Greece: A Credible Deal Will Require Difficult Decisions By All Sides

blanchBy Olivier Blanchard

(Versions in 中文Françaisελληνικά, عربي, and Español)

The status of negotiations between Greece and its official creditors – the European Commission, the ECB and the IMF – dominated headlines last week.  At the core of the negotiations is a simple question: How much of an adjustment has to be made by Greece, how much has to be made by its official creditors?

In the program agreed in 2012 by Greece with its European partners, the answer was:   Greece was to generate enough of a primary surplus to limit its indebtedness.  It also agreed to a number of reforms which should lead to higher growth.  In consideration, and subject to Greek implementation of the program, European creditors were to provide the needed financing, and provide debt relief if debt exceeded 120% by the end of the decade.

Continue reading

European Life Insurers: Unsustainable Business Model

By Reinout De Bock, Andrea Maechler, and Nobuyasu Sugimoto

(Versions in Français and deutsch)

Low interest rates in the euro area pose substantial challenges to the life insurance industry. Insurers—particularly in Germany and Sweden—offer their clients long-term policies, sometimes more than 30 years, without holding assets of a correspondingly long duration. Moreover, many policies contain generous return guarantees, which are unsustainable in today’s low interest rate environment.

In 2014, stress tests showed European life insurers are vulnerable to a “Japanese-like” scenario.

Continue reading

Meeting Rising Pressures to Address Income Inequality—A User’s Guide

By Sanjeev Gupta and Michael Keen

(Version in  EspañolFrançaisРусский中文 and 日本語)

These are difficult times for ministers of finance. Fiscal constraints are tight and raising economic growth a priority. At the same time, income inequality is on the rise, and so is public pressure for governments to do something about it through their tax and spending policies. What’s a minister to do? How can he or she meet these seemingly incompatible demands?

A new IMF paper provides some guidance. Governments, of course, will have their own equity objectives. What the paper aims to do is look at precisely how countries can achieve their distributional goals—whatever they are—at the least possible cost to (and maybe even increasing) economic efficiency. This can help achieve sustainable growth and, in many cases, lead to fiscal savings. An earlier study by IMF researchers found that on average, fiscal redistribution has been associated with higher growth, because it helps reduce inequality.

Continue reading

Death and Taxes May be Certain—But Taxes We Can Make Better

Mick KeenBy Michael Keen

(Version in Español)

Benjamin Franklin famously said these are the only things that we can be sure will happen to us. Certainly taxation has been much to the fore of public debate in the last few years. The latest Fiscal Monitor takes a close look at where tax systems now stand, and where they might, and should be headed. Can we tax better, could we—if we wanted to—raise more revenue, and how does fairness come into it?

A better way to tax

The IMF’s broad advice on the revenue side of consolidation is straightforward.

  • Before raising rates, broaden bases by scaling back exemptions and special treatments, and thereby getting more people and entities to pay taxes;
  • Rely more on taxing consumption rather than labor;
  • Strengthen property taxes; and
  • Seize opportunities to raise revenue while correcting environmental and other distortions by, not least, carbon pricing (to address climate and other pollution challenges).

Continue reading

Seven Billion Reasons to Worry: the Financial Impact of Living Longer

By S. Erik Oppers

Everyone wants at some point to stop working and enjoy retirement.  In these uncertain economic times, most people worry about their pension. Now take your worries and multiply those several billion times. This is the scale of the pension problem. And the problem is likely bigger still: although living longer, healthier lives is a good thing, how do you afford retirement if you will live even longer than previously thought?

This so-called longevity risk, as discussed in the IMF’s Global Financial Stability Report has serious implications for global financial and fiscal stability, and needs to be addressed now.

Here’s the issue: governments have done their analysis of aging largely based on best guesses of population developments. These developments include further drops in fertility and some further increase in longevity. The trouble is that in the past, longevity has been consistently and substantially underestimated. We all live much longer now than had been expected 30, 20, and even just 10 years ago. So there is a good chance people will live longer than we expect now. We call this longevity risk—the risk we all live longer than anticipated.

Risky business

Why is that a risk, you may ask. We all like to live longer, healthy lives. Sure, but let’s now return to those pension worries. If you retire at 65 and plan your retirement finances expecting to live another 20 years (assuming you have enough savings for at least that period), you would face a serious personal financial crisis if you actually live to 95, or— well in your 100s.

Continue reading


Get every new post delivered to your Inbox.

Join 1,233 other followers

%d bloggers like this: