Is There a Trade‐Off Between Inflation Variability and Output‐Gap Variability in the EMU Countries?

This paper examines the performance of monetary policy in eleven EMU countries for the whole period of the EMS. This is based on the trade‐off between inflation variability and output‐gap variability. To this end, we examine whether the introduction of an implicit inflation targeting by the EMU member countries after the Maastricht Treaty, changed the trade‐off between inflation variability and output‐gap variability. We employ a stochastic volatility model for two sub‐periods of the EMS (i.e. before and after the Maastricht Treaty). We find that the trade‐off varies amongst EMU countries. The implication of these findings is that there are asymmetries in the euro area, due to different economic structures among the member countries of the EMU.     

Elite Decision Makers' Strategic Use of European Integration and Globalisation Discourses: Irish and Danish Banking Sector Reforms in the 1990s and 2000s

This article investigates decision makers' strategic use of European integration and globalisation discourses to justify and coordinate national sector reforms. This is done using the example of banking sector reforms in two small European Union (EU) member states, Ireland and Denmark. Two key arguments are put forward: (1) National governments' ability to make credible claims about their ability to influence the direction of European integration is crucial in enabling them to justify sector reforms. Thus, as a full member of the European Monetary Union (EMU), Irish decision makers are able to make credible claims about their influence on European financial integration, an option not available to Danish decision makers since Denmark is not a Eurozone member; (2) Globalisation comprises a particularly compelling set of discourses which enables decision makers to carry through sector reforms in line with European integration measures, even in the absence of national commitment to the latter. Discourses of globalisation have thus become ‘the last resort’ for Danish decision makers in justifying and coordinating reforms that are in line with EU regulations and recommendations.     

Transnational Economists in the Eurozone Crisis: Professional Structures,Networks and Ideas

ABSTRACT

In recent years IPE and EU studies scholars have examined how actors in international organisations and EU institutions shape policy ideas. This article explores the professional structure of economists affiliated to two Brussels-based think tanks, Bruegel and CEPS, who, in the context of the Eurozone crisis, sought to contribute to the production of policy solutions to douse the flames of the crisis and put forward long term recommendations for the EMU’s stability. Through the analysis of more than 300 CVs and by drawing on network and sequence analysis, the article shows that in their search for solutions, Brussels-based think tanks bring together economists from different EU member states, whose authority draws on academic qualifications, experience, and seniority. They are ‘multiple insiders’ connected to a wide range of institutions and professional networks, who move back and forth between professional and organisational networks and serve as bridges between revisionist, orthodox, and mixed economic ideas.     

Currency crisis transmission through international trade

The Eurozone recent crisis has shown how balance of payments problems in less developed European Monetary Union (EMU) member countries can affect EMU trading partners, spreading the crisis to a larger group of countries. This paper introduces a three-country dynamic general equilibrium model to analyze whether and how terms of trade effects can generate a spillover effect or a currency crisis transmission between countries. Specifically, using a two period model, it incorporates world market clearing conditions for tradables into a new theoretic model, analyzes net capital flow movements between countries, and establishes cross-border macroeconomic linkages. This paper shows how a currency crisis can transmit through the real (trade) sector channel of the economy.     

Financial Crisis and its Asymmetric Macroeconomic Impact on Eurozone Member Countries

The purpose of the paper is to analyze the dynamics of EMU (The Economic and Monetary Union, i.e., the group of European countries who use the common currency euro) and to analyze the fallout from the recent financial and economic dynamics. Both the impact on the eurozone as a whole and on individual member countries will be evaluated. The first 11 years of Eurozone experience will be discussed and evaluated in the second section. The third section will then be devoted to analyzing the fallout from the recent financial and economic dynamics. Both the impact on the eurozone as a whole and on individual member countries will be evaluated. The last section concludes and provides some ideas for future development of eurozone.     

Relative inflation dynamics in the new EU member countries of Central and Eastern Europe

Following their EU accession, the new member countries from Central and Eastern Europe (CEE) must achieve sustainable price stability as one of the pre-conditions for joining the Economic and Monetary Union (EMU) and adopting the euro. This article examines the distribution dynamics of inflation rates in ten new EU members from CEE relative to the EMU accession benchmark inflation over the period 1990–2009. In contrast to previous studies, we use nonparametric methods to test for convergence in inflation rates between CEE and the EMU benchmark as well as within the CEE sample. Over the entire sample period, we detect a general shift in the CEE inflation distribution toward the EMU benchmark along with intradistributional convergence. However, this process is not uniform. In the early years, it was equally likely for CEE inflation rates to move toward or away from the benchmark. The resulting multimodal distribution gave way to a unimodal distribution in the years leading up to the EU accession, accompanied by a marked shift toward the EMU benchmark. In more recent years, emergence of a bimodal distribution signaled the stratification of relative inflation in CEE into two convergence clubs, which has intensified since the start of the global economic crisis.     

Monetary policy implementation and transmission in the European Monetary Union

I discuss possible problems engendered by loss of national monetary policies, and study them from three empirical perspectives. First, are business cycles sufficiently synchronized across EMU member countries? The evidence suggests that economic activity in those countries has become increasingly correlated in the 1990s, and that policy co–ordination has played a role in generating that outcome. Second, are there asymmetries in the mechanisms through which policy affects economic activity? The paper documents that policy transmission was indeed heterogeneous in the member countries, and that structural and financial factors were sensibly related to cross–country differences in the response of output to a monetary policy shock. Third, how is policy implemented in an environment of diverse business cycle fundamentals and transmission mechanisms? Estimation of monetary policy reaction functions finds that the European Central Bank is closer to an aggregate of the central banks in Germany, France, and Italy than to the Bundesbank alone.     

The risk of the sovereign debt default: the Eurozone crisis 2008–2013

We investigate the relationship of the market pricing of sovereign risk to default, through credit default swap (CDS) spreads for 16 Eurozone countries during 2008q1–2013q3. We take into account, through appropriate non-linear generalized method of moments (GMM) estimations the endogeneity problem. We focus on ‘fiscal space’ (DEBT or FISCAL), and the downgrade announcements (DOWN). We find DEBT (FISCAL) to have significant (insignificant) effects on the CDS concave function, as well as, DOWN in a linear one. It has also been confirmed significant pricing discrimination between South and West Euro Area Periphery (SWEAP) and the core Eurozone, highlighting asymmetries discovered either by the respective size of estimated DEBT coefficients or by the significant effects of DOWN that have only on CDS of SWEAP countries. The current account balance or the inflation rate, as well as, relevant interaction terms seem not to affect the spreads of the EMU. These findings, together with the estimated structural change on CDS pattern in early 2011, coinciding with significant either the DOWN in the pre-crisis period (2008–2010) or the DEBT in the post-crisis one (2011–2013) on the CDS, seem to be consistent with self-fulfilling crises literature and the inherent vulnerability of EMU, on other words, the ‘fragility hypothesis of the Eurozone’.     

欧债危机成因与前景的制度分析

希腊等欧元区国家的主权债务危机可以说是欧洲区域一体化建设中的独特现象,其折射的是欧元区所存在的一个结构性问题：奉行单一货币政策和各国分散的财政政策,集中暴露出了欧洲货币一体化与欧洲福利资本主义的不相容、以及统一货币运行所要求的财政紧缩与欧元成员国经济增长和福利制度之间的矛盾与冲突;欧元不会就此瓦解,但欧债问题的最终解决困难重重;欧元的未来取决于自由与市场的回归欧洲,取决于欧盟的制度完善与欧式福利资本主义改革的成功与否。     

What can wavelets unveil about the vulnerabilities of monetary integration? A tale of Eurozone stock markets

The study has two main objectives: (i) to investigate whether there is pure contagion or fundamental-based contagion/interdependence among the Eurozone equity markets (Germany, France, Italy, Spain and Netherlands), attributable to the shocks stemming from nine major crises around the world (ii) to investigate the evolution of market integration, whether mainly short-run or long-run. Wavelet decompositions, in both its discrete and continuous forms, are employed to unveil the multi-horizon nature of co-movements, volatility and lead–lag relationships. This is to unveil the path of linkages and the behavior underlying the transmission mechanism of financial shocks across major Eurozone stock markets. Evidence also supports the presence of common shocks whereby equity markets in Eurozone are significantly affected by episodic crisis events globally. Prior to the recent subprime crisis, contagion effects have generated short-term shocks that may potentially involve, among other factors, excessive channels. In stark contrast, the most recent US subprime crisis and EMU sovereign debt crisis reveal the evidence of fundamental-based contagion. We also find the increasing short-run and long-run stock market integration, driven by several stages of the establishment of EMU. Policy implications for regulators and investors are discussed in the context of continued monetary integration.     

So alike,yet so different: Comparing fiscal multipliers across EU members and candidates

We estimate, using a Panel Vector Autoregressive approach and data from 2001Q1 to 2017Q1, the fiscal multipliers of the European Union (EU) members and candidates. These countries are grouped according to their stages of integration: original members, new Eurozone members, and candidates for the Eurozone and the EU itself. For each group, we assess the impact of a positive spending shock (expansionary) or a positive tax shock (contractionary) on GDP. Our findings suggest that: (i) rising government spending increases GDP in both the EU and Eurozone candidates (Keynesian multipliers), but slightly decreases it in the Eurozone members (non-Keynesian multipliers); (ii) higher taxes are associated with mixed results in terms of GDP dynamics - both increases and decreases in terms of GDP are found - in the four country groups (suggesting the presence of Keynesian and non-Keynesian multipliers). Overall, these outcomes indicate that spending multipliers are, compared to tax multipliers, more sensitive to European Union or Eurozone membership.     

Voting requirements, concessions, international side payments and the European Monetary Union

This paper addresses the question of criteria for selection of EMU members. We identify two factors in the decision process: (1) The costs and benefits which the individual countries attribute to alternative EMU arrangements (`hard-core', medium-sized, all EU members), and (2) the binding institutional restrictions, i.e., the distribution of votes in the European Council and the minimum vote requirements. Within this framework the EU countries are assigned to different groups according to their degree of convergence. Based on stability concessions and side payments these groups decide on the final EMU composition. We show that minimum vote requirements can lead to a suboptimal size of the EMU and can threaten the feasibility of a multi-speed monetary union.     

Foreign direct investment and the euro: the first five years

This paper assesses the main influences on foreign direct investment(FDI) flows between the major economies in the first five yearsof economic and monetary union (EMU). Using previously unpublisheddata specially provided by Eurostat, it concludes that the hugewave of FDI that reached the Eurozone after EMU was largelya manifestation of the end-of-century takeover boom, a globalphenomenon of which the euro was only a subsidiary cause. Butmuch of the boom in euro economies' FDI disappears if flowsto and from the Belgium–Luxembourg Economic Union (BLEU)(dominated by transhipment via Luxembourg) are removed. On thatbasis, intra-zone FDI turns out to have been weak after EMU,both in relation to previous trends and as a share of majoreconomies' global FDI flows. However, the euro appears to havegiven a modest stimulus to inflows from other major investingeconomies, while the UK share of the latters' outflows has fallenmoderately in the post-EMU period. The policy implications arediscussed.     

Fiscal restrictions and monetary union: Rationales,repercussions, reforms

We offer a critique of the fiscal preconditions for participation in Stage III of EMU and the Excessive Deficit Procedure of the Maastricht Treaty. We show that the high output costs associated with meeting the fiscal preconditions in Stage II and the incompatibility of the reference values for fiscal policy with other convergence criteria make it unlikely that a mechanical interpretation of those conditions will govern admission to Stage III. Knowledge of this fact will deter governments from undertaking major fiscal adjustments in the first place. Hence, the fiscal criteria of the treaty will not function as an efficient filter for distinguishing countries that are and are not prepared to live with the fiscal consequences of EMU.In Stage III, the function of the Excessive Deficit Procedure is to buttress the European Central Bank's protection from demands for a central bank bailout in the event of a debt crisis in a participating state. We show that other aspects of EU fiscal structure, namely the retention by member states of the bulk of their own revenue-raising capacity, should suffice to restrain the demand for a central bank bailout and the pressure on the ECB to supply it. Until political union follows monetary union, leading to the centralization of fiscal functions and revenu-raising capacity in the EU itself, the Excessive Deficit Procedure will be redundant. If there remains any reason to doubt the credibility of the no-bailout rule, then the best way to buttress it is directly, by further insulating the ECB from pressure to extend a bailout.If it is felt that policy in EU member states is biased toward excessive deficits, then the appropriate place to address this problem is at the national level. A limited approach would involve steps to insure that negotiations over the budget occur in the context of a firm general constraint on the overall level of spending. A more far-reaching reform would involve the creation of National Debt Boards to offset the prevailing bias.     

Monetary and Fiscal Policy Rules in the EMU

Abstract. This paper studies the design and effects of monetary and fiscal policy in the euro area. To do so, a stylized two‐region model of monetary and fiscal policy rules in the EMU is built. We analyse how monetary and fiscal rules affect the adjustment dynamics in the model. Both the effects on the individual countries and on the EMU aggregate economy are studied. Three aspects play an important role in the analysis: (i) the consequences of alternative monetary and fiscal policy rules, (ii) the consequences of asymmetries between EMU countries (asymmetries in macroeconomic shocks and macroeconomic structures), and (iii) the role of alternative degrees of backward‐ and forward‐looking behaviour in consumer decisions and inflation expectations.     

Business Cycle Synchronization in Europe: Evidence from a Dynamic Factor Model

This paper revisits the effect of the European Economic and Monetary Union (EMU) on the extent of business cycle synchronization across its member states. A dynamic latent factor model is used to identify the ‘regional’ effect of the euro area on output growth and inflation dynamics across European countries. The results of variance decomposition analysis confirm that both output growth and inflation tended to be more synchronized among European countries during the run-up to the EMU, but there is no strong evidence to support the argument that the ‘regional’ effects prevailed after 1999.     

Cross‐country asymmetries in monetary policy transmission: evidence from EMU members

This paper analyzes monetary policy asymmetries in EMU participating countries. In particular, we use a structural dynamic modelling approach to investigate asymmetric monetary transmission in Europe. Asymmetries are investigated in two different ways. First, we restrict the estimated structural models reflecting the monetary constraints each country faced during the EMS period. We obtain well‐behaved and comparable effects of monetary policy shocks. Second, efficiency frontiers for the selected EMU countries are estimated. In computing the optimal combinations of output gap and inflation volatility we use a weighted average of interest rate and exchange rate, i.e. the Monetary Condition Index (MCI), as a policy instrument. The impulse response analysis implemented with the MCI shows relatively small differences in the responses of the real economy to monetary policy shocks. Altogether the results suggest that, no matter which policy instrument is used, output gap and inflation respond to identical monetary shocks with a similar speed and movement, albeit with a different degree of effect.     

New European Banking Governance and Crisis of Democracy: Bank Restructuring and Privatization in Slovenia

ABSTRACT

The paper makes three contributions to the understanding of the post-crisis European banking governance. First, it offers a more comprehensive approach to banking governance, beyond the Banking Union, through its concept of ‘New European Banking Governance’ (NEBG) that incorporates EU state aid rules and fiscal regulations. Second, it considers the impact of NEBG on democratic institutions and processes in EU member states, an under-researched topic in the literature on European banking governance. Finally, through its in-depth case study of Slovenia it considers the NEBG in relation to peripheral Eurozone states. It argues that the post-crisis banking governance framework of the EU not only severely constrained the Slovenian state in its policy choices but rearranged its policy-making institutions in a way that restricted and continues to restrict democratic banking policy formation.     

Selected transition and Mediterranean countries: an institutional primer on EMU and EU accession

The paper examines the institutional channels through which Economic and Monetary Union (EMU) in the European Union (EU) can affect the transition countries of Central and Eastern Europe and three Mediterranean countries that aspire to join the EU.
After describing the current institutional framework for relations between the EU and these countries, the paper considers two categories of institutional implications of EMU. The first stems from the need to satisfy the Maastricht convergence criteria before joining the euro area. Although the Maastricht criteria are not accession criteria, many of the countries reviewed are already formulating their macroeconomic policies in a way that will facilitate convergence toward the Maastricht targets. The second implication stems from the need to adopt the EU's institutional and legal provisions in the area of EMU, such as those referring to the establishment of independent central banks, the prohibition of central bank financing of the government and the liberalization of capital movements. Finally, the paper discusses some of the key policy issues that EMU raises for the countries reviewed, in particular regarding exchange rate policy, capital account liberalization and the possible conflict between growth-enhancing measures and the Maastricht criteria.     

Business Cycle Synchronization in EU: A Time‐Varying Approach

This article investigates the time‐varying correlation between the EU12‐wide business cycle and the initial EU12 member‐countries based on Scalar‐BEKK and multivariate Riskmetrics model frameworks for the period 1980–2012. The paper provides evidence that changes in the business cycle synchronization correspond to major economic events that have taken place at a European level. In the main, business cycle synchronization until 2007 had moved in a direction positive for the operation of a single currency, suggesting that the common monetary policy was less costly in terms of lost flexibility at the national level. However, as a result of the Great Recession of 2007 and the subsequent Eurozone Crisis, a number of periphery countries, most notably Greece, have experienced desynchronization of their business cycles with the EU12‐wide cycle. Nevertheless, for most countries, any questions regarding the optimality and sustainability of the common currency area in Europe should not be attributed to a lack of cyclical synchronization.