Some economists are approaching a consensus that the Eurozone’s financial architecture is now resilient enough to withstand another shock similar to that of 2010-11. This column argues that such a view may be overly optimistic. Economic and financial instability persists in member states and the banking sector, and institutions to tackle a shock remain incomplete. While the Eurozone remains vulnerable to a bad shock, the blanket application of burden sharing without consideration of current economic and financial conditions is unwise.
Stefano Micossi, 20 August 2016
Giacomo Calzolari, Jean-Edouard Colliard, Gyöngyi Lóránth, 30 July 2016
The presence of multiple national authorities in the EU poses substantial coordination problems for the supervision of multinational banks. The Single Supervisory Mechanism aims to solve the resulting coordination failures. This column explores how banks could strategically react to the introduction of a supranational supervisor. The banking system is likely to endogenously react by reverting to an organisational form for which supranational supervision is actually less essential.
Maria Demertzis, Nicola Viegi, 28 June 2016
Both the Fed and the ECB have managed to remain credible since the Global Crisis, but their credibility levels have evolved differently. This column argues that since inflation in the US and the Eurozone has been similar in the past eight years, the difference in the way that credibility has evolved is the result of the different macroeconomic policy mixes applied.
Daniel Gros, 27 June 2016
The business of central banks used to be profitable – they issued cash and could invest the proceeds in the assets they liked. This column argues that the ECB has turned the old business model of central banks around. Today, it earns a stream of income on its liabilities, while the returns of an increasing part of its assets go to the national central banks. This cannot be a stable arrangement.
John Muellbauer, 10 June 2016
The Eurozone faces a lost decade or worse under current fiscal policy and restrictions on monetary policy. The ECB now faces a fundamental contradiction in its mandate between the Lisbon Treaty’s Article 127 (price stability, plus the ECB target of under but close to 2% inflation) and Article 123 (no overt monetary finance of governments). This article discusses three options – two ways in which the fiscal rules could be improved; and the temporary abeyance of Article 123, making it ‘state-dependent’. It also explains why recent arguments against the effectiveness of ‘helicopter money’ are mistaken.
Paul De Grauwe, 13 May 2016
Greece may be about to get some debt relief, although there is still resistance to the idea. This column argues that the ECB has been providing other Eurozone countries with debt relief since early 2015 through its programme of quantitative easing. The reason given for excluding Greece from the QE programme – the ‘quality’ of its government bonds – can easily be overcome if the political will exists to do so. It is time to start treating a country struggling under the burden of immense debt in the same way as the other Eurozone countries are treated.
Matthias Morys, 10 May 2016
The first century of modern Greek monetary history has striking parallels to the country’s current crisis, from repeated cycles of entry and exit from the dominant fixed exchange rate system, to government debt built-up and default, to financial supervision by West European countries. This column compares these two episodes in Greece’s monetary history and concludes that lasting monetary union membership can only be achieved if both monetary and fiscal policies are effectively delegated abroad. Understandable public resentment against ‘foreign intrusion’ might need to be weighed against their potential to secure the long-term political and economic objective of exchange rate stabilisation.
Vitor Constâncio, 25 April 2016
Since the Crisis, macroprudential policy has become a necessary complement to monetary policy. The ECB is striving to be a major contributor to the growing body of thought about the role and instruments of this new policy area. In this column, Vice-President Vítor Constâncio introduces the new bi-annual ECB Macroprudential Bulletin aimed at widening awareness about the Bank's macroprudential policy mandate, enhancing transparency, and informing about current ECB discussions and approaches in the field.
Nick Ligthart, Ashoka Mody, 14 April 2016
Many claim that monetary policy has hit diminishing returns. They use that as an explanation for the slower economic growth and low inflation in the Eurozone. This column argues that the main problem is that the ECB acted late and with half-measures to the Global Crisis, which was seen as falling short of its promises. The real problem is thus not a lack of ammunition, but a lack of credibility.
Peter Sands, 19 February 2016
A move is afoot to eliminate high denomination bills such as the €500 note. This column argues that the elimination would not, on its own, stem the flow of funds to support terrorism, but it is a necessary step on the road to restricting terrorist finance. While there are counter-arguments, they tend to argue for activities that involve breaking the law – in one way or another.
Tommaso Monacelli, 12 February 2016
The boom-bust cycle in the Eurozone between 2000 and 2008 is essentially a story of cyclical asymmetries between the Core and the Periphery. While stressing the importance of addressing these asymmetries – especially via fiscal policy – the ECB has failed to take them explicitly into account in its own policy-setting. This essay argues that these asymmetries may persist precisely because they are not a central target of stabilisation policy – both fiscal and monetary.
Máximo Camacho, Danilo Leiva-Leon, Gabriel Pérez-Quirós, 01 December 2015
Today's monetary policy effectiveness depends on expectations of future monetary policy. Shocks affect such expectations, but the nature of the shock matters. This column presents evidence that negative demand shocks lead markets to expect looser policy in the short run. Negative supply shocks lead to expectations of looser policy in the medium to long run. Unexpected expansions – from either the supply or demand side – have no significant influence on markets' expectations of future monetary policy.
Dirk Schoenmaker, Guntram Wolff, 30 October 2015
The European Banking Union – in all likelihood – is going to involve a European deposit insurance scheme. This column clarifies the different options for organising European deposit insurance and explains what the different options can achieve.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 23 October 2015
Will the risk-sharing arrangements within the ECB’s quantitative easing programme reduce its effectiveness? The views of leading UK-based macroeconomists are exactly evenly divided on this question, according to the latest survey by the Centre for Macroeconomics. The responses reported in this column suggest that this divergence reflects differences in views about the channels through which quantitative easing operates.
Charles Wyplosz, 07 September 2015
What have we learned from the Eurozone crisis? This column argues that, very much unfortunately, we haven’t learned that much. In desperate need of a way out of the current impasse, economists and policymakers are imagining a menu of solutions. A grand panacea seems implausible, at present. So the way to proceed should follow the time-honoured European method – ‘functionalism’. The EU and the ECB must focus on modest tasks, dealing with them one by one, if we are to find our way out of the current mess.
Paul De Grauwe, 07 September 2015
Economists were early critics of the design of the Eurozone, though many of their warnings went unheeded. This column discusses some fundamental design flaws, and how they have contributed to recent crises. National booms and busts lead to large external imbalances, and without individual lenders of last resort – national central banks – these cycles lead some members to experience liquidity crises that degenerated into solvency crises. One credible solution to these design failures is the formation of a political union, however member states are unlikely to find this appealing.
Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, Hiroshi Iyetomi, 05 September 2015
Deflation is a threat to the macroeconomy. Japan had suffered from deflation for more than a decade, and now, Europe is facing it. To combat deflation under the zero interest bound, the Bank of Japan and the European Central Bank have resorted to quantitative easing, or increasing the money supply. This column explores its effectiveness, through the application of novel methods to distinguish signals from noises.
Carin van der Cruijsen, David-Jan Jansen, Jakob de Haan, 23 August 2015
Central banks have typically targeted their communication at financial markets. Increasingly, however, many have started actively communicating with the general public. Using Dutch survey data, this column finds that the public’s knowledge of monetary policy objectives is far from perfect, and varies widely across respondents. Those with a greater understanding of ECB objectives tend to form more realistic inflation expectations. Central banks seeking to target the general public must take account of discrepancies in households’ knowledge of and interest in monetary policy.
Stefano Neri, Stefano Siviero, 15 August 2015
EZ inflation has been falling steadily since early 2013, turning negative in late 2014. This column surveys a host of recent research from Banca d’Italia that examined the drivers of this fall, its macroeconomic effects, and ECB responses. Aggregate demand and oil prices played key roles in the drop, which has consistently ‘surprised’ market-based expectations. Towards the end of 2014 the risk of the ECB de-anchoring inflation expectations from the definition of price stability became material.
Ashoka Mody, Guntram Wolff, 13 August 2015
The ECB believes that most Eurozone banks are out of the woods in terms of non-performing assets and capital shortfalls. This column argues that small and medium-sized banks – and among them the unlisted banks – remain under considerable stress. These banks are in the worst affected Eurozone countries, and their continued stress significantly impedes the flow of credit and also reduces lending. Policymakers need to seriously consider how and when to restructure and resolve these banks.