Michael Wickens's picture
Affiliation: 
Cardiff Business School & University of York
Credentials: 
Professor of economics

Voting history

Deal or no deal: The Greece standoff

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
Disagree
Confidence level:
Confident
Comment:
The aim of the tax rises is to persuade creditors to extend more credit rather than to pay off existing debt. This might provide a political fig-leaf for providing more short-term relief. But the economic basis for extending credit is a credible long-term fiscal policy.

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Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

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Answer:
Agree
Confidence level:
Confident
Comment:
Unless the maturity date of Greek debt is rescheduled (in effect a default), and sustainable reforms are implemented which keeps capital markets open to Greece there is no viable alternative to default.

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Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

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Answer:
Agree
Confidence level:
Very confident
Comment:
Greece's short term problem is its 180 percent debt-GDP ratio. The additional proposed tax revenues will have little effect on this except as a demonstration of longer term intent. They will also further reduce economic growth in the short term. The key to Greece's survival in the eurozone in the long term - which is what further lending to Greece should be based on - is more fundamental reform to public finances and labour markets. For example, if raising tax revenues from labour income is so difficult then much higher VAT must be used to fill the gap on the mainland as well as the islands. And why wait until 2025 to raise the pension age to 67?

Monetary policy and the zero lower bound (ZLB)

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Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

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Answer:
Disagree
Confidence level:
Confident
Comment:
I don't see why the monetary system needs to be reformed to allow negative nominal rates, especially as they are likely to be a short-term measure. They are, however, of very doubtful effectiveness and are unlikely to offset the costs of the distortions they bring to financial markets and savers. If the market chooses negative rates then so be it. Otherwise I would avoid them as a policy measure. The problem is that a hysteresis effect has developed in which the precise level of interest rates is probably of far less importance than the signal that even a small rise in interest rates would give. As a result monetary policy in the UK is paralysed.

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Question 1: Do you agree that it is feasible for the UK authorities to change the monetary system so that materially negative policy interest rates could be safely implemented? (In answering, you may wish to explain your reasons and define your view of 'material')

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Answer:
Agree
Confidence level:
Extremely confident
Comment:
Negative nominal rates are clearly feasible. But as they are also distortionary if the real rate of discount is non-negative, they are not desirable and will not be feasible for long. Moreover, they do not seem to have proved effective at stimulating credit growth.

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