Countries have various mechanisms that provide lending when a bank fails. But when bank problems far exceed available resources, central banks must be lenders of last resort, even when their role is clouded to mitigate moral hazard. This column explains the ECB is ill-equipped to act as such a lender; it doesn’t have enough control due to coordination problems across countries. The column argues this must change. The ECB must be the lender of last resort and this involves a Eurozone banking union.
Charles Wyplosz, 16 October 2012
Christopher Sims, 12 October 2012
Nobel laureate, Christopher Sims, talks to Viv Davies about the institutional restructuring needed to put the Eurozone on a path to sustainable recovery. Sims contrasts the structural differences of the US, Japan and the UK with the Eurozone; they discuss the role of the ECB, eurobonds, a common fiscal commitment, and the rationale for country-level default. They also discuss Sims' prophetic paper on "The Precarious Fiscal Foundations of EMU" (1999), in which he wrote about the risks of a euro crisis.The interview was recorded in Brussels on 21 September 2012.
Jacob Kirkegaard, 08 October 2012
Political pressures are rising again in Europe. This column argues that reactions in parliaments, central banks and on the street are well within the bounds of predictable reactions to hard times. These developments change nothing of significance in the calculus concerning the eventual success of the Eurozone crisis response.
Daniel Gros, Dirk Schoenmaker, 24 September 2012
As the EZ takes its first steps towards banking union, this column warns that such an approach – with banking supervision first and resolution and deposit insurance postponed to some undefined later stage – will lead to an unstable banking union. It adds that a strong European supervisor and a credible European resolution and deposit insurance authority should be introduced as part of the package.
Jacopo Carmassi, Carmine Di Noia, Stefano Micossi, 20 September 2012
The European Commission’s latest proposals for financial regulation are seen by many as the first steps towards a banking union. This column argues that there are a number of issues that need to be exposed and debated in public before the Commission decides on anything.
Vincent O'Sullivan, Stephen Kinsella, 20 September 2012
The European Commission is planning a shake-up in financial supervision in Europe. This column argues that time will tell whether or not this is a good idea – for now all we have for certain is uncertainty.
Giovanni Cespa, Xavier Vives, 18 September 2012
Is the ECB right to buy up sovereign bonds in southern Europe? This column argues that the answer depends on who is right: Keynes or Hayek.
Charles Wyplosz, 17 September 2012
The European Commission presented their plan for a single EZ bank supervisor this weekend. While it is a good start, this column argues that it avoids the hard truth driving the process: the Eurozone needs a lender of last resort and the ECB is the only one that can play the role. Admitting this truth makes it clear that the Eurozone also needs an arrangement with member governments on bank-bailouts cost sharing and institutions to minimise the ultimate costs.
Frank Westermann, Sven Steinkamp, 22 August 2012
Despite assurances that the ECB will do “whatever it takes” to save the euro, interest rates on sovereign bonds in the highly indebted European countries remain alarmingly high. This column argues that in order for interest rates to fall, policymakers need to assure private investors that their bond holdings are safe from subordination.
Piero Ghezzi, 19 August 2012
The ECB president, Mario Draghi, said he’d do “whatever it takes to save the euro”. This column asks what 'whatever it takes', means and whether the ECB is prepared to go that far. It argues that limited and conditional lending improves the odds of success but it is not the game changer needed.
Marco Annunziata, 14 August 2012
While markets have been cheered by recent ECB announcements on sovereign debt, some still question the Bank’s ability to save the euro. This column argues that the ECB is a lot stronger than many think. Linking ECB sovereign bond purchases to policy conditionality will ensure that reform efforts are sustained. The free lunch option has been ruled out – and that is a good thing.
Charles Wyplosz, 30 July 2012
Financial markets once again pushed Eurozone leaders to act. European Central Bank President Draghi recently promised to “do whatever it takes”. This column argues that Draghi made an implicit commitment to act as lender of last resort to Eurozone governments. This means optimism may be justified – if only because it suggests that the Eurozone has a great central banker who is both a serious economist and an astute politician.
Paul De Grauwe, 13 July 2012
Paul De Grauwe of the LSE talks to Viv Davies about his recent Vox column on the potentially destabilising effects of the decisions taken at the last crisis summit of Eurozone leaders. He explains how the new recapitalisation role established for the ESM is doomed to fail and how the ECB is operating on the wrong business model. They discuss how full banking union will not be possible without a degree of political union, and how trust could create self-fulfilling positive outcomes for the Eurozone. The interview was recorded in London on 10 July 2012.
Richard Layard, 06 July 2012
Richard Layard of the LSE talks to Viv Davies about his and Paul Krugman’s recently published ‘Manifesto for Economic Sense’, which aims to generate a movement of economists who are prepared to speak out against policies they know to be wrong - the excessive austerity of current fiscal policies. They discuss the role of the ECB as lender of last resort and whether the current bank-led capitalist culture can ever be changed. The interview was recorded in London on 5 July 2012.
Aaron Tornell, Frank Westermann, 22 June 2012
Despite the recently-announced €100 billion European Financial Stability Facility loan to Spain and the recent Greek elections, this column argues that Eurozone periphery may soon need another large-scale rescue operation. But it fears that without reform at the ECB, the rescue package will be just yet another temporary plaster over the cracks.
Jean Pisani-Ferry, Guntram Wolff, 03 May 2012
The ECB has managed a massive expansion of its balance sheet with long-term refinancing operations. This has been called the equivalent of quantitative easing, as done by the Fed and the Bank of England. This column thus argues that the main obstacle for the ECB is not tight limits on the purchase of government bonds. Rather, it is the absence of a banking and fiscal union and the heterogeneity within the Eurozone that reduces the effectiveness of the ECB instruments.
Bernard Delbecque, 04 April 2012
The ECB’s longer-term refinancing operations have been widely analysed. Although comments are largely positive, some experts have argued that direct ECB intervention was the only way to save the Eurozone. This column reviews the criticisms against the operations and assesses whether the ECB should have intervened directly in the sovereign-debt markets instead of providing funding to banks.
Christian Thimann, 30 March 2012
A recent Vox column argued that with the three-year liquidity operations, the ECB has “hit a limit in its ability to prevent an acceleration of inflation”. This column explains why the ECB’s inflation-fighting powers remain intact – and why the risks of a sudden inflationary spike remain low.
Aaron Tornell, Frank Westermann, 28 March 2012
“Should the inflation outlook worsen, we would immediately take preventive steps”. So said Mario Draghi, President of the European Central Bank. This column argues that these are brave words given that the ECB has hit a limit in its ability to prevent an acceleration of inflation.
Hans-Werner Sinn, 10 March 2012
In February 2012, the Bundesbank had a TARGET claim of €547 billion on the Eurosystem. This column proposes a US-like system of marketable covered treasury bills that could be applied to a yearly settlement of TARGET liabilities.