With no agreement yet reached between Greece and its creditors, there are doubts over whether the country will be able to make a scheduled debt repayment to the International Monetary Fund in early June. In an interview with EUROPP’s editor Stuart Brown, Barry Eichengreen discusses whether a compromise is still possible, what a default would mean for the country, and how well Europe is prepared for a potential Greek exit from the euro.

We present updated estimates of central bank transparency for 100 countries up through 2006 and use them to analyze both the determinants and consequences of monetary policy transparency in an integrated econometric framework. We establish that there has been significant movement in the direction of greater central bank transparency in recent years. Transparent monetary policy arrangements are more likely to be found in countries with strong and stable political institutions. They are more likely to be found in democracies, with their culture of transparency. Using these political determinants as instruments for transparency, we show that more transparency in monetary policy operating procedures is associated with less inflation variability, though not also with less inflation persistence.

The dollar's dominance of international transactions and role as a reserve currency is an exorbitant privilege that is a burden as well as a blessing for the US. It achieved this dominance early in the twentieth century, quite quickly in fact; it may also see that status change equally quickly were the world to move to a multipolar system of currencies. Among the most likely candidates for reserve currencies in such a world are the dollar, the euro, and the Chinese renminbi, Barry Eichengreen explained in his Butlin Lecture earlier in 2011.

We investigate whether the determinants of current account balances changed in the run-up to the 2009 financial crisis. Although changes in the budget balance appear to be an important factor for advanced current account deficit countries such as the USA, the effect of the ‘saving glut variables’, that is financial development and openness and legal development, has been relatively stable for emerging market countries, suggesting that those factors cannot explain the bulk of current account movements in recent years. We also find a structural break in current account behavior in 2006–8, in emerging market economies in particular, and attribute the anomalous behavior of precrisis current account balances to financial exuberance as opposed to the nature of the fiscal and monetary policy stance. Our projections suggest that absent drastic policy changes, the imbalances of the USA and China are unlikely to disappear.

Abstract Conventional wisdom has it that network effects are strong in markets for homogenous goods, leading to the dominance of one settlement currency in such markets. The dominance of the US dollar in global oil markets is said to epitomize this phenomenon. We question this presumption with evidence for earlier periods showing that several national currencies have simultaneously played substantial roles in global oil markets. European oil import payments before and after World War II were split between the dollar and non‐dollar currencies, mainly sterling. Differences in use of the dollar across countries were associated with trade linkages with the United States and the size of the importing country. That several national currencies could simultaneously play a role in international oil settlements suggests that a shift from the current dollar‐based system toward a multipolar system in the period ahead is not impossible.

The Global Credit Crisis of 2008-09 has underscored the urgency of reforming the international financial architecture. While a number of short-term reforms are already in train, this paper contemplates more ambitious reforms of the international financial architecture that might be implemented over the next ten years. It proposes routinizing the expansion of IMF quotas and the conduct of exchange rate surveillance. It contemplates an expanded role for the SDR in international transactions, which would require someone-like the IMF-to act as market maker. It considers proposals for reimposing Glass-Steagall-like restrictions on commercial and investment banking, something that will have to be coordinated internationally to be feasible. Other proposals would require banks to purchase capital insurance; here the question is who would be on the other side of the market. Again there is likely to be a role for the IMF. Then there are arguments for a new agency or institution to deal with cross-border bank insolvencies. Any such entity will require staff support, which might plausibly come from the Fund. Finally, some insist that international colleges of regulators are not enough-that it is desirable to create a World Financial Organization (WFO) with the power to sanction members whose national regulatory policies are not up to international standards. A WFO will similarly need staff support, of which the IMF would be one possible source. All this of course presupposes meaningful IMF governance reform so that the institution has the legitimacy and efficiency to assume these additional responsibilities. The paper therefore concludes with some conventional and unconventional proposals for IMF governance reform.

The recent reversal of capital flows to
\n emerging markets has pointed up the continuing relevance of
\n the sudden stop problem. This paper analyzes the sudden
\n stops in capital flows to emerging markets since 1991. It
\n shows that the frequency and duration of sudden stops have
\n remained largely unchanged, but that the relative importance
\n of different factors in their incidence has changed. In
\n particular, global factors appear to have become more
\n important relative to country-specific characteristics and
\n policies. Sudden stops now tend to affect different parts of
\n the world simultaneously rather than bunching regionally.
\n Stronger macroeconomic and financial frameworks have allowed
\n policy makers to respond more flexibly, but these more
\n flexible responses have not guaranteed insulation or
\n mitigated the impact of the phenomenon. These findings
\n suggest that the challenge of understanding and coping with
\n capital-flow volatility is far from fully met.

We examine the impact of the Great Depression on the share of votes for right-wing extremists in elections in the 1920s and 1930s. We confirm the existence of a link between political extremism and economic hard times as captured by growth or contraction of the economy. What mattered was not simply growth at the time of the election, but cumulative growth performance. The impact was greatest in countries with relatively short histories of democracy, with electoral systems that created low hurdles to parliamentary representation, and which had been on the losing side in World War I.

Productivity growth is slowing around the world. In 2015, the growth of total factor productivity (TFP) hovered around zero for the fourth straight year, down from 1 percent in 1996–2006 and 0.5 percent in 2007–12. In this paper we identify previous episodes of sharp and sustained decelerations in TFP growth using data for a large sample of countries and years. TFP slumps are ubiquitous: We find as many as 77 such episodes, depending on definition, in low-, middle- and high-income countries. Low levels of educational attainment and unusually high investment rates are among the significant country-specific correlates of TFP slumps, and energy-price shocks are among the significant global factors.

Global industrial production continues to recover – something for which policy deserves considerable credit (as we have argued on this site, see Almunia et al 2009 and O’Rourke and Eichengreen 2009). But before indulging in selfcongratulation, policymakers should note that the level of industrial production is still 6% below its previous peak (figure 1). (At the trough it was 13% below its previous peak.) It follows that considerable excess capacity remains in a number of important economies. Exiting now from policies of stimulus in those countries would therefore be premature.