The Development of Public Finances and Role of Fiscal Constraints in a Monetary Union: Example eurozone

This thesis is about the development of public debt and deficit in the eurozone, which has been in the center of attention for much of the new millennium. The debt-to-GDP and deficit-to-GDP ratios have changed significantly during the period of the European monetary integration, with sharp increases in the levels since the beginning of the financial crisis. We view the levels both before and after the establishment of the European Central Bank. The subject is complemented by a study of the restrictions on fiscal policy in the eurozone. The thesis begins with a review of the most central agreements in the Economic and Monetary Union, namely the Maastricht Treaty, the Stability and Growth Pact and the Fiscal Compact. We study the instructions and requirements provided by these contracts, with the emphasis being on the debt and deficit values. Furthermore, we view two theories that aim to provide us with information, whether the fiscal restrictions are useful or not. The second and empirical part consists of review on the debt and deficit levels in practice. We take a close look on the values for each of the currency union members. The third and last part summarizes the findings, and analyzes the reasons behind the changes. The result of the thesis is, that even though the levels of public debt and deficit have worsened since the beginning of the financial crisis, tight rules on fiscal policy might not be the best possible solution. Private sector has played a crucial part in the increase of the debt levels, and tight rules have their impact on the long awaited economic growth in the eurozone. It is obvious, though, that some form of fiscal guidelines with scientific ground are needed in order to avoid excessive and harmful debt and deficit levels. The main task is to make these guidelines a more essential part of the fiscal policy in each of the member countries.

“Who is steering the ship and which constellation guides the way? Exploring transparency in the European Central Bank during the time of crisis”

This paper explores transparency in the decision-making of the European Central Bank (ECB). According to ECB´s definition, transparency means that the central bank provides the general public with all relevant information on its strategy, assessments and policy decisions as well as its procedures in an open, clear and timely manner. In this paper, however, the interpretation of transparency is somewhat broader: Information is freely available and directly accessible to those who will be affected by the decisions. Moreover, the individuals shall be able to master this material. ECB´s negative attitude towards publication of documents has demonstrated central bank´s reluctance to strive towards more extensive transparency. By virtue of the definition adopted by the ECB the bank itself is responsible for determining what is considered as relevant information. On the grounds of EU treaties, this paper assesses ECB`s accountability concentrating especially on transparency by employing principal-agent theory and constitutional approach. Traditionally, the definite mandate and the tenet of central bank independence have been used to justify the limited accountability. The de facto competence of the ECB has, however, considerably expanded as the central bank has decisively resorted to non-standard measures in order to combat the economic turbulences facing Europe. It is alleged that non-standard monetary policy constitutes a grey zone occasionally resembling economic policy or fiscal policy. Notwithstanding, the European Court of Justice has repeatedly approved these measures. This dynamic interpretation of the treaties seems to allow temporarily exceptions from the central bank´s primary objective during extraordinary times. Regardless, the paper suggests that the accountability nexus defined in the treaties is not sufficient in order to guarantee the accountability of the ECB after the adoption of the new, more active role. Enhanced transparency would help the ECB to maintain its credibility. Investing in the quality of monetary dialogue between the Parliament and the ECB appears to constitute the most adequate and practicable method to accomplish this intention. As a result of upgraded transparency the legitimacy of the central bank would not solely rest on its policy outputs.

The determination of EONIA rate: The impact of the financial crisis and the effects of the changes in the monetary policy implementation framework

EONIA is a market based overnight interest rate, whose role as the starting point of the yield curve makes it critical from the perspective of the implementation of European Central Bank´s common monetary policy in the euro area. The financial crisis that started in 2007 had a large impact on the determination mechanism of this interest rate, which is considered as the central bank´s operational target. This thesis examines the monetary policy implementation framework of the European Central Bank and changes made to it. Furthermore, we discuss the development of the recent turmoil in the money market. EONIA rate is modelled by means of a regression equation using variables related to liquidity conditions, refinancing need, auction results and calendar effects. Conditional volatility is captured by an EGARCH model, and autocorrelation is taken into account by employing an autoregressive structure. The results highlight how the tensions in the initial stage of the market turmoil were successfully countered by ECB´s liquidity policy. The subsequent response of EONIA to liquidity conditions under the full allotment liquidity provision procedure adopted after the demise of Lehman Brothers is also established. A clear distinction in the behavior of the interest rate between the sub-periods was evident. In the light of the results obtained, some of the challenges posed by the exit-strategy implementation will be addressed.

Siirtymätalouksien tutkimuslaitoksen (BOFIT) kokoelma

Suomen Pankin kirjastolla on erilliskokoelma Siirtymätalouksien tutkimuslaitoksessa, BOFITissa. Kokoelma on painottunut siirtymätalouksia käsittelevään tieteelliseen kirjallisuuteen, tilasto- ja kausijulkaisuihin. Kokoelmaa on kartutettu 1980-luvulta lähtien ja siihen sisältyy merkittävä määrä nimekkeitä, joita ei ole hankittu muihin suomalaisiin kirjastoihin. Kokoelmaa on rajattu sekä aihepiireiltään että maantieteellisesti kulloistenkin tutkimuspainopisteiden mukaisesti. Kokoelman keskeinen aihealue on makrotalous ja erityisinä painopisteinä ovat rahatalous, talouspolitiikka ja talousuudistukset. Paljon kirjallisuutta löytyy myös raha- ja valuuttapolitiikasta, pankkitoiminnasta ja kansainvälisistä taloussuhteista. Maantieteellisinä painopisteinä ovat tällä hetkellä erityisesti Venäjä ja Kiina. Vanhempaa aineistoa löytyy myös Baltian sekä Itä-Euroopan maista, Neuvostoliitosta sekä Suomen idänkaupasta. Kirjakokoelma sisältää n. 5300 nimekettä, lehtikokoelma n. 150 nimekettä. Artikkeliviitteitä löytyy n. 2300 vuodesta 1990 lähtien. Kokoelma sisältää tiedot myös kaikesta BOFITin omasta julkaisutuotannosta. Suurin osa kokoelmasta on englanninkielistä.