Unfinished business: the governance of the Economic and Monetary Union. Compendium of EPC publications on the future of the Euro

Europe is once again engulfed in crisis. The sheer scale of refugees coming daily is not only a major challenge for the transit and destination countries, it is also exposing distrust between member states (and vis-à-vis the EU institutions). It has also shown that there is an unwillingness to cooperate and compromise within the EU system, in part a collateral damage of the eurocrisis. With a continuing sluggish economy and high unemployment, external challenges such as the conflict in Ukraine and internal ones like the referendum on EU membership in the UK, the EMU crisis looks less urgent at this point, with an agreement with Greece preventing the disastrous consequences of a Grexit, at least for now.

What signal from the Fed? Should the ECB ease further? CEPS Commentary, 18 September 2015

The Federal Reserve left rates unchanged at its closely-watched meeting on September 17th, although many had argued that the real economy data, especially on the labour market, would have justified an exit (from the zero interest policy). In this CEPS Commentary, Daniel Gros observes that no similar decision on exit is in sight in the euro area, despite the fact that some have argued that the ECB should consider further easing measures (pushing the deposit rate deeper into negative territory or increasing the size of its asset purchase programme). He asks, in fact, whether further easing measures should be even discussed at this point.

Europe’s reactive and protective muddling through: the results of a summit in fire fighting mode. EPC Post-Summit Analysis, 19 October 2015

The EU’s October summit was dominated by one issue; the migration and refugee crisis, with EU leaders intent on putting on a public display of unity after weeks of bitter arguments, and concentrating on fire-fighting and immediate measures to tackle the most pressing reasons for, and impacts of, the crisis. Longer-term measures to address some of the root causes of increased migratory flows, support for the integration of newly arrived refugees or the introduction of new channels of legal migration, were not discussed. The Summit also spent little time on two issues that had originally been expected to be a key part of the agenda: the forthcoming British referendum on EU membership, where irritation with the slow pace of talks and British vagueness about its demands were in evidence; and the governance of Economic and Monetary Union (EMU), where EU leaders missed another opportunity for a thorough debate about future perspectives on the basis of the ‘Five Presidents’ Report’.

The limitations of policy coordination in the euro area under the European Semester. Bruegel Policy Contribution 2015/19, November 2015

The European Semester is a yearly process of the European Union to improve economic policy coordination and ensure the implementation of the EU’s economic rules. Each Semester concludes with recommendations for the euro area as a whole and for each EU member state. We show that implementation of recommendations was poor at the beginning of the Semester in 2011, and has deteriorated since. The European Semester is not particularly effective at enforcing even the EU’s fiscal and macroeconomic imbalance rules. We find that euro-area recommendations with tangible economic goals are not well reflected in the recommendations issued to member states. Finally, we review various proposals to improve the efficiency of the European Semester and conclude that while certain steps could be helpful, policy coordination will likely continue to have major limitations.

The Protocol of Frankfurt: a new treaty for the eurozone. EPC Discussion Paper, 12 January 2016

At a time when the EU finds itself in a perfect storm of crises which it seems unable to overcome, a bold move is needed to reinvigorate the EU’s system of government and stave off the risk of disintegration. In order to address the inherent weakness of the EU’s monetary and economic governance, this pamphlet proposes a new treaty for the eurozone: the Protocol of Frankfurt. Written by Andrew Duff, former Member of the European Parliament and Visiting Fellow at the EPC, it is the first ever attempt to draft a treaty aimed at setting up a fiscal union. “The Protocol of Frankfurt provides the constitutional framework for a proper economic government and will, hopefully, also serve to accelerate the debate on the Five Presidents’ Report”. Realising that the time is not ripe for a major constitutional overhaul, the pamphlet instead puts forward a shorter treaty revision that concentrates on re-engineering the Maastricht arrangements for the economic and monetary union, taking on the form of a Protocol to be added on to the existing Treaties. Article 48(2) of the Treaty on European Union allows the government of any member state, the European Parliament or the Commission to table amendments to the Treaties. Our hope is that somebody, informed by this draft Protocol, does just that.

Balance-of-payments adjustment in the Eurozone. CEPS Policy Brief No. 338, January 2016

This policy contribution describes the unresolved adjustment problems confronting the eurozone, and places them in historical perspective by comparing developments in key real economic variables under EMU with those observed under the Bretton Woods system. The main finding is that the eurozone is afflicted by a strong deflationary bias and that, therefore, under current trends, deep economic

The Impact of the ECB’s Asset Purchase Programmes on Sovereign Bond Spreads in the Euro Area. Bruges European Economic Research Papers 35/2015

This paper estimates the immediate impact of the European Central Bank’s asset purchase programmes on sovereign bond spreads in the euro area between 2008 and 2015 using a country-by-country GARCH model. The baseline estimates are rigorously diagnosed for misspecification and subjected to a wide range of sensitivity tests. Among others, changes in the dependent variable, the independent variables and the number of (G)ARCH terms are tested. Moreover, the model is applied to subsamples and dynamic conditional correlations are analyzed to estimate the effects of the asset purchases on the contagion of spread movements. Generally, it is found that the asset purchase programmes triggered an reduction of sovereign bond spreads. More specifically, the Securities Markets Programme (SMP) had the most significant immediate effects on sovereign bond spreads across the euro area. The announcements related to the Outright Monetary Transactions (OMT) programme also yielded substantial spread compression in the periphery. In contrast to that, the most recent Public Sector Purchase Programme (PSPP) announced in January 2015 and implemented since March 2015 had no significant immediate effects on sovereign bond spreads, except for Irish spreads. Hence, immediate effects seem to be dependent upon the size of the programme, the extent to which it targets distressed sovereigns and the way in which it is communicated.

How Germany Benefits from the Euro in Economic Terms. Policy Brief #2013/01

There can be no doubt about the fact that Germany benefits from the euro in a significant number of ways. For ex-ample, monetary union membership helps to reduce the cost of international trade, and provides protection against excessive exchange rate volatility. This means that even if Germany had to write off a large percentage of the loans that it has made available to the heavily indebted states of southern Europe as part of the various euro rescue measures, the economic advantages of its membership of the monetary union would continue to predominate. Reverting to the deutschmark would thus be disadvantageous even in purely economic terms.

Europe's Sustainability Strategy - A Casualty of the Euro Crisis or an Ambition Restart? Bertelsmann Policy Brief #2013/06, 30.11.2013

Europe’s economy should not just grow, it should also target social inclusion and the responsible use of resources. The goal of sustainability may be embedded in the Treaty on European Union and the EU’s economic strategies, but the emphasis on GDP growth and competitiveness in battling the crisis threatens to undermine efforts to establish a common approach for sustainable economic activity. This may be unavoidable during an acute crisis. But in the long term, the EU must show the way forward.

Information Guide: Economic and Monetary Union

A guide to the European Union’s Economic and Monetary Union (EMU), with hyperlinks to sources of information within European Sources Online and on external websites

Flexibility versus Stability: A difficult trade-off in the eurozone. CEPS Working Document No. 422, 29 April 2016

Optimal currency area (OCA) theory has been influential in pushing eurozone countries towards structural reforms to make product and labour markets more flexible. The underlying assumption of the OCA prescription for structural reform is that asymmetric shocks are permanent. However, when shocks are temporary it does not follow that more flexibility is the answer. When shocks are the result of business-cycle movements, the way to deal with them is by stabilisation efforts. This paper provides empirical evidence that suggests that the biggest shocks in the eurozone were the result of business-cycle movements. These were relatively well synchronised, except for their amplitude. We argue that efforts to stabilise business cycles should be strengthened relative to the efforts that have been made to impose structural reforms, with consideration given to the implications for the governance of the eurozone.

Automatic Fiscal Stabiliser: Make it happen! EPC Discussion Paper, 2 May 2016

The eurozone crisis triggered a whole new series of innovations in EU economic governance in order to make the Union more resilient for the next economic downswing. But one of the more persistent issues are the socio-economic divergences between member states, identified by the Five Presidents’ Report as a major problem in the functioning of the Economic and Monetary Union (EMU). Debates took place in recent years about automatic stabilisers, and more specifically about the possibility of introducing an unemployment insurance within the EMU. While the need for some form of fiscal risk-sharing has become a dominant view in expert circles, there has been much less progress among the main political parties and stakeholders. In this study, Regula Hess and László Andor analyse the political feasibility of the adoption of an automatic fiscal stabiliser (AFS) for the eurozone by evaluating actors’ positions towards three distinctive proposals: 1) cyclical shock insurance, 2) reinsurance, 3) a European basic unemployment insurance; they included an empirical case study of France and Germany as the most relevant players within the intergovernmental bargaining constellation. Although the authors realise the current political context makes the adoption of an AFS improbable, Hess and Andor encourage stakeholders to further pursue the discussion, as windows of opportunities can open at any time, and even give some suggestions on what the parameters of the most feasible proposal might be.

Britain and Europe: A new settlement? EPC Challenge Europe 23, May 2016

Britain's European problem, Stephen Wall; Britain's contribution to the EU: an insider's view, David Hannay; 'Foreign judges' and the law of the European Union, David Edward; The United Kingdom and the Charter of Fundamental Rights of the EU, Peter Goldsmith; European foreign policy: five and a half stories, Robert Cooper; External relations and the transformative power of enlargement, Heather Grabbe; Recalibrating British European policy in foreign affairs, Fraser Cameron; The European Union and the wider Europe, Graham Avery; From Common Market to Single Market: an unremarked success, Malcolm Harbour; Lost in translation: Britain, Germany and the euro, Quentin Peel; After Cameron's EU deal, Kirsty Hughes; Re-imagining the European Union, Caroline Lucas; Britain and European federalism, Brendan Donnelly; Europe's British problem, Andrew Duff.

Petrography, chemistry and magnetic properties of ODP Leg 115 basalts

A detailed study of the Fe-Ti oxides in four basalt samples-one from each of the four holes drilled into basement on Ocean Drilling Program Leg 115 (Sites 706, 707, 713, and 715) has been performed. Ilmenite is present only in samples from Sites 706 and 715. In the sample from Site 715, Ti-magnetite intergrowths are characteristic of subaerial (?) high-temperature oxy-exsolution; Ti-magnetite in the other three samples has experienced pervasive low-temperature oxidation to Ti-maghemite, as evidenced by the double-humped, irreversible, saturation magnetization vs. temperature (Js/T) curves. The bulk susceptibility of these samples, which are similar in terms of major element chemistry, varies by a factor of ~20 and correlates semiquantitatively with the modal abundance of Fe-Ti spinel, as determined by image analysis with an electron microprobe. The variation in Fe-Ti oxide abundance correlates with average grain size: fine-grained samples contain less Fe-Ti oxide. This prompts the speculation that the crystallization rate may also influence Fe-Ti oxide abundance.

Nojoque; a question for a continent.

Mode of access: Internet.