What’s at stake: The ECB has announced “Outright Monetary Transactions” (OMT) on 6th September. Comprising of potentially unlimited purchases of government bonds, it is the largest ECB intervention so far. In the blogosphere, OMT is mainly evaluated as intended to prevent market panic from pushing otherwise solvent governments into bad equilibria, insolvency due to mounting interest payments. Criticism focuses on either conditionality requiring more austerity, stopping growth or on conditionality being not fully credible as OMT support cannot easily be withdrawn from non-compliant countries. Read more
Bruegel blog
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Blogs review: OMT - Has the ECB solved the Euro Crisis?
25th September 2012
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UE, con le nuove regole possibile un anno in più per sanare i deficit
21st September 2012
Sembra esserci un generale consenso sul fatto che l’austerità abbia effetti recessivi, almeno nel breve termine. Lo ho ammesso lo stesso Monti spiegando come la scelta in favore del consolidamento sia stata tanto necessaria quanto dolorosa. Una buona parte dei politici europei invoca le regole fiscali europee per spiegare la necessità del rigore di fronte al proprio elettorato. L’Unione Europea ha per altro approvato un nuovo pacchetto legislativo che è in vigore dal dicembre 2011. Del rigore imposto dalle regole europee, specie quelle nuove, si parla molto; della loro flessibilità in circostanze eccezionali meno. Il Patto di Stabilità è sempre stato esplicito sul fatto che la correzione di deficit eccessivi dovesse avvenire in maniera più graduale in anni di recessione.… Read more
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Spain: a tale of two crises
21st September 2012
In March, Jean Pisani-Ferry and I documented a significant capital flight affecting the euro-area periphery. The flight started in Greece, spilled over to the other programme countries and eventually reached Italy and Spain during summer 2011. The latest data shows that the situation is becoming extremely serious in Spain, where capital outflows since April 2011, when the acute phase of the crisis started, have reached 30% of pre-crisis GDP. Figure 1 – Cumulative capital inflows (% 2007 GDP) Note: data from national authorities. Capital flows are cumulated on the 2001 international investment liabilities This is not the first time that Spain has experienced a sudden stop, and looking at capital flights in an historical perspective is enlightening. Applying the methodology… Read more
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The Medium and the Message
19th September 2012
As a think tank whose mission is to improve the quality of economic policymaking in Europe and globally, Bruegel’s greatest emphasis has always been on the message rather than the medium of the message. However, Bruegel has always been conscious of the way it communicates and with whom it communicates, knowing that better access to its policy suggestions and analysis improves the chances of being heard, understood and having impact. Bruegel’s Policy Brief, whilst not an original concept, was carefully designed to attract, and to have the maximum impact on people whose world was already beginning to move faster and faster. The development of on-line communication tools mirrored Bruegel’s own development to a certain extent: in the beginning Bruegel’s staff… Read more
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Blogs review: The welfare state during times of economic crisis.
18th September 2012
What’s at stake: The current economic crisis has led to increased unemployment and put sharp pressure on government budgets. The welfare state can help mitigate the effects of the crisis on citizens, particularly through provision of unemployment insurance, but will also strongly be affected when budget consolidation is to occur through spending cuts. Furthermore, particularly American right wing commentators argue that European welfare states are root causes of the present sovereign debt crises. This review focuses on the perspectives for welfare states, particularly in Europe, under conditions of government budget consolidation. Read more
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L’affaire des deux hôtels
17th September 2012
Ce sont deux hôtels alpins situés de part et d’autre de la frontière austro-italienne. Tout les rapproche : les paysages, la clientèle, le dialecte des employés. Ils facturent dans la même monnaie. Ils sont clients de la même banque, une grande institution paneuropéenne. Mais ils ne payent pas du tout le même taux d’intérêt : le coût du crédit est beaucoup plus cher pour l’établissement italien que pour son concurrent, parce que la banque applique à chacun le taux des emprunts d’Etat dans son propre pays, augmenté d’une prime de risque et des frais d’intermédiation. Le cas, authentique, résume la fragmentation financière à laquelle la zone euro fait face. Vingt ans après l’achèvement supposé du marché unique européen, la concurrence entre les… Read more
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A five-step guide to European banking union
17th September 2012
Eurozone leaders have decided to create a banking union to help break the vicious circle between banking fragility and state insolvency. This is a bold move and an adequate response to the growing financial fragmentation of the European currency area. Last week the European Commission tabled its proposals for a single supervisory mechanism. Discussions on concrete proposals will start soon. They are bound to be highly complex, technical and controversial, because mistrust prevails and because participant countries hold very different views. However, it is important they succeed, so here is our five-point guide for the negotiators. 1. Be comprehensive. A true banking union must involve supervision, as currently discussed, but also resolution – how to wind-down ailing institutions – and… Read more
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The bond market consequences of Mr Draghi
14th September 2012
In the last two months, several events have had an impact on the sovereign bond market: the 29 June Euro Summit, Mario Draghi’s 26 July speech at the Global Investment Conference in London, and the European Central Bank Governing Council Decisions of 2 August and 6 September. Sovereign bond yields have come down significantly recently and Figure 1 shows that this has been particularly the case after these events. There has also been some reversal of the positive effects, as we have pointed out previously. The ECB interventions had an effect on the long term yields and also on the shape of the yield curves. Figure 2 plots the Italian and Spanish yield curves the day after (T+1) the above-mentioned… Read more
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Dutch elections – anti-Europe lost, but did pro-Europe win?
13th September 2012
The Dutch elections have ended in a race between the liberal party (VVD) and the social-democratic party (PvdA). The preliminary results indicate that VVD has 41 seats (up from 31) whereas PvdA has 39 seats (up from 30) out of a total of 150 seats. Especially the latter party has won while endorsing a pro-European agenda. The division of seats is such that PvdA and VVD are practically forced to enter into a coalition. Many observers have concluded that the anti-European strategy of the right-wing populists (PVV) and the left-wing socialists (SP) has backfired and that pro-Europe has won. This observation, however, is too optimistic for two reasons. First, the main issue in the elections has turned out to be… Read more
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ESM? Ja, aber...
12th September 2012
The German constitutional court has, as was widely expected, given a "yes-but" answer to the ESM treaty. The "but" refers to Article 8(5), sentence 1 "The liability of each ESM Member shall be limited, in all circumstances, to its portion of the authorised capital stock at its issue price." The crucial point here is the reference to the "issue price". A number of German critics previously argued that the German liability was not limited to €190 billion as explicitly stated in Article 8(1), but could be higher if the issue price of the authorised capital stock is increased. A second "but" refers to Articles 32 (5), 34 and 35 (1). Here, the court demands that the two chambers of the… Read more