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  • Author: Viral V. Acharya, Sascha Steffen
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The eurozone is mired in a recession. In 2013, the GDP of all 17 eurozone countries fell by 0.5% and the outlook for 2014 shows considerable risks across the region. To stabilise the common currency area and its (partly insolvent) financial system, a eurozone banking union is being established. An important part of the banking union is the Single Supervisory Mechanism (SSM), which will transfer the oversight of Europe's largest banks to the European Central Bank (ECB). Before the ECB takes over this responsibility, it plans to conduct an Asset Quality Review (AQR) in 2014, which will identify the capital shortfalls of these banks.
  • Topic: Economics, International Trade and Finance, Regional Cooperation, Monetary Policy
  • Political Geography: Europe
  • Author: Stefano Micossi, Ginevra Bruzzone, Miriam Cassella
  • Publication Date: 05-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: In July 2013, the European Commission adopted a new Banking Communication – the seventh since the start of the financial crisis – updating its criteria for the evaluation of state aid in the banking sector in response to the evolving economic and institutional environment. Under this Communication, any credit institution in need of recapitalisation or 'impaired asset' measures will be required, prior to any further action, to submit a plan for restructuring or the orderly winding down the bank. Moreover, whenever there is a capital shortfall, the Commission will require that, prior to any injection of public funds, not only shareholders – as has been the case so far – but also junior creditors write down or convert into equity their claims on the bank, regardless of whether the bank is under resolution, in order to minimise the need for state aid.
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: Europe
  • Author: Andrea Renda
  • Publication Date: 12-2013
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: A lively debate emerged on the proposed "Connected Continent" legislative package presented by the European Commission in September 2013. The package contains a proposed rule on the 'open Internet', which was heavily discussed in European Parliament hearings in early December. This commentary argues that while the proposed rule is in principle balanced and appealing, it is utterly impractical due to the enormous uncertainty that its application would entail. At the same time, the rule is very far from what neutrality proponents have argued for almost a decade: rather than the place for internet freedom, it would transform the Web into a place requiring constant micro-management and tutoring of user behavior. Both arguments lead to the conclusion that the current proposal should be at once reformed and analysed under a more holistic lens. On the one hand, Europe should launch an ambitious project for the future, converged infrastructure by mobilising resources and reforming rules to encourage investment into ubiquitous, converged, 'always on' connectivity. On the other hand, enhanced legal certainty for broadband investment could justify a more neutrality-oriented approach to traffic management practices on the Internet. The author proposes a new approach to Internet regulation which, altogether, will lead to a more balanced and sustainable model for the future, without jeopardising user freedom.
  • Topic: Debt, Economics, Monetary Policy, Infrastructure, Financial Crisis
  • Political Geography: Europe
  • Author: Rym Ayadi, Willem Pieter De Groen
  • Publication Date: 12-2013
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The 2007-09 global financial crisis led to a virtual collapse in economic activity and increased financial volatility worldwide. For the developing countries, the main channel of transmission has been a drop in external transactions, such as trade, financial and capital flows, and remittances. The southern and eastern Mediterranean countries (SEMC) have also faced declining economic activity, although there seems to be considerable variation in the relative magnitudes and timing of the decline. Most of the economies in the Mediterranean basin have had delayed but longer-lasting consequences as a result of the crisis, driven mostly by their endemic trade and investment ties with the EU and the Gulf Cooperation Council (GCC) countries.
  • Topic: Debt, Economics, Markets, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Jacques Pelkmans, Ineke Gubbels-van Hal, Lorna Schrefler
  • Publication Date: 12-2013
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Right from the start of the REACH debate, following the Commission proposal of October 2003, one of the more serious concerns was whether and how SMEs could cope with REACH. Indeed, there were doubts whether one of the main objectives of REACH – competitiveness of chemical and downstream companies – is consistent with the design and detailed implementation of REACH. Already in 2005, the European Parliament adopted a resolution on this aspect, insisting e.g. on lower fees for SMEs as one remedy to reduce the expected regulatory burden for smaller companies. The fear of REACH being unduly heavy and costly for SMEs has never gone away (see e.g. Gubbels Pelkmans, 2009) but merely receded in the background when the Commission and the European Chemical Agency (ECHA) were in the process of building and elaborating the REACH machinery in operational terms. This year, the problem is rearing its head again in a magnified fashion and it will not go away so easily this time.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy
  • Political Geography: Europe
  • Author: Paul De Grauwe, Yuemei Ji
  • Publication Date: 11-2013
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: One of the more troublesome features of banks is that they still hold so little equity. In 2013 the capital and reserves of EU banks amounted to only 7.6% of total balance sheets. Well-run businesses outside the banking sector typically hold equity shares of 20%, 30% or more of their balances sheets. For good reasons; these well-run firms know that shocks can occur that could wipe out large parts of their balance sheets. Good business strategy thus leads these firms to hold sufficiently large buffers to avoid bankruptcy.
  • Topic: Debt, Economics, Monetary Policy
  • Political Geography: Europe
  • Author: Stefano Micossi, Jacopo Carmassi, Ginevra Bruzzone
  • Publication Date: 11-2013
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The European Commission proposal for a Regulation establishing a European Single Resolution Mechanism (SRM) for banks is now under consideration before the European Parliament and the Council. The main principles and tools applicable for resolving a failing bank are contained in the June 2012 Commission proposal for a Directive on bank recovery and resolution (BRR), aimed at harmonising crisis management and resolution tools in EU member states, which is also under consideration by the European legislators. Any discussion of the new system must therefore be based on both proposals.
  • Topic: Debt, Economics, International Trade and Finance, Markets, Monetary Policy, Reform
  • Political Geography: Europe
  • Author: Daniel Gros, Matthias Busse
  • Publication Date: 11-2013
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The Macroeconomic Imbalance Procedure (MIP) was designed to prevent the emergence of imbalances like the large and persistent current account deficits that occurred in Spain and Ireland. But within this mechanism, a current account surplus is also viewed as a source of concern. Indeed, last year's Alert Mechanism Report (AMR), issued by the European Commission signalled an excessive current account surplus for the Netherlands and Luxembourg, while Germany just barely scraped by with a 5.9% surplus, marginally evading the 6% threshold (over a 3-year average). With the most recent report, however, Germany's status has changed. Along with the Netherlands and Luxembourg, it too has now been singled out as a euro-area country with a surplus above the upper threshold.
  • Topic: Economics, International Trade and Finance, Markets, Monetary Policy, Financial Crisis
  • Political Geography: Europe, Germany
  • Author: Daniel Gros, Thomas Mayer
  • Publication Date: 03-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: This paper argues that the new permanent European rescue fund, the European Stability Mechanism (ESM), should be provided with a liquidity backstop by having it registered as a bank – and be treated as such by the European Central Bank. If the crisis were to become acute again, the ESM would stand ready to intervene in secondary markets, potentially with almost unlimited amounts of funding. Access to central bank financing will be crucial in a future crisis, because in such a crisis risk aversion is likely to be extreme, and even the ESM might not be able to raise at very short notice the huge sums that might be required to prevent a breakdown of the financial system. Hundreds of billions of euro might be needed just to top up the programmes for Greece, Ireland and Portugal – and Spain and Italy may require more than a thousand billion euro. Sums of this order of magnitude cannot be raised quickly by a new institution. Simply increasing the headline size of the ESM might thus be of little use.
  • Topic: Debt, Economics, Monetary Policy, Financial Crisis
  • Political Geography: Greece, Spain, Italy, Portugal, Ireland
  • Author: Daniel Gros
  • Publication Date: 04-2012
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Lax financial conditions can foster credit booms. The global credit boom of the last decade led to large capital flows across the world, including large movements of resources from the Northern countries of the euro area towards the Southern part. Since the start of the crisis and more markedly after 2009, these flows have suddenly stopped, creating severe adjustment pressures. This paper argues that, at this point, the common monetary policy can only try to mitigate the unavoidable adjustment by maintaining overall financial stability. The challenge is to strike a delicate balance between providing liquidity for solvent institutions while keeping the overall pressure on for a rapid correction of the imbalances.
  • Topic: Economics, Markets, Monetary Policy, Financial Crisis
  • Political Geography: Europe