scholarly journals Economic governance in the euro area: balancing risk reduction and risk sharing

2018 ◽  
pp. 124-154 ◽  
Author(s):  
Fabrizio Balassone ◽  
Sara Cecchetti ◽  
Martina Cecioni ◽  
Marika Cioffi ◽  
Wanda Cornacchia ◽  
...  
Keyword(s):  
Risk Reduction ◽  
Euro Area ◽  
Risk Sharing ◽  
Economic Governance

scholarly journals Economic Governance in the Euro Area: Balancing Risk Reduction and Risk Sharing

2016 ◽  
Author(s):  
Fabrizio Balassone ◽  
Sara Cecchetti ◽  
Martina Cecioni ◽  
Marika Cioffi ◽  
Flavia Corneli ◽  
...  
Keyword(s):  
Risk Reduction ◽  
Euro Area ◽  
Risk Sharing ◽  
Economic Governance

Solidarity and Responsibility in the Euro Area: Foes or Friends?

2018 ◽  
Vol 15 (1) ◽  
Author(s):  
Andrea Fracasso
Keyword(s):  
Risk Reduction ◽  
Euro Area ◽  
Sovereign Debt ◽  
Risk Sharing ◽  
Multiple Equilibria ◽  
Lender Of Last Resort ◽  
Short Article ◽  
Viable Solution ◽  
Correct Sequence ◽  
Default Risks

Abstract The recent debate on the reform of the economic governance in the euro area has been marred by a stark disagreement on the correct sequence between risk-reduction (responsibility) and risk-sharing (solidarity). In fact, the dichotomy between risk-reduction and risk-sharing may be fallacious as they reinforce each other, particularly in a monetary union with no lender of last resort for the public sector and no common macroeconomic stabilization mechanisms. The lack of risk-sharing mechanisms is per se a major source of redenomination and default risks and thus it makes the euro area prone to financial market segmentation along national borders and ultimately weaker. At the same time, greater structural convergence has to be achieved through structural reforms and fiscal prudence in order to reduce the likelihood of future negative idiosyncratic shocks in currently vulnerable countries. Notwithstanding some progress towards a politically viable solution encompassing both responsibility and solidarity, a number of important issues remain controversial. This short article summarizes the debate and introduces some of these controversial issues, ranging from the correct role of market discipline when markets are prone to self-fulfilling prophecies and multiple equilibria, to the (dis)advantages of sovereign debt restructuring mechanisms based on rules rather than discretion, from the pros and cons of new safe assets in the euro area to the primacy of coping with debt legacy problems, and the like.

scholarly journals State Contingent Debt as Insurance for Euro Area Sovereigns

2019 ◽  
Vol 5 (1) ◽  
pp. 64-90
Author(s):  
Maria Demertzis ◽  
Stavros A Zenios
Keyword(s):  
Risk Reduction ◽  
Euro Area ◽  
Risk Sharing ◽  
Banking Union ◽  
European Monetary ◽  
Institutional Reforms ◽  
Eu Member States ◽  
Safety Regulations ◽  
Banking Institutions ◽  
European Monetary Fund

Abstract The authors provide a novel angle to the ongoing discussions by the G20 on sovereign contingent debt and argue that contingent debt could provide market-based insurance to protect the euro area from future debt crises. Risk-sharing with the markets is a practical way forward in the context of the Franco-German debate on risk-sharing among EU member states vs system-wide risk reduction. The financial innovation of contingent debt is a feasible euro area reform that would not introduce risk-sharing between states or require institutional reforms or Treaty changes. However, coordination would be needed. The authors’ suggestion fills a gap in the proposals on the completion of the banking union and the possible establishment of a European Monetary Fund (EMF). These proposals offer institutions-based solutions to crises, with the banking union providing safety regulations that will make banking institutions more resilient, while the EMF will be a ‘fire brigade’ to be called on in emergencies. What has not been tapped are the markets, whose tolerant behaviour to sovereign demands encouraged the build up of debt, while their finicky response exacerbated the crisis.

Beyond Risk Sharing and Risk Reduction

2018 ◽  
Vol 15 (1) ◽  
Author(s):  
Agnès Bénassy-Quéré
Keyword(s):  
Risk Reduction ◽  
Euro Area ◽  
Risk Sharing ◽  
The Core ◽  
Core Questions

Abstract The debate on the reform of the euro area has confronted those who prioritize “risk reduction” with those who insist on “risk sharing”. Such antagonism is misleading since both items are complements rather than substitutes. It is also insufficient as it misses the core questions of macroeconomic convergence and of the modernization of the subsidiarity concept.

scholarly journals Problems of Overcoming Market Failures in the Context of Economic Crisis in the Euro Area

2014 ◽  
pp. 162-167
Author(s):  
A. Y. Pluiko
Keyword(s):  
Economic Development ◽  
Economic Crisis ◽  
Euro Area ◽  
Market Failure ◽  
World Market ◽  
Economic Governance ◽  
Market Failures ◽  
Single Currency ◽  
Poor Countries ◽  
Money Circulation

The article analyses the manifestations of a market failure problem revealed during the economic crisis in the euro area, namely business cycles, market inability to ensure money circulation and avoid inflation. It is shown that the cyclicity of economic development has revealed in various degrees of economic contraction and different rates of its recovery. These differences have been exacerbated by the new procyclical factors emerged from the transition to a single currency. As for money circulation the crisis has almost no impact on the single currency functioning: the euro has maintained its position on the world market and properly performed money functions in the domestic. The goal to achieve economic development without inflation in the euro area generally has been solved successfully by the European Central Bank (ECB). However, due to the fact that the ECB in its monetary policy does not pay sufficient attention to the increased inflation in small and relatively poor countries, the crisis has been more acute in them than in large countries with low inflation. The goals of ensuring money circulation and avoiding inflation can be settled more effectively in the euro area in case of more tight coherence in economic policy and strengthening of supranational mechanisms of economic governance.

The Reform of EU Economic Governance

2015 ◽  
pp. 100-118
Author(s):  
Gheorghe H. Popescu
Keyword(s):  
Euro Area ◽  
Policy Coordination ◽  
Economic Governance ◽  
New Governance ◽  
Fiscal Discipline ◽  
Leading Role ◽  
Intergovernmental Policy ◽  
Eu Economic Governance ◽  
New System

The main objective of this chapter is to explore and describe the EU's management of the economic and financial crisis, the leading role of the European Council in economic governance, the governmental and parliamentary institutions involved in EU economic governance, and the democratic character of the new system of economic governance. Applying new conceptual and methodological approaches, this study advances to the next level research on the political relevance of EU-level coordination in the area of economic governance, the new governance of fiscal discipline, the dynamic of building sovereignty at the EU level, and the economic governance of the Euro area. This chapter discusses the major trends in scholarship about the evolution of EU economic governance, the changing decision-making agenda of EU economic governance, the deficiencies in EU economic governance exposed by the crisis, and the slowness of the European measures on the regulation and governance of finance. The authors is specifically interested in how previous research investigated the categorization and exercise of EU competences, the economic government of the Euro area, supranational modes of policymaking, and the tendency of EU economic governance towards intergovernmental policy coordination.

scholarly journals Revisiting euro area accession terms: fiscal rectitude is not sufficient!

2019 ◽  
Vol 69 (s1) ◽  
pp. 73-97
Author(s):  
Daniel Daianu
Keyword(s):  
Exchange Rate ◽  
Euro Area ◽  
Risk Sharing ◽  
Critical Mass ◽  
Value Chains ◽  
Middle Income ◽  
Real Convergence ◽  
Production Value ◽  
Per Se ◽  
Productivity Gains

This paper argues that there are conditions for successful euro area (EA) accession, apart from fiscal rectitude. One is an ex ante critical mass of real convergence which should enhance lasting nominal convergence. Another condition is an overhaul of EA mechanisms and policies that should make it a properly functioning monetary union, which implies an adequate mix between risk-reduction and risk-sharing. It is argued that risk-sharing cannot be secured by private sector arrangements only. Entering the ERM2 is deemed to be no less demanding than euro area accession per se, especially for countries that use fl exible exchange rate regimes. The paper examines also the infl uence of production (value) chains on the efficacy of autonomous monetary and exchange rate policies when it comes to controlling external imbalances; macro-prudential policies, too, are highlighted in this regard. Steady productivity gains are a must for surmounting the middle income trap and achieving sustainable real convergence.

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