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Policy Brief

Euro-area governance: what to reform and how to do it

This Policy Brief argues that the Euro-area governance needs to move beyond the improvements brought about by banking union and should establish institutions to prevent divergences of wages from productivity. The authors propose the creation of a European Competitiveness Council composed of national competitiveness councils, and the creation of a Eurosystem of Fiscal Policy.

By: and Date: February 27, 2015 Topic: Macroeconomic policy

  • The Issue Reform of the governance of the euro area is being held back by disagreement on what is at the root of the euro area’s woes. Pre-crisis, the euro area suffered from the built-up of financial imbalances, price and wage divergence and an insufficient focus on debt sustainability. During the crisis, the main problems were slow resolution of banking problems, an inadequate fiscal policy stance in 2011-13 for the area as a whole, insufficient domestic demand in surplus countries and slow progress with structural reforms to overcome past divergences.
  • Policy Challenge Euro-area governance needs to move beyond the improvements brought about by banking union and should establish institutions to prevent divergences of wages from productivity. We propose the creation of a European Competitiveness Council composed of national competitiveness councils, and the creation of a Eurosystem of Fiscal Policy (EFP) with two goals: fiscal debt sustainability and an adequate area-wide fiscal position. The EFP should have the right in exceptional circumstances to declare national deficits unlawful and to be able to force parliaments to borrow more so that the euro-area fiscal stance is appropriate. A euro-area chamber of the European Parliament would have to approve such decisions. No additional risk-sharing would be introduced. In the short term, domestic demand needs to be increased in surplus countries, while in deficit countries, structural reform needs to reduce past divergences.
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Opinion

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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Podcast

Podcast

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 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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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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Blog Post

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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Blog Post

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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Parliamentary Testimony

European governanceEuropean Parliament

The New Euro Area Inflation Indicator and Target: The Right Reset?

Testimony to the Monetary Dialogue Preparatory Meeting of the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Zsolt Darvas Topic: European governance, European Parliament, Macroeconomic policy Date: November 9, 2021
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External Publication

European governanceEuropean Parliament

The new euro area inflation indicator and target: the right reset?

In-depth analysis on the European Central Bank's revised inflation target prepared for the European Parliament's Committee on Economic and Monetary Affairs (ECON).

By: Zsolt Darvas and Catarina Martins Topic: European governance, European Parliament, Macroeconomic policy Date: November 4, 2021
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Past Event

Past Event

European monetary policy: lessons from the past two decades

This event will feature the presentation of “Monetary Policy in Times of Crisis – A Tale of Two Decades of the European Central Bank."

Speakers: Petra Geraats, Wolfgang Lemke, Francesco Papadia and Massimo Rostagno Topic: Macroeconomic policy Date: November 4, 2021
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Blog Post

European governance

Is the risk of stagflation real?

Most economic forecasts predict a return, in the medium-term, to pre-pandemic growth and inflation. Nevertheless, the European Central Bank and fiscal authorities need to be vigilant for signs of the contrary.

By: Monika Grzegorczyk, Francesco Papadia and Pauline Weil Topic: European governance, Macroeconomic policy Date: November 2, 2021
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Past Event

Past Event

Microchips and Europe's strategic autonomy

Per microchips ad strategic autonomy.

Speakers: Piotr Arak, Alicia García-Herrero, Jay Lewis, Stefan Mengel and Niclas Poitiers Topic: Digital economy and innovation, European governance Date: November 2, 2021
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