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71. Monetary Policy and Banking Supervision: Coordination instead of separation

Author:
Daniel Gros and Thorsten Beck
Publication Date:
12-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The June 2012 European Council decided that the legal basis for the 'Single Supervisory Mechanism' should be Article 127(6) of the Treaty, and that the SSM should 'involve' the ECB. This implies only that supervision should be concentrated within the ECB. In the policy discussion it is, however, generally taken for granted that there should be 'Chinese walls' between the supervisory and monetary policy arms of the ECB. The current legislative proposal is explicit on this account.
Topic:
Economics, International Trade and Finance, Monetary Policy, and Governance
Political Geography:
China and Europe

72. Europe's Single Supervisory Mechanism and the Long Journey Towards Banking Union

Author:
Nicolas Véron
Publication Date:
12-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
On June 29, 2012, the heads of state and government of the 17 euro area countries issued a landmark statement that started with the sentences “We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB [European Central Bank] for banks in the euro area the ESM [European Stability Mechanism] could, following a regular decision, have the possibility to recapitalize banks directly” (Euro Area Summit Statement 2012). This statement was received by the investor community and the European public as marking the initial step towards a European banking union, i.e., a shift of the key instruments of banking policy from the national to the European level to enable the formation and maintenance of an integrated European banking system.
Topic:
Economics, Globalization, International Trade and Finance, and Monetary Policy
Political Geography:
Europe

73. Southern Europe Ignores Lessons from Latvia at Its Peril

Author:
Anders Åslund
Publication Date:
06-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In the current financial crisis plaguing Europe, Latvia stands out for resolving its financial problems quickly and resolutely. After contracting 24 percent in 2008 and 2009, it grew at the rate of 5.5 percent in 2011. The speed and determination. with which the government carried out austerity measures in 2009 and restored confidence after suffering the worst output decline is a crucial lesson for the ailing South European countries—Greece, Italy, Portugal, and Spain. Many policy observers and economists have dismissed Latvia's crisis resolution as irrelevant to the situation in Southern Europe. The Latvian orange, they say, cannot be compared with the South European apples. I argue otherwise.
Topic:
Economics, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, and Latvia

74. The European Crisis Deepens

Author:
Simon Johnson and Peter Boone
Publication Date:
01-2012
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Successive plans to restore confidence in the euro area have failed. Proposals currently on the table also seem likely to fail. The market cost of borrowing is at unsustainable levels for many banks and a significant number of governments that share the euro.
Topic:
Political Economy, Regional Cooperation, and Monetary Policy
Political Geography:
Europe

75. Mispricing of Sovereign Risk and Multiple Equilibria in the Eurozone

Author:
Paul De Grauwe and Yuemei Ji
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
This paper finds evidence that a significant part of the surge in the spreads of the PIGS countries (Portugal, Ireland, Greece and Spain) in the eurozone during 2010-11 was disconnected from underlying increases in the debt-to-GDP ratios, and was the result of negative market sentiments that became very strong since the end of 2010.
Topic:
Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe, Greece, Spain, Portugal, and Ireland

76. Fear Athens Less and Washington More

Author:
Irwin M. Stelzer
Publication Date:
05-2012
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
There comes a tide in the affairs of men And the one sweeping from Greece, across Europe and into the United States is washing away support for austerity, in some cases reinforcing opposition to it, largely from the Left. President Obama is delighted at this support for his refusal to cut spending in the face of mounting deficits, and the Republicans are feeling beleaguered at what they see as the disinterment of the body of works of John Maynard Keynes. No longer must the President sit at G8 meetings (in this weekend's case, G7 since Vladimir Putin finds it necessary to stay at home to deal with an unpleasant spate of dissent) and hear only the voice of Germany's iron Chancellor, Angela Merkel, extolling the virtues of thrift, austerity and balanced budgets. Now he has France's new socialist President, François Hollande, to preach the virtues of spending, "the indispensable stimulation of the economy", and, even better, high taxes-- up to 75% on incomes in excess of $1.35 million per year, which makes the team of Buffett and Obama mere pikers at the soak-the-rich game. Secretary of State Hillary Clinton expressed the administration's delight at Hollande's "different political approach Different voices may be louder on growth than they have been It's been our view that there needed to be adjustments to austerity, so that there could be growth, both for economic reasons and for political reasons President Obama and our economic team have been saying for some time that growth had to factor into a European recovery." Take that, Mrs. Merkel and all you Republicans who want to cut entitlement spending and retain the Bush tax cuts that benefit "millionaires and billionaires", Obama shorthand for families earning more than $250,000 per year.
Topic:
Economics, International Trade and Finance, Monetary Policy, and Budget
Political Geography:
United States, Europe, Washington, Greece, and France

77. How Safe Is the U.S. Safe Haven?

Author:
Irwin M. Stelzer
Publication Date:
06-2012
Content Type:
Working Paper
Institution:
Hudson Institute
Abstract:
This version of the glorious sonnet composed by Emma Lazarus in 1883, and later engraved on a bronze plaque installed on the Statue of Liberty, calling the world's huddled masses to our shores, captures what it means these days to be a safe haven. Just as America proved to be such a safe haven for immigrants in the latter 19th and early 20th centuries, it is now seen as a safe haven for wealth attempting to escape Europe's tax collectors and financial chaos and recession in Europe, and for foreign central banks newly enamored of the dollar.
Topic:
Economics, International Trade and Finance, Immigration, and Monetary Policy
Political Geography:
United States, Europe, and Germany

78. Macroeconomic Imbalances in the Euro Area: Symptom or cause of the crisis?

Author:
Daniel Gros
Publication Date:
04-2012
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Lax financial conditions can foster credit booms. The global credit boom of the last decade led to large capital flows across the world, including large movements of resources from the Northern countries of the euro area towards the Southern part. Since the start of the crisis and more markedly after 2009, these flows have suddenly stopped, creating severe adjustment pressures. This paper argues that, at this point, the common monetary policy can only try to mitigate the unavoidable adjustment by maintaining overall financial stability. The challenge is to strike a delicate balance between providing liquidity for solvent institutions while keeping the overall pressure on for a rapid correction of the imbalances.
Topic:
Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

79. On the road to a true Economic and Monetary Union? The challenges of fiscal federalism and democratic legitimacy

Author:
Teija Tiilikainen
Publication Date:
05-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Lessons learned from the current economic and financial crisis pose great challenges for the EU concerning the future development of the EMU. Through the recent changes the limits of a mere coordination of economic policies have been reached and a debate about turning the system into a true Economic and Monetary Union must be launched. A further strengthening of the EU's power in economic and fiscal policies would require a clearer move in the direction of fiscal federalism, that is, a more balanced relationship between the Union's budget and those of the member states. It would also require the finalization of the Union's democratic system along the lines of a federal political order. The divided character of the currency union presents significant difficulties for its further deepening and democratization.
Topic:
Economics, Political Economy, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe

80. The corporate benefits of the euro: Finnish companies cannot live without a common currency

Author:
Timo korkeamäki
Publication Date:
04-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
The costs of euro membership have been a topic of lively political debate in recent years, and they have received ample media attention. In contrast, numerical estimates on the benefits of the euro have been practically non-existent. While the corporate benefits of the euro have been widely documented in the academic literature, the practical value of those publications has suffered from their technical complexity. Several experts have linked the fast growth of corporate bond markets in Europe since 1999 to the introduction of the euro. With growing arm's length credit markets in Europe, companies' access to financing has improved significantly. Companies from countries with small and unstable legacy currencies, such as Finland, have benefited comparably more from the widened financial markets. The cost savings due to the lowered cost of debt are non-trivial. For a set of large Finnish companies alone, the narrowing spread between their interest expenses and those of their German counterparties has resulted in after-tax cost savings of over €400 million each year. Sweden, Norway, and Denmark may have received some free-rider benefits while staying outside the currency union. However, it is difficult to estimate whether such benefits would have been obtainable had Finland chosen to keep its own currency. Reductions in the cost of financing should increase companies' ability to invest, and thus these savings are likely to have multiplicative effects on the economy for years to come.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Europe