Risk sharing plus market discipline: A new paradigm for euro area reform? A Debate

Jean Pisani-Ferry, Jeromin Zettelmeyer, 18 June 2019

The 2017 proposals for euro area reform by a group of seven French and seven German economists triggered a considerable response, much of which featured in a dedicated debate here on Vox. This column introduces an eBook that brings together a selection of these contributions, and in doing so offers a comprehensive, state-of-the art, and accessible overview of the current discussion on euro area reforms.

Don't sacrifice EU competition policy, strengthen trade policy instead

Sébastien Jean, Anne Perrot, Thomas Philippon, 18 June 2019

Some policymakers believe that EU competition policy prevents the emergence of industrial champions. The column argues that Europe’s competition policy has successfully contained the rise in concentration and excess profits, and the EU should not follow the US in weakening its approach. Instead, the EU needs to strengthen its trade policy to be more assertive on reciprocity in market access and control of industrial subsidies. 

What option prices tell us about the ECB’s unconventional monetary policies

Stan Olijslagers, Annelie Petersen, Nander de Vette, Sweder Van Wijnbergen, 17 June 2019

The decade since the Global Crisis has seen central banks employ a range of monetary policy tools. This column draws two lessons from the unconventional monetary policy measures employed during the European sovereign debt crisis. First, central banks should communicate clearly – and with sufficient detail – in times of heightened market stress to lower tail risk perceptions in financial markets. Second, policies aimed at changing the relative supply within different asset classes have an impact on perceived crash risk, while measures aimed at easing financing costs of commercial banks do not.

Euro area budget rules on spending must avoid the pro-cyclicality trap

Sebastian Barnes, Eddie Casey, 17 June 2019

Expenditure rules are an attractive way of keeping government spending on a steady path consistent with sustainable growth, but they rely on an estimate of potential output growth. Using data on the European Commission's past forecasts of both potential growth rates and actual output growth rates for 15 member states for the period 2004–2018, this column shows that there is a real danger of faulty potential output estimates leading to procyclical policy.

Principles of industrial policy

Reda Cherif, Fuad Hasanov, 16 June 2019

The 'Asian miracles' and their industrial policies are often considered as statistical accidents that cannot be replicated. The column argues that we can learn more about sustained growth from these miracles than from the large pool of failures, and that industrial policy is instrumental in achieving sustained growth. Successful policy uses state intervention for early entry into sophisticated sectors, strong export orientation, and fierce competition with strict accountability.

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