Synthesis Report on Structural Reforms in Member States. Report addressed to the Council and the Commission. 8 March 1999.

The Economic Policy Committee (EPC) is made up of representatives of the Member States and contributes to the work of the Economic and Monetary Affairs Council as regards the coordination of Member State and Community economic policies. The EPC also provides the Commission and the Council with advice in this area, focusing particularly on structural reforms.

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.

Money for structural reforms in the eurozone: making sense of contractual arrangements. Egmont Paper 57, May 2013

Executive Summary. Both the Commission’s proposal for a ‘Competitiveness and Convergence Instrument’ and the ‘contractual arrangement’ presented by President Van Rompuy share a common concept: associating EU money with national structural reforms under a binding arrangement. The targeted ‘structural reforms’ are the labour market reforms and product and services market reforms in eurozone ‘peripheral’ countries facing the most severe external imbalances. Their implementation would speed up and facilitate the ‘internal devaluation’ process of these countries. In the worst case scenario, failure to adopt the necessary reforms and to adjust wages and prices downwards may lead the most vulnerable countries to leave the eurozone under social and political pressure. Contracts seek to reduce this risk by increasing compliance with the country-specific recommendations for structural reforms issued by the EU institutions within the European Semester, and in particular with the Macroeconomic Imbalance Procedure (MIP). As for the financial support, it follows two different, albeit overlapping rationales. First, the perspective of obtaining EU funding would incentivize the governments of vulnerable countries to adopt reforms that would bear a high political and social cost in the short term. That is, without some form of incentive, it is unlikely that the necessary reforms would be undertaken and this could have significant negative consequences for the EMU as a whole. The second rationale amounts to outright solidarity: EU support is needed to cushion the inevitable socio-economic costs implied not only by the structural reform, but also by the internal devaluation taking place. To make sense of contractual arrangements, some points should be considered in future discussions: 1. Contracts on a voluntary basis only: Contracts cannot be mandatory unlike initially suggested in the Van Rompuy report. This stems not only from the inherent definition of a ‘contract’ – where mutual consent is key – but also from the non-binding nature of the preventive arm of the MIP. Making the country-specific recommendations issued by the EU institutions systematically binding would imply transfers of sovereignty from the national to the EU level that go well beyond the present discussion. Instead, contracts would introduce the possibility of making the preventive arm binding for some countries where corrections are most needed and urgent for the EMU as a whole.

Offshoring of Information-intensive Services: Structural Breaks in Industry Life Cycles. ACES Working Papers, August 2010

The emergence of widespread offshoring of information-intensive services is arguably one of the more impactful phenomena to transform business in the last ten years. A growing body of research has examined the firm-level drivers andlocation factors (i.e., the why's and where's) of services offshoring. However, little empirical research has examined the maturation sequencing (or when's) of services offshoring. Adopting industry life cycle theory as a framework, the key research questions examined in the paper are: when do different categories of offshoring services provision change from being emergent sectors to more mature ones, and how does the timing of this sequence relate to the type of service offshored. Using a database of 1420 offshore services FDI projects, we find that the value-add as well as the information sensitivity of the service category are related to when the service categories progress through the industry life cycle. Implications for future waves of service offshoring are discussed.

The financial stability risks of ultra-loose monetary policy. Bruegel Policy Contribution Issue 2015/03

Ultra-loose monetary policies, such as very low or even negative interest rates, large-scale asset purchases, long-maturity lending to banks and forward guidance in central bank communication, aim to increase inflation and output, to the benefit of financial stability. But at the same time, these measures pose various risks and might create challenges for financial institutions. • By assessing the theoretical literature and developments in the United States, United Kingdom and Japan, where very expansionary monetary policies were adopted during the past six years, and by examining the euro-area situation, we conclude that the risks to financial stability of ultra-loose monetary policy in the euro area could be low. However, vigilance is needed. • While monetary policy should focus on its primary mandate of area-wide price stability, other policies should be deployed whenever the financial cycle deviates from the economic cycle or when heterogeneous financial developments in the euro area require financial tightening in some but not all countries. These policies include micro-prudential supervision, macro-prudential oversight, fiscal policy and regulation of sectors that pose risks to financial stability, such as construction.

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.

Monetary policy and the over-investment cycle: China as an extreme case. CEPS Commentary, 27 August 2015

Against the background of the severe turbulence that is hitting global stock markets, Daniel Gros examines the looming slowdown in the Chinese economy in this CEPS Commentary, which he attributes to an underlying ‘real’ domestic investment/savings imbalance. Given the magnitude of this imbalance, Gros thinks it is unlikely to be solved by monetary policy and that the best that can be hoped for is that the central banks will manage to ‘paper over’ some of the unavoidable symptoms in credit markets.

Flashlight Europe N°5–June 2015. OMT is Monetary Policy and Not Economic Policy

In January 2014, for the first time in its history, the German Federal Constitutional Court submitted several questions to the European Court of Justice (ECJ) in Luxembourg and asked for a preliminary ruling. The questions had arisen within the framework of the OMT case, and the issue was whether or not the OMT (“outright monetary transactions”) programme announced by Mario Draghi, the head of the European Central Bank (ECB), is in compliance with the law of the European Union. The OMT programme (which has be-come well-known because Draghi said “what-ever it takes to preserve the euro” when he unveiled it) plays an important role in the stabilization of the euro area. It means that the European System of Central Banks will be empowered to engage in unlimited buying of government bonds issued by certain Member States if and as long as these Member States are simultaneously taking part in a European rescue or reform programme (under the EFSF ot the ESM). Hitherto the OMT has not been implemented. Nonetheless a suit contesting its legality was filed with the Federal Constitutional Court. The European Court of Justice now had to decide whether or not the activities of the ECB were in compliance with European law. How-ever, the ECJ had to take into account the prior assessment of the Federal Constitutional Court. In its submission the Federal Constitutional Court made it quite clear that it was of the opinion that there has been a violation of European law. But at the same time it did not exclude the possibility that the ECJ set up legal conditions for OMT in order to avoid a violation of European law.

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.

Monetary Policy and Public Investment. CEPS Commentary, 14 January 2016

Since the start of 2015, the ECB has been applying quantitative easing (QE), i.e. a programme in which large amounts of money are injected in the economy. Every month the ECB buys €60 billion of government bonds and in so doing injects the same amount of money in the economy. To date, the total amount of liquidity injection approaches €700 billion. On 3 December 2015, the ECB announced that this programme would be continued until February 2017. As a result, the cumulative amount of bond purchases will then reach €1.56 trillion.