Breakdown of Government Debt into Components in Euro Area Countries

Consumer Price Stickiness In The Euro Area During An Inflation Surge

How Do Macroprudential Measures Affect Mortgage Lending Standards? Evidence from the ECB’s Bank Lending Survey

Euro-Area Physical Risk Indicators for Climate-Related Financial Stability Analyses

Who Owns Crypto in the Euro Area? Drivers of Crypto Adoption, Payment Use, and its Interaction with Fiat Cash

This paper investigates the role of travel-related services – specifically package holidays, restaurants and hotels, and passenger transport by air – in the evolution of the Harmonised Index of Consumer Prices (HICP) in Greece. With tourism representing a substantial sector of the Greek economy, understanding how the prices of these services interact with broader inflationary dynamics is of increasing importance, particularly in the context of the euro area’s harmonised statistical framework. The study begins with an overview of the HICP and the national Consumer Price Index (CPI), highlighting methodological differences and similarities in how travel-related services are treated within each. It then examines the individual components of travel-related services to assess their contribution to the overall HICP, using official monthly data and decomposition techniques. Subsequently, the paper tracks the historical evolution of these services prices, exploring seasonal patterns, structural shifts and the impact of major economic events, such as the COVID-19 pandemic and the subsequent recovery. To place the Greek experience in a broader context, the analysis incorporates a cross-country comparison, examining how travel-related services inflation has varied across euro area countries and identifying potential sources of heterogeneity. The findings aim to inform both statistical and policy discussions, shedding light on the weight and behaviour of a vital sector within inflation measurement and offering insight into price dynamics that are often volatile yet economically significant. The paper concludes by summarising key findings and proposing ideas for future research.

ABSTRACT This paper investigates the overall effect of the European Central Bank's (ECB's) unconventional monetary policies (UMPs) implemented since 2008 on euro area bank retail lending and deposit rates offered to households and nonfinancial corporations. To do so, we use an analytical approach that combines the estimation of the cumulative effects of UMP on key determinants of bank funding costs through daily event study analysis, together with a monthly estimation of the pass‐through to retail rates. In counterfactual simulations, we quantify the full effect of the ECB's UMPs implemented since 2008 on retail lending and deposit rates and systematically explore differences in their effects over time and across euro area countries (France, Germany, Italy and Spain). Our results show that the ECB's UMPs—particularly the measures launched since 2012—significantly lowered retail lending and deposit rates in Germany, France, Spain and in particular in Italy.

The issue of the quality of public finances is gaining importance in light of long-term fiscal sustainability challenges. The Recovery and Resilience Facility (RRF) can play a role in improving the quality of public finances by reshaping the composition of general government expenditure by function and supporting the economy’s long-term growth potential. This paper analyses the validity of Wagner’s law for Euro area countries and examines the evidence on the quality of public finances based on productive government expenditure. The quantitative approach is based on panel data approaches. The results do not confirm the validity of Wagner’s law. However, they indicate that the RRF, as an instrument of exogeneous fiscal intervention, has contributed to a shift in the composition of government expenditure, thereby providing some evidence of an improvement in the quality of public finances. Given that the RRF is a temporary, performance-based programme, it represents—at best—a temporary form of exogeneous fiscal intervention on the quality of public finances, which, upon its completion and ceteris paribus, will remain within the domain of the Member States.

Abstract In this paper, using panel data from 19 euro area countries over the period 2010–2022, we examine the nature of monetary and fiscal policies in the context of developments and changes in inflation, public debt, and mutual integration. Using a panel vector autoregressive model, impulse response functions and forecast error variance decomposition, we analyse the economic dynamics of countries that joined the euro area before and after 2004, and the study also examines differences in countries with high and low public debt. Our results highlight the negative inflationary pressures of fiscal deficits in both old and new member countries and the positive effects of quantitative easing in old member countries. We highlight the interplay and impact of fiscal and monetary policy and emphasize the interrelationship between fiscal discipline, debt sustainability and economic growth in the euro area, pointing to the need for up-to-date fiscal strategies that take into account the specific economic conditions for euro area countries’ debt levels.

The two groups of EU economies, the euro area and the non-euro area, are statistically analyzed taking into account the fulfillment of the euro area financial criteria and economic performance over the period 2000–2023. Compliance with financial criteria, economic performance, and their significant influencing factors are presented comparatively for the two groups of countries. The long-run equilibrium between economic growth and its factors is identified by econometric approaches with the error correction model (ECM) and autoregressive distributed lag (ARDL) models for the two data panels. In the short term, economic shocks are taken into account to compare their different influences on economic growth within the two groups of countries. The GMM system is used to model economic convergence at the EU level over the period under review. Comparisons between GDP growth and its theoretical values from econometric models have led to interesting conclusions regarding the existence and characteristics of economic convergence at the group and EU level. EU countries outside the euro area have higher economic growth rates than euro area economies over the period 2000–2023. In the long run, investment brings a higher increase in economic development in EU countries outside the euro area than in euro area countries. Economic shocks have been felt more deeply on economic growth in the euro area than in the non-euro area. The speed of adjustment towards long-run equilibrium in econometric models is slower for non-euro area economies than in the euro area over a one-year period. At the level of the European Monetary Union, change policies have a faster impact on economic development and a faster speed of adjustment towards equilibrium.

Lithuania’s economy has proven resilient to multiple shocks in recent years and grew strongly in 2024. However, new challenges are emerging and long-standing issues still require attention. Defense spending is high and set to rise further, adding to other existing long-term spending pressures including from pensions. Income convergence with other euro area countries has been stalling lately while productivity growth remains weak. The global economic environment remains highly uncertain.

Purpose This paper examines the effects of economic policy uncertainty (EPU) on earnings management, accrual-based (accrual-based earnings management (AEM)) and real activities manipulation (real earnings management (REM)), in the euro area. Design/methodology/approach Using a sample of firms listed in stock exchanges of eight euro area countries and studying how earnings management motives are formed during EPU, we perform a fixed-effects panel regression. As EPU proxy, we use the index of Baker et al. (2016), while widely applied models are employed to estimate earnings management. Our sample spans the period from 2002 to 2022. Endogeneity concerns are also addressed. Findings We find evidence of negative association between EPU, AEM and REM through abnormal levels of production and positive with sales manipulation. Moreover, we show that industry classification affects this relationship, as during these times firms operating in politically sensitive industries increase upward AEM and REM through reduction of discretionary expenditures. Finally, considering the impact of corporate governance on earnings management, we show that large board size contributes to income-increasing AEM. Research limitations/implications The limitation of the Baker et al. (2016) index in terms of country availability restricts the generalizability of our results to the entire euro area. Thus, future studies could create a respective index for the euro area countries that were not included and examine the robustness of our results. Moreover, the understudied subject of the impact of other corporate governance parameters on the relationship between EPU and earnings management could be also further examined. Practical implications Our results provide key insights primarily for investors and secondarily for auditors, policymakers and corporate governance regulators. Originality/value According to authors’ knowledge, this is the first study to investigate the effects of EPU on earnings management focusing exclusively in the euro area. Moreover, we examine the effects of EPU on REM by exploring the reasons and the motives to conduct each one of its methods. Finally, we add to the corporate governance literature by investigating the impact of board size on earnings management during periods of EPU.

Rationale This article analyses Spanish general government debt in 2024 based on the statistics prepared and published by the Banco de España and drawing comparisons with other euro area countries. Takeaways •In 2024 Spain’s public debt-to-GDP ratio fell by 3.3 percentage points (pp) to 101.8%. •Central government debt-to-GDP ratio fell by 2.2 pp to 93.6% of GDP. •Spain’s debt ratio remained above the euro area average (87.4% of GDP), but the gap was reduced by 3.4 pp.

ABSTRACT Why did public support for the euro remain relatively stable in the wake of the euro crisis, while trust in the European Central Bank (ECB) plummeted? We would expect support for both to move in tandem because the ECB’s main tasks are to guarantee price stability in the eurozone and to safeguard the value of the euro. We explain the surprisingly different trends by the role of the ECB in the so-called ‘troika’ overseeing the bailout packages, that were implemented since 2010. The associated and unpopular austerity policies politicized the role of the ECB, while the common currency remained largely un-politicized because of its ‘banal’ character of a daily life object. Analyzing Eurobarometer survey data of nineteen euro-area countries between 1999 and 2023, we show that the divergent trend of ECB trust and euro currency support is indeed partially linked to the austerity policies that were implemented since 2010.

Abstract Monetary policy tightening in the Euro Area has driven record-high bank profitability, increasing public pressure and prompting legislative proposals for bank profit levies in several Euro Area countries during 2022 and 2023. While much focus has been directed to the effects of bank levies introduced in the aftermath of the Global Financial Crisis, the motivation behind the introduction of the recent wave of extraordinary bank taxes has not been studied. This paper seeks to identify the most important characteristics of the banking, macroeconomic and governmental sectors which lead to the introduction of such taxes. Our findings show that higher banking profitability increases the likelihood of a bank tax, while greater excess reserves at the central bank reduce it, suggesting that rising profitability was not driven by remuneration on these reserves. Regarding macroeconomic conditions, higher inflation lowers the probability of implementing an extraordinary bank tax, implying that countries adopting such measures were not disproportionately impacted by the Euro Area’s inflation surge. In terms of government characteristics, we find no evidence that higher deficits or government debt made countries more likely to introduce a bank tax, suggesting revenue generation was not the primary motive. However, lower government effectiveness is linked to a higher probability of implementation.

Abstract This paper aims to interpret labour market developments across the euro area in the wake of the COVID-19 pandemic, notably the simultaneous presence of signs of labour market slack and labour market tightness in 2021. Indicators of labour market slack and mismatch are reviewed and discussed. The Beveridge curve relationship is estimated econometrically across euro area countries to assess if upward shifts took place after the COVID-19 outbreak, since such upward shifts could indicate a possible reduction in the efficiency of matching between jobs and job seekers. As compared with previous analogous analyses (e.g., Börsch-Supan 1991; Wall – Zoega 2002; Valletta 2005; Consolo – Dias 2019) the present analysis addresses the issue of residual autocorrelation present in standard Beveridge specifications and includes skill and sectoral mismatch indicators as additional controls. The results indicate a modest and temporary upward shift in the Beveridge curves of the euro area in 2020, reversed in 2021. Even though skill mismatch temporarily increased somewhat in the wake of the COVID-19 pandemic, this appears to have had a very minor impact on the efficiency of labour market matching. Overall, the available evidence suggests that the simultaneous presence of labour market slack and tightness was a temporary phenomenon. The sharp increase in labour shortages was driven mainly by a sudden labour market recovery in a context of reduced labour supply elasticity rather than by a structural reduction in matching efficiency and major labour market reallocation needs.

Purpose The most recent fiscal adjustment episode in the euro area occurred during the so-called euro area sovereign debt crisis and relied quite significantly on the public wage bill. The austerity measures contributed to an immediate partial correction of positive public–private pay differentials, especially in countries subject to the EU’s financial assistance programs. An important aspect of the debate on public wage bill restraint concerns how long such policies can be sustained over time. In this paper, we investigate whether the downward corrections that were initially observed in many countries were permanent or ended up being transitory (i.e. whether they were reversed in subsequent years). Design/methodology/approach We focus on euro area countries over the 2007–2022 period so as to have sufficient observations in both the pre- and post-adjustment periods. We estimate the wage differential controlling for observable differences between individuals using cross-sectional microdata from a harmonized survey, the European Union Statistics on Income and Living Conditions (EU-SILC). Findings The lower wage premiums only partially reverted to pre-fiscal consolidation levels over the subsequent decade. More sustained policy achievements are linked to larger fiscal adjustment efforts during the 2010–2014 crisis. Originality/value This research provides a comprehensive analysis of the public–private pay gap in the context of significant economic events, shedding light on the long-term effects of fiscal consolidations on wage structures, which is crucial to inform future economic policies.

Abstract This study analyses the impact of banking sector size on economic growth in euro area countries. We use eurozone countries’ data regarding the amount of bank lending to the private sector relative to the GDP and employ macroeconomic data in a panel analysis to examine how the size of lending affected growth in times of crises (global financial crisis, European debt crisis, and COVID-19 pandemic). We also explore the channels through which banking sector size might affect economic growth, including economic and financial conditions as well as variables characterising the state of the banking sector in each country in the panel models to further illustrate the impact of banking sector size on growth. The results generally demonstrate a negative relationship between size of the banking sector and economic growth. Our estimations also suggest that the negative relationship was especially strong in times of crises. The primary channels through which banking sector size might affect economic growth appear to be financial stress and bank riskiness, and profitability in addition to divergence of resources towards construction and employment in the financial sector.

Abstract This paper studies how the Covid-19 pandemic affected firm productivity. The focus is on the reallocation channel measured by the responsiveness of firm employment growth to productivity. The analysis leverages high-quality firm-level data covering 11 euro area countries over 2 decades, from the early 2000s to 2020 in most sample countries. The results show that: (1) Productivity-enhancing reallocation has weakened over time, with its contribution to aggregate productivity declining in the majority of the sample countries. (2) The strength of this reallocation process varies largely across countries, accounting for 0.7–5.2 log points of aggregate yearly productivity growth. (3) Various estimation approaches and productivity proxies suggest that productivity-enhancing reallocation was weaker in more countries during the pandemic than in the Great Recession.

Revisiting the impact of financial shocks on the fiscal position of euro area countries