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Policy Brief

Euro-area governance: what to reform and how to do it

This Policy Brief argues that the Euro-area governance needs to move beyond the improvements brought about by banking union and should establish institutions to prevent divergences of wages from productivity. The authors propose the creation of a European Competitiveness Council composed of national competitiveness councils, and the creation of a Eurosystem of Fiscal Policy.

By: and Date: February 27, 2015 European Macroeconomics & Governance Tags & Topics

  • The Issue Reform of the governance of the euro area is being held back by disagreement on what is at the root of the euro area’s woes. Pre-crisis, the euro area suffered from the built-up of financial imbalances, price and wage divergence and an insufficient focus on debt sustainability. During the crisis, the main problems were slow resolution of banking problems, an inadequate fiscal policy stance in 2011-13 for the area as a whole, insufficient domestic demand in surplus countries and slow progress with structural reforms to overcome past divergences.
  • Policy Challenge Euro-area governance needs to move beyond the improvements brought about by banking union and should establish institutions to prevent divergences of wages from productivity. We propose the creation of a European Competitiveness Council composed of national competitiveness councils, and the creation of a Eurosystem of Fiscal Policy (EFP) with two goals: fiscal debt sustainability and an adequate area-wide fiscal position. The EFP should have the right in exceptional circumstances to declare national deficits unlawful and to be able to force parliaments to borrow more so that the euro-area fiscal stance is appropriate. A euro-area chamber of the European Parliament would have to approve such decisions. No additional risk-sharing would be introduced. In the short term, domestic demand needs to be increased in surplus countries, while in deficit countries, structural reform needs to reduce past divergences.
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Policy Contribution

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Low long-term rates: bond bubble or symptom of secular stagnation?

Yields on European sovereign bonds have reached historically low levels in 2016. This secular decline in long-term sovereign yields is not limited to the euro area. Why are interest rates currently so low? Are low long-term trates justified by fundamental factors or is it an artificial phenomenon?

By: Grégory Claeys Topic: European Macroeconomics & Governance Date: September 26, 2016
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Upcoming Event

Oct
13
08:30

The Euro and the battle of ideas

Why is the Euro in trouble? Are philosophical differences between the founding countries to blame and can those differences be reconciled?

Speakers: Markus K. Brunnermeier, Marco Buti, Maria Demertzis and Harold James Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
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Blog Post

Dijsselbloem photo

Speech by Jeroen Dijsselbloem at Bruegel Annual Dinner 2016

Jeroen Dijsselbloem, President f the Eurogroup, delivered the keynote speech at Bruegel's Annual Dinner 2016, held on 6 September 2016.

By: Jeroen Dijsselbloem Topic: European Macroeconomics & Governance Date: September 7, 2016
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Blog Post

Nicolas Véron

The IMF’s performance on financial sector aspects of the euro area crisis

The recently published in-depth evaluation of the International Monetary Fund (IMF)’s role in the euro area crisis highlights important contrasts in the area of financial services. The IMF provided highly valuable analysis and recommendations to the EU on its banking sector and related policies. In individual countries (leaving aside Cyprus and the second Greek programme, not covered by this evaluation), the financial-sector aspects of the IMF’s interventions were highly successful in Ireland and Spain, ambiguous in Greece, and a missed opportunity in Portugal.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: August 29, 2016
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Blog Post

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Companies' continue to respond to the ECB's corporate sector purchase programme

After a sharp increase in corporate bond issuance following the ECB’s announcement in March this year, corporates continue to respond to the Corporate Sector Purchase Program.

By: Maria Demertzis Topic: Finance & Financial Regulation Date: July 14, 2016
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Past Event

Past Event

Does the euro area need a sovereign insolvency mechanism?

The sovereign debt crisis shook the Euro to its foundations. It soon became clear that there was no mechanism to allow a tidy insolvency of a state wishing to remain inside the euro area. To face future crises, does the EU need a sovereign insolvency mechanism?

Speakers: Jochen Andritzky, Lars Feld, Zsolt Darvas and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 12, 2016
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Policy Contribution

screenshot-bruegel.org 2016-06-23 15-45-59European Parliament

The effectiveness of the European Central Bank’s Asset Purchase Programme

Since the end of 2014, inflation has been at or very close to zero. With very little ability to move the actual interest rate further into negative territory, the ECB has resorted to unconventional measures. The latest of these includes a programme to purchase corporate bonds, which started on 8 June 2016.

By: Maria Demertzis and Guntram B. Wolff Topic: European Macroeconomics & Governance, European Parliament, Parliamentary Testimonies Date: June 23, 2016
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MariaDemertzis1 bw

Corporates are responding to the new ECB corporate sector purchase programme

We have observed a sharp increase in corporate bond issuance following the ECB’s announcement in March this year, but it is too early to see the effects on investment by non-financial corporations.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: June 16, 2016
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MariaDemertzis1 bw

Are central bank(er)s still credible?

Both the Fed and the ECB have managed to remain credible since the financial crisis, but their credibility levels have evolved differently. Since inflation in the US and the euro area has been similar in the past 8 years, the difference in the way that credibility has evolved is the result of the different macroeconomic policy mix applied.

By: Maria Demertzis and Nicola Viegi Topic: European Macroeconomics & Governance Date: June 14, 2016
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Blog Post

Alvaro Leandro

The use of ECB liquidity

The Eurosystem’s regular open market operations consist of one-week liquidity-providing operations (MROs), and three-month liquidity-providing operations (LTROs). We have updated data on the use of these operations by country.

By: Alvaro Leandro Topic: European Macroeconomics & Governance Date: June 9, 2016
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Nicolas Véron

European banking supervision: compelling start, lingering challenges

The new European banking supervision system is broadly effective and, in line with the claim often made by its leading officials, tough and fair, but there are significant areas for future improvement.

By: Dirk Schoenmaker and Nicolas Véron Topic: Finance & Financial Regulation Date: June 8, 2016
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Blueprint

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European banking supervision: the first eighteen months

The Blueprint provides a review of the first 18 months of European banking supervision. It reviews the overall situation and the situation in a number of euro-area countries. It provides important insights into the start of a new policy regime that involves profound change for the European banking landscape

By: Dirk Schoenmaker and Nicolas Véron Topic: Finance & Financial Regulation Date: June 8, 2016
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