The functioning of the euro area- current problems

International finance 120181-1165

Lecture outline

The functioning of the euro area- basic rules

The effects of the single monetary policy

Public finance crisis

Potential solutions and perspectives

Monetary policy

Single monetary policy

ECB- supranational institution

Eurosystem

EBC and ESBC

Creation of the ECB the necessity to

set its rules

Different conditions than for NCB’s The euro area- small degree of opennes

Monetary impuls transmission

The necessity to build credibility

Monetary policy strategy

2 pillars

Control of the monetary base

Other economic and financial values

Exchange rate policy

The aim- price stability

EBC and the EU Council (Ecofin)

Ecofin can unanimously set the rules of

the euro area exchange rate system vs.

other countries

Exchange rate policy

ERM II- ER stabilisation vs. The currencies of

EU countries which are not euro area members

Euro area extension plans

Counteracting high ER volatility within the EU

market

Amsterdam summit 1997

Agreements between ECB and NCB of countries which

are not euro area members

ER approaches the band limit NCB is obliged to

conduct automatic and unlimited interventions

ECB support- conditional

Fiscal policy

The Werner plan 1970

The MacDougall report 1977

Assumptions of fiscal centralisation

Fiscal policy

The Maastricht Treaty

The prohibition to finance fiscal deficits by

No bail out clause

Thresholds concerning the fiscal balance

and governement debt

Fiscal policy

Stability and Growth Pact 1997

The reform of the Pact 2005

Middle term surplus or balance

requirement

Current problems

Single monetary policy vs. differences

The Stability and Growth Pact and the

problem of public finance imbalance

Monetary integration and political

integration

Different growth rates in the euro area countries

Potential Balassa-Samuelson effect

Differences in reference i% according to Taylor

Differences in inflationary pressures e.g.: Labour market flexibility

Product market flexibility

The role of labour unions

The lack of national monetary aggregates Inflation as a monetary phenomenon- analysis

only on the euro area level

Monetary transmission- national level

Angeloni et al. 2003

The interest rate channel

The role of banks in the transmission

process

Christiano et al. 2007

Comparison of ECB and FED monetary

policy

The role of labour market structure in the

transmission mechanism

The crisis of public finance

The crisis in several member

countries (PIIGS) Procyclical economic policy

The effects of the financial crisis

„Transfer union”- the possibility to finance

deficits of other member countries

violation of the Treaty regulations

Loans vs. transfers??

ECB support- the purchase of

governement bonds

Assessment by financial markets

participants

No implicit information abot who can

support whom, when and on what

conditions information discrepancies

Propositions to create a European

Monetary Fund

Euro area bonds

The case of SpainLong term nominal interest rate in Spain and in the euro area

Ameco database, European Commission

The case of SpainLong term real interest rate in Spain and in the euro area

The effects of the interest rates decrease

Credit boom

Increasing investments

Investments raising/ not raising labour

productivity

Productivity growth vs. inflation

The real exchange rate in Spain

Current account 1999 2000 2001 2002 2003 2004 2005 2006 2007

-2,9 -4 -3,9 -3,3 -3,5 -5,3 -7,4 -8,9 -10,1

Goods 1999 2000 2001 2002 2003 2004 2005 2006 2007

-5,2 -6,4 -5,7 -5 -5,1 -6,4 -7,6 -8,5 -8,5

Services 1999 2000 2001 2002 2003 2004 2005 2006 2007

3,3 3,3 3,4 3,1 3 2,6 2,5 2,3 2,1

Eurostat

Inflationary pressures

Years 2001 2002 2003 2004 2005 2006 2007

Unit labour cost 3,2 3,0 3,0 2,7 2,8 2,7 3,1

Labour productivity 2,5 1,2 1,4 1,6 1,9 2,3 1,8

Eurostat

The crisis in Spain

The collapse of the bubble on the housing

market

Increase of market interest rates

Recession as a consequence of the lack

of antycyclical monetary policy?

The crisis in Spain

Antycyclical banking supervision instead

od antycyclical monetary policy

Proposition to diversify the minimum

reserve requirement in the euro area

Proposition to diversify capital

requirements

Euro area desintegration?

Arguments contradicting this scenario: Economic arguments- the single European market

Political arguments

Eichengreen 2007

Large long term economic costs of

disentragtion

Large technical costs

Credibility of the euro area- diversified

risk premia in different countries

ECB as a lender of last resort

Does the crisis change the balance of

benefits and costs of the EMU creation???

Summing up

The current problems of the euro area are

mainly a consequence of the finacial crisis

2007-2009 but also of the procycylical

economic policy in some member

countries

Summing up

Conclusions from the case study- the

necessity to introduce antycyclical tools

which could replace the antycyclical

monetary policy

References

Auszüge aus Presseartikeln, Deutsche Bundesbank,

51-54/2010

B. Eichengreen, The breakup of the euro area, NBER

Working Paper, 2007

I. Angeloni et al., Monetary transmission in the euro

area: does the interest rate channel explain it all?,

NBER Working Papers 2003

M. Woodford, How important is money in the conduct

of monetary policy?, NBER Working Paper,2007

The functioning of the euro area- current problems

Documents

Transcript of The functioning of the euro area- current problems

1ST APRIL 2017 - 1ST JANUARY 2016 - 1ST NOVEMBER 2013 ... · Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Euro Grade Description Effective

Euro: problems and solutions

Lesson 4 Care and Problems of the Respiratory System Respiratory system problems can affect the functioning of other body systems. Imagine not being able.

ANALYSIS OF PROBLEMS OF PUBLIC TRANSPORT FUNCTIONING …

Gaskets functioning

The Euro-zone: what are the problems and what are the ...The Euro-zone: what are the problems and what are the solutions? * Leszek Balcerowicz Warsaw School of Economics Visiting Fellow

ars.els-cdn.com€¦ · Web viewAn investigation of the relationships between proficiencies in patterns, computation, executive functioning, and algebraic word problems, Journal

5l 3l 50 euro per person 50 euro 3,00 euro 50 euro 90 euro ...

Intellectual Functioning in Children with Epilepsy ... · with Frontal Lobe Epilepsy (FLE), usually considered to cause problems on cognitive functioning, and children with Childhood

TREM GUIDE BOOK D2.3 modificato · Gasoline Pass. Cars ECE 1504 EURO 1 EURO 2 EURO 3 EURO 4 Diesel Pass. Cars & LPG EURO 1 EURO 2 EURO 3 EURO 4 Light Duty Vehicles Conventional EURO

Executive Functioning

The Euro at 20: Successes, Problems, Progress and Threats · The Euro at 20: Successes, Problems, Progress and Threats PE 631.039 3 . CONTENTS . LIST OF ABBREVIATIONS 4 LIST OF FIGURES

FUNCTIONING AND NON-FUNCTIONING MARRIAGES AND ...

HCTT functioning

ESMA Risk Dashboard · ESMA Risk Dashboard R.1 Main risks Risk segments Risk categories Risk sources ... any time since the Euro sovereign crisis. Market functioning: Markets are

Key Currencies After the Euro - Harvard University · Key Currencies After the Euro ... economic transactions and in the overall functioning of European economies. ... report the

Evolution of the European Union and the “euro”maysweb.tamu.edu/cibs/wp-content/uploads/sites/6/2013/08/...• To streamline decision-making mechanism for the effective functioning

Body Functioning

Leszek Balcerowicz: Euro: problems and solutions

THE MAGNIFICENT 20 · The Maximus is a fully functioning di-agnostic scan tool, capable of every-thing from pulling codes to diagnosing the most complex problems, while also functioning