Giancarlo Corsetti, Aitor Erce, 29 April 2020

The Eurogroup recently agreed to provide support during the Covid crisis through a dedicated European Stability Mechanism credit line. A discussion is playing out in European capitals, most intensely in Rome and Madrid, regarding the usefulness of tapping these credit lines. While the final details are still pending, this column evaluates the conditions that seem to be currently on the table. As these programmes provide very little interest savings, designing them in such a way that would not trigger disruptions in the bond markets of borrowing countries is key. To this end, the ESM should consider waiving its seniority and engaging with countries using longer maturity structures.

Aitor Erce, Antonio Garcia Pascual, Toni Roldán Monés, 25 March 2020

The amount of financial resources needed to fight the COVID-19 is so large that most euro area member states will need a backstop from Europe. This column discusses how to use the European Stability Mechanism toolbox to finance the fight, using Spain as an example. It shows that an ESM loan with low margins and a smoothed repayment schedule would stabilise debt stocks and gross financing needs, and that ESM financing could help Spain save around €150 billion in interest payments between 2020 and 2030. A combination of bold ESM and ECB support could reinforce Spain’s debt sustainability after the COVID-19 shock, and could do the same for other member states. 

Giancarlo Corsetti, Aitor Erce, Timothy Uy, 13 February 2019

During the euro area crisis, management of official loan maturities emerged as a critical item in the discussion on which instruments and strategies are most effective at ensuring debt sustainability. Using a theoretical model calibrated to Portugal and cross-country data, this column shows that lengthening loan maturities and managing debt repayment flows has substantial effects on sustainability. It also unveils a key policy trade-off in official lending between increasing the amount of safe debt (immune from rollover risk) and strengthening the incentive to default in response to negative shocks to fundamentals.

Giorgio Monti, 07 January 2019

Giorgio Monti of the European University Institute discusses the European Stability Mechanism and how it might best be reformed.

Agnès Bénassy-Quéré, Markus K Brunnermeier, Henrik Enderlein, Emmanuel Farhi, Marcel Fratzscher, Clemens Fuest, Pierre-Olivier Gourinchas, Philippe Martin, Jean Pisani-Ferry, Hélène Rey, Isabel Schnabel, Nicolas Véron, Beatrice Weder di Mauro, Jeromin Zettelmeyer, 10 July 2018

EU leaders addressed euro area reform at the Euro Summit on 29 June. In this column, which we add to the VoxEU debate on euro area reform, the group of 14 French and German economists behind the recent CEPR Policy Insight on the topic argue that the summit statement represents a constructive first step and crosses red lines that were considered taboos only a few months ago. However, the summit’s commitments still fall short of a comprehensive package.

Peter Bofinger, Claudia M. Buch, Lars Feld, Wolfgang Franz, Christoph Schmidt, 12 November 2012

The sovereign debt crisis has revealed severe flaws in the EU internal market. Common monetary policy has not been accompanied by the transfer of authority to supervise banks and risks of banks and states have become dangerously intertwined. This column summarises the proposal of the German Council of Economic Experts for a full banking union which aim at correcting these deficits.

Paul De Grauwe, 13 July 2012

Paul De Grauwe of the LSE talks to Viv Davies about his recent Vox column on the potentially destabilising effects of the decisions taken at the last crisis summit of Eurozone leaders. He explains how the new recapitalisation role established for the ESM is doomed to fail and how the ECB is operating on the wrong business model. They discuss how full banking union will not be possible without a degree of political union, and how trust could create self-fulfilling positive outcomes for the Eurozone. The interview was recorded in London on 10 July 2012.

Bernard Delbecque, 24 June 2012

It is not just the crisis that is intensifying; so too is the debate on the potential solutions. This column proposes what to do if Spain is next to fail.

Paolo Manasse, 05 April 2011

The meeting of the European Council on 24-25 March focused on shoring up the battered Eurozone infrastructure through the European Stability Mechanism. This column argues that the mechanism is seriously flawed. It says it is unlikely to withstand the shock of a severe financial crisis and may even spread the damage to high-debt countries, while leaving the Eurozone in the grip of paralysing vetoes.

Stefano Micossi, 15 March 2011

In the run up to next week’s meeting of the European Council, confusion remains on how to tackle the Eurozone debt crisis and ensure stability in the currency area. This column argues that it is high time for the European Council to stop ducking the issues and provide a credible framework to tackle the sovereign debt crisis on its doorstep.

Daniel Gros, 14 March 2011

This weekend, EU leaders agreed to the outlines of a new mechanism to deal with Eurozone debt problems after the current mechanism expires in 2013. The mechanism is a continuation in the leaders’ preference for “tough talk and soft conditions”. This column argues that the package is merely the next step down the slippery slope of EU taxpayers sharing the burden with Greek taxpayers.

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