Tag Archives: Economics in Brief

(The recent) elections: Democracy and the fiscal compact

Professor Francesco Daveri is a Professor of Economics at the University of Parma. He also teaches Macroeconomics in the MBA Program of Bocconi University in Milan, where he also taught Applied Growth in the Master in Economics and the PhD programme.

This article is republished from and in accordance with the policy of  “VoxEU.org

Voters in France, Greece, Italy, and Germany rewarded politicians who opposed austerity. This column argues that attempts to fulfill campaign promises will run up against a hard constraint. The countries whose voters are calling for looser fiscal policies are those where public spending rose fastest since the birth of the euro. The only way out of today’s difficulties is to use the flexibility already in the fiscal compact and continue with bold implementation of the economic reforms that are under way.

Sunday 6 May 2012 was Europe’s “Super Sunday” of elections:

  • The French presidential election gave the victory to Francois Hollande.
  • Parliamentary elections have left Greece without a coalition capable of governing.
  • There were local elections in Germany and Italy.

All these showed similar results.

With Europe in recession, voters rewarded those who oppose budget cuts. But the turnaround of budgetary policies advocated by the majority of voters runs up against an important constraint. The nations where voters demand lower taxes are those in which public spending has risen more in the last ten years. The only way out of today’s difficulties is the bold implementation of economic reforms. This has started in many countries, but it must continue.

Continue reading (The recent) elections: Democracy and the fiscal compact

Understanding Derivatives: Beyond Good and Evil

H. Nejat Seyhun, contributing writer to The BusinessThinker magazine, is the Jerome B. & Eilene M. York Professor of Business Administration and professor of finance, Ross School of Business, University of Michigan. He is an internationally  recognized authority on financial issues and Derivatives.

Derivatives are often viewed as mysterious and dangerous instruments and they are much maligned these days.  The most famous investor, Warren Buffet, referred to derivatives in Berkshire Hathaway’s 2002 Annual Report as ‘I view derivatives as time bombs, both for the parties that deal in them and the economic system.’ Buffet continued:  ‘The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.’  These are strong words from a wise man.  Since we cannot put the genie back in the bottle, we have no choice but to deal with the genie. Continue reading Understanding Derivatives: Beyond Good and Evil