European Economic And Monetary Union Research Articles

Современные особенности и тенденции развития европейского экономического и валютного союза

One of the key aspects of modern global economic development is the deepening of the systemic economic crisis in the European Economic and Monetary Union (EMU). This article examines the current characteristics and trends in the development of EMU. The relevance of the research is due to the need to study the problems and risks arising in the process of European integration at the present stage. The aim of this work is to identify, analyze and assess the current characteristics and trends of development of the European Economic and Monetary Union. The research methodology includes structuring, comparison, generalization, systemic, eco-nomic, institutional, logical, statistical analysis, as well as the use of induction, deduction and synthesis. The results of the study are analysis and assessment of the features and flaws of European economic integration and the systematization of negative trends leading to a weakening of the EMU’s position in the global econo-my.

The international impact of a fragile EMU

This paper aims at quantifying the international impact of euro area stress shocks, which arise also from the incomplete nature of the European Economic and Monetary Union (EMU). We first disentangle such shocks from more general global risk aversion shocks by using sign, magnitude and narrative restrictions in a daily Structural Vector Autoregression (SVAR) model with financial variables. We then assess the impact of euro area stress shocks on macroeconomic variables in the euro area and the rest of the world via panel local projections. We find that these shocks have similar effects to supply-side shocks for other advanced economies, and demand-side shocks for emerging economies. They also result in trade diversion across advanced and emerging economies and they are found to be noticeably more heteroscedastic than global shocks. As in previous literature, global risk shocks have an impact that can be interpreted as a demand-side shock, with a significant fall in economic activity and trade after risk-increasing shocks.

Does Credit Growth in the EMU Banking Sector Follow its Capital Adequacy?1

Abstract We put our hypothesis very straightforward, considering the euro area and the whole European Economic and Monetary Union (EMU) banking sector. The paper’s central hypothesis that capital adequacy of the EMU banking sector influenced credit growth and activities in the nonfinancial sector was confirmed; however, not entirely in all respects expected. We proved that, in general, there was a dependency between banks’ capital adequacy and loan growth in the euro area for the observed period Q1 1999 until Q1 2022; yet the correlation coefficient of 0.48 shows a middle positive relationship of variables. At the same time, more than 23% of loans’ variability might be explained by variability in capital adequacy. All significance tests proved our results valid. Nevertheless, we saw two very different and slightly controversial dynamics in loan growth and capital ratio during the observed period. Therefore, we were forced to separately continue with an analysis for both time frames: the period before the big financial and economic crisis (Q1 1999 - Q4 2008) and the period starting with the big financial and economic crisis (Q1 2009 - Q12022). The linear regression in the pre-crisis period was almost flat. In contrast, a simple linear regression during the crisis showed a relatively high negative correlation at around -0.6. Therefore, the sub-hypothesis that higher capital adequacy resulted in negative credit growth was supported for the crisis period. We believe that this paper offers the main originality and scientific contribution for this particular finding within the data time series deployment.

The Euro on the global stage

Abstract:The war in Ukraine draws renewed attention to the question of whether the international monetary and financial system is moving towards a more ‘multipolar’ character. The euro has been the second most important global currency since its creation, and well-placed to help diversify the global financial architecture. This article reviews the evolution of the euro’s international role along with the evolution of the institutional architecture to support it. Previous and ongoing reforms in the European Economic and Monetary Union (EMU) can support the common currency on the international stage.

ESG Risk Premia and the Impact of ESG Awareness: Differences between the US and the EMU Markets

In this article, the authors analyze the impact of environmental, social, and governance (ESG) investing on stock returns. For this purpose, they follow the notion that higher ESG awareness of investors increases the prices of sustainable stocks. If so, one can hypothesize two opposing relationships for the return: a positive short-term effect and a negative long-term effect. To empirically separate between these two effects, they use Google Trend data as a proxy for ESG awareness. Examining data from 2010 to 2020 from the US and the European Economic and Monetary Union (EMU) markets, the authors find empirical evidence supporting both hypotheses. Moreover, the results show on the individual firm level that sustainable stocks have less exposure to an ESG-Factor and thus earn a lower ESG premium. The comparison of both markets shows that the US market is more mature than the EMU market regarding the transition from a state in which investors do not consider ESG to a state in which investors do consider ESG.

Top 1% and inequality connectedness in the EMU and WB

This study analyzes the connectedness of income inequality, governance, and key macroeconomic factors in the European Economic and Monetary Union (EMU) and Western Balkans (WB). Using data from 2006 to 2019, we measure spillover connectedness in the economies due to shocks to (a) inequality, (b) governance, and (c) key macroeconomic factors. Contrary to assumptions, the top 1% and government effectiveness are big contagion transmitters poised to wreak havoc on the WB and the EMU. Our novel findings indicate that the EU has to immediately assist the WB in stabilizing the inequality since the dangerous and growing inequality is a historical violent shock for the WB and the EMU.

Technocratic Keynesianism: a paradigm shift without legislative change

ABSTRACT Despite anticipated curtailment of their powers, the past decade saw technocratic actors take on an increasingly powerful role in economic governance. Focusing on the EU, I analyse these epochal shifts as a move away from the market liberal paradigm that informed the 1992 European Economic and Monetary Union (EMU). The 1992 EMU combines a highly restrictive attitude to public money creation with a permissive laissez-faire attitude to private credit money. In the face of the dual crises of COVID-19 and the climate emergency, EU technocrats have abandoned key tenets of the EMU. The European Central Bank provides targeted and large-scale support for pandemic-related fiscal expenditures. Banking regulators and supervisors actively guide the allocation of credit with an eye to its economic and environmental impact. However, constitutional structures lag ideational shifts and the new technocracy is haunted by issues of legality and legitimacy. To pursue the new policies within the old constitutional structures, policymakers engage in strategic ambiguity: the policies are justified in terms of both new economic policy priorities, as well as by reference to the instruments and goals of the earlier market liberal paradigm.

Measuring redenomination risks in the Euro area – evidence from survey data

PurposeThis paper aims to introduce a new indicator to measure redenomination risks in Euro area countries. The measure is based on survey data. The influence of this indicator in determining sovereign bond yield spreads is estimated.Design/methodology/approachAn autoregressive distributed lag approach is used to estimate the effects of redenomination risks on sovereign bond yields. Additional control variables are added.FindingsThe results for 10 European Economic and Monetary Union (EMU) countries in the period June 2012 to May 2019 show that the risk of depreciation is almost abandoned for most Euro area countries, i.e. the former crisis countries Ireland and Portugal. If anything an appreciation may occur for some countries once they leave the EMU. The only countries facing depreciation problems once leaving the monetary union are Italy and to some extent Spain.Originality/valueWith this new indicator, the literature on sovereign bond determination and i.e. on redenomination risks is expanded by an additional approach. Moreover, this study is one of few also looking at the period after the most severe tensions of the sovereign debt crisis in the Euro area in 2012.

SUBSTITUTION OF ANCHOR CURRENCY: CHALLENGES FOR TRADE BETWEEN IRAN AND ITS MAJOR TRADING PARTNERS

The aim of the paper is to find out whether euro is a convenient substitution for U.S. dollar as an anchor currency for Iranian rial and whether this replacement would affect Iran’s international trade positively. We explore these effects via Optimum Currency Area (OCA) theories using generalized least square from 2000 to 2018. Based on OCA index, euro would be a good substitution for U.S. dollar as an anchor for Iranian rial. In addition, gravity model and Generalized Method of Moments estimation confirm that substitution of U.S. dollar by euro would improve bilateral trade between Iran and its major trade partners especially the European Economic and Monetary Union (EMU). Furthermore, we confirm that a basket containing main currencies (euro, U.S. dollar, yuan, Russian rubble) would be more efficient than a single currency anchor however euro should be prominent in the basket. Such a change of anchor could positively contribute to reduction of transaction costs, diversification of external risk, rise of mutual trade exchanges between Iran and the EMU or the EU and consequent economic growth of trade partners. The paper contributes to the existing literature by comprehensive methodological approach how to identify an appropriate anchor currency.

The evolution of European bailout arrangements and its impact on sovereign bond yields in the aftermath of the euro crisis

AbstractThe 2010–2012 euro crisis prompted a wave of institutional reforms in the European Economic and Monetary Union (EMU), and one of the most remarkable changes was the creation of a permanent bailout facility for troubled sovereigns. The birth of the European Stability Mechanism (ESM) in 2012 was preceded by harsh debates, reflecting a conflict between a German view of country-level responsibility and French-Italian calls for more risk sharing. These tensions have remained ever since, which was also highlighted by conflicts regarding the ESMs overhaul at the end of 2019. Concerns of Italy then drew attention to the fact that a wide range of issues prevented the community from finalizing the post-crisis structure of the eurozone. This paper focuses on the evolution of the EMU financial assistance framework up until the latest efforts for its reform. We analyse the impact of related policy announcements on changes in sovereign bond yields of Italy, Spain, Portugal and Ireland (i.e. the most vulnerable countries during the euro crisis). Our findings show that news on bailout arrangements significantly contributed to a contemporaneous moderation of periphery bond yields, especially in the case of shorter maturities. This result hints at the role of common facilities in supporting financial stability. To enhance this feature, a ‘package approach’ (i.e. multiple reforms together, as stressed by Italy) may well need to be considered. Such a broad perspective can help strengthen the euro area once the acute threat of the coronavirus pandemic is averted.

Post-COVID-19 EMU: Economic Distancing by Parallel Currencies

The coronavirus crisis has caused new distress in the European Economic and Monetary Union (EMU), as the southern part of the EMU has been hit stronger than the northern part. The common currency prevents nominal exchange rate adjustment in response to the asymmetric shock. Policymakers have therefore taken recourse to large-scale financial transfers. Based on the lessons from the German monetary union, this article proposes instead the introduction of parallel currencies to facilitate relative price changes. Parallel currencies in the south would allow an increase in competitiveness of the south via real depreciation. The introduction of a parallel currency in Germany would lead to capital inflows and a real appreciation of the new German mark. The pre-EMU pressure for structural adjustments and productivity gains would be restored.

Smoke with fire: Financial crises and the demand for parliamentary oversight in the European Union

The handling of the 2008 financial crisis has reinforced the conviction that the European Union (EU) is undemocratic and that member states are forced to delegate overwhelming power to a supranational technocracy. However, European countries have engaged with this alleged power drift differently, with only a few member states demanding more parliamentary scrutiny of EU institutions. This article develops a political economy explanation for why only some states have enforced mechanisms to monitor the EU more closely. Our theory focuses on the role of the crisis and the impact of fiscal autonomy in countries outside and inside currency arrangements such as the European Economic and Monetary Union (EMU). We argue that, in the aftermath of a severe economic shock, member states outside the EMU possess more monetary and fiscal resources to handle the crisis. These would then demand oversight of EU decision-making if their fiscal sustainability depends on the Union. By contrast, Eurozone states that need policy changes cannot address the crisis independently or initiate reforms to scrutinize the EU. Hence, we argue that during the heated moments of severe economic downturns, parliaments in Eurozone countries discuss supranational supervision rarely. As these legislatures have nevertheless to give in to the popular demand for EU control, they express support for more EU supervision in the infrequent times of debate. We provide evidence for our theory with a cross-national analysis of EU oversight institutions, and a new original dataset of parliamentary debates during the Eurozone crisis. Our findings highlight the political consequences that financial nosedives have across the diverse membership of a supranational organization.

Economic and Monetary Union at twenty: a stocktaking of a tumultuous second decade: introduction

ABSTRACTThis contribution discusses the two main asymmetries of European Economic and Monetary Union (EMU) as they developed over the past two decades since the launch of the Single Currency. From the outset, EMU involved asymmetric degrees of integration in the area of ‘economic’ union (less centralised governance) versus ‘monetary’ union (more supranational governance). With the outbreak of the Sovereign Debt Crisis in 2010, the regime-shaping relevance of a second asymmetry emerged: one roughly between the member states of the Euro Area ‘core’ and those in the ‘periphery’. Each of the two asymmetries have created a range of challenges — institutional, policy and political — that undermine the stability and sustainability of the EMU project.

Para Birliği Uygulamaları ve Avrupa Ekonomik ve Parasal Birliği İçin Dersler

In monetary unions, economically integrated countries pegged their exchange rates and abandon their monetary independency by adopting a union wide currency and central bank. In this vein, the theory of monetary union specifies criteria to overcome the loss of monetary policy autonomy. The mostly cited monetary union today is European Economic and Monetary Union (EMU). EMU was constituted with Maastricht Treaty. This treaty envisaged the monetary union by 1999. However, EMU is not the first monetary union experience. There have been plenty of other monetary union experiences. We observe some monetary union experiences parallel to forming nation states or as a consequence of economic integration. Some of these unions have prospered, but some come to an end. In these circumstances, the prosperity of EMU has always been discussed. This study is aiming to contribute this debate by analyzing the other monetary union experiences. According to the findings; politic will, fiscal integration and the institutional dependency of the nations in the monetary union is vital for the survival of the monetary union.

Is there a common path for the integration of European Union banking systems?

The main objective of this research article is to explore hypothesis about the integration of the banking systems in European Union (EU). Increasing the European Union member states degree of convergence and integration is one of the major challenges faced by the European Economic and Monetary Union (EMU). The empirical analysis is based on the non-linear time-varying coefficients factor model designed by Phillips and Sul for the sample period 2007–2017. Our results indicate the rejection of the convergence hypothesis for EU banking systems. Additionally, our empirical findings reveal that there are significant differences in how European banks assess the non-financial sector and the households sector. During the period 2011–2013, which is a period coinciding with the most severe episodes of the sovereign debt crisis, the dispersion between trajectories increases, involving a segmentation of interest rates, and this leads to the conclusion that the integration of EU banking systems has been negatively influenced by the sovereign debt crisis. The results of the empirical study also suggested that for most clusters, the convergence speed is relative, which does not lead to an absolute integration in the long run.

Revisiting the fallacies in Hegemonic Stability Theory in light of the 2007–2008 crisis: the theory’s hollow conceptualization of hegemony

In light of the renewed popularity of Hegemonic Stability Theory (HST) in the context of governance debates in the aftermath of the 2007–2008 crisis, this paper revisits, from a conceptual angle, the shaky basis upon which the theory draws a causal link between hegemony and stability. The paper is a critique of HST as a theory of hegemony that contains an underdeveloped concept of hegemony only defined ex post, highlighting that it is precisely this hollow conceptualization that has allowed for the perceived compatibility between US power and stability at a point in time (the Bretton Woods years) to be erroneously generalized into a causal relationship. The paper also shows, via the example of Germany in the European Economic and Monetary Union (EMU), how inattention to the conceptual content of HST has permitted the heedless extension of a problematic understanding of hegemony through stability to cases of regional hegemony.

Making the Eurozone work: a risk-sharing reform of the European Stability Mechanism

This work presents an original proposal for the reform of the Eurozone architecture according to an approach based on risk sharing (aiming to reach in the long-term the mutualization of public debt). The proposal envisages a new role for the European Stability Mechanism (ESM) which should gradually become the guarantor of the public debts of the European Economic and Monetary Union (EMU). In this way, the new ESM would support the full transition from national debts to a single Eurozone public debt (e.g. Eurobonds) with a single yield curve for all countries. Our proposal would benefit both core and peripheral EMU countries. Indeed, the riskiest countries, which would gain from the ESM conditional debt guarantee, should give up the possibility of redenominating their national debt and would pay to the ESM the corresponding market price of the guarantee. This would strengthen the capital endowment of the ESM and also allow it to use its leverage capability to support the realignment of the economic cycles of the different countries through profitable public investment plans concentrated in the weakest regions of the EMU. Such plans would be coordinated and implemented by the European Union. After a transition period, our Insurance Fund proposal would contribute to a much more resilient monetary union, with a European fiscal policy and mutualized debt. Admittedly this proposal presupposes a political consensus at the EU level to reinterpret the no bailout rule enshrined in the treaties so that risk sharing institutions implemented with fairly priced insurance scheme can be allowed. New risk sharing institutions will foster a common vision of belonging to the same federal, political union in the making, the only one compatible with the abdication of fiscal sovereignty by national governments.

The European Employment Strategy, the European Social Pillar and their Impact on Labour Law Reform in the European Union

The article provides a critical account of the impact of the European Employment Strategy (EES) on national labour market policies and labour law systems. It gives an overview of the development of the EES from the 1990s until the introduction of the European Social Pillar (ESP) and analyses its impact in the Member States of the European Union. In particular, it highlights the origins of the EES in debates about European Economic and Monetary Union (EMU) and examines the importance and the specific nature of the new governance approach adopted by the EES and its significance for labour law reform in the Member States. The article argues that the latest stage in the development of European social policy, associated with the introduction of the ESP, has not led to a change in direction in European social and employment law and policy. Despite its rights-based approach, the ESP merely constitutes the latest stage in the development of the EES and continues in its attempt to prioritize labour market policy concerns in reforming labour law. However, the article also argues that the ESP has potential to be the platform for a proper Social Union.

Models of supranational policymaking and the reform of the EMU

Under what conditions do sovereign governments agree to create a common policy institution? And what model of supranational policymaking may be preferable? To answer these questions, we introduce a policy game of two interdependent countries with reciprocal negative externalities created by shocks to a socially relevant variable. Depending on national preferences over policy options and their outcomes, both countries incur welfare losses if governments pursue non-cooperative policy choices. Then we examine what kind of supranational policy regimes may be endorsed by both governments according to the Pareto criterion. Two regimes are “technocratic” (they do not take national preferences into account), two are “political” (they do). One political regime that we call “union” aggregates the national preferences additively. The thrust of our analysis is that the technocratic regimes are dominated by non-cooperation, so that the single alternative is between the union and non-cooperation. Yet an important point is that the union is the Pareto-dominant regime only within a limited range of asymmetry between countries’ preferences. This result has notable implications for the debate on the reform of the European Economic and Monetary Union (EMU) facing the challenge of further integration of member countries. Application to the EMU case is assisted by numerical simulations based on empirical parameters drawn from qualified external sources, which show that aymmetries in national attitudes towards policies that “Europe wants” may jeopardize the creation of a union in alternative to non-cooperation.

Has the ECB’s monetary policy prompted companies to invest, or pay dividends?

ABSTRACTThis paper focuses on the influence of the European Central Bank’s (ECB) monetary policies on non-financial firms. It sheds light on non-financial firms’ decisions regarding leverage, and on how the ECB’s conventional and unconventional policies may have affected them. The paper also examines how these policies influenced non-financial firms’ decisions on capital allocation – primarily capital spending and shareholder distribution (for example, dividends and share repurchases). We use an exhaustive and unique dataset comprised of income statements and balance sheets of leading non-financial firms operating in the European Economic and Monetary Union (EMU). The main results suggest that ECB’s monetary policies have encouraged firms to raise their debt burden, especially after the global recession of 2008. Finally, the ECB’s policies, especially after 2011, also seem to have led non-financial firms to allocate more resources not just to capital spending but to shareholder distribution as well.