The European Commission presented their plan for a single EZ bank supervisor this weekend. While it is a good start, this column argues that it avoids the hard truth driving the process: the Eurozone needs a lender of last resort and the ECB is the only one that can play the role. Admitting this truth makes it clear that the Eurozone also needs an arrangement with member governments on bank-bailouts cost sharing and institutions to minimise the ultimate costs.
Charles Wyplosz, 17 September 2012
Frank Westermann, Sven Steinkamp, 22 August 2012
Despite assurances that the ECB will do “whatever it takes” to save the euro, interest rates on sovereign bonds in the highly indebted European countries remain alarmingly high. This column argues that in order for interest rates to fall, policymakers need to assure private investors that their bond holdings are safe from subordination.
Piero Ghezzi, 19 August 2012
The ECB president, Mario Draghi, said he’d do “whatever it takes to save the euro”. This column asks what 'whatever it takes', means and whether the ECB is prepared to go that far. It argues that limited and conditional lending improves the odds of success but it is not the game changer needed.
Marco Annunziata, 14 August 2012
While markets have been cheered by recent ECB announcements on sovereign debt, some still question the Bank’s ability to save the euro. This column argues that the ECB is a lot stronger than many think. Linking ECB sovereign bond purchases to policy conditionality will ensure that reform efforts are sustained. The free lunch option has been ruled out – and that is a good thing.
Charles Wyplosz, 30 July 2012
Financial markets once again pushed Eurozone leaders to act. European Central Bank President Draghi recently promised to “do whatever it takes”. This column argues that Draghi made an implicit commitment to act as lender of last resort to Eurozone governments. This means optimism may be justified – if only because it suggests that the Eurozone has a great central banker who is both a serious economist and an astute politician.
Paul De Grauwe, 13 July 2012
Paul De Grauwe of the LSE talks to Viv Davies about his recent Vox column on the potentially destabilising effects of the decisions taken at the last crisis summit of Eurozone leaders. He explains how the new recapitalisation role established for the ESM is doomed to fail and how the ECB is operating on the wrong business model. They discuss how full banking union will not be possible without a degree of political union, and how trust could create self-fulfilling positive outcomes for the Eurozone. The interview was recorded in London on 10 July 2012.
Richard Layard, 06 July 2012
Richard Layard of the LSE talks to Viv Davies about his and Paul Krugman’s recently published ‘Manifesto for Economic Sense’, which aims to generate a movement of economists who are prepared to speak out against policies they know to be wrong - the excessive austerity of current fiscal policies. They discuss the role of the ECB as lender of last resort and whether the current bank-led capitalist culture can ever be changed. The interview was recorded in London on 5 July 2012.
Aaron Tornell, Frank Westermann, 22 June 2012
Despite the recently-announced €100 billion European Financial Stability Facility loan to Spain and the recent Greek elections, this column argues that Eurozone periphery may soon need another large-scale rescue operation. But it fears that without reform at the ECB, the rescue package will be just yet another temporary plaster over the cracks.
Jean Pisani-Ferry, Guntram Wolff, 03 May 2012
The ECB has managed a massive expansion of its balance sheet with long-term refinancing operations. This has been called the equivalent of quantitative easing, as done by the Fed and the Bank of England. This column thus argues that the main obstacle for the ECB is not tight limits on the purchase of government bonds. Rather, it is the absence of a banking and fiscal union and the heterogeneity within the Eurozone that reduces the effectiveness of the ECB instruments.
Bernard Delbecque, 04 April 2012
The ECB’s longer-term refinancing operations have been widely analysed. Although comments are largely positive, some experts have argued that direct ECB intervention was the only way to save the Eurozone. This column reviews the criticisms against the operations and assesses whether the ECB should have intervened directly in the sovereign-debt markets instead of providing funding to banks.
Christian Thimann, 30 March 2012
A recent Vox column argued that with the three-year liquidity operations, the ECB has “hit a limit in its ability to prevent an acceleration of inflation”. This column explains why the ECB’s inflation-fighting powers remain intact – and why the risks of a sudden inflationary spike remain low.
Aaron Tornell, Frank Westermann, 28 March 2012
“Should the inflation outlook worsen, we would immediately take preventive steps”. So said Mario Draghi, President of the European Central Bank. This column argues that these are brave words given that the ECB has hit a limit in its ability to prevent an acceleration of inflation.
Hans-Werner Sinn, 10 March 2012
In February 2012, the Bundesbank had a TARGET claim of €547 billion on the Eurosystem. This column proposes a US-like system of marketable covered treasury bills that could be applied to a yearly settlement of TARGET liabilities.
Willem Buiter, 20 February 2012
Willem Buiter talks to Viv Davies about Greece and the Eurozone. Buiter believes that Greece’s public debt should be written off, it’s banks recapitalised and that the country be provided with sufficient conditional support to grow its economy. They discuss the LTROs and the risks of loss of control over the aggregate size of the balance sheet and potential national central bank insolvencies. Buiter suggests that now is not the time for self-righteousness amongst European policymakers. The interview was recorded on 17 Feb 2012. [Also read the transcript]
Charles Wyplosz, 13 February 2012
Spreads on public debts in the Eurozone – with the exception of Greece – are falling hard and fast. This column argues that this is in large part because the ECB is now effectively guaranteeing Eurozone government debts. But it cautions that in doing so, the central bank is taking enormous risks.
Fred Bergsten, Jacob Funk Kirkegaard, 26 January 2012
Policy reactions to the Eurozone crisis are seen by many as short-sighted, incoherent, and driven by political expediency. This column disagrees. What we are seeing is a game of chicken among the key political and economic powers in Europe. As the crash looms ever closer, the right deals will be struck and Europe will emerge stronger and with its currency intact.
Morris Goldstein, 11 January 2012
Throughout the European debt soap opera, Europe’s leaders have expressed their willingness to “do whatever it takes” to restore stability and save the euro. This column argues that, too often, policymakers have in fact been “doing whatever it takes” to serve the banks.
Aaron Tornell, Frank Westermann, 06 December 2011
If you thought the Eurozone crisis was coming to an end this week, this column argues that we may barely be reaching the end of Act One.
Charles Wyplosz, 05 December 2011
This week’s announcements by German Chancellor Angela Merkel and ECB President Mario Draghi that the Eurozone is taking steps towards a closer fiscal union seem to be calming markets and restoring confidence in the decision-making of Eurozone leaders. This column argues, however, that the devil is still in the detail.
Paolo Manasse, 02 December 2011
Paolo Manasse talks to Viv Davies about Italy and the Eurozone crisis. They discuss the economic and political challenges currently facing Italy, how a eurozone fiscal union might work in practice and the role of eurobonds. Manasse explains the trade-off between addressing sovereign debt in the peripheral economies and establishing broader financial stability across the Eurozone; he maintains that an expansionary ECB monetary policy is an important part of the solution. The interview was recorded on 30 November 2011. [Also read the transcript]