Coppola Comment

I always find the views of former policymakers fascinating, not least because of their tendency to become much more outspoken once they are out of office. Some express much more radical views than they did while in office: Larry Summers springs to mind, and Adair Turner. Others become critical of the institutions that they ran: Mervyn King, for example. The latest former policymaker to reveal what he really thinks is Vítor Constâncio, Vice President of the ECB from 2010 to 2018. In a fascinating lecture at the London School of Economics, he discussed the causes of the Euro crisis, the policy responses to it, and what should be done to prevent such a disaster happening again. The entire lecture is on an LSE podcast (audio only, sadly), but Vítor released four of the slides from his presentation on Twitter, with brief comments . The slide that has attracted the most attention is this one: Many people seem to have interpreted this as some kind of mea culpa. And the slide doe...

The EU has laid out its negotiating strategy for Brexit. Well, not officially yet, of course - the letter triggering Article 50 won't be delivered until tomorrow, 29th March. But as is its wont, it has made its intentions clear in the press. In an op-ed in the FT , Michel Barnier, the EU's chief negotiator, has stated in no uncertain terms how he expects the negotiations to proceed. He identifies three crucial issues that must be resolved before there can be any discussion of future trading arrangements between the EU and UK: the rights of EU citizens living and working in the UK continuing funding for current beneficiaries of EU programmes the border between the Republic of Ireland and Northern Ireland.  The first of these responds to Theresa May's continued refusal to guarantee the rights of EU citizens currently living in the UK. Tellingly, Barnier makes no mention of UK citizens living in the EU. If May won't guarantee EU citizens' rights, he implie...

"No deal for Britain is better than a bad deal", says Theresa May. Her Brexit sidekick David Davis appeals to MPs not to "tie her hands". And that master of flannel, trade secretary Liam Fox, says that leaving without a deal would be "not just bad for the UK, it's bad for Europe as a whole". These three statements sum up the hopes of the Brexiteers. The idea seems to be that if the UK adopts a really strong stance in its forthcoming negotiations with the EU, the Europeans will be so horrified at the prospect of the UK leaving without any agreement that they will cave in and give the UK what it wants. Welcome to the Brexit game of chicken. On the face of it, the UK government's negotiating principles appear sound: set out your red lines, make it clear that you won't tamely agree to everything the other side wants and that you will walk away rather than give ground on things that really matter. But if you are going to play brinkmanshi...

Should Greece leave the Euro? That was the title of the Oxford debate at the Prague Summit in which I had the pleasure of participating yesterday. But this is the wrong question. Unless there is a considerable shift in Eurozone politics, Greece WILL leave the Euro - eventually. The question is when, and how. To see this, we need to look at the motivations of all the players involved in the negotiations. The Greek negotiations resemble a "prisoner's dilemma", in which the best outcome for everyone is achieved through collaboration but the participants don't trust each other enough to collaborate. Games are fundamentally psychological, and their outcome is often determined by unspoken or even unconscious drivers. In this case, despite the collaborative rhetoric of the Memorandum of Understanding , distrust and self-interest are the real drivers of the negotiations. In such a situation, true collaboration is impossible and the eventual outcome must be negative f...

The Eurogroup (part of which is pictured above) has produced a statement on the outcome of the latest debt talks with Greece. As ever with Eurogroup statements, it confuses more than it enlightens. So here is my attempt at translating Eurogroup-speak into plain English. __________________________________________________________________________________ The Eurogroup welcomes that a full staff-level agreement has been reached between Greece and the institutions.  Phew. We got that through before the Brexit referendum. Also, the Eurogroup notes with satisfaction that the Greek authorities and the European institutions have reached an agreement on the contingency fiscal mechanism, which is in line with the Eurogroup statement adopted on 9 May in particular as regard the possible adoption of permanent structural measures, including revenue measures, to be agreed with the institutions. It therefore provides further reassurances that Greece will meet the primary surplus targets ...

Notes from a talk given at Trinity Business School, Dublin, on 26 th May 20164 Well, it depends what sort of crisis you mean. Have we done enough to prevent a crisis like the last one? Yes. We have scared ourselves so much about the dangers of disorderly bank failure that no way are we going to allow that to happen again – at least, not until we who lived through the crisis, and our children and grandchildren whom we tell about the crisis, are long gone and our legacy forgotten. No-one now would allow a bank like Lehman to fail. We might close it down, but we wouldn’t simply allow it to go bankrupt overnight. We learned from the 2008 crisis that systemically-important banks must not be allowed to fail. And since we do not really know which banks are systemically important and which are not, that means that anything large enough to save, must be saved. Only very tiny banks can fail. The rest will be rescued, one way or another. Most often, banks are rescued by ...

It's not going to come from people working more. Excerpt from the IMF's latest Debt Sustainability Analysis for Greece , just released: Oh dear. Quite apart from the negative contribution to growth, the prospect of unemployment taking 44 years to return to something approaching normality is simply appalling for Greece's population. I've looked in more detail at this here  (Forbes). Well, if labour isn't going to drive growth, there's always investment, yes? Er, not really. The outlook for capital investment doesn't look too good either: Yeah, about that financial sector.....Greek banks are still in crisis, it seems. The IMF thinks they will need another 10bn Euros on top of the 43bn they have already received, and even with this, they aren't going to lend. And they aren't worth anything, so can't even be sold to raise money. Greek banks are zombies, and like all zombies, they drain the lifeblood of their victims. They are a serious o...

On October 30th 2015, I gave a keynote speech at Birmingham University's Finance Forum on the implications of Grexit and Brexit for financial stability. I've now written this up as a paper. I start by outlining the purpose of financial stability. Since the 2007-8 financial crisis, “financial stability” has been all the rage. We must prevent another crisis: we must solve the problems that make our financial system “unstable”.  But what exactly do we mean by “financial stability”? Most people would define a stable financial system as one which doesn’t fall over when it is hit by a major shock; doesn’t cost us huge amounts of money in repair bills when it is hit by a major shock; doesn’t draw in its horns and refuse to lend when the going gets tough; doesn’t become over-exuberant and lend far too much at too high a risk when times are good.  But financial stability is not an end in itself. Rather, it is a means to an end. What we really want is a financial system...

My Forbes post on the threat to democracy in the EU touched a nerve. Well, several nerves, actually. Some people regarded my invocation of the Prague Spring as insulting to the people who suffered under Soviet oppression: others objected to my comparison of the benevolent EU with the evil USSR: and a few complained that I had presented the Syriza government as "martyrs", when they are nothing of the kind. And lots of Portuguese called me out for misrepresenting how their parliamentary democracy works. First, let me deal with the Portuguese. I'm not going to discuss the Portuguese semi-presidential political system, here or anywhere else. I don't claim to be an expert on the political system of my own country, let alone someone else's. In the Forbes post, I was careful not to suggest that the Portuguese President had exceeded his constitutional authority. I criticised his words, not his actions. Unfortunately it appears that my post, like others on similar...

Everyone has been so transfixed by Yanis Varoufakis's "Plan B" revelations that his defence of the ECB's Mario Draghi passed unnoticed. Here it is, transcribed from the Lamont tape by Peter Spiegel at the FT: Mario Draghi has handled himself as well as he could, and he tried to stay out of this mire, the political mire, impressively. I have always held him in high regard. I hold him in even higher regard now, having experienced him over the last six months. Having said that, the European Central Bank is set up in such a way that it is so highly political, it is impossible not to be political. Don’t forget the ECB, the central bank of Greece – because that’s what the ECB is, it’s the central bank of all our member states – the central bank of Greece is a creditor of the Greek state, and therefore it is also [break in audio] once it is the lender of last resort, supposedly, and the enforcer of fiscal austerity. Now, that violates, immediately, the supposed disti...