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Policy Contribution

Is recent bank stress really driven by the sovereign debt crisis?

Ahead of the European Council meeting on 23 October, the author outlines how EU Heads of States should focus on restoring confidence in euro-area policymakers’ ability and determination to put the euro area on a sound footing and restore market credibility.

By: Date: October 20, 2011 Topic: Macroeconomic policy

Stress in the interbank market has increased dramatically since July and bank stock market valuation has fallen by 22 percent on average for 60 of the most important banks tested in the EBA stress tests.

I find evidence that bank stock valuation is significantly and economically meaningfully affected by the bank’s exposure to Greek debt. Greek banks are particularly affected. Holdings of debt of the other four periphery countries does not however appear to be a strong determinant of stock price movements. Policy announcements of 21 July of no haircut on any sovereign but Greece appear to be perceived as credible.

The exposure to Greece cannot explain the general and large decline in euro area banks’ market cap. Instead, a general confidence crisis of the euro area banking system, or more deeply the euro area construction, might be driving the fall in stock prices.

The summit of 23 October should focus on restoring confidence in euro-area policymakers’ ability and determination to put the euro area on a sound footing. Recapitalisation of banks can only be only one aspect. A credible solution to Greece and a way forward for the larger institutional set-up, including a federal fiscal back-stop of the banking system, are of at least equal importance.

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European governance

The euro comes of age

A well-functioning euro reflects a degree of unity that allows the EU to credibly claim a position at the global table and therefore help shape the policies that will deal with global problems. That is a decisive success.

By: Maria Demertzis Topic: European governance, Macroeconomic policy Date: January 13, 2022
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Opinion

A role for the Recovery and Resilience Facility in a new fiscal framework

Discussions on reforming European Union fiscal rules must consider a more permanent but targeted role for the Recovery and Resilience fund to meet climate ambitions.

By: Maria Demertzis Topic: Macroeconomic policy Date: January 10, 2022
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Podcast

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The European economy in 2022

What are the economic priorities for the new year?

By: The Sound of Economics Topic: European governance, Macroeconomic policy Date: January 5, 2022
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Opinion

European governance

The Euro at 20

The euro’s advocates hoped that the single currency would deliver economic and financial integration, policy convergence, political amalgamation, and global influence. While these predictions were often wide of the mark, the euro has arguably proven to be a wise investment.

By: Jean Pisani-Ferry Topic: European governance, Macroeconomic policy Date: January 3, 2022
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Blog Post

European governanceInclusive growth

12 Charts for 21

A selection of charts from Bruegel’s weekly newsletter, analysis of the year and what it meant for the economy in Europe and the world.

By: Hèctor Badenes, Henry Naylor, Giuseppe Porcaro and Yuyun Zhan Topic: Banking and capital markets, Digital economy and innovation, European governance, Global economy and trade, Green economy, Inclusive growth, Macroeconomic policy Date: December 21, 2021
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European governance

Policy coordination failures in the euro area: not just an outcome, but by design

Discussions on the fiscal framework should aim to correct its procyclical nature with a view to promoting more cooperative outcomes.

By: Maria Demertzis and Nicola Viegi Topic: European governance, Macroeconomic policy Date: December 20, 2021
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External Publication

European governance

EU borrowing—time to think of the generation after next

Financing post-pandemic recovery via EU borrowing has proved remarkably straightforward. So why keep it temporary?

By: Grégory Claeys, Rebecca Christie and Pauline Weil Topic: European governance, Macroeconomic policy Date: December 9, 2021
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Opinion

Inflation ideology: camp permanent or camp temporary?

Policy focus should be on tackling uncertainties by being able to tackle as many scenarios as possible.

By: Maria Demertzis Topic: Macroeconomic policy Date: December 9, 2021
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Past Event

Past Event

Fiscal policy and rules after the pandemic

What are the possibilities for shaping the new fiscal policy?

Speakers: Zsolt Darvas, Maria Demertzis, Michel Heijdra and Katja Lautar Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: November 24, 2021
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European governance

Including home-ownership costs in the inflation indicator is not just a technical issue

The European Central Bank is right to propose inclusion of owner-occupied housing services in the inflation indicator. But the ECB’s preferred method would involve an asset price in the consumer inflation indicator.

By: Zsolt Darvas and Catarina Martins Topic: European governance, Macroeconomic policy Date: November 18, 2021
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Fiscal arithmetic and risk of sovereign insolvency

The record-high debt levels in advanced economies increase the risk of sovereign insolvency. Governments should start fiscal consolidation soon in an environment of low nominal and real interest rates and post-COVID growth.

By: Marek Dabrowski Topic: Global economy and trade, Macroeconomic policy Date: November 18, 2021
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Opinion

European governance

Growth and inflation after the pandemic in the EU

Countries hit comparatively hard during the financial crisis, helped also by domestic and European policies, are bouncing back from the pandemic faster than their peers.

By: Maria Demertzis Topic: European governance, Macroeconomic policy Date: November 18, 2021
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