Louis Rouanet

July 9, 2017

The Death of the European Banking Union

In early June, the failure of the Spanish bank Banco Popular seemed to work smoothly under the new European resolution rules. The relatively new Banking Union seemed to work in achieving its goal to limit moral hazard. Losses were imposed upon junior bondholders and shareholders whereas Spanish taxpayers did not pay a dime. Although there are many defects with the new resolution framework, it seemed to be a step in the right direction. This impression was short lived and died when the Italian government agreed to use €17 billion of taxpayer’s money for two failed banks, Veneto Banca and Banca Popolare di Vicenza, in late June. Thus, Italian senior bondholders will be protected despite the philosophy of the new bail-in framework according which bondholders shoulder […]
June 17, 2017

Britain Should Embrace Unilateral Free Trade Right Now

If we read the newspapers or listen to the experts, Britain faces two ways to negotiate its way out of the European Union without succumbing to the protectionists’ sirens. The first is a deal à laNorway not only with full access to the common market, but also with full implementation of EU law and a contribution to the EU budget as is the case for every member State. The second option would be a trade treaty such as the one negotiated between the EU and Canada. However, a viable third opportunity exists: unilateral free-trade. Contrary to what is often assumed, unilateralism is not simply a utopian libertarian ideal which cannot be reached in today’s world. Unilateral free trade is genuine free-trade. It is also the […]
June 8, 2017

How Political Competition Made Europe Rich

In the quest to explain economic development, institutional competition has been almost systematically ignored by many economists and historians alike who have fallen under the spell of the interpretation of nineteenth-century German historicists. The members of the German historical school, and especially Schmoller and Bücher, saw the state as the institution that was responsible for the creation of both the market and modern capitalism. Modern institutionalists, although they differ from historicists in many ways, have accepted this narrative, arguing that political centralization is a prerequisite to economic development. One book showing this tendency to accept the historicist narrative can be found, for instance, in Acemoglu and Robinson’s Why Nations Fail (2012). Distinguishing between extractive and inclusive institutions, Acemoglu argues that centralization is a necessary step […]