A fiscal shock absorber for the Eurozone? Lessons from the economics of insurance

Daniel Gros 19 March 2014

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Even before the euro crisis started, it had been widely argued that the Eurozone needed a mechanism to help countries overcome idiosyncratic shocks. The experience of the crisis itself seemed to make this case overwhelming, and throughout the EU institutions it is now taken for granted that the Eurozone needs a system of fiscal shock absorbers. For example, The Report of the President of the European Council calls for:

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Topics:  EU institutions Macroeconomic policy Welfare state and social Europe

Tags:  eurozone, euro, insurance, fiscal policy, Eurozone crisis, fiscal union, fiscal shocks, fiscal shock absorbers

Banking union: Ireland vs Nevada, an illustration of the importance of an integrated banking system

Daniel Gros 27 November 2012

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The Eurozone crisis has demonstrated how an insolvent sovereign can destroy a national banking system, Greece, but also how an insolvent banking system can almost sink the sovereign – Ireland and Spain (Wyplosz 2012).

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Topics:  EU institutions EU policies

Tags:  ECB, Ireland, fiscal union, banking union, Nevada

Don't expect too much from EZ fiscal union – and complete the unfinished integration of European capital markets!

Mathias Hoffmann, Bent E. Sørensen 09 November 2012

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The sovereign debt crisis apparently suggests that Eurozone economies should now move substantially closer towards fiscal union. Current policy discussions revolve much more around how such a fiscal union should be designed than whether fiscal union can solve Europe’s underlying problems of economic coherence. What can we expect from a fiscal union? Aren't private capital markets better suited to economic coherence?

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Topics:  EU policies International finance Monetary policy

Tags:  capital markets, risk, Risk sharing, Eurozone crisis, fiscal union, banking union

Spillover effects in a fiscal union: Evidence from US states and Treasury bond markets

Rabah Arezki, Bertrand Candelon, Amadou Sy 01 August 2012

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The market for US municipal bonds, a $2.9 trillion tax-exempt bond market amounting to about one third of the US treasury market, has often been viewed as a safe haven by individual investors.1  The most recent US state to default was Arkansas in 1933, during the Great Depression. Throughout history there have been but a handful of state defaults – ten in the aftermath of the US Civil War and eight, plus the then-territory of Florida, during the 1830s and 1840s.

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Topics:  International finance Monetary policy

Tags:  US, bond markets, fiscal union

The euro’s salvation lies in a little less Europe; not more Europe

Avinash Persaud 25 April 2012

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The European credit crisis is as political as it is complicated. This breeds solutions in search of the problem. One of these is the ubiquitous idea that the euro’s woes can only be settled by fiscal union; the more rigid the better and no room for backsliding. The broad popularity of this idea is based around its appeal to those who have a preference for whips and chains and includes both Europhiles and Europhobes.

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Topics:  EU policies Europe's nations and regions

Tags:  Eurozone crisis, fiscal union

Lessons for Europe’s fiscal union from US federalism

C Randall Henning, Martin Kessler 25 January 2012

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The Eurozone crisis and debate over fiscal reform have led many observers to pray for salvation by a modern, European version of Alexander Hamilton. By this they generally mean someone capable of leading a movement for a robust fiscal union and implementing this vision. (See for example McKinnon 2011.) Europe has instead, they lament, a collection of leaders who are primarily responsive to divergent national electorates rather than engaged in building a pan-European political movement.

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Topics:  EU policies Politics and economics

Tags:  US, Eurozone crisis, fiscal union, US federalism

The threat to use the printing press

Hans-Werner Sinn 18 November 2011

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Fortunately, Nicolas Sarkozy is not getting his banking licence for the EFSF. The Luxembourg rescue fund is not going to buy government bonds of endangered countries with freshly printed money. The ECB, however, may continue to do this. The French president pointed out as much defiantly after his defeat, and in the preliminary negotiations for the European Council and Eurozone summit of 26 October. He even sought support for an appeal to the ECB to continue its bond-purchase policy.

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Topics:  EU policies Europe's nations and regions

Tags:  Germany, fiscal union, EZ crisis

Eurozone banks must be freed from national capitals

Nicolas Véron 13 October 2011

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Most of Europe has been engulfed by a systemic banking crisis for more than four years, even as policymakers and bankers themselves have strived to deny it. As pointed out by many columns on this site over the past few months (see a collection on the EZ Crisis Phase 2 page), things are even worse.

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Topics:  EU institutions Europe's nations and regions International finance Politics and economics

Tags:  decoupling, fiscal union

How Argentina left its Eurozone

Eduardo Levy Yeyati 02 October 2011

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The European predicament is:

  • Financial (large debt stocks); and
  • Real (large fiscal and current-account flow gaps).

A solution to just one of these is likely to be inadequate. A solution, for example, that focuses solely on debt restructuring would be incomplete if not complemented with a plan to recover price competitiveness and growth to fix the real problem.

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Topics:  EU policies Europe's nations and regions Monetary policy

Tags:  Argentina, devaluation, Eurozone crisis, fiscal union