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Reconciling risk sharing with market discipline: A constructive approach to euro area reform

This publication, written by a group of independent French and German economists, proposes six reforms which, if delivered as a package, would improve the Eurozone’s financial stability, political cohesion, and potential for delivering prosperity to its citizens, all while addressing the priorities and concerns of participating countries.

By: , , , , , , , , , , , , and Date: January 17, 2018 Topic: European Macroeconomics & Governance

After nearly a decade of stagnation, the Eurozone is finally experiencing a robust recovery. While this comes as a relief – particularly in countries with high debt and unemployment levels – it is also breeding complacency about the underlying state of the Eurozone. Maintaining the status quo or settling for marginal changes would be a serious mistake, however, because the currency union continues to suffer from critical weaknesses, including financial fragility, suboptimal conditions for long-term growth, and deep economic and political divisions. While these problems have many causes, a poorly designed fiscal and financial architecture is an important contributor to all of them:

  • The ‘doom loop’ between banks and sovereigns continues to pose a major threat to individual member states and the Eurozone as a whole. An incomplete banking union and fragmented capital markets prevent the Eurozone from reaping the full benefits of monetary integration and from achieving better risk sharing through market mechanisms.
  • Fiscal rules are non-transparent, pro-cyclical, and divisive, and have not been very effective in reducing public debts. The flaws in the Eurozone’s fiscal architecture have overburdened the ECB and increasingly given rise to political tensions.

The Eurozone’s inability to deal with insolvent countries other than through crisis loans conditioned on harsh fiscal adjustment has fuelled nationalist and populist movements in both debtor and creditor countries. The resulting loss of trust may eventually threaten not just the euro, but the entire European project.

Read more on VOX, CEPR’s policy portal

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Podcast

Podcast

Rebooting Europe: a framework for post COVID-19 economic recovery

COVID-19 has triggered a severe recession and policymakers in European Union countries are providing generous, largely indiscriminate, support to companies. As the recession gets deeper, a more comprehensive strategy is needed. This should be based on four principles: viability of supported entities, fairness, achieving societal goals, and giving society a share in future profits. The effort should be structured around equity and recovery funds with borrowing at EU level.

By: The Sound of Economics Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: May 15, 2020
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Opinion

Save markets to save the single market

It’s time for the EU to make quick and indispensable progress in forming a capital markets union.

By: Maria Demertzis Topic: European Macroeconomics & Governance, Finance & Financial Regulation Date: May 15, 2020
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Policy Brief

Rebooting Europe: a framework for a post COVID-19 economic recovery

COVID-19 has triggered a severe recession and policymakers in European Union countries are providing generous, largely indiscriminate, support to companies. As the recession gets deeper, a more comprehensive strategy is needed. This should be based on four principles: viability of supported entities, fairness, achieving societal goals, and giving society a share in future profits. The effort should be structured around equity and recovery funds with borrowing at EU level.

By: Julia Anderson, Simone Tagliapietra and Guntram B. Wolff Topic: Energy & Climate, European Macroeconomics & Governance Date: May 13, 2020
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Opinion

The message in the ruling

The German Constitutional Court's ruling on the ECB's asset purchase programme is open to much criticism but it can hardly be blamed for raising an important question.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: May 12, 2020
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Blog Post

COVID-19: The self-employed are hardest hit and least supported

Self-employed workers are hardest-hit by COVID-19 lockdowns. Yet they often receive less government support than salaried employees. Is the disparity justified?

By: Julia Anderson Topic: European Macroeconomics & Governance Date: April 8, 2020
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Opinion

A European approach to fund the coronavirus cost is in the interest of all

We had not seen a common challenge as clear as this pandemic. The sum of national actions and programs is likely to be insufficient.

By: Agnès Bénassy-Quéré, Arnoud Boot, Elena Carletti, Jan Krahnen, Miguel Otero-Iglesias, Lucrezia Reichlin, Dirk Schoenmaker and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: April 6, 2020
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Opinion

A temporary, common fiscal stimulus to answer the mayhem of COVID-19

We are not in normal times and we have to surpass, albeit only for the duration of the COVID-19 shock, the hurdles that did not allow the euro-area to endow itself of a common fiscal policy.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: April 2, 2020
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Opinion

Will the economic strategy work?

Because even thriving companies can be killed in a matter of weeks by a recession of the magnitude now confronting the world, advanced-economy governments have reacted in a remarkably similar fashion to the COVID-19 crisis. But extending liquidity lifelines to private businesses and supporting idled workers assumes a short crisis.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: April 1, 2020
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Past Event

Past Event

The Sound of Economics Live: The macroeconomic policy response to the COVID-19 crisis

Which macroeconomic policy response is the best option to deal with the crisis currently unfolding and will ensure that the recovery will be as quick as possible?

Speakers: Grégory Claeys, Giuseppe Porcaro, Lucrezia Reichlin and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
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Past Event

Past Event

CANCELLED: How adequate is the European toolbox to deal with financial stability risks in a low rate environment?

Bruegel is delighted to welcome the governor of the Central Bank of Ireland, Gabriel Makhlouf. He will deliver a keynote address about how adequate the European toolbox is to tackle financial stability risks in a low rate environment. Following his speech, a panel of experts will further discuss the topic.

Speakers: Gabriel Makhlouf, Guntram B. Wolff and Agnès Bénassy-Quéré Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: March 31, 2020
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Blog Post

The fiscal consequences of the pandemic

The likely economic depression triggered by coronavirus will pose a serious fiscal challenge to some euro-area countries. Given the special circumstances of the pandemic, a European solution is needed, involving more European Central Bank purchases, a significantly increased European Stability Mechanism and some degree of mutualisation of the pandemic-related economic costs.

By: Zsolt Darvas Topic: European Macroeconomics & Governance Date: March 30, 2020
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Blog Post

COVID-19 Fiscal response: What are the options for the EU Council?

It is time for the EU Council to make quick progress on the fiscal front and announce something as soon as possible to show that it taken full measure of the severity of the situation.

By: Grégory Claeys and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: March 26, 2020
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