Monetary policy and banking supervision: coordination instead of separation. CEPS Policy Brief No. 286, 12 December 2012

Introduction. Following the June 2012 European Council decision to place the ‘Single Supervisory Mechanism’ (SSM) within the European Central Bank, the general presumption in the policy discussions has been that there should be ‘Chinese walls’ between the supervisory and monetary policy arms of the ECB. The current legislative proposal, in fact, is explicit on this account. On the contrary, however, this paper finds that there is no need to impose a strict separation between these two functions. The authors argue, in fact, that a strict separation of supervision and monetary policy is not even desirable during a financial crisis when the systemic stability of the financial system represents the biggest threat to a monetary policy that aims at price stability. In their view, the key problem hampering the ECB today is that it lacks detailed information on the state of health of the banking system, which is often highly confidential. Chinese walls would not solve this problem. Moreover, in light of the fact that the new, proposed Supervisory Board will be composed to a large extent of representatives of the same institutions that also dominate the Governing Council, the paper finds that it does not make sense to have Chinese walls between two boards with largely overlapping memberships. In addition, it recommends that some members of the Supervisory Boards should be “independents” in order to reduce the tendency of supervisors to unduly delay the recognition of losses.

The rise of capacity mechanisms: are they inevitable in the European Union? Egmont Paper 80, September 2015

These last years, in multiple Member States, the electricity markets have seen the rapid emergence of Capacity Remuneration Mechanisms (CRMs). They are meant to guarantee the stability of the electricity system in a more uncertain context. The reactions of the European Commission were late towards them. It is thus essential to bring some clarity here, otherwise the legal uncertainty could become a new impediment for investment.

Creating Stability: National Preferences and the Origins of European Monetary System. CES Germany & Europe Working Papers, No. 00.9, December 2000

This essay compares the preferences of France, Italy, and Britain on the creation of the European Monetary System in 1978-1979, especially the Exchange Rate Mechanism, which stabilised nominal exchange rates. My claim is that the different conclusions reached by the governments (France and Italy in, Britain out) cannot be explained by economic circumstances or by interests, and I elaborate an intervening institutional variable which helps explain preferences. Deducing from spatial theory that where decisionmakers `sit' on the left-right spectrum matters to their position on the EMS, I argue that domestic constitutional power-. sharing mechanisms privilege certain actors over others in a predictable and consistent way. Where centrists were in power, the government's decision was to join. Where left or right extremists were privileged, the government's decision was negative. The article measures the centrism of the governments in place at the time, and also reviews the positions taken by the national political parties in and out of government. It is intended to contribute to the growing comparativist literature on the European Union, and to the burgeoning literature on EU-member-state relations.

The Market Stability Reserve in Perspective. CEPS Special Report No. 91, October 2014

This Special Report aims to contribute to the debate on the Market Stability Reserve (MSR), which was introduced by the European Commission in a legislative proposal of January 2014. The MSR would introduce a degree of supply management into the EU Emissions Trading System (ETS). This report is the result of various meetings with ETS-stakeholders throughout 2014. It discusses the MSR’s rationale and reviews the different options available for its design, governance and timing, as well as its consequences for the functioning of the EU ETS and the EU’s climate and energy policy.

A weak link? Germany in the Euro-Atlantic security system. OSW Point of View Number 47, January 2015

The political, military and economic parameters of German power influence the vision of the international order that Berlin favours. Politically, Germany is a regional power in the EU with considerable diplomatic potential. Economically, it is the world's third largest power with growing global trade and investment links. At the same time, Germany's military potential is limited and the German strategic culture makes the country sceptical about the use of military instruments. Berlin is thus essentially interested in maintaining peace and stability, both in Europe and globally, and in developing diplomatic mechanisms to manage regional and global crises and conflicts. The German preference for dialogue and compromise in conflict situations in the regional and global dimensions may increasingly pose a risk to maintaining the cohesion and credibility of NATO – both from the perspective of the USA and Germany’s allies from Central-Eastern and Northern Europe.

Late Putin. The end of growth, the end of stability. OSW POINT OF VIEW #55, 2015-10-05

Since Vladimir Putin returned to the Kremlin as President in May 2012, the Russian system of power has become increasingly authoritarian, and has evolved towards a model of extremely personalised rule that derives its legitimacy from aggressive decisions in internal and foreign policy, escalates the use of force, and interferes increasingly assertively in the spheres of politics, history, ideology or even public morals. Putin’s power now rests on charismatic legitimacy to a much greater extent than it did during his first two presidential terms; currently the President is presented not only as an effective leader, but also as the sole guarantor of Russia’s stability and integrity. After 15 years of Putin’s rule, Russia’s economic model based on revenue from energy resources has exhausted its potential, and the country has no new model that could ensure continued growth for the economy. The Putinist system of power is starting to show symptoms of agony – it has been unable to generate new development projects, and has been compensating for its ongoing degradation by escalating repression and the use of force. However, this is not equivalent to its imminent collapse.

Fine-tuning the use of bail-in to promote a stronger EU financial system. CEPS Special Report No. 136/April 2016

This paper discusses the application of the new European rules for burden-sharing and bail-in in the banking sector, in view of their ability to accommodate broader policy goals of aggregate financial stability. It finds that the Treaty principles and the new discipline of state aid and the restructuring of banks provide a solid framework for combating moral hazard and removing incentives that encourage excessive risk-taking by bankers. However, the application of the new rules may have become excessively attentive to the case-by-case evaluation of individual institutions, while perhaps losing sight of the aggregate policy needs of the banking system. Indeed, in this first phase of the banking union, while large segments of the EU banking sector still require a substantial restructuring and recapitalisation, the market may not be able to provide all the needed resources in the current environment of depressed profitability and low growth. Thus, a systemic market failure may be making the problem impossible to fix without resorting to temporary public support. But the risk of large write-offs of capital instruments due to burden-sharing and bail-in may represent an insurmountable obstacle to such public support as it may set in motion an investors’ flight. The paper concludes by showing that existing rules do contain the flexibility required to accommodate aggregate policy requirements in the general interest, and outlines a public support scheme for the precautionary recapitalisation of solvent banks that would be compliant with EU law.