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Abstract.  We provide evidence indicating that countries with well developed social security systems do not necessarily face a trade‐off between social spending and competitiveness. On average, countries that spend a lot on social needs score well in the competitiveness league. We investigate the importance of a reverse causality from competitiveness to social spending, and find that this is weak. We also present some possible explanations for our empirical finding. Finally, we interpret our findings in the framework of a theoretical model in which risk affects the size of the social sector and social spending affects the production function of the private sector.

The financial crises of the 1990s have created the perception that one of the fundamental reasons for the occurrence of such crises is to be found in the fact that exchange rates were pegged for too long. These pegged exchange rates inevitably invited speculative attacks in the foreign exchange markets that quite often spilled over to the banking sector, and led to banking crises. Recently, the analysis of the financial crises has led to a new consensus among policy makers, i.e., the bipolar view (see Fischer, 2001). According to this view, countries should allow for either flexible or irrevocably fixed exchange rates in order to avoid future crises while the intermediate solutions, such as pegged exchange rate regimes, should be avoided. The advantages of such intermediate exchange rate regimes have been offset by the disadvantages in terms of uncertainty in the financial markets. In this paper we analyse this link between the exchange rate regime and the probability of financial crises. We first analyse in the next section the relation between the exchange rate regime and the occurrence of foreign exchange crises, while Section 3 briefly reviews the associated empirical evidence. We then study the relation between the exchange rate regime and the occurrence of banking crises (Section 4). This analysis will also allow us to connect crises in the foreign exchange markets and banking crises. Section 5 concludes.

Paul de Grauwe s'insurge dans cet article contre le risque d'une interprétation trop rigoriste, voire fétichiste, des critères de Maastricht. Le critère de convergence inflationniste est déjà suffisamment respecté ; celui de convergence des taux d'intérêt est dangereux car il met en jeu une dynamique autoréalisatrice vulnérable aux comportements spéculatifs et privant les politiques de la responsabilité du choix. Quant aux critères budgétaires, leur raison d'être et leur relation au problème de l'union monétaire ne reposent que sur des arguments bien ténus. Il est donc temps de proclamer la « victoire de la convergence » et de décider que l'Union monétaire se fera dans les délais, avec tous les pays qui le souhaitent (à l'exception possible de la Grèce).

Retail prices of major drugs like cocaine and heroin have declined dramatically during the last two decades. This price decline has tended to offset the effects of drug policies aimed at reducing drug use in major industrial countries. The main finding of this paper is that the decline in the retail prices of drugs is related to the strong decline in the intermediation margin (the difference between the retail and producer prices) in the drug business. We develop the hypothesis, and give some evidence, that globalization has been an important factor behind the decline of the intermediation margin. We conclude with some thoughts about the effects of globalization on the effectiveness of drug policies and argue that globalization may have increased the relative effectiveness of policies aiming at reducing the demand of drugs.