Short-term contracts: Not all taxes are the same

By Bruno Coquet, OFCE and IZA

Short-term contracts are useful for the proper functioning of an economy, but in France their expansion, together with shortening contract periods (Figure 1), is costing economic agents as a whole dearly, while the minority of companies that make extensive use of these is bearing only a marginal fraction of the costs. Continue reading “Short-term contracts: Not all taxes are the same”

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Brexit: Pulling off a success?

By Catherine Mathieu and Henri Sterdyniak

Will the EU summit of 14-15 December 2017 usher in a new phase of negotiations on the exit of the United Kingdom from the European Union?

British Prime Minister Theresa May wants to make Brexit a success and to arrange a special partnership between the UK and the EU, a tailor-made partnership that would allow trade and finance to continue with minimal friction after the UK leaves the EU, while restoring the UK’s national sovereignty, in particular by regaining the ability to limit the immigration of workers from the EU and by no longer being subject to the European Union Court of Justice (EUCJ). For the EU-27 countries, on the contrary, it must be made clear that leaving the EU incurs a significant economic cost, with no significant budgetary gain, that those who leave must continue to accept a major share of European rules and that they cannot claim the benefits of the single market without bearing the costs. Other Member States should not be tempted to follow the British example. Continue reading “Brexit: Pulling off a success?”

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OPEC meeting: Much ado about nothing?

par Céline Antonin

On 30 November 2017, OPEC members decided on a nine-month extension of their 2016 agreement on production caps with country quotas, i.e. until December 2018. Other producing countries associated with the agreement, led by Russia, decided to continue their cooperation by also extending their agreement on production cuts. Continue reading “OPEC meeting: Much ado about nothing?”

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Labour force participation rates and working time: differentiated adjustments

By Bruno Ducoudré and Pierre Madec

In the course of the crisis, most European countries reduced actual working time to a greater or lesser extent by making use of partial unemployment schemes, the reduction of overtime or the use of time savings accounts, but also through the expansion of part-time work (particularly in Italy and Spain), including involuntary part-time work. In contrast, the favourable trend in US unemployment is explained in part by a significant fall in the participation rate. Continue reading “Labour force participation rates and working time: differentiated adjustments”

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European unemployment insurance

By Léo Aparisi de Lannoy and Xavier Ragot

The return of growth cannot eradicate the memory of how the crisis was mismanaged at the European level economically, but also socially and politically. The divergences between euro area countries in unemployment rates, current account balances and public debts are at levels unprecedented for decades. New steps in European governance must aim for greater economic efficiency in reducing unemployment and inequalities while explaining and justifying the financial and political importance of these measures in order to render them compatible with national policy choices. The establishment of a European unemployment insurance meets these criteria. Continue reading “European unemployment insurance”

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A new Great Moderation?

by Analysis and Forecasting Department

This text summarizes the OFCE’s 2017-2019 forecast for the global economy and the euro zone; the full version can be found here.

Ten years after the financial crisis broke out in the summer of 2007, the world economy finally seems to be embarking on a trajectory of more solid growth in both the industrialized and most of the emerging countries. The figures for the first half of 2017 indicate that global growth is accelerating, which should result in GDP growth of 3.3% over the year as a whole, up 0.3 percentage point over the previous year. Some uncertainty remains, of course, in particular concerning the outcome of Brexit and the ability of the Chinese authorities to control their economic slowdown, but these are the types of irreducible uncertainties characteristic of an economic system that is subject to political, technological, economic and financial shocks[1]. Continue reading “A new Great Moderation?”

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France: growth as inheritance

by OFCE Department of Analysis and Forecasting (France team)

This text summarizes the OFCE’s 2017-2019 forecast for the French economy; the full version can be found here.

After five years of sluggish growth (0.8% on average over the period 2012-16), a recovery is finally taking shape in France, with GDP expected to rise by 1.8% in 2017, 1.7% in 2018 and 1.9% in 2019. Some negative factors that affected 2016 (a fall in agricultural production, impact of terrorist attacks on tourism, etc.) were no longer at work in 2017, and the economy should now feel the full benefit of the supply-side policies implemented during the Hollande presidency. Added to this is the ripple effect from stronger growth in the European economies. Continue reading “France: growth as inheritance”

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The ECB on neutral ground?

By Christophe Blot and Jérôme Creel

The involvement of the European Central Bank (ECB) in the fiscal management of the euro area member states has been a subject of ongoing controversy. Since the implementation of the ECB programme to purchase sovereign debt, it has been accused of profiting off of troubled states and taking the risk of socializing losses. The rise of these controversies results from the difficulty in understanding the relationship between the ECB, the national central banks (NCBs), and the governments. The European monetary architecture comes down to a sequence of delegations of power. Decisions on the conduct of monetary policy in the euro area are delegated to an independent institution, the European Central Bank (ECB). But, under the European subsidiarity principle, the implementation of monetary policy is then delegated to the national central banks (NCBs) of the euro area member states: the ECB and NCBs taken together are called the Eurosystem. While up to now this dimension of the organization of the euro area’s monetary policy has not attracted much attention, debate has recently arisen in the course of the implementation of the quantitative easing programme. According to commentators and journalists, some national central banks are profiting more than others from the policy of buying and supporting their national public debts, which are riskier than the debt in more “virtuous” countries[1]. The profiting banks are viewed as escaping the ECB’s control and not strictly applying the policy decided in Frankfurt.

In a recent paper prepared as part of the European Parliament’s Monetary Dialogue with the ECB, we show that these concerns are unfounded for the simple good reason that, on average, since the beginning of the implementation of this policy, the theoretical distribution key has been respected (graphic). This distribution key stipulates that purchases of bonds by the Eurosystem are to be made pro rata to a state’s participation in the ECB’s capital. Remember that part of the purchases – 10 of the 60 billion in monthly purchases made under the programme – are made directly by the ECB[2]. The other purchases are made directly by the NCBs. As each central bank buys securities issued by its own government, the NCBs’ purchases of public bonds do not entail risk-sharing between member states. Any profits or losses are kept on the NCBs’ balance sheets or transferred to the national governments in accordance with the agreements in force in each country.

This distribution of public bond purchases, which is intended to be neutral in terms of risk management, isn’t entirely so, but not for the reasons that seem to have worried the European Parliament’s Committee on Economic and Monetary Affairs. This distribution favours the maintenance of very low rates of return on the debts of certain member states. In fact, by not basing itself on the financing needs of the member states or on the size of their public debts, it can produce distortions by reducing the supply of public bonds available on the secondary markets. Such may be the case in Germany, Spain and the Netherlands, whose shares of the European public debt are smaller than their respective shares in the ECB’s capital (table). Conversely, the purchases of Italian bonds are smaller with the current distribution key than they would be with a distribution key that took into account the relative size of the public debt. The ECB’s policy therefore has less impact on the Italian debt market than it does on the German market.

This orientation could also constrain the ECB’s decision about continuing quantitative easing beyond December 2017. Let’s agree that the ECB’s best policy would be to continue the current policy beyond December 2017, but to stop it once and for all in July 2018. Given the current distribution rules, this policy would be subject to all countries having exchangeable government bonds until July 2018, including those who issue public debt only rarely because they have low financing needs. It could be that it is impossible to continue this policy under the rules currently adopted by the ECB, because some countries do not have sufficient debt available. It would then be necessary to implement a different policy by drastically reducing the monthly purchases of short-term securities (say in January 2018), while possibly pursuing this policy for a longer time period (beyond the first half of 2018). The decision not to use risk-sharing in the management of European monetary policy is therefore far from being neutral in the way this policy is actually implemented.

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[1] Mario Draghi was questioned about the distribution of the public sector purchase programme (PSPP) at the press conference he held on 8 September 2017.

[2] There is risk-sharing on this sum: the gains or losses are shared by all the NCBs in proportion to their contribution to the ECB’s capital.

 

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The new labour inequalities. Why jobs are polarizing

By Gregory Verdugo

What is job polarization?

Over the past three decades, work has taken a new turn. While the post-World War II period saw a decline in wage inequalities, since the 1980s the gaps have been getting steadily wider. Differentials are increasing throughout the wage distribution, both between low and medium wages and between medium and high wages. In countries like France where wage inequalities have remained stable, the less skilled have been hit increasingly by the risk of unemployment and precarious jobs. Continue reading “The new labour inequalities. Why jobs are polarizing”

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Does the impact of economic policy depend on what we know?

By Paul Hubert and Giovanni Ricco

Do the effects of monetary policy depend on the information available to consumers and business? In this note we analyze how the way in which the central bank surprises economic actors affects the impact of its policy and the extent to which the central bank’s publication of its private information modifies the effects of its policy. Continue reading “Does the impact of economic policy depend on what we know?”

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