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FIVE THESES ON THE EUROPEAN MONETARY AND FISCAL UNION
INSTITUTIONAL FRAMEWORK
Ramon Marimon European University Institute and UPF – Barcelona GSE,
April 25 , 2014
June 28, 2014
June 28, 2014
June 28, 1914
�Five Theses: �
Thesis #1:��The European Union as a commitment to Growth and Peace
Grecia
Portugal
Irlanda España Italia
Francia Alemania
Fuente: Thomson Reuters
Interest rates on 10-‐year government debt
The European Exchange Rate
Mechanism (ERM) 1979 -‐1999
Thesis #2:��The ERM lesson: EMU to solve the monetary commitment problem.
but debts were not the same…
Grecia
Portugal
Irlanda España Italia
Francia Alemania
Fuente: Thomson Reuters
Interest rates on 10-‐year government debt
The European Exchange Rate
Mechanism (ERM) 1979 -‐1999
Thesis #3:��The euro crisis lesson: a European Fiscal Union to solve the fiscal commitment problem.
�
a feasible European Fiscal Union? • Risk and fiscal burden sharing, with limited (no?) Union taxes & with limited redistribuQon.
• Draw the lines (between Union & States &…) and, accordingly, limit sovereign debt, account for social liabiliQes, and avoid private debt turning into public debt.
October 8, 2012
The European Stability Mechanism starts operating as a permanent crisis resolution mechanism for the countries of the euro area
December 5, 2012
The Van Rompuy Report:
“The euro area needs stronger mechanisms to ensure sound naQonal policies so that Member States can reap the full benefits of the EMU. This is essenQal to ensure trust in the effecQveness of European and naQonal policies, to fulfill vital public funcQons, such as stabilisaQon of economies and banking systems, to protect ciQzens from the effects of unsound economic and fiscal policies, and to ensure high level of growth and social welfare.”
January 1, 2013
The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union – better known as the "Aiscal compact" – enters into force (with the recent pledge of the Czech Republic’s new prime minister to ratify it, the treaty ‘will bind’ all EU member states, but UK).
November 4, 2013
The Single Supervisor Mechanism (SSM) of the Euro area banking system starts its preparatory work and it should be fully operational in November 2014, an important enlargement of the European Central Bank activities.
“The clean exits of Spain and Ireland from their Uinancial assistance programmes show that the crisis resolution strategy in the euro area is working (…) Ireland was the Uirst EFSF programme and Spain was the Uirst European Stability Mechanism (ESM) programme.” (EFSF-‐ESM Newsletter Dec., 2013)
March 20, 2014
The European Parliament and the Council reached a political agreement on the Single Resolution Mechanism (SRM) for the Euro area banking system.
Key elements of the Banking Union
25/04/14 23
Single Rulebook EU28
Single Supervisory Mechanism
EU18+
Single ResoluQon Board EU18+
Funding Arrangements EU
18+
CRR/CRD IV BRRD
What has been done: 3+1 important pieces on the table
1. Fiscal Compact – LimiQng redistribuQon with fiscal restraint?
2. European StabilizaQon Mechanism (ESM) – As a risk sharing mechanism with condiQonality?
3. European Banking Union (EBU) – To break the link private–sovereign debt?
+ European Central Bank (ECB) – Providing ‘firing power’ to ESM & control to EBU?
� We have the guns!
��
1. Fiscal Compact – LimiQng redistribuQon with fiscal restraint?
2. European StabilizaQon Mechanism (ESM) – As a risk sharing mechanism with condiQonality?
3. European Banking Union (EBU) – To break the link private–sovereign debt?
+ European Central Bank (ECB) – Providing ‘firing power’ to ESM & control to EBU?
1. Fiscal Compact – For most the ‘fiscal compact’ sQll remains ‘an imposed objecQve’ more than an assumed ‘integrated budgetary framework’ for naQonal fiscal policies.
2. European StabilizaQon Mechanism (ESM)
– A crisis resoluQon, not a risk sharing mechanism.
3. European Banking Union (EBU) – SRM: where is the independence to break the lines? “A Single ResoluQon Board, consisQng of representaQves from the ECB, the European Commission and the relevant naQonal authoriQes”
+ European Central Bank (ECB) – SSM: too much responsibility for the ECB?
� We have the guns, do we have the guts?
��
Thesis #4:��Intergovernmental guns do not always fire.
��
Euro debt overhang
sovereign risk in the euro area
… and 5 European non-‐EA + 3 euro area (5+2) countries are in the top 8 least risky sovereigns
3 euro area countries are in the top 9 (4 top 8) most risky sovereign credits…
1. Argentina (3) 2. Venezuela (5) 3. Cyprus (2) 4. Ukraine (6) 5. Pakistan (4) 6. Egypt (10) 7. Greece (1) 8. El Salvador 9. Portugal (7) 10. Serbia
1. Norway (1) 2. Sweden (2) 3. Finland (5) 4. Denmark (7) 5. Germany (8) 6. UK (6) 7. USA (3) 8. Switzerland (4) 9. Netherlads 10. Japan
Source: S&P, CMA Global Sovereign Credit Risk Report – 4th Quarter, 2013 (3rd Quarter 2012)
Thesis #5:��We need proper guns and trust to solve the Eurozone divide.