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ECONOMIST Tue, 08 May 2012 16:40:10 GMT
TEN YEARS ago Romano Prodi, the-then president of the European Commission, created a stink when he declared that the euro zone’s budget rules were “stupid” because they were too rigid. But with the onset of the euro zone’s debt crisis in 2010 the response has been to try to make them even stiffer. At Germany's insistence, the euro zone first gave the commission more powers to monitor and enforce deficit limits, including the threat of “semi-automatic” sanctions for rule-breakers. And second, almost all members of the European Union were dragooned into signing up to the fiscal compact, a new treaty requiring then to adopt binding balanced-budget rules, preferably in their constitutions. The election of a Socialist, François Hollande, as France’s new president, is causing a rethink in Brussels. There is certainly a change of rhetoric about a "growth compact". But in substance, the change may be rather modest. To begin with, Germany says the text of the fiscal compact is non-negotiable, a position that Mr Hollande's lieutenants seem to understand. Instead they want some form of programme to promote growth to be created alongside. Whether this takes the form of a formal protocol attached to the treaty (which must also be ratified), or a looser agreement, is yet to be decided. But with parts of Europe back in recession, leaders agree that they have to be seen to do ...
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ECONOMIST Thu, 03 May 2012 15:00:45 GMT
“DON’T save,” say the governments of rich countries as they worry about demand in economies that are hovering between sluggish recovery and recession. Their injunctions are aided and abetted by central banks, which are keeping interest rates negative in real terms (ie, after inflation), a policy that transfers wealth from savers to borrowers.“Save,” say those same governments as they contemplate the ageing of their populations and the potential strain on the public purse. As encouragement, they offer tax breaks to those who put money aside to fund their retirement.Pension funds are caught in the middle of these contradictory messages, and they are suffering. In Britain the Pensions Regulator, which oversees corporate schemes, recently relaxed its guidelines to help funds that are heavily in deficit.The same policies that have forced down government-bond yields have forced up the cost of providing pensions. Offering a pension is like incurring a debt, since it involves the promise of a series of future payments. When pension funds calculate the value of their liabilities, they therefore use a bond yield to...
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| Full List of Debt articles |
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