The Week That Was in Europe

Join us on as we delve into the economic consequences of Europe's evolving geopolitical landscape with our guest Moritz Schularick, President of the Kiel Institute for the World Economy. Together, we tackle the pressing issues arising from an imperialistic Russia, uncertain US commitments, and China's strategic maneuvers. Tune in to understand the shifts in global order and what these could mean for Europe's economic and political strategies.

Germany's industrial powerhouse has long been the backbone of Europe's economy. But after years of steady growth, manufacturing activity has been on a downward trajectory since 2018. Could this decline suddenly accelerate due to "cluster effects" and local economies of scale unraveling? In this episode, we dive into the forces shaping Germany's industrial slowdown and explore whether policy interventions could halt or even reverse the trend. We ask how insights from economic theory help us make sense of these cascading risks. Join us as we discuss these pressing questions, drawing also on the academic work by David Baqaee, whose paper "Cascading Failures in Production Networks" (Econometrica, 2018) sheds light on how production networks can amplify economic shocks.

We discuss the effects of tariffs on consumers and producers, drawing on evidence from the tariff war during the first Trump administration. The empirical evidence shows that import tariffs led to increases in domestic prices, reductions in import quantities and a reduction in product variety. This coupled with additional adverse effects on global supply chains and retaliatory tariffs makes it hard to understand how the U.S. can gain in economic terms from tariffs. We draw our insights from this academic paper: Amiti, Weinstein, Redding: "The Impact of the 2018 Tariffs on Prices and Welfare" https://www.aeaweb.org/articles?id=10.1257/jep.33.4.187

Join our discussion of the ECB's decisions and communication following its rate setting meeting on January 30, 2025 and learn about the outlook for Euro Area growth, inflation and interest rates.

In this episode, we welcome Clemens Fuest, President of Germany's Ifo Institute, for an in-depth discussion on economic challenges and the urgent reforms needed to get Germany back on track. We dissect (i) what's behind Germany's economic underperformance compared to its Euro Area peers, (ii) whether the upcoming elections deliver a chance for economic recovery, and (iii) what measures might be best suited to achieve a growth rebound.

Join us as we discuss with Dan Breznitz from the University of Toronto the difference between invention & innovation, the various stages of innovation and what different stages imply for the distribution of income across society. We also look at the role that innovation agencies and universities play in fostering innovation and how the divide between China and the West will affect the innovation landscape.

Join us as we discuss with Professor Gabriel Felbermayr, President of the Austrian Institute of Economic Research, the forces reshaping the intricate web of global value chains. Geopolitical tensions, mounting tarrifs and regulatory crackdowns put pressure on global economic exchange and Gabriel shares his expert insights on what the future holds and what it means for businesses and economies worldwide.

In this episode, Dirk Schumacher sits down with Hadrien Camatte from Natixis to dive deep into the fallout of the Barnier government's collapse. - Can President Macron cobble together a new government? - What were Marine Le Pen's motivations for toppling Barnier, and what does it mean for France's political future? - As parliamentary elections loom in mid-2025, will the country see a stable majority—or more uncertainty? - How would a provisional 2025 budget shape France's fiscal path and consolidation efforts? - Will political instability rattle rating agencies—and could that impact bond yields?

Dive into the turbulent world of German politics as we unpack the dramatic collapse of the ruling coalition and what lies ahead in the upcoming elections. While disagreements over economic policies led to the coalition's downfall, the challenges remain unchanged: high corporate taxes, surging labor costs, and stifling bureaucratic inefficiencies. What will it take for Germany's next government to reignite growth and tackle these pressing issues? Join us to find out.

Dive into the turbulent world of German politics as we unpack the dramatic collapse of the ruling coalition and what lies ahead in the upcoming elections. While disagreements over economic policies led to the coalition's downfall, the challenges remain unchanged: high corporate taxes, surging labor costs, and stifling bureaucratic inefficiencies. What will it take for Germany's next government to reignite growth and tackle these pressing issues? Join us to find out.

In this episode, we explore the inflation outlook for the Euro Area, honing in on whether medium-term inflation could once again fall short of the ECB's target, as it did before the pandemic. While there's little evidence in current data to suggest an imminent undershoot—thanks to robust wage growth, persistent service price inflation, and ample room for monetary policy easing—some of these factors may ease in the coming year. This makes it crucial to keep a close eye on potential risks of undershooting.

Join us this week as we tackle a pressing issue facing the Euro Area: fiscal consolidation. With debt-to-GDP ratios near historic highs in many economies, reducing deficits is critical—but not without risks to economic growth. Our special guest, Roel Beetsma, Professor of Macroeconomics at the University of Amsterdam, offers his insights on questions like: Is there a way to cut deficits without hurting growth? How does population aging impact public budgets and political pressures? What new strains are digitalization and the green transition placing on Europe's fiscal future? And have we reached a breaking point in Europe's fiscal stability culture? Tune in for an in-depth discussion on these challenges and the difficult choices European policymakers are grappling with.

Join us to dive into the challenges and transitions facing Europe's car industry. Together with Valentin Mory, mobility expert from Natixis, we explore the shifting landscape of electric vehicles (EVs), China's lead in battery technology, and the future of internal combustion engines. Will Europe keep pace with China's rapid electrification? Can car manufacturers overcome regulatory hurdles and avoid costly fines? And what's the real impact of upcoming tariffs on Chinese car imports? Tune in for an in-depth analysis of the evolving auto industry, the latest on EV penetration rates, and what's driving change across the globe.

Have you ever wondered why Europe's economic growth seems stuck in slow motion? Join us as we explore the mystery of Europe's lagging economic growth. We break down the complex factors at play from sluggish investment to slow productivity growth, discuss the struggle to keep pace with the US tech boom, and Europe's shortcomings in fostering innovation, particularly in the Information and Communication Technology sector. Tune in as we dissect the numbers and analyze the policy challenges ahead for Europe.

Join Dirk Schumacher and Klaus Adam on "The Week That Was in Europe" as they welcome Professor Andrei Levchenko, a leading expert on international trade, to discuss new insights into the gains from international trade, the benefits & drawbacks of tariffs + export subsidies, and international technology transfer. Tune in to "The Week That Was in Europe" for an insightful discussion on the ever-evolving landscape of international trade, featuring expert analysis and real-world examples.

We provide our perspective on the ECB's policy meeting: markets expected the ECB's rate cut, the real focus was on the path for interest rates going forward.

In this week's episode of The Week That Was in Europe, hosts Dirk Schumacher and Klaus Adam return from their summer break to analyze Germany's economic underperformance. Why has Europe's largest economy stagnated post-pandemic, while its neighbors surge ahead? From sluggish consumer spending to declining investments and rising energy costs, they explore the driving factors behind Germany's struggles. They also discuss the "second China shock," the challenges of transitioning to electric vehicles, and the looming risks of de-industrialization. Tune in to understand the forces shaping Germany's economic future.

Today, we dive into the aftermath of the French parliamentary elections – a pivotal event that has captured the attention of financial markets and the broader public across Europe. To help us navigate the complexities of the outcome and the future implications, we have a special guest, Hadrien Camatte. Hadrien is an expert on the French economy at Natixis and has been meticulously following every twist and turn of this election. Before joining Natixis, Hadrien honed his expertise at a central bank in Paris and the French Treasury, where he held various positions.

We dive into the transformative world of Artificial Intelligence and its impact on the financial sector and central banks. AI's rapid advancements and diverse applications are creating a veritable AI bonanza, reshaping the economy and financial systems globally. Join us as we explore these changes with Hyun Shin from the Bank for International Settlements (BIS). Hyun Shin co-leads the Monetary and Economics Department at BIS and is a member of its Executive Committee. With a distinguished academic career, including positions at Princeton, the LSE, and Oxford, Hyun provides unique insights into the future of AI in finance. Tune in for an enlightening conversation that uncovers the implications of AI as a general-purpose technology and its potential to transform central banking around the world. Don't miss this episode—subscribe now and stay ahead in the AI revolution!

In today's epsiode, we dive deep into the economic dynamics shaping the Eurozone focusing on a critical issue: inflation expectations. We uncover what financial markets can reveal about the of future inflation and also discuss evidence coming from investor and household surveys. We're thrilled to have Ricardo Reis join us today. Ricardo is the A.W. Phillips Professor at the London School of Economics and an esteemed expert on inflation expectations and inflation-linked financial instruments.

In today's episode we dive into the complex world of state-based international lending. Recent years have seen a resurgence in cross-border state lending, highlighted by the significant financial support Ukraine has received from Western countries and China's growing role as a global lender. Additionally, central bank swap lines have become a common feature after the 2007/08 financial crisis and the COVID-19 pandemic. Joining us is Christoph Trebesch from the Kiel Institute. Christoph is the Head of the Research Center on International Finance and Macroeconomics and a Professor of Macroeconomics at Kiel University. He will share his expert insights on this critical topic. Don't miss it!

Join us today as we delve into the results of the European elections and their far-reaching consequences. We have the pleasure of speaking with Sophia Russack from the Centre of European Policy Studies (CEPS) in Brussels. Sophia is an expert in European politics and policy making, making her the perfect guest to shed light on the European election outcomes and their implications. Don't miss this insightful discussion! Tune in now!

The ECB has cut rates by 0.25% in its June meeting for the first time in many years. This happened despite forecasts of inflation having been revised slightly upwards. We review the reasoning behing this decision and the outlook for rates going forward.

Join us for an insightful discussion with Roman Arjona, Chief Economist at the European Commission's Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs. We'll delve into the current state and future of Europe's Single Market, exploring how it compares to the US and the challenges it faces in a changing global trade landscape. Roman Arjona, also Vice-Chair of the OECD's Committee for Industry, Innovation and Entrepreneurship, brings his expertise to shed light on these critical issues.

Join us as we discuss the outlook for ECB policy rates for the upcoming June policy meeting and thereafter. We put perspective on recent Euro Area growth numbers, consumer spending dynamics, and the inflation outlook. While a June rate cut looks likely, uncertainty about policy rates beyond June appears substantial. Currently available data suggest, however, a sequence of rate cuts.

Join our interesting discussion with Prof. Thiess Buettner, Chairman of the Independent Advisory Board of the German Stability Council, about fiscal policy challenges in Germany.

Countries across Europe and the United States have witnessed a significant surge in government debt and interest rates in the aftermath of the Covid-19 pandemic. Join us as we engage in a conversation with Vítor Gaspar, Director of the IMF's Fiscal Affairs Department, about possible stability risks confronting government finances and the need to manage these risks.

The neutral rate is relevant for understaning the stance of monetary policy and for the fiscal outlook, as it determines the financing conditions for government debt. We explain how the neutral rate is defined, discuss its economic determinants and provide estimates of how it has changed since the pre-pandemic period. Increased government debt supply appears to have excerted substantial upward pressure on the neutral rate. We make reference to the following papers: Thiago Ferreira and Samer Shousha titled “The supply of safe assets and global interest rates” , Journal of International Economics, 2023. Atif Mian, Ludwig Straub, and Amir Sufi. titled “What explains the decline in r*? Rising income inequality versus demographic shifts.” Proceedings of the Jackson Hole Symposium, 2021.

We review the fiscal position of France, Germany, Italy and Spain, discuss the need for consolidation and how it could be implemented with minimal harm to output.

Provided wage growth moderates and inflation develops as expected, the ECB will start cutting interest rates in June. We discuss the uncertainties around this outlook and recent headwinds on the inflation front.

We discuss with Prof. Harald Fadinger (University of Mannheim) how the EU taxes the carbon content of imported goods via its Carbon Border Adjustment Mechanism (CBAM). We critically review the effectivenes of CBAM to prevent "carbon leakage", i.e., the international reallocation of production to locations with low carbon prices, and its effect on the international competitiveness of EU firms. CBAM appears to perform badly on both of these and a number of other fronts. We also discuss alternative approaches for international carbon price adjustments, partly based on research by Harald and his coauthors: "Designing Effective Carbon Border Adjustment with Minimal Information Requirements. Theory and Empirics", by A. Campolmi, H. Fadinger, C. Forlati, S. Stillger and U. Wagner.

We discuss with Veronika Grimm (German Council of Economic Experts) about lifting Germany's long-run growth potential. We focus on measures that increase labor supply, human capital formation and the role of long-run electricity prices.

The @ecb is getting close to cutting interest rates: it signaled following it March 7 Governing Council Meeting its readiness to start cutting rates in June, if everything goes according to plan.

We talk about recent trends and future challenges for productivity growth in the French economy. Our guest, Alain Durré, is Head of the Macroeconomics and Europe Division at the Bureau of the French Prime Minister and Rapporteur Général of the French National Productivity Board.

Euro Area inflation fell like a rock: from the peak of 10.6%, reached in October 2022, it dropped to levels below 3% a year later. We analyze how much of this decline can be attributed to policy tightening by the ECB. We find that the direct effect of ECB policy is likely small. ECB policy may have had important indirect effecta via anchoring inflation expectations, but quantifying this effect is difficult. The podcast makes reference Speech by ECB's Philip Lane, The ECB's hiking cycle: an interim assesssment, https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230216_1~f8cf2cd689.en.html Adam Shapiro, Decomposing Supply and Demand Driven Inflation, Federal Reserve Bank of San Fransciso, https://www.frbsf.org/research-and-insights/publications/working-papers/2022/10/decomposing-supply-and-demand-driven-inflation/

We present the main academic insights about how government debt should evolve over time, if the government seeks to maximize social welfare. We discuss (i) how to deal with positive/negative expenditure surprises, (ii) how refinancing risk, due to interest rate risk, impacts optimal government debt dynamics, and (iii) the optimal long-run level of government debt. The academic papers we mention are: Barro, R. J., On the Determination of Public Debt, Journal of Political Economy, 1979, https://www.journals.uchicago.edu/doi/abs/10.1086/260807 Aiyagari, S.R., A. Marcet, T.J. Sargent, J. Seppälä, Optimal Taxation without State-Contingent Debt, Journal of Political Economy, 2002, https://doi.org/10.1086/343744 Adam, K., Government Debt and Optimal Monetary and Fiscal Policy, European Economic Review, 2011, https://doi.org/10.1016/j.euroecorev.2010.11.003 Adam, K. and M. Grill, Optimal Sovereign Default, American Economic Journal: Macroeconomics, 2017, https://www.jstor.org/stable/pdf/26156466.pdf

We talk with Bernard Dadah (Head of Commodity Research, Natixis) about critical minerals. What are these? How big of market do they have? Who mines and refines them? What can the EU's Critical Raw Materials Act (CRMA) achieve?

We discuss with the ECB's Director General for Economics Oscar Arce about the Euro Area's macroeconomic outlook, the ECB's past forecast errors, the way forecasts are produced at the ECB and the difficulties associated with producing macroeconomic projections. A true tour de force through the topic!

We review the ECB's assessement of the economic situation & the outlook for policy rates going forward.

We take stock of Germany's recent underperformance relative to its European peers and analyze its sources. We identify (real) household income dynamics as one of the main drivers.

We review and critically discuss the decisions taken by the ECB after the suprisingly benign November inflation numbers.

We discuss how various forms of uncertainty affect the conduct of optimal monetary policy. We provide a summary of key insights from the academic literature, some of which are quite surprising. We explain how to make sense of them. We make reference to the following academic papers: Indicator variables for optimal policy, LEO Svensson, M Woodford - Journal of Monetary Economics, 2003 https://www.sciencedirect.com/science/article/pii/S0304393203000308 Indicator variables for optimal policy under asymmetric information, LEO Svensson, M Woodford, Journal of Economic Dynamics and Control Volume 28, Issue 4, January 2004, Pages 661-690 https://www.sciencedirect.com/science/article/pii/S0165188903000393 The learning cost of interest rate reversals, Martin Ellison, Journal of Monetary Economics, Volume 53, Issue 8, November 2006, Pages 1895-1907 https://www.sciencedirect.com/science/article/pii/S0304393206001498

We discuss with Professor Lars Feld (Advisor to the German Finance Minister) about what led to the Constitutional Court Ruling on the Debt Brake, what it implies for German federal budget and the Green Transition going forward.

Euro Area labour markets show astonishing resilience: unemployment rates are hovering around record lows despite serious adverse shocks having hit the Euro Area economy. We explore different explanation for this pheonmon and discuss whether it can last.

In October 2023, the European Council agreed on a reform of the European electricity market. We shed light on what went wrong in electricity markets in the past & critically review the main elements of the reform, together with Professor Andreas Loeschel, Chair of Resource Economics and Sustainability at the Ruhr University, Bochum, and Chairman of the German Governments' Expert Commission for Monitoring the Energy Transformation.

We discuss with Prof. Jean-Marie Meier (Wharton School) about technology transfer to China: (i) what coercive methods does China deploy to force a transfer?, (ii) how do Western CEOs' incentives contribute to technology transfer? Based on Jean-Marie's latest research finding, we provide surprising insights, in particular on the latter mechanism. Jean-Marie Meier's research paper is available here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3949536#new_tab

We discuss the decisions taken by the ECB Governing Council and provide perspective on them.

We discuss with Guntram Wolff, CEO of the German Council on Foreign Relations (DGAP), about the prospects for a European Geopolitical Strategy. What would a Geopolitical Strategy consist of? What could be its guiding principles? How could it be implemented?

We discuss with Tobias Linzert about central bank frameworks for liquidity provision, in particular, how they changed following the financial crisis and how they might evolve going forward. Tobias is Adviser and Analytical Coordinator at the ECB's Directorate General Market Operations.

We discuss the possible factors driving the recent strong increase in long-term government bond yields in the Euro Area. We disucss how monetary factors, fiscal developments and gobal factors have influenced bond yields dynamics.

Economists have a long tradition of opposing industrial policies measures, but advanced economies often use industrial policies to influence economic outcomes. We discuss with Professor Nathan Lane from Oxford University about what is known about the effects of industrial policies, when they work and when not.