Euro zone: in the grip of 'secular stagnation'?

N°28 MARCH 2015

ECONOTE Societe Generale

Economic and sectoral studies department

EURO ZONE: IN THE GRIP OF ‘SECULAR STAGNATION’? The euro zone economy has weathered six years since the beginning

of the Great Recession without even remotely approaching a full recovery,

prompting concerns that Europe may face a Japan-style lost decade (now in

its 23rd year). Behind the euro zone’s economic downturn is a historically

unprecedented collapse in investment.

While the economic outlook for 2015 and 2016 is improving, mainly

due to lower oil prices, the economy is expected at best to return to its pre-

crisis potential growth rate in the medium term without catch-up to make up

for output losses since 2008.

The secular stagnation hypothesis is the claim that underlying

changes in saving and investment fundamentals may cause a chronic

shortfall in aggregate demand by lowering the 'natural' rate of interest - i.e.

the interest rate consistent with full employment - below zero. The fall of the

natural interest rate into negative territory is, however, viewed as a key

obstacle to recovery as it prevents monetary policy from being effective,

given the zero lower bound on nominal interest rates.

Consequently, the actual real rate of interest remains persistently

above the natural rate, causing chronically depressed investment demand

that plunges the economy into a low growth equilibrium trap. According to

this hypothesis, remedies include higher inflation and fiscal stimulus. While

the vast bond-buying program undertaken by the European Central Bank is

intended to raise inflation expectations, the Juncker plan aims at boosting

public and private investment.

Marie-Hélène DUPRAT +33 1 42 14 16 04

Marie-

[email protected]

ECONOTE | N°28 – MARCH 2015

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In his November 2013 speech to the IMF Forum,

Lawrence Summers argued that the US economy may

be suffering from 'secular stagnation' caused by a

secular deficiency in aggregate demand1. The term was

coined in the late 1930s by the economist Alvin

Hansen, who suggested that the Great Depression

might herald a new era of persistently depressed

economy2. Back then, Hansen pinpointed demographic

factors as a major cause of secular stagnation: a

declining birth rate, he argued, meant low investment

demand that was causing an oversupply of savings. In

the years that followed WW2, the secular stagnation

hypothesis lost its relevance because of the baby

boom which altered the population dynamics and the

massive increase in government spending which

effectively put an end to concerns about insufficient

demand.

But the notion of secular stagnation has returned to

centre stage in the academic debate, as six years after

the Great Recession of 2008-9, growth in many

developed economies remains exceptionally low. So

could the advanced world fall victim to the same type

of economic malaise that has plagued Japan for the

last two decades3? For some, the world’s major

developed economies are suffering from a fairly

conventional recovery, albeit slower than usual, but

with normal growth resuming. For others, advanced

economies are facing structural changes that are

making sluggish growth the norm, rather than a

1 Summers, Lawrence (2013), “IMF Economic Forum: Policy Responses to Crises”, Speech delivered at the IMF Annual Research Conference, November 8.

2 See Hansen, Alvin (1939) "Economic progress and declining population growth", American Economic Review, 29(1): 1-15.

3 The bursting of Japan’s huge bubble in equities and real estate in 1989-91 left behind an overhang of debt on the country’s private sector balance sheets, which set the stage for a dramatic reduction in investment as corporations gradually paid down their debts. This exacerbated the underlying shortfall in consumption, leading to more than a decade of virtually no economic growth (Japan’s so-called 'lost decade').

temporary phenomenon4. While most discussion on

whether major advanced economies are facing secular

stagnation has so far focused on the US, the American

recovery compares favourably to the economic

recoveries in almost all other developed nations,

especially in Europe.

This paper argues that the euro zone may be highly

susceptible to risks of secular stagnation. This is mainly

because of ongoing private sector deleveraging,

combined with a declining working-age population,

which acts as a driving force behind a sustained

downtrend in aggregate demand that may require, if it

is to be countered, a negative real rate of interest.

Moreover, and critically, the euro zone appears little

equipped to address the secular stagnation challenge,

owing to political and institutional considerations. All of

this suggests that we cannot exclude for the euro zone

a long period of slow growth and higher-than-normal

unemployment.

CRISIS, POST-CRISIS: NEW ERA IN THE DEVELOPED WORLD

AN EXCEPTIONALLY SLOW RECOVERY

The Great Recession of 2008-9 was by far the most

severe economic downturn experienced by advanced

economies since the Great Depression of the 1930s,

but the resumption of growth has proven to be the

worst since the 1930s. No advanced economy has

experienced a V-shaped recovery from the Great

Recession, as might have been expected after a

downturn of such magnitude.

4 See Summers, Lawrence (2014), “US economic prospects: Secular stagnation, hysteresis, and the zero lower bound”, Business Economics, 49(2): 65-73 National Association for Business Economics; Krugman, Paul (2013), “Secular stagnation, coalmines, bubbles and Larry Summers”, The New York Times blog, November 16; Krugman, Paul (2014), “Three charts on secular stagnation”, The New York Times blog, May 7; Krugman, Paul (2014), “Secular stagnation in the euro area”, The New York Times blog, May 17; Teulings, Coen and Richard Baldwin (2014), “Secular stagnation: Facts, causes, and cures”, Vox eBook, September 10; De Grauwe, Paul (2015), “Secular stagnation in the euro zone”, VoxEU.org, January 30.


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Despite near-zero policy interest rates, unconventional

monetary policies and rising public debt, post-financial

crisis growth in the major developed economies has

been unusually sluggish, falling far short of longer-term

growth trends - gross domestic product today remains

well below its pre-crisis peak in many advanced

economies. This abnormally slow recovery has to be

contrasted with the regular recovery phase of the

business cycle, in which the economy is typically back

to where it started within six months, and catches up to

its longer-term trend within a year.

THE UNITED STATES HAS FARED BETTER

After a brief, below-average initial recovery in late 2009,

the US economy has experienced three economic

relapses (slowing or negative GDP growth): in early

2011, in late 2012, and in the first quarter of 2014 when

it dipped into negative territory (-2.9%). In the years

2009-2013, America’s average economic growth rate

has been less than 2% a year, that is, about half its

historical norm. The US recovery, however,

strengthened in the second and third quarters of 2014,

when the economy expanded at its fastest pace in

more than a decade, with a combined 4.25%

annualised pace. The unemployment rate fell to 5.5%

in February - its lowest point since 2008.

Since the global financial crisis, Europe and Japan

have consistently fared noticeably worse than the US,

with shorter, shallower recoveries followed by more

pronounced economic relapses. After plummeting by

more than 15% in 2008-09, the Japanese economy

contracted again in 2010-11, yet again in 2012, and

then once again in the second quarter of 2014 when it

shrank by 7.1% in the wake of the sales tax hike.

Likewise, the euro zone saw a deep recession in 2008-

09, it then experienced an historically weak 0.5%

economic recovery in 2009-10, fell back into recession

in the subsequent 18 months driven by the downturn in

the peripheral economies, only to grow by a tepid 0.2%

in 2013-14.

THE GREAT RECESSION IN THE EUROPEAN

PERIPHERY

The recession which affected the periphery of the

European Union is eerily reminiscent of the Great

Depression of the 1930s.

The economic damage inflicted by the recession in the

southern European countries (including Ireland) has

been so massive and long-lasting, especially on the

labour markets, that it has been likened to that

experienced by the US during the Great Depression of


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the 1930s5. Unemployment remains today at record

highs in these countries, especially among young

people (e.g. over 50% in Spain).

By the third quarter of 2014, real gross domestic

product was still well below pre-crisis levels in all the

peripheral countries.

PERSISTENT OUTPUT LOSSES RELATIVE TO PRE-CRISIS IN THE EURO ZONE

As 2015 begins, the USA may be strengthening its

economic footing, but the outlook for the euro zone

remains adversely affected by persistent structural

weaknesses. The euro zone is set to experience a

cyclical recovery in coming quarters, due mainly to the

fall in oil prices and the depreciation of the euro, but as

long as investment will remain wholly inadequate, a

full-blown, self-sustainable recovery will be out of

reach.

5 Between 1929 and 1933, US output fell by one-third, while the unemployment rate soared to 25% of the labour force.

SUB-PAR GROWTH AS THE 'NEW NORMAL'?

The reasons why the recovery from the global financial

crisis has been so exceptionally sluggish remain a

source of considerable controversy6. Explanatory

theories are many, ranging from declining growth in

aggregate supply resulting from a slowing pace of

innovation7, to failed economic policies, to debt

overhang8, to a permanent shortfall of aggregate

demand due to an excess of desired saving over

desired investment (the secular stagnation hypothesis).

6 See Lo, Stephanie and Kenneth Rogoff (2014), “Secular stagnation, debt overhang and other rationales for sluggish growth, six years on”, Paper prepared for the 13th Annual BIS Conference, Lucerne, Switzerland, June 27.

7 Gordon (2012), in particular, argues that the growth effect of the invention of the Web, e-commerce and the Internet is likely to prove far lower than that of the two previous industrial revolutions (i.e. steam and railroads from 1750 to 1830, and electricity, internal combustion engine and running water from 1870 to 1900). This is because, he argues, the information and communications technology (IT) system has a lower potential to positively impact productivity than previous technological innovations. He points to weak productivity growth in the recent past in the US, and forecasts that productivity will fade in the foreseeable future, affecting medium-term economic growth. See Gordon, Robert J. (2012), “Is US economic growth over? Faltering innovation confronts the six headwinds”, NBER Working Paper 18315, August. On the same line of reasoning, also see Kasparov, Garry and Peter Thiel (2012), “Our dangerous delusion of tech progress”, Financial Times, November 8.

8 There is growing evidence that high debt exerts substantial drag on recovery and growth. This has long been argued by Reinhart and Rogoff (2009), who find that financial crises that are preceded by a sustained build-up of debt are typically followed by unusually slow recoveries. See Reinhart, Carmen M. and Kenneth S. Rogoff (2009), “This time is different: Eight centuries of financial folly”, Princeton University Press. Reinhart, Carmen M. and Kenneth S. Rogoff (2009), “The aftermath of financial crisis”, The American Economic Review, 99(2): 466-472. The prominent role played by the unwinding of high deleveraging in holding back growth is also emphasised in the economic research on secular stagnation; see Eggertsson, Gauti B. and Neil R. Mehrotra (2014), “A model of secular stagnation”, July 4. Also see Mian, Atif R. and Amir Sufi (2014), "House of debt: How they (and you) caused the Great Recession, and how we can prevent it from happening again", University of Chicago Press.


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The secular stagnation hypothesis is the claim that

negative real interest rates are needed to equate saving

and investment with full employment. And this has

profound implications for capital spending. Admittedly,

one of the most troubling aspects of the current

recovery has been a persistent shortfall in investment.

And this shortfall in investment, in turn, could explain a

number of other disturbing observations since the

global financial crisis, such as slow economic growth

and low interest rates.

SECULAR DOWNWARD TREND IN REAL INTEREST

RATES

This prolonged period of sub-par post-crisis growth in

the advanced world has taken place despite a fall in

interest rates to record low levels. The drop in interest

rates actually long preceded the global financial crisis -

nominal interest rates across the yield curve have been

tumbling since the early 1980s. A considerable part of

this reflects the downward trend and stabilisation of

expected inflation across the advanced world, largely

as a result of the increased credibility of the main

central banks’ commitment to price stability.

Adjusted for inflation, interest rates in major advanced

countries have been trending down for two to three

decades. The prevailing view in academic circles is that

this secular drop in real rates reflects, to a large extent,

a fall in the equilibrium or 'natural' rate of interest9 - the

short-term real interest rate consistent with full

employment - caused by underlying changes in

savings and investment fundamentals [see IMF

(2014)10]. According to proponents of the secular

stagnation hypothesis, the natural rate of interest

(which cannot be directly observed) fell to a negative

level (around -2 to -3%) at some point in the mid-1990s

owing to an excess of desired savings over desired

investment11.

9 Knut Wicksell introduced the concept of the natural rate of interest in his 1898 paper: “The influence of the rate of interest on commodity prices”; he then developed the idea in Geldzins und Guterpreise (1898), which was translated by R.F. Kahn as “Interest and Prices” (1936). London: Macmillan.

10 International Monetary Fund (2014), “Perspectives on global interest rates”, IMF World Economic Outlook, Chapter 3, April.

11 For an estimate of the natural rate of interest see Laubach, Thomas and John C. Williams (2003), “Measuring the natural rate of interest”, Review of Economics and Statistics 85(4): 1063-1070.


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BOX 1. WICKSELL’S NATURAL RATE OF INTEREST

In Wicksellian-type theory (named for Knut Wicksell), there exist two different concepts of the rate of interest

at the same time: (1) the observed interest rate in the market place (the interest rate on bonds), which is

determined by monetary factors, and (2) the ‘natural’ rate of interest (the rate of return on capital), which is

determined by non-monetary factors, such as productivity growth, population growth and household time

preferences. Economic theory suggests that the natural rate of interest varies over time in response to shifts

in technology and preferences. For example, a decline in the trend growth rate of potential GDP leads to a

lower natural rate of interest, and so does a rise in risk aversion, which puts upward pressure on

precautionary savings.

The natural rate of interest is not observed directly but, so to speak, exerts influence from behind the

scenes. Of course, there are many challenges in defining and measuring it. But since the seminal work of

Wicksell (1898) it has occupied a central place in both academic and policy making circles. The natural rate

of interest is a guide to a central bank for setting its policy interest rate target. In Wicksell’s theory, price

stability is achieved only when the natural rate of interest and the market rate of interest are equal. When the

natural rate is above the market rate of interest, capital accumulation grows and so does inflation;

conversely, when the natural rate falls below the market rate, the rate of growth of capital accumulation

declines and deflation unfolds. Thus, the purpose of monetary policy is to bring the observed market rate to

its natural rate.

The natural rate concept was taken up by Keynes in his A Treatise on Money (1930) to show that the market

rate of interest rate can remain too high to reach full employment for long periods of time.

The most common explanation for the alleged fall in the

natural rate of interest is an increase in global saving,

mostly attributable to high-saving emerging

economies, such as China or oil-producing economies

(the so-called 'global savings glut' hypothesis12). It is

argued that because of investors’ growing preference

for safe assets, partly due to a rising desire on the part of central banks to accumulate reserves, these extra

savings have mainly been channelled into government

bonds, which has driven up demand for Treasuries and

pushed down debt rates [see IMF (2014)]. But the

decline in real rates could also be attributable to

depressed investment demand caused, for instance, by

slower growth in the labour force and productivity, or

by demographic shifts, particularly a decline in the

working population relative to the non-working

population.

12 See Bernanke, Ben (2005), “The global saving glut and the U.S. current account deficit”, Sandridge Lecture, Virginia Association of Economists, Richmond, Virginia, March 10.

Another explanation for the post-crisis sharp drop in

real interest rates points to the damage done by the

Great Recession to the economies’ labour force and

productivity, which would lead to a slowdown in the

growth of economic potential (an effect called

hysteresis13). There is mounting evidence that deep

recessions have a lasting negative effect on potential

output14. And lower potential growth, in turn, means a

lower return on capital which reduces the natural rate

of interest.

13 Blanchard, Olivier, and Lawrence H. Summers (1986), “Hysteresis and the European unemployment problem”, NBER Macroeconomics Annual 198. See also Haltmaier, Jane (2012), “Do recessions affect potential output?”, International Finance Discussion Paper 1066, Federal Reserve Board, December.

14 Potential output is the level of output that an economy can produce at a constant inflation rate. It depends on the capital stock, the potential labour force (which depends on demographic factors and the participation rates), the non-accelerating inflation rate of unemployment (NAIRU), and the level of labour efficiency.


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The jury is still out on the ultimate drivers of the long-

term drop in real interest rates, but the debate serves

to highlight that there are good reasons to expect that

the natural rate of interest may have fallen to very low

levels in the advanced world in recent decades.

MONETARY POLICY AT THE ZERO LOWER BOUND

Another factor behind the fall in interest rates to

remarkably low levels in the aftermath of the global

financial crisis has been the central banks’ policy

reaction to the crisis. In response to the Great

Recession which followed the global financial crisis,

central banks around the world have slashed their

policy rates to zero or close to zero. Once the zero

lower bound on nominal interest rate was hit15, major

central banks then started adopting unconventional

monetary policy in an effort to reduce term premia and

long-term rates. These heterodox monetary policies

have included quantitative easing (QE) programmes

(through purchases of government securities and

private assets) to boost the monetary base, forward

guidance on the future path of the policy rate, and

programmes to directly support bank lending.

The problem is that in a world in which the natural rate

of interest has fallen below zero, the central banks

constrained by the zero lower bound on nominal

interest rates find themselves in a situation in which

they are unable to move their policy rates low enough

to generate adequate demand, leaving the economy

exposed to a prolonged economic slump.

THE SECULAR STAGNATION HYPOTHESIS

Increasingly, observers point out that the current

economic malaise in the advanced world has many of

the same symptoms as the US Great Depression of the

1930s and Japan’s lost decade, including persistent

15 Nominal policy interest rates have a 'zero lower bound' as, except for tiny technical deviations, they cannot fall below zero. The reason for this is, of course, that nobody would lend at a negative nominal interest rate rather than hold the currency. The idea that monetary policy is ineffective under zero-interest conditions is known as the 'liquidity trap' that Keynes emphasised in his "General Theory". See Keynes, John Maynard (1936), “The general theory of employment, interest, and money”, London: Macmillan.

subpar growth, declining population growth, and a

nominal interest rate at zero. The secular stagnation

hypothesis is the claim that underlying changes in

economic fundamentals, such as slowing growth in the

working-age population, can explain long-lasting

shortfalls of demand by permanently lowering the

natural rate of interest below zero. The fall of the

natural interest rate into negative territory is, however, a

major obstacle to recovery as it prevents monetary

policy from being effective in providing the appropriate

stimulus, given the zero lower bound on nominal

interest rates. Put another way, the fall of the natural

rate below zero makes liquidity trap episodes more

frequent16. Indeed the past five years bear testimony to

the fact that the zero lower bound can be a binding

constraint in many advanced economies.

Although policy rates are at zero, the actual real rate of

interest remains too high or, put differently, the actual

rate remains persistently above the natural rate. This

could explain the prolonged period of under-

investment that advanced economies have been facing

since the onset of the global financial crisis, which in

turn could explain long-lasting 'output gaps'17 in these

economies, along with lower potential growth.

Surprisingly, the idea of secular stagnation has hardly

been developed in economic research on the liquidity

trap. One notable exception, however, is the recent

work by Eggertsson and Mehrotra (2014)18. These

authors show that a variety of forces can generate a

negative natural rate of interest, including a slowdown

in population growth, a tightening of borrowing limits

and, under some conditions, income inequality19. In this

setting, absent a higher inflation target, the zero lower

bound on nominal interest rates will bind, and a

persistent recession can take hold. As Eggertsson and

Mehrotra point out, many of the advanced economies

that have been suffering from subpar growth over the

16 See Krugman, Paul (2013), “Bubbles, regulation, and secular stagnation”, The New York Times blog, September 25; Krugman, Paul (2014), “Do we face secular stagnation?”, Speech delivered at a panel event in Oxford organised jointly by the Sanjaya Lall Memorial Trust, Green Templeton College, and the Department of Economics at the University of Oxford, May 14. On the liquidity trap, see also Krugman, Paul (1998), “It’s baaack: Japan’s slump and the return of the liquidity trap”, Brookings Papers on Economic Activity, 29 (1998-2): 137-206; Eggertsson, Gauti B. and Michael Woodford (2003), “The zero bound on interest rates and optimal monetary policy”, Brookings Papers on Economic Activity, 1: 139-233; Bernanke, Ben S., Vincent R. Reinhart, and Brian P. Sack (2004), “Monetary policy alternatives at the zero bound: An empirical assessment”, FEDS Working Paper, September.

17 The 'output gap' is a measure of the difference between the actual output of an economy and its potential output (the maximum amount of goods and services an economy can turn out when it is most efficient - that is, at full capacity).

18 Eggertsson, Gauti B. and Neil R. Mehrotra (2014), “A model of secular stagnation”, mimeo, Brown University, July 4. (op.cit. note 8).

19 An increase in income inequality redistributes income from those with less wealth to those with more, and as the latter have an increased propensity to save, this will raise the level of savings in the economy, driving the natural rate of interest lower.


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past five years have also experienced a slowdown in

population growth, a tightening of borrowing

constraints, and an increase in inequality.

The secular stagnation hypothesis is a demand-side,

not a supply-side framework20. In this framework, there

is no self-correcting force back to full employment and,

unless offsetting policies are implemented, economies

are stuck in a low output trap. As the Japanese have

discovered, an economy caught in a liquidity trap does

not automatically return to a potential growth path.

THE CRISIS IN INVESTMENT IN THE EURO ZONE

STUCK IN A LOW-GROWTH EQUILIBRIUM?

The euro zone economy has weathered six years since

the beginning of the Great Recession without remotely

approaching a full recovery, prompting concerns that

Europe may face a Japan-style lost decade (now in its

23rd year). Despite essentially zero short-term nominal

interest rates, spending remains well below what the

economy can produce, leaving a large output gap

which keeps pulling inflation down. So the expected

inflation which would be necessary to bring down real

interest rates has not been forthcoming.

20 See Krugman, Paul (2014), “What secular stagnation isn’t”, The New York Times blog, October 27.

The Taylor rule21 would suggest negative policy rates

for most of Europe but the problem, of course, is that

central banks are unable to drop nominal interest rates

below zero.

Against this backdrop, the market has been pricing in

many years of stagnant economies with very low

inflation, as reflected in record low core government

bond yields.

To boost flagging growth and ward off deflation, the

European Central Bank (ECB), on January 22,

committed to embark on a QE programme worth at

least €1.140bn, which will run from March 2015 to at

least September 2016. The ECB president pledged to

buy €60bn-worth of private and public sector bonds

per month until inflation returns to near its 2% target.

21 The Taylor rule (named after John B. Taylor who was the first to describe these mechanisms) relates the nominal policy interest rate to, (1) the gap between actual inflation and the inflation target, (2) the output gap, and (3) the purely random residual from the equation (called 'economic policy shock').


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Behind the euro zone’s economic downturn is a

historically unprecedented collapse in investment. The

global financial crisis set the stage for a 15% drop in

capital investment volumes - a loss that is twice as

large as that seen in the USA and in Japan. The Berlin-

based German Institute for Economic Research

calculates that the euro zone’s investment gap is

equivalent to 2% of GDP (that is, about €200bn

annually) with the shortfall being particularly large in the

peripheral countries and the biggest gap being found in

Ireland22. But, to different degrees, the fall in investment

has affected nearly all euro zone countries and most of

their sectors.

In 2013, six years after the beginning of the crisis,

private investment volumes in the euro zone was

almost one-fifth below pre-crisis levels. Admittedly,

2007 may not be the best benchmark to use for

desirable investment levels today, as that was the year

of the peak of the credit bubble which caused a lot of

misplaced investment. But while using 1995-2007 as

the sample period, we still find that there exists a large

investment gap in the euro zone. Indeed, in 2013, the

investment share in GDP of the European Union as a

whole was 2 percentage points below its average for

the 1995-2007 period. The marked fall in investment

22 See Baldi, G., et al. (2014), “Weak investment dampens Europe’s growth”, DIW Economic Bulletin (2014), DIW Berlin, German Institute for Economic Research, 4(7): 8-21, July. See also IMF (2014), “Investment in the euro area, why has it been weak?”, IMF Country Report No 14/199.

recorded since the global financial crisis has had a

huge impact on short-term economic growth through

its effect on aggregate demand, but it also has major

consequences for longer-term growth potential

because of its adverse effect on capital stock and thus

on productivity growth.

There are several reasons behind the collapse in

investment in the euro zone including:

- the end of large capital inflows to peripheral

Europe in 2008 that implied a return of

investment to the level of the pre-boom years;

- the correction that followed the bursting of the

credit and real estate bubbles which had

developed in the 2000s in some peripheral

countries, leading to a lot of wasteful

investment;

- weak growth (or expectations of growth) via

the traditional accelerator effect23;

- financial fragmentation, which has resulted in

elevated financing costs in peripheral Europe,

especially for SMEs24;

- heightened political uncertainty25;

- cuts in public capital spending in the context

of fiscal consolidation programmes since

2010.

Some of these factors are structural in nature and are

thus here to stay for the long-term. Specifically, there

are two trends of particular importance which are

23 See Chirinko, R. (1993), “Business fixed investment spending: Modeling strategies, empirical results, and policy implications”, Journal of Economic Literature, 31(4): 1875-1911.

24 Financial fragmentation has been reduced since its peak in 2012 after Mario Draghi pledged that he will do “whatever it takes” to save the euro, and is expected to ease further as the building blocks of the Banking Union (most notably common bank supervision and resolution rules) are put in place. Financial fragmentation, however, will not end, given the differences in the creditworthiness of the various euro zone countries, as reflected in various credit premia.

25 As emphasised by Mian, Sufi and Trebbi (2012), financial crises are typically followed by heightened political polarisation which often leads to policy paralysis that can hold back investment and growth. See Mian, Atif R., Amir Sufi and Francesco Trebbi (2012), “Resolving debt overhang: Political constraints in the aftermath of financial crises”, NBER Working Paper, no 17831.


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bound to shape investment prospects in the euro zone

for the foreseeable future, namely:

1) the falling rate of growth in the working-age

population;

2) the multi-year, possibly multi-decade process

of private sector deleveraging following the

sudden stop of capital flows into peripheral

Europe.

Both of these trends will have long-lasting drag effects

on investment demand in the euro zone which will cast

a long shadow over growth in these economies.

SHRINKING WORKING-AGE POPULATION

Just like Japan, many euro zone countries are plagued

by a stagnant or shrinking working-age population

(aged 15 to 64 years). In Japan, the working-age

population started to shrink in 1997, leading to a fall in

the proportion of the active population in the total

population26. In the European Union, working-age

populations began to decline in the years between

2009 and 2012. So Europe is now about where Japan

was in the late 1990s. In 2012, people considered to be

of working age accounted for 66.5 % of the EU-28’s

population, a percentage which is set to decline

steadily over the next 50 years, thanks mainly to an

ageing population.

A shrinking labour force, however, means a slower-

growth economy and, thanks to the accelerator effect,

a decline in investment demand. Less investment is

indeed required to increase capacity to meet demand,

since a falling labour force means lower demand for

new houses, new office buildings, new materials to

equip workers, etc.27.

26 Japan has the world’s oldest population, with a median age of 46 years. Many researchers argue that demographic shifts have been a driving force underlying Japan’s lost decade. For a discussion of this literature, see Shirakawa, Masaaki (2012), “Demographic changes and macroeconomic performance: Japanese experiences”, BOJ-IMES conference, mimeo.

27 Slowing working-age population also creates supply-side constraints on growth. Specifically, a shrinking workforce leads to excessive capital stock, hence a reduced return on capital, which leads corporations to reduce capital investment.

TIGHTENED BORROWING CONSTRAINTS

Again, just like Japan in the aftermath of the bursting of

its asset price bubble in 1989-91, much of the euro

zone has been forced to undergo a broad private

sector deleveraging process after the bursting of its big

capital-flow bubble in 2008. Deleveraging, however, is

always a lengthy and protracted process that takes

years, if not decades28.

Prior to the 2008 crisis, large private capital inflows to

European peripheral countries fuelled a decade-long

domestic demand boom in those countries, along with

large private asset bubbles in some of them (Ireland,

Spain), which left a legacy of large private debt

overhang (mortgage debt in Ireland and Spain,

corporate debt in Portugal and again in Spain). The

boom ended with the financial panic that gripped

capital markets worldwide after the collapse of Lehman

Brothers. The private capital flows to the periphery

came to a sudden halt and then reversed, triggering the

unwinding of the large macroeconomic imbalances

which had accumulated in the euro zone prior to the

crisis. Following the sudden stop in private capital

inflows in 2007-8, the overstretched European private

28 The European Commission (2014) reckons that corporations and households in peripheral countries may need to cut their debt-to-GDP ratios by at least 30 percentage points, which will act as a major drag on investment over the medium-term. See European Commission (2014), “Private sector deleveraging: Where do we stand?”, Quarterly Report on the Euro Area, 13(3), October.


11

sector (households, businesses and banks) was left

with no choice but to deleverage and rebuild savings.

Flow of funds data for the euro zone show a large shift

away from borrowing to saving by the corporate sector

following the outbreak of the global financial crisis in

2007-8. The euro zone’s corporate sector went from a

net borrower of funds to the tune of 11.8% of GDP in

Q3 2008, to a net saver of funds to the tune of 3.4% of

GDP in Q3 2014. Over the same period, the household

sector raised savings from around 7.9% of GDP to

12.5% of GDP. This means that, between Q3 2008 and

Q3 2014, the euro zone’s economy lost private sector

demand (household and corporate combined)

equivalent to 19.8% of GDP. This represents a major

contractionary blow to the economy.

The increase in private sector savings observed in the

euro zone since the global financial crisis has been

driven by substantial deleveraging in Spain and Ireland.

But the private sector in Germany has also noticeably

not been borrowing; instead it (both households and

corporate) has actually been deleveraging since the

early 2000s. Since its peak in 2001, the private sector

debt-to-GDP ratio in Germany has fallen by about

22%. So, today, private sectors in most of Europe

(including in Germany) are all increasing savings or

paying down debt and the sole remaining borrower is

the public sector.

Flow of funds data for the euro zone also show that the

increase in private savings has exceeded public dis-

savings (that is, public borrowing), which indicates that

for the euro zone as a whole, governments - which are

also facing too much debt (partly because of the

private debt that they had been forced to take over) -

have not borrowed and spent money sufficiently to

keep the economy going in the face of the large private

sector deleveraging shock. This has been especially

pronounced in the aftermath of Europe’s sovereign

debt crisis in 2010, which prompted the imposition of

severe austerity packages in peripheral countries,

along with budgetary restrictions in all the others.

Capital spending has been the main target for fiscal

consolidation in most of Europe, as reflected in a

strong decline in public investment since 2010, with

cuts reaching 60% in some euro zone countries. In

2013, public investment in the euro zone amounted to

2.1% of GDP, to be compared to 2.7% of GDP at its

2009 peak. Germany, which can now borrow money

almost for free, had a public investment ratio of only

1.4% of GDP in 2013, that is, one of the lowest ratios in

the euro zone.


12

Balance sheet recession

When households, businesses and banks are all

deleveraging at the same time, the impact on the

investment rate and the macro-economy is severe [see

notably Cuerpo et al. (2013)]29. The economy then falls

into a form of recession which is often described as

'balance sheet recession', a term coined by the

economist Richard Koo [see Koo (2008, 2011, 2013)]30.

A balance sheet recession occurs after the bursting of

a credit bubble, which leaves an overhang of debt on

the private sector balance sheets. These recessions are

usually deeper than a business cycle downturn, while

recoveries are typically muted and take a long time.

This is because the key priority for the private sector is

balance sheet repair, so that it becomes more

concerned with rebuilding savings and eliminating debt

than with expanding investment. In this type of

recession, even a zero interest rate is not enough to

stimulate borrowing and spending, hence monetary

policy loses its effectiveness. There are not many

29 Cuerpo, C., et al. (2013), “Indebtedness, deleveraging dynamics and macroeconomic adjustment”, European Economy Economic European Commission, Papers 477.

30 Koo, Richard (2008), “The Holy Grail of macroeconomics: Lessons from Japan’s Great Recession”, John Wiley; Koo, Richard C. (2011), “The world in balance sheet recession: Causes, cure, and politics”, Real-World Economics Reviews, Issue no 58, Nomura Research Institute, Tokyo; Koo, Richard C. (2013), “Balance sheet recession as the other-half of macroeconomics”, European Journal of Economics and Economic Policies: Intervention, 10(2): 136-157.

lenders either, given the high credit risk of borrowers (in

particular SMEs), and as banks need to fix their own

balance sheet as well – hence, banks’ preference for

safe assets, such as government bonds.

The most notable examples of balance sheet

recessions are the Great Depression in the United

States in the 1930s and Japan's lost decade in the

1990s. As Koo (2011) emphasised, Japan skirted a

1930s-style depression only because of the

government’s borrowing and spending which

compensated for the drop in private spending.

Although Japanese fiscal policy was barely

expansionary in the 1990s, the authorities managed to

keep GDP above the bubble peak throughout the post-

bubble period, ensuring that mass unemployment

didn’t become an issue in Japan.

If, however, both the private and the public sectors try

to deleverage at the same time, the economy is set to

fall into a protracted recession. Since the 2008 financial

crisis, Spain, Ireland and Portugal have all been in

severe balance sheet recessions with considerable

fallouts on investment. Italy has also seen an especially

sharp drop in capital spending. In fact, all euro zone

countries, to varying degrees, have experienced

investment shortfalls, with the effects of the large drop

in private investment being compounded by cuts in

public investment since 2010.


13

In a balance sheet recession, the absence of borrowing

and spending from private economic agents means

that the economy is continuously losing aggregate

demand by an amount equivalent to the sum of savings

and net debt repayments31. When an economy falls into

this type of recession, it does not enter self-sustaining

growth until private economic agents have finished

repairing their balance sheets.

The spectre of debt-deflation

Although since 2008, substantial balance sheet

adjustment has taken place in the euro zone through

rises in gross savings and/or falls in gross investment,

the private-sector debt burden has barely fallen from

its pre-crisis peak. The non-financial private sector in

Spain, Ireland and Portugal is still today over 200% of

GDP (over 300% in Ireland), and corporate debt

overhang in Italy remains stubbornly high. Yet if the

euro zone’s recovery is to strengthen, this burden of

private debt must be scaled down. But to varying

degrees in different countries, the private sector’s

deleveraging efforts have been impeded by the

combination of economic contraction and low inflation

that has characterised the post-2008 crisis period. At

the end of 2014, inflation in the euro zone fell into

negative territory mainly because of the fall in energy

prices (inflation excluding energy and food remained

slightly positive).

31 See Koo, Richard C. (2011), (op. cit. note 30).

It is critically important that such a situation does not

turn into a deflationary spiral because, as Irving Fisher

already pointed out in 1933, falling prices in a highly

leveraged economy can set off a highly destabilising

process. Deflation, Fisher (1933) emphasised, worsens

the balance sheets of debtors by increasing the real

burden of their debt, which generally prompts them to

cut their spending, leading in turn to further falls in

prices causing a worsening of debt ratios leading to

even more spending cuts - a vicious circle that can turn

into a Great Depression32. This perverse loop of debt

and deflation - which is also at work with very low

levels of inflation [see IMF (2014)]33 - is a key reason

behind Europe’s difficulties in reducing its debt

overhang. Fisherian debt deflation mechanisms have

been at work in the euro zone’s periphery, contributing

to prolonging the time to recovery.

AN ENDURING LACK OF AGGREGATE DEMAND

So, since the outbreak of the global financial crisis, the

euro zone has been in the grip of a broad private sector

deleveraging dynamic, which has subtracted a major

source of aggregate demand. Admittedly, the severe

tightening of borrowing limits triggered by the global

financial crisis, coupled with Europe’s declining

working-age population, implies changes in both

saving and investment behaviour that have implications

for the level of real interest rates. Along these lines,

there is a case to be made that the euro zone may now

find itself in a situation in which the natural rate of

interest has become negative, owing to an excess of

desired savings over desired investment.

In total, there appears to be evidence that there is a

substantial shortfall in aggregate demand in the euro

zone, in part driven by factors emphasised by the

secular stagnation hypothesis. Of course, this does not

prove that the secular stagnation hypothesis in the

euro zone is correct, because other factors can be at

play. But if this hypothesis is correct, we should expect

32 Fisher, Irving (1933), “The debt-deflation theory of Great Depressions”, Econometrica, 1(4).

33 See Moghadam, Reza, Ranjit Teja and Pelin Berkmen (2014), “Euro area – 'Deflation' versus 'Lowflation'", IMF Direct, March 4.


14

that GDP under-performance will last for a very long

time. This does not imply though, that the euro zone

will never have growth, as now and then the economy

will expand, but growth will never be strong enough to

bring the economy back to full employment. Unlike

what happens in conventional economic models, the

problem of the excess of desired savings cannot solve

itself through falling interest rates, because the zero

lower bound on interest rates prevents nominal interest

rates from falling below zero. As forces that normally

tend to restore the usual or normal equilibrium do not

apply at the zero lower bound, the economy remains

stuck in a low-level equilibrium trap.

THE RULES OF ECONOMICS CHANGE WHEN POLICY INTEREST RATES HIT THE ZERO LOWER BOUND

THE PARADOX OF THRIFT

Once nominal interest rates hit the zero lower bound,

the economy enters a world in which, as Krugman likes

to put it: “virtue is vice and prudence is folly”34. This is

the paradox of thrift popularised by Keynes. This

paradox35 states that if everyone tries to increase

saving simultaneously, then aggregate demand will fall,

which will depress the economy leading eventually to a

flattening or diminishing of the total savings rate

because of lower output. Lower output, in turn, makes

it harder to reduce debt burdens. So, although

individual savings can be beneficial for the individuals

who save more, collective saving behaviour can have

harmful effects on the economy. Note that a fall in

prices, which raises the real interest rate, only makes

matters worse.

While none of the spontaneous forces for restoring full-

employment equilibrium apply under circumstances of

secular stagnation, there is scope for policy

intervention in order to help the economy gain traction.

Two types of policy intervention can be envisaged. The

first one is a commitment to generate expectations of

inflation in order to reduce real interest rates. The

second one is expansionary fiscal policy designed to

boost demand and reduce saving. Of note, as

remedies to address secular stagnation lie in

‘unconventional’ policy measures which, in addition,

need to be implemented in an aggressive fashion to

stand a chance of being effective, there is a high risk

34 See, for example, Krugman, Paul (2013), “Secular stagnation, coalmines, bubbles, and Larry Summers”, (op.cit. note 4). To cite Krugman: “in a liquidity trap saving may be a personal virtue, but it’s a social vice”.

35 This is a 'paradox' because of a moralistic perception of saving as a virtue. As Samuelson (1958) put it: “[…] in kindergarten we are all taught that thrift is always a good thing”. See Samuelson, Paul A.(1958). "Economics". 4th ed. New York: McGraw-Hill, p. 237.

that policymakers get into what Krugman calls the

‘timidity trap’, that is, policymakers will remain far too

timid in unwinding the ‘extraordinary’ policy measures

that a situation of secular stagnation calls for36.

THE CHALLENGE OF BRINGING DOWN REAL RATES

OF INTEREST

The secular stagnation analysis suggests that if full

employment is to be restored in the years ahead, real

interest rates will have to decline further. This is,

however, impossible in an environment of falling prices,

where interest rates are constrained by the zero lower

bound. The only way to bring down real interest rates

when the zero bound on nominal interest rates binds is

to generate a rise in the expected rate of inflation. In

order to achieve this, the central bank can raise its

inflation target and commit to future policy in a way

that lifts current inflation expectations [see, notably,

Krugman (1998)37]. The vast bond-buying program

undertaken by the ECB is intended to raise inflation

expectations. But success is not guaranteed, and this

policy is not without its downsides.

Success is not guaranteed, as central banks, which

have in the past built a reputation for consistent low-

inflation policy, may find it difficult to convince the

public that they now want sustained higher inflation (a

policy which has traditionally been regarded as

irresponsible). Eggertsson and Mehrotra (2014) show

that monetary policy can help boost the economy in a

period of secular stagnation only if the central bank

credibly commits to a higher inflation target38. But, as

emphasised by Summers (2013), this strategy is not

without its downsides, as lower real rates of interest

push investors to look for riskier assets with higher

yields, thereby raising the risk of bubbles, which in turn

may have detrimental effects on output.

36 See Krugman, Paul (2014), “The timidity trap”, The New York Times blog, March 20.

37 Krugman, Paui (1998), “It’s baaack: Japan’s slump and the return of the liquidity trap”, (op.cit. note 16).

38 See Eggertsson, Gauti B. and Neil R. Mehrotra (2014), “A model of secular stagnation” (op.cit. note 8).


15

THE CHALLENGE OF PROVIDING FISCAL STIMULUS

The alternative policy approach to address secular

stagnation is to have the government absorb ample

private saving through deficit-financed public

spending, for instance by investing in infrastructure and

education. For Summers (2013), increased public

investment in infrastructure, education, or research and

development is the first-best strategy to address

secular stagnation39. Eggertsson and Mehrotra (2014)

also find that fiscal policy is particularly effective in an

era of secular stagnation, though admittedly, the

empirical evidence on magnitudes is limited. Likewise,

the analysis that builds on literature on policy at the

zero bound on nominal interest rates generally finds

that the optimal policy intervention is expansionary

fiscal policy, which provides some positive aggregate

demand shock from the government40. In the same

vein, research by Summers and DeLong (2012) shows

that under depressed conditions, increasing public

spending might actually reduce, rather than increase

the fiscal deficit, owing to a higher-than-usual fiscal

'multiplier'41. The IMF also finds that, under current

depressed conditions in advanced economies, the

fiscal multiplier is significantly larger than previously

thought42.

As to the exact form of the fiscal stimulus, Eggertsson

(2010)43 shows that with interest rates at zero it will be

most effective via a temporary increase in government

spending and some forms of tax cuts, such as a

reduction in sales taxes and investment tax credits.

This author emphasises, however, that this only holds

for a temporary fiscal stimulus, as an increase in public

spending that is expected to be permanent could turn

out to have contractionary effects. Along these latter

lines, Nickel and Tudyka (2013)44 show that when

39 See Summers, Lawrence H. (2013), IMF Fourteenth Annual Research Conference in Honor of Stanley Fisher, Washington DC, November 8 (op.cit. note 1).

40 See Eggertsson, Gauti B. and Paul Krugman (2012), “Debt, deleveraging, and the liquidity trap: A Fisher-Minsky-Koo approach”, Quarterly Journal of Economics, 127(3): 1469-1513, August. For further discussion and references, see Eggertsson, Gauti B. (2010), “What fiscal policy is effective at zero interest rates?”, NBER Macroeconomic Annual, 25(1): 59-112; Delong, J. Bradford and Lawrence H. Summers (2012), “Fiscal policy in a depressed economy”, Brookings Papers on Economic Activity, Spring; and Koo, Richard C. (2013), “Balance sheet recession as the other-half of macroeconomics”, (op.cit. note 30).

41 The fiscal multiplier is the percentage change in GDP on a 1% change in government spending or taxes. It is difficult to determine the size of the fiscal multiplier which, moreover, varies both across countries and time.

42 See Baum, Anja, Poplawski-Ribeiro, Marcos, and Anke Weber (2012), “Fiscal multipliers and the state of the economy”, IMF Working Paper, WP/12/286, December. See also Blanchard, Olivier and Daniel Leigh (2013), “Growth forecast errors and fiscal multipliers”, IMF Working Paper, WP/13/1, January.

43 Eggertsson, Gauti B. (2010), “What fiscal policy is effective at zero interest rates?” (op.cit. note 39).

44 Nickel, Christiane and Andreas Tudyka (2013), “Fiscal stimulus in times of high debt: Reconsidering multipliers and twin deficits”, ECB Working Paper No 1513.

public debt is high, the overall effect on real GDP of an

expansionary fiscal policy can turn negative, as the

crowding-out of private investment increases

significantly.

Although there is no consensus among economists

about optimal fiscal policy, there is general agreement

that fiscal stimuli are particularly effective if there are

idle resources in the economy (involuntary

unemployment and excess capacity) and if nominal

interest rates do not rise to such an extent that the

expansionary effect of the fiscal stimulus is annihilated

by the crowding-out of private investment45. In the euro

zone as a whole there are currently plenty of idle

resources, core governments face historically low long-

term interest rates, and the situation of ample supply of

private savings virtually excludes the risk that increased

public sector borrowing crowds out private sector

credit demand or generates an overheating of the

economy. This explains why calls for coordinated

fiscal action in the euro zone have stepped up.

THE EURO ZONE IS NOT WELL EQUIPPED TO

MANAGE THE CHALLENGE

Yet the provision of coordinated fiscal stimulus in the

19-member euro zone is far more complex than in a

normal country, for at least two reasons. The first

reason is that unlike monetary policy, the responsibility

for fiscal policy remains in the hands of each national

member government. Fiscal policy coordination within

the currency union is essentially restricted to a

common set of fiscal rules (including, most notably, the

Stability and Growth Pact (SGP) and the 'six-pack').

There is no supranational fiscal authority similar to the

ECB with regard to monetary policy, which means that

there is no euro zone fiscal capacity in the form of its

own budget. The second reason is that the size and

severity of challenges in each country is different,

hence, national member governments may have

different policy capacity and objectives. At present,

45 Fiscal policy, however, can fail to stimulate aggregate demand if there is Ricardian equivalence, so that tax cuts financed by new issues of government debt have no effect on private consumption (debt being just deferred taxes). It may also be the case that the government cannot borrow because of poor creditworthiness.


16

several euro zone governments lack fiscal space to

initiate stimulus, due to their excessively high public

debt burden.

However, some key countries in the euro zone have the

fiscal capacity to undertake an expansionary policy.

Germany, for example, now has a cyclically adjusted

budget surplus of 1.7% of GDP. Its net public debt is

about 40% of GDP, and the country is running a

current account surplus of around 7% of GDP,

meaning that it saves much more than it invests. If the

German government, which can now borrow money

virtually for free, were to take steps to use its existing

fiscal capacity to expand government spending, this

would make a material contribution to addressing the

shortfall in aggregate demand that now plagues the

euro zone economy46. Another approach is to boost

investment at the European level, which is the aim of

the Juncker plan that was unveiled on November 25,

2014 (see Box 2).

WHERE DO POLICY MAKERS WANT TO TAKE RISKS?

But the fact remains that calls for increased public

investment have not secured widespread agreement in

European policy-making circles. This is, of course,

because as in everything, there is a counter case. At

present, European policy remains dominated by

46 Simulation analyses made by the IMF (2013) suggest, however, that fiscal stimulus in Germany is likely to have a relatively small impact on the rest of the euro zone, either because of weak trade links (Greece, Portugal) or due to the large size of the countries (Italy, Spain). See IMF (2013), “Germany Article IV Consultation”, August.

overriding concerns about a loss of confidence in

government solvency, notwithstanding the fact that

solvency is not a problem for a number of European

countries, such as Germany, and that the risk that

investors would lose confidence in sovereign debt has

receded considerably since the ECB introduced

mechanisms to intervene in the government bond

market.

At this point, the debate takes up one of the oldest

questions in macroeconomics, that is, the issue of the

balance of risks. On the one hand, there is the risk that

Europe may fall victim to a full-blown crisis of

confidence over its debt; on the other, there is the

danger for Europe of falling into a protracted stagnation

and a debt deflation spiral.


17

BOX 2. THE JUNCKER’S INVESTMENT PLAN AND THE MULTIPLER EFFECT

On November 25, the European Commission unveiled the mechanism for its plan to support investment

projects totalling at least €315bn over the next three years. It is, on the surface, an ambitious plan to

address the drastic lack of investment in EU countries. The idea of the Juncker plan is that €21 billion of

initial public money will be leveraged to attract private investment worth 15 times the original amount. The

Commission hopes that guarantees and seed money will encourage private finance into strategic

investments in a range of infrastructure projects across the EU, from transport to energy to internet

broadband.

The Juncker plan provides for the creation of a new European Fund for Strategic Investments (EFSI), which

will rely on €16bn of funding in the form of guarantees drawn from the EU’s budget (of which, €8bn will

come from existing unused EU funds) and €5bn of equity funding from the European Investment Bank (EIB).

The resulting EFSI totalling €21bn is set to be operational in June 2015. Individual member states will be

able to provide additional capital to the Fund, and their contribution will not be taken into account for the

Stability and Growth Pact assessment. The plan also provides for the establishment of 'a project pipeline' of

proposals for investors, backed by a technical assistance programme to channel investments where they

are most needed.

The EFSI will serve as credit protection for new, potentially risky projects. These guarantees will allow the

EIB to provide €63bn financing (multiplier of 1:3) in the form of subordinated debt. This safety buffer is then

expected to catalyse private investment in the senior tranches of the same projects, with a multiplier effect

of 1:5. Under this mechanism, the Fund could thus eventually yield €315bn of additional finance (multiplier of

1:15), of which €240bn would be directed to strategic investments and €75bn to SMEs and midcap

companies.

The €315bn plan would amount to 2.4% of the EU’s GDP over the next three years which, even if it were to

materialise, would make a small dent in the massive investment challenge facing Europe. The main question,

however, is how such a narrowly financed scheme can generate an increment to private investment of the

scale being targeted. While a leverage ratio of 15 to 1 seems overly optimistic, the focus on investment is a

welcome step in the right direction.


18


19

PREVIOUS ISSUES ECONOTE

N°27 Emerging oil producing countries: Which are the most vulnerable to the decline in oil prices?

Régis GALLAND (February 2015)

N°26 Germany: Not a “bazaar” but a factory!

Benoît HEITZ (January 2015)

N°25 Eurozone: is the crisis over?

Marie-Hélène DUPRAT (September 2014)

N°24 Eurozone: corporate financing via market: an uneven development within the eurozone Clémentine GALLÈS, Antoine VALLAS (May 2014)

N°23 Ireland: The aid plan is ending - Now what? Benoît HEITZ (January 2014)

N°22 The euro zone: Falling into a liquidity trap? Marie-Hélène DUPRAT (November 2013)

N°21 Rising public debt in Japan: how far is too far? Audrey GASTEUIL (November 2013)

N°20 Netherlands: at the periphery of core countries Benoît HEITZ (September 2013)

N°19 US: Becoming a LNG exporter Marc-Antoine COLLARD (June 2013)

N°18 France: Why has the current account balance deteriorated for more than 20 years? Benoît HEITZ (June 2013)

N°17 US energy independence Marc-Antoine COLLARD (May 2013)

N°16 Developed countries: who holds public debt? Audrey GASTEUIL-ROUGIER (April 2013)

N°15 China: The growth debate Olivier DE BOYSSON, Sopanha SA (April 2013)

N°14 China: Housing Property Prices: failing to see the forest for the trees Sopanha SA (April 2013)

N°13 Financing governments debt: a vehicle for the (dis)integration of the Eurozone? Léa DAUPHAS, Clémentine GALLÈS (February 2013)

N°12 Germany’s export performance: comparative analysis with its European peers Marc FRISO (December 2012)

N°11 The Eurozone: a unique crisis Marie-Hélène DUPRAT (September 2012)

N°10 Housing market and macroprudential policies: is Canada a success story? Marc-Antoine COLLARD (August 2012)

N°9 UK Quantitative Easing: More inflation but not more activity? Benoît HEITZ (July 2012)

N°8 Turkey: An atypical but dependent monetary policy Régis GALLAND (July 2012)

N°7 China: Foreign direct investment outflows— much ado about nothing Sopanha SA, Meno MIYAKE (May 2012)


20

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