The Monetary Policy of the European Central Bank (2002-2015). CEPS Special Report No. 109/May 2015

This paper examines the policies pursued by the European Central Bank (ECB) since the inception of the euro. The ECB was originally set up to pursue price stability, with an eye also to economic growth and financial stability as subsidiary goals, once the primary goal was secured. The application of a single monetary policy to a diverse economic area has entailed a pronounced pro-cyclicality in its real economic effects on the eurozone periphery. Later, monetary policy became the main policy instrument to tackle financial instability elicited by the failure of Lehman Brothers and the sovereign debt crisis in the eurozone. In the process, the ECB emerged as the lender of last resort in the sovereign debt markets of participating countries. Persistent economic depression and deflation eventually brought the ECB into the uncharted waters of unconventional policies. That the ECB could legally perform all of these tasks bears witness to the flexibility of the TFEU and its Statute, but its tools and operating procedures were stretched to their limit. In the end, the place of the ECB amongst EU policy-making institutions has been greatly enhanced, but has entailed repeated intrusions into the broader domain of economic policies – not least because of its market intervention policies – whose consequences have yet to be ascertained.

Greater TTIP Ambition in Chemicals: Why and how. CEPS Special Report, 28 July 2015. Paper No. 10 in the CEPS-CTR project ‘TTIP in the Balance’ and CEPS Special Report No. 114/July 2015.

To date, the negotiations over chemicals in the Translatlantic Trade and Investment Partnership (TTIP) have not shown sufficient ambition. The talks have focused too much on the differences in the two ‘systems’, rather than on the actual levels of health and environmental protection for substances regulated by both the US and the EU. Given the accomplishments within the OECD and the UN Globally Harmonised System of Classification and Labelling of Chemicals (GHS), the question is whether TTIP can be any more ambitious in the area of chemicals? We find that there is no detailed or systematic knowledge about how the two levels of protection in chemicals compare, although caricatures and stereotypes abound. This is partly due to an obsessive focus on a single US federal law, the Toxic Subtances Control Act (TSCA), whereas in practice US protection depends on many statutes and regulations, as well as on voluntary withdrawals (under pressure from the Environmental Protection Agency) and severe common law liability. This paper makes the economic case for firmly addressing the regulatory barriers, discusses the EU’s proposals, finds that the European Parliament’s Resolution on TTIP of July 2015 lacks a rationale (for chemicals), argues that both TSCA and REACH ought to be improved (based on ‘better regulation’), discusses the link with a global regime, advocates significant improvement of market access where equivalence of health and environmental objectives is agreed and, finally, proposes to lower the costs for companies selling in both markets by allowing them to opt into the other party’s more stringent rules, thereby avoiding duplication while racing-to-the-top. The ‘living agreement’ on chemicals ought to be led by a new TTIP institution authorised to establish the level of health and environmental protection on both sides of the Atlantic for substances regulated on both sides. These findings will lay the foundation for a highly beneficial lowering of trading costs without in any way affecting the level of protection. Indeed, this is exactly what TTIP is, or should be, all about.This paper is the 10th in a series produced in the context of the “TTIP in the Balance” project, jointly organised by CEPS and the Center for Transatlantic Relations (CTR) in Washington, D.C. It is published simultaneously on the CEPS (www.ceps.eu) and CTR websites (http://transatlantic.sais-jhu.edu).

The Monetary Policy of the European Central Bank (2002-2015). Bruges European Economic Policy Briefings (BEEP) 35/2015.

This paper examines the policies pursued by the European Central Bank (ECB) since the inception of the euro. The ECB was originally set up to pursue price stability, with an eye also to economic growth and financial stability as subsidiary goals, once the primary goal was secured. The application of a single monetary policy to a diverse economic area has entailed a pronounced pro-cyclicality in its real economic effects on the eurozone periphery. Later, monetary policy became the main policy instrument to tackle financial instability elicited by the failure of Lehman Brothers and the sovereign debt crisis in the eurozone. In the process, the ECB emerged as the lender of last resort in the sovereign debt markets of participating countries. Persistent economic depression and deflation eventually brought the ECB into the uncharted waters of unconventional policies. That the ECB could legally perform all of these tasks bears witness to the flexibility of the TFEU and its Statute, but its tools and operating procedures were stretched to their limit. In the end, the place of the ECB amongst EU policy-making institutions has been greatly enhanced, but has entailed repeated intrusions into the broader domain of economic policies – not least because of its market intervention policies – whose consequences have yet to be ascertained.

Firmer foundations for a stronger European Banking Union. Bruegel Working Paper 2015/13, November 2015

The move to European Banking Union involving the supervision and resolution of banks at euro-area level was stimulated by the sovereign debt crisis in the euro area in 2012. However, the long-term objective of Banking Union is dealing with intensified cross-border banking.The share of the assets of national banking systems that come from other EU countries was rising before the financial and economic crisis of 2007, but went into decline thereafter in the context of a general retrenchment of international banking. Most recent data, however, suggests the decline has been halted. About 14 percent of the assets of banks in Banking Union come from other EU countries, while about a quarter of the assets of the top 25 banks in the Banking Union are held in other EU countries.While a crisis-prevention framework for the euro area has largely been completed, the crisis-management framework remains incomplete, potentially creating instability. There is no governance mechanism to resolve disputes between different levels of crisis-management agencies, and incentives to promote optimum oversight are lacking. Most importantly, risk-sharing mechanisms do not adequately address the sovereign-bank loop, with a lack of clarity about the divide between bail-in and bail-out.To complete Banking Union, the lender-of-last-resort and deposit insurance functions should move to the euro-area level, breaking the sovereign-bank loop. A fully-fledged single deposit insurance (and resolution) fund should be favoured over a reinsurance scheme for reasons of cost and simplicity.