Ashoka Mody is Charles and Marie Robertson Visiting Professor in International Economic Policy at the Woodrow Wilson School, Princeton University. He is author of EuroTragedy: A Drama in Nine Acts. Previously, Professor Mody was Deputy Director in the International Monetary Fund’s Research and European Departments. He has worked at the World Bank, AT&T’s Bell Laboratories, and the Centre for Development Studies, Trivandrum. He has been a Visiting Professor at the University of Pennsylvania’s Wharton School and is a non-resident fellow at the Center for Financial Studies, Frankfurt. He received his Ph.D. in Economics from Boston University.
Ashoka Mody
Charles and Marie Robertson Visiting Professor in International Economic Policy
409 Robertson Hall, Princeton University
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EuroTragedy
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@SVR_Wirtschaft can save itself trouble. I will be happy to write next year's report now.😀 6/6.
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A eurozone fiscal capacity is a terrible idea. It would lead to one-way transfers. Italy and Spain would have received large permanent transfers from common unemployment insurance. In any case, it is impossible to judge if a country is in recession and needs fiscal transfers. 5/6
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"National fiscal policies have to perform an important stabilising function." Thus, if countries fall into recession, they should use "national fiscal policy." Italy should be stimulating its economy now? 4/6
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Hence, the ECB must end its net asset purchases and raise interest rates. Also, "It is now time," to plan for reducing ECB's balance sheet. Such tightening would "provide greater scope for dealing with future crises." Hence, tighten, trigger a crisis,, and then deal with it. 3/6
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"Inflation in the euro area is approaching the target set by the European Central Bank (ECB)." Core inflation--the best predictor of medium-term inflation--is 1%, where it has been for the past several years. The target is 2%. 2/6