Expected increases in interest rates and reductions in real GDP growth rates will result in relatively small increases in public debt-to-GDP ratios, but inflation will reduce debt ratios very substantially
Crucial decisions about whether a country can join the euro area depend on questionable discretionary decisions.
The European Central Bank needs a new tool to prevent the current rise in spreads, triggered by monetary policy tightening, from escalating into a new euro-area crisis.
The ECB should design a specific tool that will accompany interest rate hikes to neutralise the risk of fragmentation directly for countries facing it, staying within the bounds of the EU treaties and ensuring political legitimacy. We also advocate structural changes to the ECB’s collateral framework to avoid unnecessary uncertainty surrounding the safe asset status of European sovereign bonds.
Even though inflation in the euro area is lower than in the US, three issues make it a lot more difficult for the ECB to control inflation and preserve financial stability. Once again, the limits of EMU architecture are visible and will require a rethink.
What are the implications of prolonged inflation?
How is monetary policy evolving in the face of recent crises? With central banks taking on new roles, how accountable are they to democratic institutions?
ECB Executive Board Member Philip Lane discusses the outlook for Euro area economies.
How to address vulnerabilities in banks in the coming years?
What is the current state of pensions policy in Europe and how are independent workers treated compared with their traditionally employed counterparts?
The EU’s ambitious emissions reduction targets will require a major increase in green investments. This column considers options for increasing public green investment when major consolidations are needed after the fiscal support provided during the pandemic. The authors make the case for a green golden rule allowing green investment to be funded by deficits that would not count in the fiscal rules. Concerns about ‘greenwashing’ could be addressed through a narrow definition of green investments and strong institutional scrutiny, while countries with debt sustainability concerns could initially rely only on NGEU for their green investment.
The events that have unfolded since 24 February have solved one dispute: inflation is no longer temporary.