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AbstractThis article illustrates what would be the operational implications of a hypothetical demise of the euro. In order to do this, it examines what were the operational implications of establishing the euro and shows that the opposite endeavour would not just be its symmetric counterpart. The paper also looks at two developments that took place after the launch of the euro – the emergence of very large Target2 balances during the crisis that started in 2010 and the move towards financial integration – showing that they would add to the formidable operational complications that would be created by the demise of the euro. The paper concludes that the logistical difficulties considered here only look minor in comparison with the fundamental reasons that led governments and central banks to fight with determination the risk of a demise of the euro. In absolute terms, they are important enough to tilt the balance of costs and benefits in the direction of preserving the eurozone.

During the Great Recession, central banks went well beyond their normal operations and provided liquidity in unlimited amounts, in foreign currency and to foreign banks. Central bank cooperation took the form of a swap network, and amounted to an episode of global monetary policy. However, though bank cooperation will continue to contribute to global governance, the swap network should not be made permanent and given an institutional basis to provide international lending of last resort. Swaps are a monetary policy tool and should continue to be decided on by central banks like all other monetary policy tools,to avoid impinging on their independence, which a difficult historical process has shown to be the best basis for price stability. In comments appended to this Policy Contribution, Edwin Truman, Senior Fellow, Peterson Institute for International Economics, concludes in favour of making the swap network permanent, while William Dudley, President of the Federal Reserve Bank of New York, stresses the importance of central banks around the world being able to coordinate closely so that there can be a viable, credible backstop on a global basis.

An examination of the post-recession responsibilities of central banks, this book proposes adaptations to the central banking model that preserve the advantages in terms of inflation control brought by their independence, while taking into account the long-term consequences of the Great Recession.

An examination of the post-recession responsibilities of central banks, this work proposes adaptations to the central banking model that preserve the advantages in terms of inflation control brought by their independence, while taking into account the long-term consequences of the Great Recession.

This Policy Contribution tests the hypothesis that an imbalance has grown in Europe over the last few decades because markets have integrated to a greater extent than Europeanlevel policymaking, potentially creating difficulties for the democratic process in managing the economy. This hypothesis has been put forward by several authors but not so far tested empirically. To evaluate the process of European market integration - or market Europeanisation - over the last few decades, we assess intra-European trade and intra-European capital flows. Any estimate of policy integration, or Europeanisation, meanwhile, is fraught with difficulties and only proxies can be measured. Our preferred proxy is the number of employees of the European institutions and agencies relative to the aggregate number of public employees in national administrations in the European Union. The assumption is that European public employees generate, implement and oversee European policies and thus their relative number is a proxy for the development of European policies. An alternative indicator of policy Europeanisation is the relative frequency of European Union news in major national media outlets, as a proxy for the relevance to the public of European policies. Our results show that, measured by our proxies, policy Europeanisation has developed more rapidly than market Europeanisation, measured on the basis of both trade and capital flows. It is however also noted that the relative number of public employees has outpaced the relative frequency of European Union news in the media, possibly indicating a technocratic slant in policy Europeanisation. Further research could test the robustness of our results, in particular by using other measures of policy Europeanisation, such as the impact of European legislation on national laws and regulations.

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.

This paper reviews the role and effects of the collateral framework which central banks, and in particular the Eurosystem, use in conducting temporary monetary policy operations. First, the paper explains the design of such a framework from the perspective of risk mitigation, which is the purpose of collateralisation. The paper argues that, by means of appropriate risk mitigation measures, the residual risk on any potentially eligible asset can be equalised and brought down to the level consistent with the risk tolerance of the central bank. Once this result has been achieved, eligibility decisions should be based on an economic cost-benefit analysis. Second, the paper looks at the effects of the collateral framework on financial markets, and in particular on spreads between eligible and ineligible assets.

In 2020, European governments mitigated the economic impact of COVID-19 lockdowns and other pandemic-fighting programmes through a host of initiatives. These included efforts to support credit, such as guarantees for bank loans, particularly to small- and medium-sized enterprises (SMEs). We present and analyse detailed information about those national credit-support programmes implemented in the context of fiscal policy, in Europe's five largest national economies (besides Russia) in 2020: France, Germany, Italy, Spain and the UK. The information was collected through thorough examination of published material and extended exchanges with national authorities and financial sector participants. The analytical part of the paper focuses on two aspects:1How countries have dealt with the many trade-offs that emerged in designing and implementing the programmes; 2What explains the differentiated usage of the facilities in the examined countries, as well as its levelling off in the second half of 2020.Section 1 defines and describes the programmes. Section 2 presents the trade-offs we identified in programme design and implementation. Section 3 explores the factors explaining actual usage in the five countries and over time. Section 4 concludes. Annexes provide details on the programmes for each country (Annex 5) and in summarised matrix form (Annex 4).