This note provides an account of the major milestones in the evolution of the economic governance in the European monetary union, assessing the reforms in governance frameworks of the EMU from 1997 up to mid-2013. It mainly focuses on the post-2010 reforms, where the financial crisis and the ensuing sovereign debt crisis exposed the weakness of the economic governance framework of EMU in Europe. It also highlights the on-going proposals for further coordination and cooperation that have been brought forward but still require agreement among Member States. The note suggests that while the commitment shown to introduce stricter fiscal rules and enhanced surveillance was a necessary step forward for sustaining the credibility of the single European currency, further reforms focusing on deepening European integration are still needed. ; N/A
We analyze the similarities and the differences in the fragility of the European Monetary system (EMS) and the Eurozone. We test the hypothesis that in the EMS the fragility arose from the absence of a credible lender of last resort in the foreign exchange markets while in the Eurozone it was the absence of a lender of last resort in the long-term government bond markets that caused the fragility. We conclude that in the EMS the national central banks were weak and fragile, and the national governments were insulated from this weakness by the fact that they kept their own national currencies. In the Eurozone the roles were reversed. The national central banks that became part of the Eurosystem were strengthened. This came at a huge price, i.e. the fragilization of the national governments that could be brought down by the whims of fear and frenzy in financial markets.
We analyze the similarities and the differences in the fragility of the European Monetary System (EMS) and the Eurozone. We test the hypothesis that in the EMS the fragility arose from the absence of a credible lender of last resort in the foreign exchange markets while in the Eurozone it was the absence of a lender of last resort in the long-term government bond markets that caused the fragility. We conclude that in the EMS the national central banks were weak and fragile, and the national governments were insulated from this weakness by the fact that they kept their own national currencies. In the Eurozone the roles were reversed. The national central banks that became part of the Eurosystem were strengthened.
We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.
We study the monetary-fiscal mix in the European Monetary Union. The medium and long-run effects of conventional and unconventional monetary policy are analysed by combining monetary policy shocks identified in a Structural VAR, and the general government budget constraint featuring a single central bank and multiple fiscal authorities. In response to a conventional easing of the policy rate, the cumulated response of the fiscal deficit is positive. Conversely, in response to an unconventional easing affecting the long end of the yield curve, the primary fiscal position barely moves. This is consistent with the long-run effect of unconventional monetary easing on the price index, which is about half that of conventional easing. The aggregate long-run cumulated surplus is mainly driven by Germany's fiscal policy during the period in which unconventional monetary policy was adopted.
Introduction: European enlargement generally refers to the inclusion of new states into the European Union's Treaty area. This article considers instead the enlargement of Economic and Monetary Union into Africa. We know that no part of Africa is in the EU, though Morocco has sought to join, and the island of Mayotte belongs to an EU member state (France) and uses the euro. But the EU's single currency area is not identical with its monetary area. This article is about EMU beyond the EU itself, and in particular about the monetary shadow European colonial history has cast over western and central Africa. Here as well as in the Comoros islands three local currencies were long in the monetary area of France, and are now but local expressions of the euro. That was why in the late 1990s the impending introduction of the single European currency aroused considerable interest and some anxiety in those African countries that faced possible inclusion in the EU's monetary union. The question was whether the EC institutions should take over responsibly for monetary policy in the former French African overseas territories, although they are not in the EU now, and were never part of the EEC before independence. Alternatively, experts in Europe and in Africa considered whether France should maintain its monetary guarantee, and if so, whether the CFA franc should be decoupled from the future European currency. Finally, the CFA franc zones could simply disappear. Today currencies in the fourteen Francophone states plus those of two of Portugal's former African overseas countries are simply local variants of the euro. This paper briefly puts this strange situation in its historical context, considering what has changed and what has not with the changeover from the franc CFA pegged to the French franc, to a franc CFA pegged to the euro. I shall then ask, together with mainly African economists, political analysts and politicians, whether Africa's proxy euro zone should expand to take in perhaps the entire sub Saharan continent, which has a privileged trade and aid relationship with the EU. Alternatively, do Africans and Europeans see a European monetary zone in Africa as an opportunity or as an anachronistic burden? Do Africans within the zone want to remain tied to the EU to a degree that exists in no other sovereign states outside Europe? Two of the three CFA franc cum euro monetary zones have expanded both in nature and in geographical extent, having become economic unions and taken in two ex Portuguese dependencies. Do these now wish to form even larger units and turn themselves into regional common markets, with a common currency that in reality is not a currency at all, but only one or several local variants of the euro? How do other African states regard such ambitions? The answers to these questions require first a brief historical comment.
This book provides an analysis of the global monetary system and the necessary reforms that it should undergo to play an active role in the twenty-first century. As its title indicates, its basic diagnosis is that it is an ad hoc framework rather than a coherent system—a 'non-system'—which evolved after the breakdown of the original Bretton Woods arrangement in the early 1970s. The book places a special focus on the asymmetries that emerging and developing countries face within the current system, and therefore on the development dimensions of the global monetary system and of global monetary reform. The book proposes a comprehensive yet evolutionary reform of the system that includes: (i) provision of international liquidity through a system that mixes the multi-currency arrangement with a more active use of the IMF's Special Drawing Rights (SDRs), the only true global currency that has been created; (ii) stronger mechanisms of macroeconomic policy cooperation, including greater cooperation in exchange rate management, and freedom to manage capital flows as a complement to counter-cyclical macroeconomic policy and other instruments of financial regulation; (iii) additional automatic balance-of-payments financing facilities, and the complementary use of swap and regional arrangements; (iv) a multilateral sovereign debt workout mechanism; and (v) major reforms of the system's governance, based on a more representative apex organization, more equitable participation of emerging and developing countries in decision-making, and a network of global, regional, inter-regional, and sub-regional organizations.
Channel systems for conducting monetary policy are becoming increasingly popular. Despite their popularity, the consequences of implementing policy with a channel system are not well understood. We develop a general equilibrium framework of a channel system and investigate the optimal policy. A novel aspect of the channel system is that a central bank can tighten or loosen its policy without changing its target rate by increasing the interest-rate spread symmetrically around the target rate. This questions the characterization of optimal policy through interest-rate rules, as done in a large body of the literature on the optimal design of interest-rate rules.
Este trabajo desarrolla modelos "VAR identificados" para Francia y España, con variables monetarias alemanas para identificar shocks de politica monetaria durante el periodo en el que el tipo de cambio esta casi totalmente controlado por el mecanismo de cambio del SME. Se prueban distintos supuestos identificadores para las interacciones contemporaneas de politica monetaria. Las respuestas impulso a shocks de politica monetaria y los parametros estimados de la funcion de reaccion monetaria sugieren que el esquema de identificacion que conlleva una reaccion contemporanea unilateral a politicas monetarias no alemanas al tipo de cambio respecto al marco y al tipo de interes alemanes, y el que conlleva reacciones contemporaneas de la autoridad monetaria no alemana y del tipo de interes aleman a los tipos de cambio bilaterales, parecen supuestos identificadores razonables en estos paises. (sk) (mac)
The EMS negotiations were centred on the debate on symmetry. High inflation countries struggled to introduce elements to force a more symmetrical functioning of the system than the Snake. However, these attempts found the strong opposition of the German government, which was able to impose its stance in all aspects determining the symmetry of the system. The main reason for this was that Germany benefitted from a bigger bargaining power during the discussions, mainly explained by the particular institutional design of monetary policy in Germany, in which the Bundesbank enjoyed a strong reputation and an exceptional degree of autonomy. For countries like Italy or Ireland, the EMS design did not meet their minimum requirements to join. However, both countries decided to join the system anyway. In these countries, domestic debates on EMS membership were highly influenced by other economic and political national discussions, which would determine their eventual decision to join the EMS ; Las negociaciones sobre el SME se centraron en el debate de la simetría. Los países de inflación elevada intentaron introducir elementos que impusiesen un funcionamiento del sistema más simétrico que el de la Serpiente. Sin embargo, estos intentos se encontraron con la oposición alemana. El gobierno alemán consiguió imponer su postura en los aspectos que determinaban la simetría del sistema. La principal razón por la que Alemania consiguió imponerse fue su mayor poder de negociación durante las discusiones, que se explica principalmente por el diseño institucional de la política monetaria en Alemania, donde el Bundesbank gozaba de gran reputación y un nivel excepcional de autonomía. Para países como Italia e Irlanda, el SME no satisfacía sus principales requisitos. No obstante, ambos países decidieron entrar. En estos países, los debates domésticos sobre el SME estuvieron fuertemente influenciados por otras discusiones sobre cuestiones económicas y políticas.
Monetary regulation is one of the most important components of government policy. The monetary regulation policy of the European Central Bank has undergone important transformations over the past ten years as a result of measures that were taken in response to the global financial crisis of 2008. Today the main problem of the ECB is not inflation, but stimulation of the post-crisis development of European countries. As a result, many new elements have been added to the ideology and practice of monetary regulation. Moreover, new challenges, such as a pandemic, are prompting the ECB to seek new means of influencing financial markets and, ultimately, the real sector of the economy. The paper presents the modern system of monetary regulation in the EU, characterizes its structure and legal status. The consequences of the application of unconventional measures of monetary regulation in the EU in the period after the 2008 crisis and during the COVID 19 crisis were determined. The effectiveness of the ECB's actions in overcoming the crisis was analyzed. On the example of the decision of the Federal Constitutional Court of Germany, the reasons were identified and the consequences of the conflict between the EU legislation and national legislation in the issue of the jurisdiction of monetary regulation were assessed.
Nearly twenty years have passed since the beginning of the transition from the planned economy to the market economy system in Estonia. A successful transition to a market economy requires a sound currency and Estonia introduced its own currency in June 1992. Estonia has been quite successful in achieving economic stability and growth and steadily declining inflation. An essential element of Estonia?s economic development success has been the currency board-based monetary system that has served as a signal of commitment to prudent monetary policy and as a guarantee of sound money during the transition period. We discuss the experience of operating the currency board in Estonia and future prospects of the currency board arrangement in Estonia in the framework of the European Union and the future joining the Economic and Monetary Union.
This paper examines the historical pattern of aggregate demand and supply shocks in several European Monetary System countries in order to assess the desirability of monetary union. Countries with similar patterns of shocks are presumably better candidates for monetary union than those hit by wildly disparate shocks. The historical time series of shocks is identified by estimating a vector autoregressive model while imposing the restriction that demand shocks have no permanent effect on real output. In most cases supply shocks are positively correlated with those of Germany, but the negative correlation of demand shocks suggests that monetary union may not be desirable.
The paper scrutinizes the spillover effects of expansionary monetary policies of a center economy to the macroeconomic policies of periphery countries, dependent on the exchange rate regime. In particular the impact of the US quantitative easing on the Chinese economy is analysed. The results suggest that the exchange rate regime plays a minor role in insulating the economies at the periphery of the world monetary system from monetary policy shocks in the center. The only exception is capital controls which enable the periphery countries, in particular China, to maintain a certain degree of monetary independence in the short run. In the long run a closer Chinese-European policy coordination is argued to create a counterbalance to the predominance of the US dollar in the currently asymmetric world monetary system. This would provide an incentive to the US to phase out undue monetary expansion.
