"ReSearch for the Future" magazine (Pdf, 10 Mb) - Lund University

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A shared appro– the solution to the financial crisisEconomy & EnvironmentDid you know ...?... Lund University conducts research in engineering,science, law, social sciences, economics, medicine,humanities, theology, art, music and dramaThe financial crisis has shown that a new type ofeconomist is needed; one who is better at linking theory withpractice and who also has knowledge of other fields such as law,political science and natural sciences. This is according toKlas Eklund, Adjunct Professor of Economics andsenior economist at SEB.Earlier exaggerated optimism on the state of the world,a dysfunctional political system in the USA and a halffinishedmonetary union without functioning crisismechanisms in Europe – these are three causes of thecurrent economic situation, in the view of Klas Eklund.He believes that the academic discipline of economicshas become far too specialised.“We sit in our pigeonholes and are extremely good atwhat we do, but in very narrow fields. In this situationit is easy to lose sight of the bigger picture.”The time before the financial crisis in the US in2008 was characterised by an unhealthy optimism, inhis view.“There was talk of ‘the great moderation’, thatthe economic cycle was dead and that we were in asort of ‘super cycle’. When economists make up newterms and speak in this manner, we have reason tobe afraid.”Cross-disciplinary workKlas Eklund sees overconfidence in economic growthand rising asset prices as a reason for the crisis.“Things that are stable produce the seeds of instability.For example, if house prices rise quickly weshould not presume that they are going to continuerising forever. We should rather suspect that a crash isapproaching.”This year the Knut Wicksell Centre of Finance wasinaugurated at the School of Economics and Managementat Lund University. Klas Eklund says that this isa way for Lund University to broaden the economicsdiscipline.“At the Centre, economists collaborate with researchersin demographics, law, business economicsand economic history. Cross-disciplinary work enablesus to uncover risks at an earlier stage.”One of Klas Eklund’s duties as adjunct professor atthe School of Economics and Management is to providestudents and colleagues with a clear link ‘betweenacademia and reality’. He does not think it is possibleto prevent future crises, but we can at least make surethat we do not make the same mistakes again.14 reSEARCH for THE FUTURE
Did you know ...?... Lund University Commissioned Education makes the resources ofSweden’s strongest university available to companies, organisations andauthorities aiming to develop their business and staff? www.education.lu.seNew thesisstudies conditionsfor bank aid in EUBecause of the major importance ofbanks for the financial system, theEU’s application of the rules on stateaid has become more flexible. Butshould all banks that are in difficultyreceive support? Catrin Karlsson fromLund University School of Economicsand Management has studied thisquestion in her thesis in business law.The results entail both good and badnews for the banks.In her thesis, State aid to the banking sector,Catrin Karlsson argues for stricter applicationof state aid for the banking sector. Since theresults could be significant for the EU’s imminentreform of the rules on banking aid,the thesis entails both good and bad news forthe banking sector.“Banks that are fundamentally healthy andefficient could find that a strict application ofthe rules has positive consequences because itcould lead to the limiting of aid to inefficientbanks whose problems stem from their businessmodel or business methods”, says CatrinKarlsson.ach“At the moment we are discussing whether the deregulationwent too far and what the future will be like.It is important in this context not to lose all faith inthe markets, but rather to ensure that the markets workbetter in the future.”Green capitalism aheadProfessor Eklund also wants to open the door to science,which he believes has to lot to teach economists in termsof understanding the earth’s resources. Klas Eklundwants to see a transition to ‘green capitalism’, where theprice mechanisms and markets can be used to steer developmentsin the right direction. He does not thinkthe discussion should be about whether we are to havehigh or low growth, but rather about the ‘right’ growth.He also believes that economists need to improvetheir understanding of how people think and justifytheir decisions.“The field of experimental economics is showingexplosive growth at the moment. Researchers look athow people act in different choice situations – whatmotivates our decisions in reality and not just in theory.”Klas Eklund does not rule out the possibility that thecurrent crisis will continue.“There is a risk that we may see a long period of repercussions.In the US, the labour market is stagnatingand households are being cautious. In Europe it willtake many years to sort out the Euro crisis.” ●Stricter conditions appliedAgainst its own guidelines, the EuropeanCommission currently approves all aid tobanks that are in difficulty, regardless of marketconditions. The thesis presents a numberof conditions that must be fulfilled in orderfor aid to banks to be approved according tothe EU’s state aid rules. The conditions arebased on the Commission’s own guidelines.“Cases that are alike should be treated alike,and cases that are different should be treateddifferently. If stricter conditions were applied,we could limit the distortion of competitionbetween banks in the EU”, says Catrin Karlsson.The results show that decisions on whoshould receive aid should be based on thestate of the market and the bank, as well ason the design and necessity of the measures.“In normal market conditions, the opportunitiesfor banks to receive aid should generallybe limited”, says Catrin Karlsson, adding:“During a system crisis, it should be moredifficult for a small bank with low risk exposureto receive aid. An exception could bemade when the bank is important for loans tothe regional real economy. In the same way,support to large banks that are suffering as aresult of inefficient working models with excessiverisk taking should be limited.”To support her study, Catrin Karlsson hasstudied legal sources and ploughed throughpiles of banking decisions from the EuropeanCommission. The results present a systematicmodel to create better, more targeted stateaid for banks. ●reSEARCH for THE FUTURE 15
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