Eurozone Member Research Articles

The impact of decentralized finance development on banks deposits variability: PVAR approach

Purpose This study aims to investigate the potential impact of total value locked (TVL) fluctuation in decentralized finance (DeFi) on banks deposits for a sample of 21 countries, including the Eurozone members and the USA, over the period from July 2018 to October 2023. Design/methodology/approach Panel vector autoregression model has been used to analyze the existence of a relationship between TVL and banks deposits. In the second stage, the impulse response function has been exercised to find out the response of banks deposits among each nation. Findings Empirical findings exhibit that while increases in TVL have a significant negative long-run association with banks deposits in a global perspective, the effect is weak, suggesting modest disruption to traditional banking services to date. However, the impact varies between short and long-run effects at the country level. Six nations exhibit substantial negative long-run effects, whereas eight countries experience only temporary decreases in deposits following TVL upticks that rebound over time, reflecting the lack of trust in DeFi services and the engagement in speculative instead of long-term activities. Research limitations/implications This study provides general insights into DeFi’s impact on banking performance and deposit stability. However, it likely has limitations in scope and time frame. Future research could explore long-term effects, specific DeFi protocols and cross-country comparisons. Practical implications This study’s findings provide key insights for policymakers, central banks and bank managers on the impact of DeFi growth on banking performance and deposit stability. The results highlight the need for adaptive regulatory frameworks and investment strategies to address the emerging DeFi ecosystem. At the country level, the observed variations suggest the importance of tailored policy approaches. These insights are crucial for developing effective regulations and strategies in the evolving financial landscape. Social implications DeFi growth may alter financial access and inclusion, raising concerns about consumer protection and literacy. It could shift power dynamics in finance, potentially reducing traditional intermediaries’ influence while creating new forms of inequality. Balancing innovation with social responsibility is crucial for equitable distribution of benefits. Originality/value Although numerous studies have been conducted on the effects of cryptocurrencies on bank deposits and stock performance across various regions, they have largely overlooked the DeFi and its role in influencing deposits as a new competitor to traditional banks services. This study aims to address this gap by examining the influence of TVL developments on banks deposits, and to what extent it can be served as an alternative to banking services.

Driving Forces of the Consumer Price Index During the Crises in the Eurozone: Heterogeneous Panel Approach

This paper examines key driving forces of inflationary pressures, taking into account supply and demand side determinants and actions of policy makers, during the pandemic and geopolitical crises in the Eurozone. Using heterogeneous nonstationary macro-panel models, especially the Mean Group (MG) and Pooled Mean Group (PMG) methods in the period 2020q1–2024q4, it is concluded that the dominant determination of inflationary pressures comes from the supply side. There is a long-run positive equilibrium relationship between the growth of energy prices and the growth of the consumer price index (CPI), and between the index representing supply bottlenecks (SBI) and the growth of CPI, while the relationship with the unemployment rate is insignificant. Also, the existence of a long-run equilibrium between the interest rate and CPI is homogeneous due to the unique monetary policy on a sample, and negative, indicating the efficiency of that policy. However, the speed of adjustment of individual economies is heterogeneous, and in the case of Greece and Ireland, insignificant. The heterogeneous or insignificant response of Eurozone member states, especially related to core-periphery asymmetry, refers to the vulnerability and structural weakness of the Eurozone economies, and the need for deeper integration.

Creative Accounting and Fiscal Rules in EU Member States: An Analysis Based on Stock Flow Adjustments

Abstract We study whether creative accounting for fiscal balances is a significant issue in EU countries and how it relates to fiscal rules. We especially consider internal fiscal rules and contrast them with external rules resulting from membership in the EMU or in the Eurozone. We regress stock-flow adjustments, which serve as an indicator for false reporting of public debt and deficit numbers, on several measures of fiscal rules in a panel framework comprising 27 EU countries. We complement the literature on creative accounting in the run-up to Eurozone membership by showing that joining leads to creative accounting not only in the initial period but also in later periods. We expand the literature by demonstrating that internal rules also induce creative accounting, regardless of whether the rules target public debt or budget deficits. Our findings hold for years before the Eurozone existed as well as for the Eurozone period.

The Evolving Status of National Central Banks in the Eurosystem

The Eurosystem is not only composed of the European Central Bank (ECB), but also of the National Central Banks (NCBs) of the Eurozone Member States. While these NCBs have initially received somewhat less attention, the Court of Justice of the EU (CJEU) has recently issued several judgments which have put Eurosystem NCBs in the spotlight, and which allow to better appreciate their unique ‘hybrid status’, qualifying as an entity of both European and national law. This article will reflect upon the question how NCBs’ status and position has changed following on this case law. On the one hand, NCBs have been empowered, especially vis-à-vis their respective national governments: their independence has been confirmed and strengthened, even with regard to tasks which fall outside the scope of the Eurosystem. On the other hand, NCBs are confronted with an increased liability risk, caused by litigation against ECB Decisions of which the execution has been left to NCBs. In conclusion, NCBs are being further absorbed into the European level, which is both to their benefit and their detriment.

Spór między Komisją Europejską a rządami państw członkowskich o model reformy ustrojowej Unii Gospodarczej i Walutowej w latach 2010-2023

DISPUTE BETWEEN THE EUROPEAN COMMISSION AND THE GOVERNMENTS OF MEMBER STATES OVER THE MODEL FOR THE SYSTEM REFORM OF THE ECONOMIC AND MONETARY UNION IN THE YEARS 2010-2023 The primary research objective of the article is to analyze the System Reform of the Economic and Monetary Union (EMU) from 2010 to 2023 from the perspective of the dispute between the European Commission and the governments of Member States over the model of this reform. The author formulated two research hypotheses. The first one is based on the assumption that the implementation of the reform faced numerous difficulties and barriers resulting from the negative attitudes of the governments of some Eurozone member states towards the implementation of selected projects of the European Commission, but also from the accumulation of several international crises that the European Union was facing at the time. These were the migration crisis in 2015-2016 and then from 2022, the pandemic crisis in 2020-2021 and the geopolitical crisis caused by Russia’s aggression against Ukraine from 2022. The second hypothesis is that the main axis of disagreement between the Commission and the governments of Member States was the limits of financial solidarity and the target System Model of the EMU. Following this, the author formulated four research questions: (1) On which issues did the positions of the European Commission and the Eurozone Summit converge and on which issues did they diverge, and why? (2) To what extent did disagreements between Member State governments over the limits of financial solidarity and the target integration model of the EMU determine the direction of System Reform? (3) How important were the aforementioned international crises for the fate of the reform? (4) What were the main achievements and failures of the EMU System Reform?

Financial Fragility and Public Social Spending: Unraveling the Endogenous Nexus

This article provides both stylized facts and estimations of the endogenous nexus of the financial fragility hypothesis (FFH) with public social spending (PSS) for a paradigmatic Eurozone member country. The sample period 1995–2022 includes three major economic crises, the global financial crisis 2007–2009, the European debt crisis 2010–2015 and the COVID-19 pandemic one in 2020–2022. Within the context of the financialization literature, this paper is founded, for the first time, as far as we know, on the “financial fragility hypothesis”, combining the effects of both Minsky’s “financial instability”, as it has been extended for open economies, and the “Eurozone fragility one”. Similar to the relevant literature, the findings show that the PSS is associated, in a long-term steady state (cointegration), with the financial fragility process, starting, firstly, from the hedge-financing structure with high profitability of firms, when PSS decreases; secondly, to hyper-speculative financing with risky options, supported by bank credit and openness, indebtedness or discretionary fiscal policy, when PSS rises; thirdly, to the hyper-speculative or even Ponzi financing structures with over-indebtedness (leverage) from the global capital market, inflated asset prices and internationalized fragility, when PSS also rises, and so on. Our conclusion validates Minsky’s famous saying, “stability breeds instability”, also in the architecturally incomplete Eurozone. Policy implications are straightforward and discussed.

Negotiating the recovery and resilience facility: the emergence of coordinative conditionality

AbstractThis paper analyses the design and negotiations of the National Recovery and Resilience Plans (NRRPs) which the EU member states were required to formulate so as to access the Recovery and Resilience Facility (RRF). By focusing on three Eurozone members (Austria, Greece, and Slovakia) which represent distinct voices and experiences within the EU integration project, we argue that a new form of conditionality, coordinative conditionality, can be identified. While this conditionality shares many features with previous conditionality forms, it is also unique as it results from what has been described as coordinative Europeanisation, namely early coordination between the EU and member states; informal channels of communication alongside formal negotiations; and a heightened salience of ownership by national governments. We argue that although evidence of coordinative Europeanisation can be found during the design and negotiation of the NRRPs in all three countries, the intensity of conditionality’s different aspects is mediated by the credibility of a given member state’s government.

Common policies of the European Union

Common policies of the European Union

Does government spending cointegrate with bank lending? Evidence from Eurozone panel data

PurposeOur purpose is the examination of the effects of fiscal policy on private lending for the Eurozone countries. The emphasis is on the identification of the time path of government spending and bank lending.Design/methodology/approachFiscal policy is a main factor of macroeconomic stability for the euro area economy. This paper, investigates the impact of government spending on bank lending. For this reason, we present a dynamic theoretical model with a perfectly competitive banking sector, estimated using panel cointegration for the Eurozone countries from 2000Q1 to 2022Q2.FindingsOur findings highlight that, in the long run, consistent management of government spending can have a beneficial multiplicative impact on bank lending for housing and business reasons. This finding is stronger in magnitude for business versus housing lending. The high level of homogeneity of our results across Eurozone countries has positive implications for a common fiscal policy in the future. Finally, authorities should know that policy adjustments are quicker in housing lending when compared to business lending.Originality/valueIn this paper, we contribute to the existing literature, concentrating on the investigation of any existence of long-run and short-run relationships between government spending and bank lending. Additionally, our analysis allows one to investigate the contribution of each Eurozone member state in the short-run and long-run model’s dynamics, providing significant outcomes for the implementation of economic policy and the need for fiscal discipline in the Eurozone.

The relationship between finance and growth in Germany and Luxembourg: A timeseries analysis approach

The present paper examines the economic growth and financial development relationship in two of the European Union’s founding countries and Eurozone members, namely Germany and Luxembourg, by taking into consideration a large period, from 1970 to 2019. We motivate the choice of these specific two countries based on the similar rate of GDP per capita growth over the years, and also on the relevance of the financial sector in the total economy. Five different measures of financial development are employed to address the depth and efficiency of the financial sector. We apply Granger causality tests, using the cointegration and Vector Error-Correction (VEC) methodology. The empirical analysis indicates consistent results, as both in the case of Germany and Luxembourg it can be established Granger causality for the economic growth – financial development nexus. There is also evidence of bi-directional relationship.

Labor Productivity Convergence among Eurozone Member Countries

This paper analyzes the evolution of labor productivity among the Eurozone’s member countries between 1999 and 2019, using a dynamic panel estimate. The main findings indicate that, since the adoption of the single currency in 1999, both productivity per worker and productivity per hour followed different routes among Eurozone countries. Convergence among the founding countries stagnated after 2008, probably because of the Global Financial Crisis (GFC). But in the countries that joined the Eurozone several years after its creation, convergence did not slow down; indeed, towards the end of the period, the convergence of labor productivity among new entrants did not slow down. This paper focuses on measuring convergence in labor productivity and should be continued with a diagnosis of the likely causes of its stagnation. In this sense, it opens a line of research whose findings will contribute to the design of international integration policy between regions.

Economic uncertainty, public debt and non-performing loans in the Eurozone: Three systemic crises

Recent systemic crises, from the Global Financial Crisis to Covid19 pandemic, have put geoeconomic uncertainty to the forefront of financial services decision-making and planning. Yet, to-date, research connecting economic policy uncertainty to banking sector risks and performance metrics is lacking. This paper examines the relationship between the Economic Policy Uncertainty Index on the non-performing loans across 19 Eurozone member states, using panel data for 194 banks during the 2001–2021 period. As the crises covered were endogenous to the banking sector regulatory and operational environments, we introduce a novel control for the interaction between crises severity and duration, and banking sector strategic and operating environment. This control is proxied by public debt changes which reflect fiscal measures deployed to ameliorate effects of the crises. We find that rising EPU during the crises is associated with higher NPLs and government debt. We also document how this relationship is changing over time and across different crises.

The Shortage of Professionals/Skilled Workers: Its Impact on the Inflation Rate in the Eurozone

The shortness of professionals and/or skilled workers is a widespread phenomenon in industrialized countries, and so it is in the Eurozone. The vacancy ratio, which is defined and explained in its three (respectively four) alternative definitions, may serve both as a measure of labour market tightness and as a proxy for the shortness of professionals and/or skilled workers. We derive, in two variants, a theoretical model which is based on the Phillips and the Beveridge curve. A combination of these two concepts yields a so-called “modified output gap” suitable for explaining the inflation rate of Eurozone member countries, driven, among other things, by the vacancy ratio. This model is successfully tested for about 70% of the Eurozone member countries (2006-2021). We conclude our exposition with suggestions for economic policy on how to sensibly reduce the vacancy ratio, a summary of findings, and a scope for future research.

The Russian invasion of Ukraine and the exchange rate of the Polish zloty: A fallacy of monetary autonomy?

Abstract We use the Twitter application programming interface to construct a novel indicator capturing the varying perceptions of geopolitical risk related to the war in Ukraine. We show that the Twitter variable is a statistically significant determinant of the EUR/PLN exchange rate following the invasion. We estimate that the war in Ukraine was responsible for an increase in the EUR/PLN exchange rate of about 5.0% in the first 2 weeks following its breakout and that the weakening of PLN contributed to an increase of headline inflation in Poland by about 0.33 percentage points. Our findings suggest that monetary policy autonomy can be substantially constrained due to conflicts in nearby countries. Therefore, they provide an argument for Poland in seeking Eurozone membership as a way to contain the impact of geopolitical factors on exchange rate volatility, which is likely to remain at play in the longer run.

Can tourism growth drive environmental improvements in the Eurozone economic space: A panel data analysis

Tourism extensively exploits natural resources and uses ecosystem services to expand its potential and increase market share. The present study investigates potential tourism's effects and causalities on the environmental quality levels in the context of the tourism-induced Environmental Kuznets Curve hypothesis (T-EKC). We conceptualize tourism as a function of its contribution to a country's Gross Domestic Product (GDP), whereas we consider capital investment spending directly connected with the travel and tourism sector as an additional determinant of environmental quality. We contextualize environmental degradation as a means of greenhouse gas emissions (GHGs), methane, and nitrous oxide emissions. Furthermore, our models include primary and energy consumption patterns to emphasize energy efficiency in limiting environmental degradation levels. This study's approach also discusses the role of renewables as an explanatory variable. This set of variables remains less visible in the relevant literature, whereas it extensively covers the T-EKC hypothesis concept. We process panel data analyses for the Eurozone member states from 1996 to 2019. Research findings confirm the inverted U-shaped curve for all models regarding tourism's contribution to GDP. Moreover, capital investment spending does not Granger cause air pollution. Additionally, the percentage of renewables should be increased from a long-term perspective since they decrease environmental degradation. Practical implications call for enhancing sustainable growth in the tourism system in light of energy efficiency issues and eco-friendly investments.

The Efficiency of Economic Growth for Sustainable Development—A Grey System Theory Approach in the Eurozone and Other European Countries

This article builds upon the authors’ previous work on the Synthetic Efficiency Indicator for Economic Growth (SEI-EG), demonstrating the process of transforming economic-growth-related inputs into sustainable development outcomes. This innovative application of the SEI-EG provides a fresh perspective on the effects of eurozone membership on the sustainability efficiency of EU countries, thereby enriching the discourse on economic integration and sustainability efforts within the European Union. By integrating the economic dynamics of the euro area with environmental efficiency metrics, this study offers novel insights into the potential influence of currency union membership on achieving sustainable development goals. Covering the entire European Union, categorized by euro area and non-euro area membership, this study navigates through the risks to sustainability posed by global crises and the ongoing debate over the euro’s integration success and setbacks. Conducted from 2019 to 2021 using grey system theory, this research incorporates a revised set of seven indicators in the domain of industry, innovation, and infrastructure as recommended by the Europe 2020 project. The findings confirm the initial hypothesis that countries outside the euro area tend to exhibit higher efficiency as measured by the SEI-EG indicator. This article is composed of five parts. The first two parts present characteristic features of economies in the euro area and non-euro area, along with a critical trend in the latest literature on the benefits and risks of economic integration. The subsequent sections introduce the methodology for determining the indicator and the authors’ own corrections to it as well as the results of the research and a discussion.

Inflation in Eurozone, Converging and Diverging Countries

The paper analyses the progress eurozone members made towards the convergence of inflation rates, which is a necessary condition for the effective implementation of the common monetary policy broadly appropriate for all members. It was expected that the common monetary policy would lead to the convergence of member states’ economic performance, including inflation rates. The literature review shows that the majority of authors agree that a significant convergence process occurred before 1999, but no further progress was made after that. Our analysis indicates that inflation processes in member countries are diverse. Namely, monetary stability has been achieved in some countries, while inflation is more volatile in others. There is an insufficient correlation between inflation rates, the different transmission of shocks to inflation and different exposure to risks of rising energy and food prices. We conducted a unit root test on the series of inflation differentials for each country to determine which countries were in a process of absolute convergence. In the group of the first 12 members, we found evidence of convergence for the majority of countries, as there is no unit root. Thus, individual countries indeed made progress toward greater monetary stability (and the EMU level). We examined the standard deviations of the inflation differentials in the group of converging countries (separately for converging core and peripheral countries) and found no evidence that these groups of countries are becoming more homogeneous. In the group of new EMU members, we found evidence of convergence towards the EMU average for only four countries in the period of their membership, but not in the previous period.

Exchange rate instabilities during the Russia-Ukraine war: Evidence from V4 countries

PurposeThis study investigates the impact of the Russian Ruble on the Czech crown, Polish zloty, and Hungarian forint during the Russia-Ukraine war. The euro is used as a comparative base unit in the four exchange rate parities. The Euro was used since the Czech Republic, Hungary, Poland, and Russia maintain intensive economic relations with the Eurozone. At the same time, the Visegrad (V4) countries are geographically located in the European continent and are bordered by the Eurozone member states. MethodsThe series stands in daily frequency and indicate the period from February 1, 2022, to February 1, 2023. To generate the results, the VAR impulse response function, variance decomposition, vector error correction model, and granger causality test were performed. ResultsEven though Russia demanded that gas payments be made in Rubles, this fact did not affect the Czech crown, Polish zloty, and Hungarian forint. Due to the fact that gas payments for the V4 countries were agreed in Euros through German contractors. During this period, the strong influence of the Czech crown on the Polish zloty and the Hungarian forint is observed. ImplicationsFrom a policy perspective, the results provide indications for the national governments and regulatory bodies on the implications of the Russian ruble during this conflict. In short, our findings document that the instability of currency pairs is not only economic but also geopolitical. Energy dependence on autocratic states not only endangers national security but can set exchange rates in cardiac arrest. Moreover, the geographical proximity to the conflict zone tends to be decisive in the collapse of national currencies.

Reinforcing or moderating? The impact of Brexit on Italian and German Euroscepticism

This article investigates the impact of Brexit on Eurosceptic parties' arguments for leaving (or remaining in) the European Union (EU). Drawing on a comparative design, the article looks at the images and narratives of the EU that Eurosceptic parties in Italy and Germany have advanced in the aftermath of the 2016 Brexit referendum and reflects on the broader implications in terms of the prospects of further states leaving the EU. This research is motivated by two assumptions grounded in the literature on Euroscepticism and EU polity contestation: firstly, that Euroscepticism is fuelled by external circumstances that are exploited by interested political actors; and secondly, that both the Brexit referendum and the UK's departure from the EU have had a profound impact on discourses on the EU within member states, most importantly because this process has highlighted the real possibility of replacing EU membership with trade agreements and other specific arrangements. By means of a comparative analysis of the development of Eurosceptic discourse in Italy and Germany after Brexit, the article reveals that on the structural level, Eurozone membership remains the main obstacle to leaving the EU. Yet on the ideological level, Eurosceptic discourse in the two countries centers on two principles that are at odds with each other. Beyond the alleged lack of democratic representation within EU institutions that is pointed out by Eurosceptic parties in both countries, the main criticism of the EU project in Germany is that the country shares the costs of states with lower economic outputs. In Italy, on the other hand, the criticism is that the EU benefits wealthier states while constraining the country's opportunities for development.

Assessing the benefits of eurozone membership: Sovereign debt classification and economic impact in small and developing countries

This study is focused on the benefits received by countries that are part of the eurozone. The data from 28 member states of the European Union (EU), as well as Balkan countries, have been used to analyse the benefits of staying in the eurozone for the period of 2001–2021. This study first checked for the stationarity of the variables using the augmented Dickey-Fuller test, the interpretation of R2, and linear regression, as well as fixed and random models, taking into consideration that it deals with macroeconomic and fiscal data. The research hypothesis is substantiated through analysis, revealing that a country’s inclusion in the eurozone positively affects its sovereign rating, positioning it 1.19 notches higher than those outside the eurozone. This finding aligns with the observations made by Martinez et al. (2022), who emphasize the positive implications of investor perceptions regarding government debt, providing easier access to financing and contributing to economic stability. Specifically examining the Europrim’s impact before the COVID-19 pandemic, the study demonstrates that Balkan countries adopting the euro are positioned 9.22 places higher in sovereign debt classification. Similarly, amid the COVID-19 pandemic, these countries are listed 1.52 places above those not using the euro in sovereign debt ranking. This insight contributes to the ongoing discussion about the advantages of being part of the eurozone, especially in the context of economic and fiscal dynamics.