Series of video interviews on energy crisis, inflation, (de-) globalization, China and government debt

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Matthias Schober from the German personal finance education portal pfenningfabrik.de invited me for a series of half-hour videos in which we discuss the current global economic situation, ranging from the energy crisis, ECB monetary policy to China and government finances. The first of the series, covering the energy crsis and inflation available here: https://www.youtube.com/watch?v=o-g2BHOsfPw Update … Read more

Germany’s first trade deficit since the 1990s…

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Before the summer break I gave an interview to the New York-based Global Finance Magazine about what the first German trade deficit in almost three decades means and whether it is reason for deeper worry. The gist of my argument is that the German public has long fetishised its current account surpluses as a sign … Read more

Will sanctions on Russia work?

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In a recent TV interview I have given the Swiss channel Tele Z, I had a chance to discuss with my host Claudia Steinmann the implications of sanctions for the Russian and western economies. We also talked about whether or not China is going to benefit from the situation. In this post, I follow up on my interview and elaborate a little more on whether sanctions will work or not. In the next post, I plan to write a little more on how I see the role of China.

Will sanctions work, then? I think, it is important to answer that question at three levels: macroeconomic, political, military-strategic. And at the three levels the respective answer is “yes”, “it depends” and “probably not”. But then there is another level — bear with me….

  • Take the macroeconomic level first. Sanctions are already having a devastating effect on the Russian economy. The bulk of foreign currency reserves has been seized, the ruble has tumbled, domestic inflation is soaring, trade has collapsed, production come to a standstill in many parts of the economy. This is hurting the regime, but it is hurting the average Russian even more. While “oligarchs” have been targeted by the seizure of their overseas assets, the overall effect of the sanctions is clearly much smaller for oligarchs than for the average Russian household. Oligarchs are people with international networks and globally diversified asset portfolios, including access to countries that do not implement any sanctions (the yachts are starting to show up in Turkey already…). Such asset shifting is not really an option for the average Russian, though. Hence, if anything the West should work harder on actually implementing and extending the sanctions on the oligarchs. Actually seizing their assets would be a start, implementation in many countries (including Switzerland, Germany…) is patchy at best so far.

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Russia’s war in Ukraine, SWIFT sanctions and the Renminbi as an international currency

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In a couple of interviews on Swiss Italian language radio RSI this weekend (here (from minute 18), here (from minute 8) and here), I argued that the SWIFT sanctions were the right thing to do and we already see their short-term impact in the form of a de-facto collapse of the Russian banking system: people are hoarding cash (credit cards have stopped working, they are ultimately based on the US infrastructure and the SWIFT payment systems) bringing the banking sector to crumble. And the firepower of the Russian central bank in terms of currency stabilization has been severely curtailed because its foreign-currency reserves (which of course are not sitting as dollar cash piles in its vaults but on foreign bank accounts) have effectively been seized. The effect has been a collapse of the rouble and will be high domestic inflation, coupled with the collapse of many small private firms which will no longer have access to bank credit.

Even though there is a risk that some of this will also spill over to western banks who are heavily exposed to Russia, I would argue that this can be dealt with. In fact, some political willingness to also accept some economic disruption in the west will be needed to make the sanctions develop their full impact.

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New paper in the Journal of International Economics

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The paper By a Silken Thread: regional banking integration and  credit reallocation during Japan’s lost decade (with Toshihiro Okubo),  has been accepted by the  Journal of International Economics.

We show how the geographical reallocation of credit dampened regional heterogeneity in business cycles during Japan’s lost decade. Even though large, country-wide (“integrated”) banks were most affected by the property crisis in the major cities, they reduced their lending less in areas where they had many bank-dependent SME customers all while reducing credit to big corporates who increasingly turned to bond issuance.

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How high local public debt and local public banks crowd out private investment in Germany – and what the debt brake has to do with it

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In a recent column in VoxEU together with Michael Stiefel (UZH) and Iryna Stewen (JGU Mainz)) we discuss our new CEPR discussion paper Growing Like Germany: Local public debt, local banks, low private investment. The paper shows that local government debt in Germany crowds out private investment to the tune of 1 percent of GDP … Read more

European Forum at Beijing University, Oct 17th 2020

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I had the honor to represent the University of Zurich at the 2020s European Forum of the School of Economics at Beijing University. My slides on Learning from the China Trade Shock: Lessons for European Monetary Union in a Post-COVID World can be downloaded here and are based on my recent UZH Econ -DP with … Read more

Radio debate on RSI taking stock of the economics of Mr. Trump

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I had the privilege to be invited to a Radio debate on Radio della Svizzera Italiana with former IMF director Carlo Cottarelli to discuss the economic consequences of Mr. Trump’s (first?) administration. Listen to the debate (in Italian) here. Here is the Upshot of my argument: For the first three years of his mandate, Trump … Read more