Willem Buiter, 01 October 2020

National central banks within the Eurosystem with substantial holdings of own risky sovereign debt are at material risk of default if their sovereign defaults, since the likelihood of recapitalisation of an insolvent national central bank by its defaulted sovereign is low.  Risk exposures of a national central bank that are out of line with the risk exposures of the consolidated Eurosystem are therefore an existential threat to the monetary union. This column discusses the key flaws in the design of the Eurosystem responsible for this threat and explores three approaches to reducing the insolvency risk of national central banks.

Heikki Oksanen, 01 November 2019

Preparations for reforming the euro area have stalled, with experts disappointed that politicians have not heard their proposals. This column, however, is optimistic  that the euro area can be reformed via a pragmatic reorientation without high-profile changes to the EU Treaty. The reforms must cover a reorientation of fiscal policy towards a long-term vision and entail revamping the Eurosystem to allow it to perform its proper role as a central bank.

Dirk Schoenmaker, 17 April 2019

The ECB’s market-neutral approach to monetary policy undermines the general aim of the EU to achieve a low-carbon economy. The column argues that steering the allocation of the Eurosystem’s assets and collateral towards low-carbon sectors would reduce the cost of capital for these sectors relative to high-carbon sectors. A modest titling approach could accelerate a transition to a low-carbon economy, and could be implemented without interfering with the priority of price stability.

Felix Geiger, Fabian Schupp, 26 September 2018

In the low interest-rate setting, the Eurosystem’s accommodative monetary policy has been relying to a greater extent on non-standard measures and forward guidance on the future path of policy rates. This column examines how these measures have worked across the term structure and how market expectations have evolved during the phase of low interest rates.The results illustrate that the Eurosystem can continue to influence market participants’ interest rate expectations at the effective lower bound through unconventional monetary policy measures.

Michael Bordo, 21 March 2014

Since 2007, there has been a buildup of TARGET imbalances within the Eurosystem – growing liabilities of national central banks in the periphery matched by growing claims of central banks in the core. This column argues that, rather than signalling the collapse of the monetary system – as was the case for Bretton Woods between 1968 and 1971 – these TARGET imbalances represent a successful institutional innovation that prevented a repeat of the US payments crisis of 1933.

Ossi Leppänen, 18 April 2012

Since the start of the crisis the Eurosystem balance sheet has grown from €1200 billion in June 2007 to around €2900 billion in March 2012. But this is spread unevenly among different central banks within the Eurozone, raising the thorny issue of intra-area (TARGET) balances. This column argues that these balances signal a need for change and restructuring in the Eurozone banking sector.

Willem Buiter, 25 March 2009

The third column in this series discusses the ECB’s lack of fiscal backing in detail and suggests three ways in which it might be provided by EU governments.

Willem Buiter, 08 May 2010

First published on 24 March 2009, this column is more relevant than ever. In it Willem Buiter argues that the ECB’s lack of fiscal backing is both unusual among major central banks and a severe handicap – it is a factor in why the ECB is “fiddling while the Eurozone burns” by hesitating to undertake quantitative easing started by the Fed, Bank of England, and others.

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