant to President Obama and Deputy National Security Advisor for International Economics, presented the view from United States of the globalized financial system. The lecture was dedicated to the memory of former PEFM Director Max Watson, a long-time colleague of Atkinson’s during their time at the IMF, who sadly passed away in December 2014.

What does financial globalization mean for US foreign policy? It means, in large part, that US policy has itself become global. Or, in former Fed Chairman Alan Greenspan’s words, that the US can no longer be ‘an oasis of prosperity’. Drawing on her lengthy previous experience at the IMF, Atkinson offered many historical examples to illustrate the effect of close international financial links on American policy.