There has been a stark contrast between the experiences of Spain and the UK since the Global Crisis. This column argues that although the ECB’s Outright Monetary Transactions policy has been instrumental in reducing Spanish government bond yields, it has not made the Spanish fiscal position sustainable. Although the UK has implemented less austerity than Spain since the start of the crisis, a large currency depreciation has helped to reduce its debt-to-GDP ratio
Paul De Grauwe, 07 July 2014
Joshua Aizenman, 03 July 2014
After a promising first decade, the Eurozone faced a severe crisis. This column looks at the Eurozone’s short history through the lens of an evolutionary approach to forming new institutions. German dominance has allowed the euro to achieve a number of design objectives, and this may continue if Germany does not shirk its responsibilities. Germany’s resilience and dominant size within the EU may explain its ‘muddling through’ approach to the Eurozone crisis. Greater mobility of labour and lower mobility of under-regulated capital may be the costly ‘second best’ adjustment until the arrival of more mature Eurozone institutions.
Marcus Miller, Lei Zhang, 26 June 2014
Like banks, indebted governments can be vulnerable to self-fulfilling financial crises. This column applies this insight to the Eurozone sovereign debt crisis, and explains why the ECB’s Outright Monetary Transactions policy reduced sovereign bond spreads in the Eurozone.
Stephen Hansen, Michael McMahon, Andrea Prat, 20 June 2014
Central bank transparency is essential to democratic accountability. Central bankers often limit it – fearing its stifling effect on frank debate. Yet transparency may induce monetary policy committee members to be better prepared. This column discusses evidence showing that the ‘better prepared’ effect is important empirically. Exploiting a natural experiment in the Fed Open Market Committee in 1993 – and using computational linguistics tools to measure the impact of transparency on deliberation – the research shows that the net effect is a more informative deliberation process.
Owen McDougall, Ashoka Mody, 17 May 2014
Turnout in the 2014 European Parliament elections is seen as a critical test for EU democracy. This column presents some predictions. Trust in the ECB – rather than in the European Parliament itself – has been associated with higher turnout in previous elections. Macroeconomic conditions are also important – where a country’s fiscal problems are greater, voters are more inclined to vote.
Mickey Levy, 16 May 2014
As banks repay their loans from the Long-Term Refinancing Operation, the ECB’s balance sheet is shrinking. This column argues that, given the slow recovery and sustained low inflation, the ECB should replace its bank lending programme with quantitative easing. Buying short-term government debt would be consistent with the ECB’s inflation target, would keep the ECB’s monetary policy separate from its role in bank supervision, and would create a built-in exit strategy from unconventional policy.
Jan Willem van den End , Jakob de Haan, 28 March 2014
While many economists argue that demand stimulus is needed, this column argues that supply side measures are necessary to avoid secular stagnation. In the Eurozone, it is necessary to clean up and strengthen the balance sheets of banks, which can kick-start the flow of new lending. The comprehensive assessment by the ECB is an important step in this direction.
Jeffrey Frankel, 24 March 2014
The Eurozone needs to further ease monetary policy because under the current low inflation and high unemployment periphery countries need to suffer painful deflation. However, the ECB faces challenges other central banks do not face. This column proposes a way to overcome some of these hurdles. It argues that the ECB should buy US treasury securities, lowering the foreign exchange value of the euro. That would be the best way to restore the export sector of the periphery countries.
Michael Bordo, 21 March 2014
Since 2007, there has been a buildup of TARGET imbalances within the Eurosystem – growing liabilities of national central banks in the periphery matched by growing claims of central banks in the core. This column argues that, rather than signalling the collapse of the monetary system – as was the case for Bretton Woods between 1968 and 1971 – these TARGET imbalances represent a successful institutional innovation that prevented a repeat of the US payments crisis of 1933.
Katharina Pistor, 26 February 2014
Who wields supreme power over the ECB? This column analyses the recent ruling by the German Constitutional Court that the ECB cannot act as lender of last resort. Although seemingly couched by the referral of this decision to the European Court of Justice, this is a bid for power and the return to the pre-crisis paradigm of ‘ultra posse nemo obligatur’.
Nicholas Crafts, 21 January 2014
Nicholas Crafts talks to Viv Davies about his recent work on the threatening issue of public debt in the Eurozone. Crafts maintains that the implicit fault line in the EZ is evident; several EZ economies face a long period of fiscal consolidation and low growth and that a different sort of central bank might be preferable. They also discuss the challenges and constraints of banking, fiscal and federal union. The interview was recorded in London on 17 January 2014.
Donato Masciandaro, Francesco Passarelli, 21 December 2013
During the Great Moderation, central banks focused on price stability, and independence was seen as crucial to limit inflation bias. Since the Global Financial Crisis, emergency support measures for banks, and central banks’ increasing involvement in supervision, have called central bank independence into question. This column argues that the literature has overlooked the distributional effects of the tradeoff between monetary and financial stability. In a political economy framework, heterogeneity in voters’ portfolios can cause the degree of central bank independence to differ from the social optimum.
Nicholas Crafts, 13 December 2013
This column argues that the legacy of public debt resulting from the crisis in the Eurozone is a serious threat. Both the size of the problem and the options to address it make life much more difficult for policymakers than was the case in the late 1930s after the collapse of the gold standard. For some countries, a ‘subservient’ central bank might be preferable to the ECB.
Jens Nordvig, 25 November 2013
Having promised to do ‘whatever it takes’ to ensure the survival of the euro, the ECB now faces the problem of record high unemployment combined with a strong currency. There is accumulating evidence that the ECB is more willing to fight currency appreciation than the Bundesbank would have been. Capital inflows have been a key source of recent upward pressure on the euro. Should this continue, the ECB may need to intervene more aggressively in order to promote economic recovery in the Eurozone.
Thorsten Beck, 23 October 2013
Much has happened since VoxEU published an eBook on the banking union in Europe one year ago. In this column, the editor of the eBook reviews the developments and plans of the past year. Many of the issues flagged by eBook contributors are still relevant and have not yet been addressed. While immediate pressures seemed to have receded, the crisis is still very much with us and is still awaiting resolution.
Hans Gersbach, Volker Hahn, 07 October 2013
The publication of attributed voting records and minutes of the ECB council’s meetings would increase the influence of national governments and discourage pro-Eurozone behaviour. This column argues that this would be undesirable. Publishing non-attributed summary minutes, however, would enhance the ECB’s accountability towards the public.
Tilman Bletzinger, Volker Wieland, 05 September 2013
The ECB has promised to keep interest rates low for an “extended period of time”. In a broad hint to the profession, President Draghi stressed a reasonable forecast of this period could be extracted from a monetary policy reaction function. This column presents one such forecast based on published macro forecasts and a reaction function that fits the ECB’s past behaviour. The result is that ECB interest rates will rise by May 2014 at the latest.
Michael Burda, 15 July 2013
Eurozone national central banks that take a national perspective risk politicising the ECB’s monetary policy. This column argues that this is a significant risk that should be overcome with a fundamental overhaul of the Eurosystem. A central element would be to take the ‘national’ out of the EZ’s national central banks. Just as US regional Fed banks encompass more than one US state, EZ ‘national’ central banks area of responsibility should be redrawn along economic geography lines rather than nation lines. An example of such a proposal is provided.
Marco Annunziata, 12 February 2013
Economists and policymakers are increasingly concerned that central-bank independence is being threatened. This column argues that central banks are not losing their independence, but that their room for manoeuvre is being eroded by a lack of structural reforms and fiscal adjustment. The financial crisis has caused mission creep, pushing central banks well beyond their comfort zones and as the time comes to pull back, independent monetary policy could still be powerless against fiscal dominance.
Markus K Brunnermeier, Hans Gersbach, 20 December 2012
As governments and the EU wring their hands over banking reform, a fragile system remains in place. This column argues that the ECB’s current role undermines its independence. What the Eurozone needs to reduce undue forbearance - while preserving the ECB's independence - is a ‘diarchy’ in which both a newly built Restructuring Authority and the ECB have the power to trigger bank-restructuring.