Suchergebnisse

This policy contribution describes the institutional flaws of the single currency revealed by the euro crisis and the institutional reforms that were put in place during and in the aftermath the crisis, and evaluates the remaining fragilities of the architecture of the European monetary union. In order to achieve a more resilient monetary union in Europe, we propose: 1) to form a 'financing union' through the completion of the banking union and the promotion of an ambitious capital markets union to provide private risk sharing between the countries of the monetary union; and 2) to improve the defective macroeconomic policy framework to avoid a repeat of the mistakes of recent years. The latter involves: reforming the European Stability Mechanism / Outright Monetary Transactions framework to clarify its functions and improve its governance system, reforming the European fiscal rules to make them more effective to achieve the two desirable objectives of sustainability and stabilisation, and creating a small-scale euro-area stabilisation tool to provide public risk sharing in case of significant shocks that members of the monetary union cannot deal with alone and to help manage the euro-area aggregate fiscal stance. A promising option to carry out these tasks would be to establish a European Unemployment Insurance Scheme. To ensure the democratic legitimacy of this overhauled euro-area governance framework, a European Fiscal Governing Council composed of six executive board members - including a euro-area finance minister - and of the finance ministers of the euro-area countries, would oversee the whole system and exercise the necessary discretion, while being accountable to the European Parliament in euro-area format.

This paper describes the institutional flaws that led to the euro crisis, assesses the institutional reforms that were put in place during and in the aftermath of the crisis, and evaluates the remaining fragilities of the architecture of the European monetary union. In mid-2017, growth in the euro area appears to be finally picking up after 10 years of recessions and slow recoveries. European leaders should not be complacent and wait for the next crisis to complete the single currency architecture. On the contrary, these quieter times offer a good occasion to reflect on the future of euro-area institutions and to build a more permanent setup than that implemented in the heat of the crisis. In order to achieve a more resilient monetary union in Europe, we propose: to complete the banking union as soon as possible; to promote a really ambitious capital market union able to provide real risk sharing between member states of the monetary union; to reform the use of macroprudential tools and make their use more systematic in order to avoid divergence between countries in financial cycles; and most importantly to improve the defective macroeconomic policy framework to avoid a repeat of the policy mistakes of recent years.

Defence date: 22 April 2015 ; Examining Board: Prof. Elena Carletti, EUI & Bocconi University, Supervisor; Prof. Andrea Mattozzi, EUI; Prof. Bruno Maria Parigi, University of Padoa; Prof. Philippe Weil, Université Libre de Bruxelles. ; Liquidity risk is inherent to the very nature of the banking activity which is to transform short term liabilities into long term assets. That is why liquidity crises are in one way or another implied in most financial crisis episodes. This thesis contributes to the understanding of how liquidity risk and liquidity crises in the banking and financial sector affect the allocation of resources and the functioning of the economy. It also discusses what could be the best institutional arrangements to share liquidity risk across agents and the best economic policies to avoid liquidity crises. It consists of three chapters focusing on diverse aspects of this topic. The first chapter, co-authored with Katerina-Chara Papioti, provides a new way to measure liquidity risk in the financial sector using the bidding behavior of banks in the bond auctions conducted by central banks. The second chapter examines risk-sharing between agents prone to liquidity shocks obtained through generational and intergenerational coalitions and asset trading in overlapping generation economies. Various institutional arrangements including financial intermediaries, stock markets and government interventions are studied in order to compare their risk sharing performance and optimality. The third chapter examines the international dimension of the liquidity issue and studies theoretically what combination of exchange rate regime and central bank policy is less vulnerable to a combined currency and banking crisis focusing on the sudden stop of capital flows as an underlying source of instability.

AbstractThis article argues that the incomplete economic and institutional integration of the euro area has exposed the monetary union to increasing economic divergence, which could be deepened by the COVID‐19 crisis. We discuss how monetary and fiscal measures implemented at the onset of the pandemic have contributed to mitigate the economic consequences of lockdowns, but provided limited insurance to narrow economic gaps across member countries. However, EU countries agreed on July 21, 2020 to develop, for the first time, countercyclical fiscal transfers financed by common debt issuance. We discuss the potential of this instrument to contribute to improve the resilience of the eurozone.

After reaching historically low levels in the first half of 2016, European long-term sovereign yields experienced a notable increase in the second half of 2016 and at the beginning of 2017, before stabilising in the last few months. The nominal long-term interest rate can be decomposed into the following components: a risk-free rate, various premia to compensate investors for future inflation and potential defaults, and a term premium. All of these components have been on a downward trend over the last few years. But some of these trends might have reversed in the second half of 2016, leading to an increase in long-term yields. Understanding the main factors driving interest rates higher in recent months is important. If the rise in interest rates is driven by good news for the economic outlook for the euro area, it would represent a welcome normalisation of the European situation. However, if higher rates are unjustified by economic fundamentals (ie higher growth and inflation expectations), it would represent an unwarranted tightening of financial conditions that could jeopardise the recovery. In fact, the recent movement in sovereign yields in the euro area has resulted from the combination of several factors: 1) a rise in country-specific risks arising mainly from political uncertainty in some euro-area countries; 2) a revision of market expectations for inflation, growth and the path of future interest rates because of good news about the recovery in the euro area; 3) spill-overs from increasing yields in the US coming from the normalisation of monetary policy by the Fed and a potential fiscal policy shift by the new administration; and 4) an increase in the term premium reflecting uncertainty around markets' expectations. The recent rise is thus mainly driven by good news and does not represent a strong tightening of financial conditions for euro-area households and companies, nor does it currently endanger public finances. Moreover, from an historical perspective (especially when compared to the significant decline in yields over recent decades), the recent rise is of a relatively moderate magnitude and very much similar to previous benign episodes of yield increases (such as in early 2015). The ECB should monitor the situation carefully but it should not be a major concern for the moment. Nevertheless, if in the future sovereign yields from euro-area member states drift away from levels compatible with economic fundamentals, or threaten the European recovery and the return of inflation towards 2 percent (which is not the case at the moment) the EuropeanCentral Bank's expanded toolbox should be sufficient to influence the yield curve.

Housing bubbles are a well-known source of financial instability. In addition, given the importance of this sector to the economy, the collapse of such bubbles tends to be followed by deeper recessions and slower recoveries than other crises, as the recent boom-bust housing cycles in many countries have clearly demonstrated. In the European Union, the policy instruments available to address this and to prevent future housing bubbles are implemented either at the national level (macroprudential policies) or at the euro-area level (monetary policy). However, recent research suggests that house price developments and bubbles are above all a local phenomenon. There are significant regional differences in house price developments within EU countries, in particular between capital cities and other regions. Our results suggest that house price fluctuations in capital cities tend to be more volatile and stronger than in the rest of the countries, warranting more targeted measures at the local level. The authors propose to use differentiated macroprudential policy at the regional level. This could be done with the application of different loan-to-value (LTV) or debt-to-income (DTI) limits for mortgages in capital cities and in the rest of the countries, in order to tighten policy more quickly in areas more prone to overheating. This type of policy has already been successfully applied in Korea. Competent authorities in the EU should consider adding this instrument to their toolkits in order to increase the precision, and therefore the effectiveness, of their policies.

According to the European Union Treaties, the European Central Bank (ECB) is accountable to the European Parliament. In practice, this accountability takes mainly the form of a quarterly Monetary Dialogue between the president of the ECB and the European Parliament Economic and Monetary Affairs committee. We assess the impact of the Monetary Dialogue. We describe the ECB's accountability practices, compare them to those of other major central banks and provide an assessment of the dialogue in the last five years. The Monetary Dialogue could be improved and we make recommendations on this. We also consider what role the Monetary Dialogue could play in the current context of the ECB's evolving role. We discuss in particular forward guidance and quantitative easing. We review the main features and the way in which those policies have been implemented by other central banks. We then suggest the appropriate role for the Monetary Dialogue in relation to each of those policies. We conclude with some observations on the function of the Monetary Dialogue after the establishment of a banking union in Europe

[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives - public debt sustainability and fiscal stabilisation. In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilisation during a recession. However, implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts, leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque. The current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with. The best option, re-designing the fiscal framework from scratch, is currently unrealistic. Therefore we propose to eliminate the structural balance rules and to introduce a new public expenditure rule with debt-correction feedback, embodied in a multi-annual framework, which would also support the central bank's inflation target. A European Fiscal Council could oversee the system.

The COVID-19 pandemic has led to the biggest global recession since the Second World War. Forecasts show the European Union underperforming economically relative to the United States and China during 2019–2023. Southern European countries have been particularly strongly affected. Some sectors have been hit harder than others. Business insolvencies have, paradoxically, fallen. While total employment has almost recovered, the young and those with low-level qualifications have suffered employment losses. Inequality could rise. The pandemic may lead to lasting changes in the economy, with more teleworking, possibly higher productivity growth and changed consumer behaviour. Policymakers must act to prevent lasting divergence within the EU and scarring due to the fallout from the pandemic. The first priority is tackling the global health emergency. Second, the article warns against premature fiscal tightening but suggests additional short-term support to prevent scarring. Third, the article warns against protectionism and advocates for reforms that boost productivity growth further.

Euro-area inflation has been below 1 percent since October 2013, and medium-term inflation expectations are well below 2 percent. Forecasts of the return to target inflation have proved wrong. The European Central Bank should act forcefully, but should undermine neither the major relative price adjustments between the euro-area core and the periphery that are needed, nor the ongoing process of addressing weaknesses in Europe's banking system. Reducing the deposit rate or introducing another long-term refinancing operation could be beneficial, but would be unlikely to change substantially inflation expectations. Government bond purchases would be significantly beneficial, but in a monetary union with 18 different treasuries, such purchases are difficult for economic, political and legal reasons. We recommend a monthly asset-purchase programme of €35 billion with a review of the amount after three months. EFSF/ESM/EU/EIB bonds, corporate bonds and assetbacked securities should be purchased, of which at least €490 billion, €900 billion and €330 billion respectively are suitables. Bonds of sound banks could be considered after the completion of the ECB's assessment of bank balance sheets. While bond purchases distort incentives and make the ECB subject to private and public sector pressure, with potential consequences for inflation, such risks need to be weighed against the risk of persistently low inflation.