Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
July 2, 2013

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To Save Egypt's Economy, Move Quickly

Caroline Freund
Published in Bloomberg
  Caroline Freund Egypt's hopes for "bread, freedom, and social justice" are being overwhelmed by the slow pace of economic change. Egypt has been relying on wealthy neighbors for unconditional cash injections so that it can import food and fuel. Qatar's recent infusion of $3 billion may provide temporary relief, but such measures scare investors and postpone the fiscal consolidation that Egypt needs to stabilize its economy. The need for reform is urgent: Unemployment is above 13 percent and one-quarter of the population is living in poverty. Although Mohamed Mursi's government is nervous about imposing new costs on Egyptians, deferring reforms will only worsen conditions and make the necessary adjustments more painful.

>> Read full op-ed

China Could Reform Its State Businesses by Stealth

Nicholas R. Lardy
Published in the Financial Times
  Nicholas R. Lardy Short-term interest rates in China's interbank market jumped to historic highs recently. The move raised questions about the competence of the country's monetary policymaking, growth prospects, and the trajectory of economic reform under President Xi Jinping and Prime Minister Li Keqiang. The view that the People's Bank of China (PBoC) was caught by surprise and was slow to react, however, is unfounded. The PBoC deliberately allowed rates to rise as a shot across the bow of midsized financial institutions that were borrowing heavily in the short-term interbank market to finance longer-term loans. The message of these recent developments in China's money markets is that broader interest rate reform is coming, with positive impact on China's state businesses to result.

>> Read full op-ed

  Policy Brief 13-17
A Realistic Bridge Towards European Banking Union

Nicolas Véron
  Nicolas Veron New obstacles to the European banking union have emerged over the last year, but a successful transition remains necessary and possible. The European Central Bank (ECB) gains supervisory authority over most of Europe's banking system in late 2014, but first there must be a rigorous balance sheet assessment that is likely to trigger significant bank restructuring, for which preparation has not started. This step will be more consequential than current discussions about a bank resolution directive and bank recapitalization by the European Stability Mechanism (ESM). The ECB's new authority, accompanied by a later change in the European treaties to establish the legal basis for a union, will serve as a bridge to a sustainable banking policy framework for Europe.

>> Read full Policy Brief [pdf]

  Congressional Testimony
Impact of Recent and Pending Free Trade Agreements on Small Businesses

Gary Clyde Hufbauer
  Gary Clyde Hufbauer Challenges to America's export potential will not be addressed by even the most ambitious free trade agreement (FTA). Reform is also required at home, starting with help for more than 300,000 American small business firms that directly export goods and services to foreign markets and account for a third of US merchandise exports. FTAs help lower their costs by eliminating tariffs, cutting red tape at the border, and simplifying international payments. But the United States should act to help small businesses by improving trade infrastructure and access to finance.

>> Read full Congressional testimony [pdf]

Mark Carney: What Should He Do Now? "Stop Buying Gilts"

Adam S. Posen
Published in the Guardian
  Adam S. Posen The impact of monetary policy depends on what a central bank buys, and which institutions it transacts with. The Federal Reserve and the Bank of Japan are already putting this principle into action with success. It is time for the United Kingdom's monetary policy committee (MPC) and its new governor to observe these examples, and buy securitized bundles of small, medium, and new enterprise debt. The Bank of England's new Governor Mark Carney and the MPC will be tempted to make an announcement that rates will not rise until certain targets are met, but stopping at cheap talk will not be enough.

>> Read full op-ed

Thank You, Mr. Bernanke?

Arvind Subramanian
Published in the Business Standard, New Delhi
  Arvind Subramanian The prospect that Ben Bernanke, chairman of the US Federal Reserve, could withdraw some of the liquidity provided to the United States and the rest of the world has created uncertainty and currency panic in India. But the rupee crisis might have a silver lining. With elections looming, the government's ability to pursue an ambitious and proactive reform agenda is limited. The elections will be closely contested and add to pressures on the government to spend on popular programs. These may be countered by external pressures driven by the rupee crisis. Such a constraint may strengthen the hands of reformers within government.

>> Read full op-ed

Peterson Perspectives Interviews

audio  US-European Trade Talks Start: Part I
  Jeffrey J. Schott assesses the obstacles and opportunities in the Transatlantic Trade and Investment Partnership (TTIP) talks.

audio  US-European Trade Talks Start: Part II
 Jeffrey J. Schott says disclosures about US internet and telephone spying and France's desire to protect homegrown entertainment could make it harder to reach a deal.

audio  US-China Relations: A New Round of Talks
Nicholas R. Lardy says that the upcoming Strategic and Economic Dialogue will focus heavily on mutual charges of hacking and cyber espionage.

audio  China's Credit Squeeze: How Big a Threat?
Nicholas R. Lardy discusses the turmoil surrounding short-term rates in China and says long-term growth, while slowing down, is not threatened.

audio  What Do the Turks Want?
Caroline Freund says that behind the political issues, Turks are upset about the declining economy and the government's development priorities.

Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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Beware of Greeks Bearing Debts?

The Road to a European Banking Union: Part III

The Road to a European Banking Union: Part II 

The Road to a European Banking Union: Part I

Another View on the Currency Wars
  The Link Between China's Currency Policy and Bank Liquidity

Why China Does Not Need to Worry About Japanese QE

President Xi's Americas Tour Reveals Economic Leverage as a Driver of China's Foreign Affairs

China's Never-Ending Stimulus

Getting Used to Slower Growth in China: Quality over Quantity
  Refugee memoir blog

North Korea's vulnerability to a China shock

Mysteries of the Yanggakdo International Hotel

Ambassador Sin Son Ho: One Wild and Crazy Guy

STTB: The alphabet soup edition: POTUS, OFAC, BBC, SACP, and, uh, Paradise Island?

PIIE Noted in the News and on the Web

Bloomberg TV
Budget Deal Is Yoke Off Shoulder of EU
Jacob Funk Kirkegaard joins Bloomberg's Mark Crumpton to discuss the importance of the European Union's new budget deal.

CCTV's Biz Asia America
Jeffrey Schott Discusses Trade Relations Between China and South Korea
Jeffrey J. Schott discusses the recent China–South Korea Summit and China's interest in the Trans-Pacific Partnership.

France 24
Baltimore Port Welcomes Panama Canal Expansion
Barbara Kotschwar discusses the significance of the Panama Canal expansion enabling larger ships from China to access ports on the East Coast of the United States.

Preview of Our Next Issue

Policy Brief
Avoiding the "Resource Curse" in Mongolia
Theodore H. Moran
In This Issue

Heidi Crebo-Rediker Women as a Driver of Economic Growth

Heidi Crebo-Rediker
Chief Economist, US Department of State

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