EU institutions

Jean Pisani-Ferry, Jeromin Zettelmeyer, 20 August 2018

The proposed package of reforms from the team of French and German economists aimed at increasing the stability of the euro area has sparked a lively debate on Vox. In this column, two of the paper’s authors respond to some of the criticisms of their proposals, focusing on the broad issues of debt restructuring as ‘ultima ratio’ and regulating banks’ sovereign exposures.

Lars Feld, 31 July 2018

In their CEPR Policy Insight, the team of French and German economists focus on a compromise between market discipline and risk sharing. This column, part of the VoxEU debate on euro area reform, argues that their proposal fails to address legacy debt problems convincingly and that the introduction of a fiscal capacity would repeat the mistakes made at the introduction of EMU, with later steps towards European integration being attempted before the necessary first steps have been taken.

Friederike Niepmann, Viktors Stebunovs, 30 July 2018

In the European Banking Authority’s EU-wide stress tests, banks project capital ratios under a hypothetical adverse scenario employing their own models, which are constrained by a common methodology set by the Authority. This column argues that letting banks produce their own projections means they are prone to manipulation. It finds evidence that banks' internal models are modified to lessen losses given the applicable scenarios and exposures. Without this manipulation, projected aggregate credit losses would have been up to 28% higher in the 2016 stress tests. 

Massimo Bordignon, Nicolò Gatti, Massimiliano Onorato, 27 July 2018

While it was obvious at the time of the introduction of the euro that the euro area did not satisfy the criteria for an optimal currency area, increased economic convergence was expected to make it easier to introduce the institutional reforms necessary to converge into a fully-fledged political union. This column examines convergence among early EMU entrants in terms of public services, product and labour markets regulation, and quality of institutions. The main message is pretty clear: the viability of the EMU project seems to be more in trouble on political rather than economic grounds.

Antoine Levy, 22 July 2018

The euro improved the credibility of monetary policy for many member states, but the downsides of not having monetary autonomy became painfully apparent during the European debt crisis. This column proposes ‘targeted inflation targeting’ as a way to improve stabilisation mechanisms in the euro area, without losing the benefits of integration. The ECB would maintain a rules-based approach that targets countries in a weaker macroeconomic position more aggressively.

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