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Policy Contribution

Are advanced economies at risk of falling into debt traps?

One of the consequences of the global financial crisis has been rapid growth in public debt in most advanced economies. This Policy Contribution assesses the size of public debt in advanced economies and considers the potential consequences of sovereign insolvency.

By: Date: November 10, 2016 Topic: European Macroeconomics & Governance

The gross general government debt-to-GDP ratios in many advanced economies have reached the highest levels in peacetime history and continue to grow, putting into question sovereign solvency in these economies.

In case of new adverse shocks, whether economic or political, global or country-specific, which result in the deterioration of growth prospects or higher real interest rates, or both, the situation could easily get out control.

Apart from the risk of sovereign default, excessive public debt might also have a negative impact on the stability of financial sector and on economic growth in the medium and long term.

Debt sustainability simulations for the group of highly-indebted advanced economies – those in which the general government gross public debt-to-GDP ratio exceeded 80 percent in 2015 – suggest that benefits of the current record-low interest rates and post-crisis growth recovery should be used for fiscal consolidation.

The aim of this should be not only to stop further expansion of debt-to-GDP ratios, but also to gradually reduce them. Such corrective measures are needed in six out of seven G7 members (Germany being the exception) and in 10 out of 19 euro-area members. The fiscal situation of Japan, where gross debt has reached 250 percent of GDP, is particularly precarious.

In addition, unless there are reforms of public pension, health and long-term care systems, fiscal consolidation in advanced economies must also create room for the higher spending levels in these areas that will result from aging populations.

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Policy Contribution

Tales from a crisis: diverging narratives of the euro area

Who gets the blame for the crisis? How did narratives of the crisis develop since 2007? The authors of this paper tried to identify the key crisis-related topics in articles from four opinion-forming newspapers in the largest euro-area countries.

By: Henrik Müller, Giuseppe Porcaro and Gerret von Nordheim Topic: European Macroeconomics & Governance Date: February 15, 2018
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Policy Contribution

Risk reduction through Europe’s distressed debt market

The resolution of non-performing loans (NPLs), a stock of roughly €870 billion in the EU banking industry, is central to the recovery of Europe’s banking sector and the restructuring of the excess debt owed by private sector borrowers. Could the development of distressed debt markets be a new element of capital market deepening in Europe?

By: Alexander Lehmann Topic: Finance & Financial Regulation Date: January 18, 2018
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External Publication

Reconciling risk sharing with market discipline: A constructive approach to euro area reform

This publication, written by a group of independent French and German economists, proposes six reforms which, if delivered as a package, would improve the Eurozone’s financial stability, political cohesion, and potential for delivering prosperity to its citizens, all while addressing the priorities and concerns of participating countries.

By: 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 and Jeromin Zettelmeyer Topic: European Macroeconomics & Governance Date: January 17, 2018
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Blog Post

Sovereign Concentration Charges are the Key to Completing Europe’s Banking Union

The past crisis revealed that most euro-area banks have disproportionate sovereign exposure in their home country. Charging banks for sovereign concentration is one solution to this issue, and would help advance the discussion on banking union.

By: Nicolas Véron Topic: European Macroeconomics & Governance Date: December 7, 2017
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Policy Brief

Beyond the Juncker and Schäuble visions of euro-area governance

Two diametrically opposed visions of the euro-area architecture have been put forward. Departing from both Juncker’s and Schäuble’s proposals, the author identifies new ideas to develop the euro-area governance

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: December 1, 2017
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Past Event

Past Event

An independent assessment of the EU’s fiscal framework: a presentation by the European Fiscal Board

This event will feature a presentation of the European Fiscal Board.

Speakers: Maria Demertzis, Mateusz Szczurek and Niels Thygesen Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 6, 2017
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Past Event

Past Event

Fiscal aspects of the Energy Transition

Relative prices of different energy carriers are affected by a number of fiscal instruments. At this event, we will hold a discussion on, how fiscal instruments can be adjusted to better accommodate the energy transition.

Speakers: Jos Delbeke, Karen Pittel, Ian Parry, Gregor Pett and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 17, 2017
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Policy Contribution

A European perspective on overindebtedness

The sequence of crisis and policy responses after mid-2007 was a gradual recognition of the unsustainability of the euro-area policy framework. The bank-sovereign vicious circle was first observed in 2009 and became widely acknowledged in the course of 2011 and early 2012. The most impactful initiative has been the initiation of a banking union in mid-2012, but this remains incomplete and needs strengthening.

By: Nicolas Véron and Jeromin Zettelmeyer Topic: European Macroeconomics & Governance Date: September 28, 2017
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Past Event

Past Event

Unfinished business: The unexplored causes of the financial crisis and the lessons yet to be learned

At this event Tamim Bayoumi will present his upcoming book on the financial crisis, showing how the Euro crisis and U.S. housing crash were, in fact, parasitically intertwined.

Speakers: Tamim Bayoumi, Maria Demertzis and Aerdt Houben Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 28, 2017
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Policy Contribution

Dutch Senate

Europe’s fourfold union: Updating the 2012 vision

The depiction of the euro area/European Union (EU) as a ‘fourfold union’ emerged in the first half of 2012 at the height of the euro-area crisis. In the past half-decade, Europe’s financial union has been significantly strengthened but remains incomplete and is challenged by Brexit. No consensus has been found on fiscal union and economic union has not made material progress, but political union might have advanced further than many observers realize.

By: Nicolas Véron Topic: Dutch Senate, European Macroeconomics & Governance, Finance & Financial Regulation, Testimonies Date: September 21, 2017
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Blog Post

Italian economic growth and the Euro

While the Euro has frequently been blamed for the poor growth performance of Italy over the years, a long-term analysis shows deteriorating growth before the introduction of the Euro. Additionally, Italy has shown worse performance than other euro-periphery countries, such as Spain, implying deeper structural reasons for Italy’s economic malaise.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: July 26, 2017
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Past Event

Past Event

Sovereign exposure limits

On 19th June, we are hosting an invitation-only workshop on sovereign exposure limits.

Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 19, 2017
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