Strengthening the ESM can help to prevent crises and enhance deeper financial integration in the euro area. Yet, mislabelling the ESM as “European Monetary Fund” will not do the trick. Instead, a revamp of its precautionary credit line could create a meaningful instrument, built on the existing policy framework, by incentivising strong economic policies and guarding against financial market turbulence. However, the devil is in the details. The design of such a facility has to be well thought through, to navigate difficult trade-offs.
The monitoring and analysis of capital movements is essential for policymakers, given that capital flows can have welfare implications. This report, commissioned by the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union, aims to analyse capital movements in the European Union in a global context.