Download publication

Policy Contribution

A budget for Europe’s monetary union

In a monetary union, national fiscal deficits are of limited help to counteract deep recessions; union-wide support is needed. A common euro-area budget (1) should provide a temporary but significant transfer of resources in case of large regional shocks, (2) would be an instrument to counteract severe recessions in the area as a whole, and (3) would ensure financial stability.

By: Date: December 3, 2012

The four main options for stabilisation of regional shocks to the euro area are: unemployment insurance, payments related to deviations of output from potential, the narrowing of large spreads, and discretionary spending. The common resource would need to be well-designed to be distributionally neutral, avoid free-riding behaviour and foster structural change while be of sufficient size to have an impact. Linking budget support to large deviations of output from potential appears to be the best option.

A borrowing capacity equipped with a structural balanced budget rule could address area-wide shocks. It could serve as the fiscal backstop to the bank resolution authority. Resources amounting to 2 percent of euro-area GDP would be needed for stabilisation policy and financial stability.

Download Publication

A budget for Europe's monetary union

Policy Contribution

A budget for Europe’s monetary union

26m read (13 pages)

Download publication

Topics

Tags

Comments

Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

Blaming the Fed for the Great Recession

What’s at stake: Following an article in the New York Times by David Beckworth and Ramesh Ponnuru, the conversation on the blogosphere was dominated this week by the question of whether the Fed actually caused the Great Recession. While not mainstream, this narrative recently received a boost as Ted Cruz, a Republican candidate for the White House, championed it.

By: Jérémie Cohen-Setton Topic: European Macroeconomics & Governance Date: February 1, 2016
Read about event

Past Event

Past Event

The Bank of England in Europe: Does EU membership constrain non-Euro central banks?

The ECB and its response to crises in the euro area have been in the spotlight recently. But how does EU membership affect the central banks of non-Euro member states? This question is especially pertinent in the UK, whose relationship with the EU is at a vital crossroads.

Speakers: Jon Cunliffe, Matt Holmes, Sheri Markose and Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 22, 2016
Read article More on this topic

Blog Post

kang
ligthart
Ashoka Mody

The ECB and the Fed: a comparative narrative

Although the Great Recession was viewed as a US problem, the Eurozone was affected by it from the start. This column compares the monetary policy responses to the Crisis by the Fed and the ECB. It argues that the US approach has been much more aggressive and proactive. The ECB failed to provide stimulus when needed, and as a result the Eurozone might slip into a low-inflation trap.

By: Dae Woong Kang, Nick Ligthart and Ashoka Mody Topic: European Macroeconomics & Governance Date: January 21, 2016
Read article More on this topic More by this author

Opinion

Alicia García-Herrero

China is running out of options as foreign reserves drop

The Chinese are watching a new storm unfold in their financial markets, only months after having been bombarded with news about China’s “historical victory” when the Renminbi was designated an official reserve currency under the IMF’s SDR regime in November.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: January 21, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

A financial side to a macroeconomic story: macro imbalances and financial integration in the euro area

In a recent paper, I looked at the evolution of financial cycles in the euro area and at their link with capital flows. Here, I focus on how those findings inform our understanding of euro-area macroeconomic imbalances, revisiting the analysis of national savings and investment correlation.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: January 18, 2016
Read about event More on this topic

Past Event

Past Event

Central banking after the great recession

Have Central Banks lost their ability to control domestic inflation? Are macroprudential tools sufficient to ensure financial stability? Do new monetary tools, a closer relationship with fiscal policy and the renewed financial stability mandate require a new central banking paradigm?

Speakers: Ignazio Angeloni, Markus K. Brunnermeier, Claudia M. Buch, Grégory Claeys, Charles Goodhart, Dirk Schoenmaker, Andrzej Rzońca, Cecilia Skingsley and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: January 18, 2016
Read article More on this topic More by this author

Opinion

Alicia García-Herrero

Indebted ASEAN companies will feel Fed's rate rise

While the markets could not have been surprised about the U.S. Federal Reserve's decision to raise interest rates after a series of warnings since mid-2013, the key question is whether Asia is ready.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: December 22, 2015
Read article More on this topic More by this author

Blog Post

Jérémie Cohen-Setton

Finland and asymmetric shocks

What’s at stake: Finland exemplifies the difficulty of dealing with asymmetric shocks within a Monetary Union as the Finnish economy has struggled to recover from a series of idiosyncratic shocks – the decline of Nokia, the obsolescence of the timber industry, and the fallout of the Russian crisis.

By: Jérémie Cohen-Setton Topic: European Macroeconomics & Governance Date: December 21, 2015
Read article Download PDF More on this topic

Working Paper

Macroprudential supervision: from theory to policy

Macroprudential supervision: from theory to policy

While there is now consensus that financial supervision has to focus on the aggregate (macroprudential), in addition to the individual (microprudential), there is no agreed macroprudential framework for measuring financial imbalances and applying policies to correct such imbalances. This paper focuses on these two open questions in the so-called time dimension of macroprudential policy.

By: Dirk Schoenmaker and Peter Wierts Topic: Finance & Financial Regulation Date: November 25, 2015
Read article More on this topic More by this author

Opinion

Guntram B. Wolff

The ECB and politics in an era of low interest rates

The ECB is often criticised for its low interest rate policy - especially in Germany, where this is felt to be an attack on savers. However, this argument fails to recognise that real interest rates have been falling since the 1980s.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: November 25, 2015
Read article More on this topic More by this author

Blog Post

Guntram B. Wolff

Inflation expectations and global risks: the need for ECB action

The ECB will have its next monetary decision meeting on Thursday. Instead of following politically motivated statements that complain about low nominal rates, the ECB needs to focus on its mandate: price stability, defined as inflation rates close to but below 2% in the medium-run. So what do data on inflation dynamics and on the risks for euro area inflation tell us?

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: October 21, 2015
Read article More on this topic More by this author

Opinion

Ashoka Mody

Clueless in Europe

Despite a slowing Chinese economy, decelerating inflation and a stronger euro, European Central Bank President Mario Draghi has said he will do more to support euro-area growth only “if necessary.” He should stop listening to Europe's scolds and do the right thing.

By: Ashoka Mody Topic: European Macroeconomics & Governance Date: October 20, 2015
Load more posts