Suchergebnisse

Two questions should be answered in relation to the international role of the euro: is a more important international role for the euro worth pursuing, and what measures would achieve this result, if it is worth pursuing? The most significant benefit for the euro area if the euro played an increased international role would be less dependence on the dollar and a reduced ability of the United States to pursue its political objectives, which are possibly inconsistent with European Union objectives. Historically, international functions have been shared between currencies and the international weights of currencies have evolved according to a limited number of variables. The most important of these are the economic size of the issuing country, the level of development and stability of the underlying financial market, openness to capital movements, a policy stance that encourages currency internationalisation, and political and military power. With the exception of financial stability, these factors do not vary substantially in the short run and give rise to persistent, long-term trends. Thus, in the first twenty years of its existence, the euro has consistently been the second most used international currency, while the dollar has maintained the first position it has held since the second world war. The gap between the dollar and the euro is greatest in the invoicing of commodity trade and as vehicle for foreign exchange transactions, and smallest in cross-border payments. While the ranking of the dollar and the euro has not changed, the euro's share has fluctuated, particularly in its use in international finance, in correlation with the stability of the euro financial market. This has confirmed that a necessary condition for the euro to play a greater international role is the stability of the euro-area financial system. In addition, the completion of banking union, progress on capital markets union, the issuance of a common bond, and more generally the completion of the institutional architecture of the euro area and progress on a common foreign and defence policy, would promote a wider role for the euro. The European Central Bank should also move beyond its neutral attitude towards the international use of the euro. Most of these policies would have effects well beyond the international use of the euro and, while in principle desirable, are not easy to achieve. Proposals on the international role of the euro published in December 2018 by the European Commission were the start of a journey rather than a decisive step towards a greater international role for the euro.

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.

We use a newly-compiled dataset to investigate whether and why European Union countries implement the economic policy recommendations they receive from the EU. We find that implementation rates are modest and have worsened at a time when the economic environment has improved and market pressure on sovereigns has subsided. Implementation has deteriorated in particular among countries designated as having 'excessive' macroeconomic imbalances. We then empirically test three factors that could influence implementation rates: (i) the macroeconomic environment; (ii) pressure from financial markets; and (iii) the strength of EU-level macroeconomic surveillance. The econometric estimates indicate that larger fiscal and current account deficits and a higher probability of sovereign default increase the likelihood of implementation. However, stronger surveillance under the Macroeconomic Imbalances Procedure (MIP) does not seem to drive implementation rates. The quality of governance, the fragmentation of government coalitions and fewer recommendations received are connected to increased implementation, whereas for countries under the MIP, implementation slowed during election years. Finally, recommendations on financial services have a much greater chance of being implemented, whereas those on broadening the tax base, the long-term sustainability of public finance and pension systems, and competition in services are much less likely to be implemented. Overall, economic fundamentals and political economy factors provide only a small part of the answer to the question of why countries reform: ultimately, reform decisions are down to factors outside of the models.

We study whether and to what extent EU countries implement recommendations on macroeconomic imbalances given by the EU in the so-called European Semester. We assess how recommendations have evolved since 2013, based on a new database. We also study how EU recommendations on addressing macroeconomic imbalances compare to recommendations given by the International Monetary Fund. Overall implementation of recommendations by EU countries has worsened in the last few years, in particular when it comes to recommendations addressed to countries with excessive macroeconomic imbalances. The policy content of the recommendations is broadly aligned with economic priorities emphasised by their corresponding legal bases, but to our surprise a sizable share of recommendations, such as on childcare, are also labelled as relevant for resolving macroeconomic imbalances. Moreover, for countries with macroeconomic imbalances, the IMF tends to emphasise financial imbalances more frequently than the EU. We also note that the EU makes significant political choices about which imbalances are judged to be excessive and which are judged not excessive. Low implementation is likely a result of the fundamental dilemma facing the EU. National policies have major cross-border implications making coordination important, but countries take sovereign decisions mostly based on national considerations. We therefore argue that recommendations given in the context of macroeconomic imbalances should be focused on key issues of macroeconomic and cross-border relevance. Moreover, we note a significant gap between analyses as described in the recitals of recommendations and the actual recommendations, and would urge greater consistency. Finally, the European Semester exercise is very difficult to digest and communication of key analyses and recommendations could be significantly improved to make them more accessible to national policymakers.

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.

The 'Brexit bill' is an expected payment to be made by the United Kingdom that would settle its financial commitments when it leaves the European Union. While authors of this Working Paper consider the financial settlement the least important economic issue in the Brexit negotiations, a conditional agreement at least on the methodology for calculating the Brexit bill could be a prerequisite for the more meaningful discussions on the new EU-UK economic relationship after Brexit, such as future trade, financial services and labour mobility cooperation. To bring transparency to the debate and to foster a quick agreement on the bill, the authors make a comprehensive attempt to quantify the various assets and liabilities that might be factors in the financial settlement. The size of the Brexit bill will depend on fundamental political compromises and choices, which is discussed. Based on the different scenarios, the long-run net Brexit bill could range from €25.4 billion to €65.1 billion, possibly with a large upfront UK payment followed by significant EU reimbursements later.

The "Brexit bill" is an expected payment to be made by the United Kingdom that would settle its financial commitments when it leaves the European Union.While authors of this Working Paper consider the financial settlement the least important economic issue in the Brexit negotiations, a conditional agreement at least on the methodology for calculating the Brexit bill could be a prerequisite for the more meaningful discussions on the new EU-UK economic relationship after Brexit, such as future trade, financial services and labour mobility cooperation. To bring transparency to the debate and to foster a quick agreement on the bill, the authors make a comprehensive attempt to quantify the various assets and liabilities that might be factors in the financial settlement. The size of the Brexit bill will depend on fundamental political compromises and choices, which is discussed. Based on the different scenarios, the long-run net Brexit bill could range from €25.4 billion to €65.1 billion, possibly with a large upfront UK payment followed by significant EU reimbursements later.