Yesterday, the High-level Expert Group on reforming the structure of the EU banking sector chaired by the governor of Finland's central bank Erkki Liikanen, in short the Liikanen report issued its report. Apart from endorsing other currently discussed points such as common bank supervision and the resolution schemes, one of its main findings is that ‘it is necessary to require legal separation of certain particularly risky financial activities from deposit-taking banks within a banking group’, which fits nicely with the Volcker rule in the US and the Vickers proposal in the UK. The main goals of legal separation are to limit a banking group’s incentives and ability to take excessive risks with insured deposits, to prevent the coverage of losses… Read more
Bruegel blog
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The Liikanen report - is size the elephant in the room?
4th October 2012
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The European Semester Timeline
4th October 2012
EU economic policy coordination is now supported by a process known as European Semester, which provides a common timetable for EU policy guidance and the monitoring of national actions. This blog entry summarizes the main steps in the European Semester and the role each EU Institution plays in the process. For an extensive analysis of the European Semester and its operation, see An Assessment of the European Semester. The European Commission launches the European Semester with the publication of the so-called Annual Growth Survey (AGS), a list of general policy priorities for the EU. The AGS is based on the progress report on EU2020 strategy, the Macroeconomic Report and the Joint Employment Report. In the first Semester cycle, the European… Read more
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Chart of the week: Wage stickiness and painful adjustment
1st October 2012
This blog entry studies labour cost adjustment in the euro area. We find that wages are sticky and nominal wages rarely fall except in the most severe crisis circumstances. Second, unit labour cost (ULC) reductions are often associated with significant increases in unemployment. Third, the relative adjustment is forecast to continue and accelerate during 2012/13 despite a drop in the average euro area labour compensation. The fall in the average calls for a comprehensive response at the euro area level. Read more
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The ECB’s Magic Wand
28th September 2012
This column was written as the editorial of the September/October 2012 issue of Intereconomics We know there is no magic. But after a clever trick by the magician and a wave of the magic wand, the audience still applauds for quite some time. The new magic wand of the European Central Bank (ECB), Outright Monetary Transactions (OMT), has so far resulted in the 2-year Spanish government bond yield falling from a 15-year record high of 6.9% in late July 2012 to below 3% in early September 2012. Longer maturity yields have also fallen somewhat. Was the OMT move a wise decision? Are the criticisms that are being voiced justified? What is the OMT action good for and what are its… Read more
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Wir brauchen Licht am Ende des Tunnels
25th September 2012
Interview mit Bruegel-Forscher André Sapir über das neue Anleihen-Programm der EZB Die EZB hat ein neues Anleihenkaufprogramm, das so genannte OMT, angekündigt. Wofür brauchen wir ein solches Programm im Euroraum? Funktionieren die Anleihemärkte nicht richtig? Ja, wir haben ein Problem mit den Märkten für Staatsanleihen im Euroraum. Die Ursache dafür liegt darin, dass Investoren das Risiko eines Auseinanderbrechens der Währungsunion einpreisen. Die Märkte verharren in einem schlechten Gleichgewicht, das von selbsterfüllenden Erwartungen und Prophezeiungen geprägt wird. Deshalb verlangen die Märkte eine Risikoprämie für die Anleihen mehrerer Euroländer. So ist der Spread zwischen Italien und Deutschland wesentlich höher, als dies durch objektive Daten über die Tatkraft ihrer Regierungen erklärt werden könnte. Nach Angaben des IWF und mehrerer privater Bankhäuser liegt die… Read more
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Fünf Schritte zur europäischen Bankenunion
25th September 2012
Bruegel-Direktor Jean Pisani-Ferry und sein Stellvertreter Guntram Wolff zu Chancen und Risiken des neuen EU-Projekts Die Chefs der Eurozone haben beschlossen, eine Bankenunion zu gründen. Damit wollen sie den Teufelskreis aus schwachen Banken und zahlungsunfähigen Staaten durchbrechen. Dies ist ein wichtiger Schritt und eine angemessene Antwort auf die zunehmende finanzielle Fragmentierung des Europäischen Währungsraums. Mitte September hat die EU-Kommission ihre Vorschläge für eine gemeinsame Bankenaufsicht vorgelegt. Die Diskussion über diese Vorschläge wird bald beginnen. Sie wird zwangsläufig sehr komplex, technisch und kontrovers verlaufen. Denn das Misstrauen ist groß, und die Ansichten zwischen den Euroländern sind sehr verschieden. Dennoch ist es wichtig, die Debatte zum Erfolg zu führen. Dazu soll unser Fünf-Punkte-Plan beitragen. 1. Streben Sie eine umfassende Lösung an. Eine… Read more
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Central banks on the offensive?
25th September 2012
It looks like a coordinated offensive: on September 6, the European Central Bank outlined a new bond-buying program, letting markets know that there were no pre-set limits to its purchases. On September 13, the United States Federal Reserve announced that in the coming months it would purchase some $85 billion of long-term securities per month, with the aim of putting downward pressure on long-term interest rates and supporting growth. Finally, on September 19, the Bank of Japan declared that it was adding another ¥10 trillion ($128 billion) to its government securities purchase program, and that it expected its total holdings of such paper to reach about $1 trillion by end-2013.There is, indeed, room for such concerted action, as the outlook… Read more
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Blogs review: OMT - Has the ECB solved the Euro Crisis?
25th September 2012
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
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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