EU policies

Ignazio Angeloni, Daniel Gros, 16 July 2021

The outcome of the long-awaited second review of the ECB’s monetary policy strategy was communicated by the central bank on 8 July 2020. This column argues that the review constitutes a mixed bag. The asymmetry of the inflation target, a long standing source of ambiguity and potential policy mistakes, has been corrected by announcing a symmetric central target at 2%. But major ambiguities remain concerning the width of the tolerance band around 2%, the definition of the relevant price index, the interpretation of the inflation process, and the way monetary policy is prepared to team-up with fiscal authorities to preserve the euro’s stability going forward. All in all, the glass remains half-empty and the water it contains is somewhat muddy. 

Paul Hiebert, 13 July 2021

Climate change will impact those parts of the financial system most exposed to its disruptive effects. This column analyses a new financial stability risk mapping for the EU financial system, linking financial exposures of thousands of banks, insurance companies, and investment funds to millions of firms subject to climate risk. It highlights a high level of risk concentration, both in European regions subject to climate hazards as well as economic sectors with diverse carbon emission intensities. Long-term scenario analyses suggest that the risks will be best addressed through proactive policies that directly contain global temperature rises. 

Sander Hoogendoorn, Arjan Trinks, Johannes Bollen, 13 July 2021

Pricing carbon and placing a tax on industrial emissions could be a centrepiece of national climate policies going forward. This column uses simulations from a global trade model to show that the introduction of a substantial carbon tax for Dutch industry strongly reduces domestic emissions, while production losses remain modest. However, significant carbon leakage of up to around half of the emissions reduction achieved in the Netherlands occurs, mainly to non-European countries such as China and India.

Maarten Verwey, Mirko Licchetta, Alexandru Zeana, 08 July 2021

COVID-19 caused a “recession like no other”, which triggered an unprecedented economic policy response in the EU. As the European Commission’s Summer 2021 Economic Forecast points to a quick return to the pre-pandemic output levels, attention shifts to the post-pandemic years. Will the recovery be short-lived, or will the COVID-19 crisis prove to be a transformative event for the EU? Much will depend on the course of economic policy in the years ahead. NextGenerationEU, with its centrepiece the Recovery and Resilience Facility, provides a unique possibility to turn the challenges of the crisis into opportunities. The first set of National Recovery and Resilience Plans give reason for optimism, but much will depend on their implementation by the member states.

Marco Buti, Vitor Gaspar, 08 July 2021

Almost 30 years ago, the European Council in Maastricht agreed, on 10 December 1991, the draft Treaty on the European Union. In this column, the authors, who were both involved in preparing the summit, examine the arithmetic of the Maastricht reference values in relation to the macroeconomic facts as of today. Broader questions to do with fiscal architecture and institutional design will be addressed in a subsequent column.

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