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This article provides a framework for understanding the economic role of central banks and their democratic legitimacy. I argue that thinking about the democratic challenges of central banking requires considering central banks' insurance role and how their actions are part of credit policy. The contract between the central bank and the sovereign is incomplete because it cannot integrate all unforeseen contingencies, distributive consequences and interactions with other policies. This opens the door to viewing the legitimacy of central bank decisions through a process of deliberation, coordination and reflexivity, rather than only a delegation of power. I discuss a proposal for a European Credit Council, which would be a deliberative body aimed at strengthening Parliamentary power on monetary and credit policies, the democratic legitimacy of central bank policy in the Euro Area as well as its coordination with other European policies. More coordination, Parliamentary power and deliberation are consistent with central bank independence and aim to delimit more precisely the action of central banks within the macroeconomic and credit policies of the State. [ABSTRACT FROM AUTHOR]

Following the end of the coronavirus pandemic, the European Central Bank (ECB) was confronted with an unprecedented increase in energy prices. This led to consumer price inflation in the euro area far beyond the ECB's inflation target of two percent, at times up to 10 percent. At the same time, the euro area economy was threatened by a recession, which resulted in the ECB facing conflicting objectives of stabilizing the economy and combating inflation. Estimates show that while the ECB's policy strategy of maintaining a low level of interest rates did improve the economy, it also exacerbated the rise in energy prices. The empirical analysis demonstrates that an interest rate hike at the beginning of the energy crisis would have stabilized inflation more effectively. Tightening monetary policy would have curbed energy demand and caused the euro to appreciate, which would have led to a more rapid decline in energy prices. In this counterfactual scenario, the euro area would have had to endure a brief recession, but the overall economic situation would have stabilized by the fourth quarter of 2023. The ECB would likely have been better able to follow its price stability mandate if a capital markets and fiscal union existed in the euro area. [ABSTRACT FROM AUTHOR]

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The article discusses three key lessons about inflation that have been learned from the experiences of the past few years. The first lesson is that central bank credibility in managing inflation has its limits, as inflation outturns have been more influential than policymakers' words and actions. The second lesson is that inflation expectations have reset to favorable levels, with long-term expectations in the eurozone and the US returning to pre-pandemic norms. The third lesson is that second-round inflation effects, where firms pass on higher costs to customers, have made a comeback and may persist, especially in a world with more supply shocks. Overall, the article suggests that while inflation has surged in recent years, the likelihood of entering a new era of substantially higher average inflation remains low. [Extracted from the article]

The European Central Bank (ECB) is an independent central bank responsible for managing the Eurozone's monetary policy and price stability. The aim of the ECB is to support economic growth by keeping inflation in the Eurozone at a low and stable level. The main task of the ECB is to ensure price stability. However, the ECB's policy decisions also take into account other macroeconomic objectives, such as economic growth, employment, and financial stability. The ECB has set its inflation target at around 2%. The ECB's monetary policy tool is interest rates. By setting the policy rate, the ECB influences the money supply and financial conditions in the market. By setting interest rates, the ECB aims to ensure price stability and promote economic growth. The ECB's decision-making body is the Monetary Policy Committee. This committee determines and implements the monetary policy of the euro area. The Committee analyzes economic data, evaluates the inflation outlook, and determines appropriate policy steps. The resolutions cover all countries in the euro area and are intended to act together. The independence of the ECB is protected against political or external interference that influences policy decisions. This independence enables the ECB to effectively achieve price stability and gain credibility. One of the other important tasks of the ECB is to supervise the Eurozone's banking system and ensure financial stability. The ECB monitors the health of banks, conducts stress tests and takes action as needed. This aims to support economic stability by maintaining financial stability. The independence of the ECB is protected against political or external interference that influences policy decisions. This independence enables the ECB to effectively achieve price stability and gain credibility. One of the other important tasks of the ECB is to supervise the Eurozone's banking system and ensure financial stability. The ECB monitors the health of banks, conducts stress tests and takes action as needed. This aims to support economic stability by maintaining financial stability. Economic policy practitioners in economies have set economic stability and sustainable economic growth as the main goal. In order to achieve these goals, monetary and fiscal policies need to be implemented in a coordinated manner. Central banks stand out as actors that implement monetary policy. Today, the biggest problem of economies is price stability. To ensure price stability, central banks implement monetary policy, which is supported by fiscal policy programs set by governments. [ABSTRACT FROM AUTHOR]

In this paper we analyze dynamic interactions in a monetary union with three fiscal players (the governments of the countries concerned) and a common central bank in the presence of exogenous shocks. The model is calibrated for the euro area and includes a fiscally more solid core block denoted as country 1 as well as a fiscally less solid periphery block represented by countries 2 and 3. Introducing two periphery countries allows us to capture different attitudes of the periphery countries towards the goal of sustainable fiscal performance. Moreover, different coalition scenarios are modelled in this study including a fiscal union, a coalition of periphery countries and a coalition of fiscal-stability oriented countries. The exogenous shocks are calibrated in such a way as to describe the last major crises in the euro area, namely the financial crisis, the European sovereign debt crisis, the Covid-19 crisis, and the Ukraine war (energy price) crisis. Using the OPTGAME algorithm we calculate a cooperative Pareto and non-cooperative feedback Nash equilibrium solutions for the modelled scenarios. The fully cooperative solution yields the best results. The different non-cooperative scenarios allow insights into the underlying trade-off between economic growth, price stability and fiscal stability. [ABSTRACT FROM AUTHOR]

Institutional change in the Eurozone is driven by the need to ensure the immediate survival of the euro rather than confronting the structural weaknesses of the common currency. The failure to deal with underlying weaknesses is demonstrated by the policy of "selective support", whereby markets and instruments considered vital for the survival of the euro are often adopted under pressure. This type of support is most prominently demonstrated by the TARGET2 clearing system within the Eurosystem of central banks. The system allows the euro to survive but also facilitates the rise of intra-EMU imbalances, as is reflected in divergent claims and liabilities of member states, leading Germany to accumulate intra-EMU claims on others. Instability thus becomes entrenched in the Union, while Germany maintains a hegemonic position. [ABSTRACT FROM AUTHOR]

According to the article, the economic activity in the Eurozone is expected to improve in the second half of 2024. GDP growth is forecasted to remain at 0.6% and inflation is projected to average around 2% for the year. While GDP growth has been stagnant, there are emerging signs of improvement. The European Central Bank is expected to start cutting interest rates in June due to lower inflation and decreasing nominal wage growth. However, there are still risks to the forecast, and the impact of Red Sea shipping disruptions on the Eurozone economy is expected to be limited. Consumer spending is expected to gradually improve, and inflation is predicted to fall below 2% by mid-2024. Monetary loosening is expected to boost growth, but the effects may not be felt until next year. Fiscal policy is expected to become more restrictive, which could potentially lead to tensions in sovereign markets. [Extracted from the article]

Copyright of International Economics / Economia Internazionale is the property of Camera di Commercio di Genova and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper provides a comprehensive analysis of the interest rate pass‐through of euro area monetary policy to retail rates outside the euro area, contributing to the literature on the consequences of unofficial financial euroization and on the transmission channels of monetary policy spillovers. The results suggest that in the long run, more than the one‐third of all euro retail rates in euroized countries of central, eastern, and south‐eastern Europe is linked to the euro area shadow rate. Compared with euro area monetary policy, the share of cointegration of the domestic monetary policy rate is on average lower, suggesting that domestic central banks in euroized countries with independent monetary policy can only partially control the "euro part" of the interest rate channel. Furthermore, euro area monetary policy shocks are fast and persistently transmitted into euro retail rates outside the euro area, which constitutes an additional channel of international shock transmission. [ABSTRACT FROM AUTHOR]

The Greek Economic Outlook report states that headline inflation in Greece was 1.6% in September 2023, below the European Central Bank's target of 2.0%. However, core inflation remained high at 3.9%. Rising food prices were the main driver of inflation, while the housing group had a significant negative contribution. Greece had the third lowest inflation rate in the Eurozone, which had an overall inflation rate of 4.3%. The report provides detailed data on the Harmonized Index of Consumer Prices (HICP) in Greece, including monthly data and annual percentage changes in various categories. It also analyzes external and internal inflationary pressures in the Greek economy, focusing on the impact of the import deflator on GDP and internal demand deflator. The report examines price developments of imported goods and differences between Greece and the euro area. It concludes by discussing the contribution of unit profits and unit labor costs to domestic inflation in Greece, highlighting the positive contribution of unit profits and the negative contribution of unit labor costs. The report suggests that companies have passed on increases in energy costs to product prices, contributing to inflation. [Extracted from the article]

Does the accumulation of large Target imbalances threaten the viability of the monetary union? Several German and central European scholars have responded in the affirmative: in the case of a disorderly break-up, debtor countries might have an incentive to default on their Target balances, and this would represent a real loss to Target creditors. Most academics have rejected this argument: in their view, a Target default would be only a paper loss to creditors. I propose a simple and unified framework to study the working of the Target system in response to different shocks. I then argue that the German criticism of the Target system is not so unfounded after all, and should be taken seriously. The underlying problem is the co-existence of separate central banks within the Eurozone; if one wants to preserve this feature, no alternative to the current Target system and its problems seems to be realistically available. In particular, comparisons with the Interdistrict Settlement Account of the US Federal Reserve system are misleading. [ABSTRACT FROM AUTHOR]

This article examines the impact of energy prices on inflation in the UK and the eurozone. While the indirect effects of energy prices on core inflation have decreased, they still contribute about 1 percentage point to core inflation. The direct effects of energy on headline inflation have become negative and are expected to decrease further. As global supply constraints ease and monetary policy remains tight, both headline and core inflation are projected to decrease in the coming quarters. The European Central Bank and the Bank of England will likely focus on sustained inflation trends when deciding whether to adjust monetary policy. They may be hesitant to lower interest rates if pay growth and inflation rates remain high, unless there is a significant decline in economic activity. [Extracted from the article]

Worldwide, inflation is one of the most used terms when discussing the economy and beyond. Inflation is the indicator that governments, the population, financial entities, investors and not least monetary authorities are interested in. Since central banks have price stability as their main objective or not, they act through monetary policies when necessary. Monetary decisions in the Eurozone and the United States - as financially important regions - influence other economies. This paper focuses on the study of the evolution of the inflation rate in these two cases because of the importance of the subject. It will be found that inflation can also be a challenge for these large financial entities -- Federal Reserve System and European Central Bank. [ABSTRACT FROM AUTHOR]

In response to the Covid‐19 crisis, the European Central Bank (ECB) has relaunched a massive asset purchase programme within its combined‐arms monetary strategy. This paper surveys and discusses the theory and the evidence of the central bank's unconventional monetary tools for the euro area. It analyses the role of the asset purchase programmes in the ECB's toolkit and the associated risks, focusing specifically on the gradual unwinding of these unconventional initiatives. Finally, the paper offers some insight into the possible evolution of the ECB's monetary policy. [ABSTRACT FROM AUTHOR]

A central bank that faces inflation above target may fail to bring it down. This article discusses six ways in which this happens because the central bank is dominated by: misjudgement, expectations, fiscal policy, financial markets, recession fears, or external forces. It applies this approach to the challenge facing the ECB in 2023–24. The hope is that the factors identified can serve as warning signs for what to avoid. [ABSTRACT FROM AUTHOR]

The article focuses on the implications of global inflation and global monetary policy tightening for the Euro Area. Topics discussed include the rise of global inflation and its persistence, the synchronized global monetary tightening, and the challenges of assessing the European Central Bank's monetary policy stance due to exchange rate spillovers and the inflation outlook.

The article focuses on the challenges faced by central banks in reversing the massive monetary expansion of the past two decades. It discusses the specific problem of the European Central Bank (ECB) and the need to address the size of its balance sheet, considering the risks and implications involved. It also highlights the fragilities and complexities faced by the ECB due to its multi-country nature and lack of central fiscal capacity.

According to the article "Global: Global outlook boosted by US GDP upgrade," there is evidence of a soft landing in the US, which is expected to lead to central banks around the world cutting interest rates in the first half of 2024. However, global GDP growth is still expected to be subdued, with a forecasted growth rate of 2.3% for 2024. The US is driving this revision, with an upgraded forecast for US GDP growth to 2% from 1.2%. Inflation forecasts have been revised downward, with an expected average world CPI inflation of 4.1% for this year. The article also discusses the potential for policy rate reductions by the US Federal Reserve and other major advanced economy central banks. [Extracted from the article]

Is the European Central Bank (ECB) increasingly acting on political – rather than technocratic – considerations? This question is of a central concern to students of European Union (EU) political economy. This article contributes to this debate by studying the ECB's credit lines to the central banks of EU member states outside the Euro Area during the Global Financial Crisis and the COVID-19 crisis. Both times the ECB accorded selectively better borrowing conditions to some central banks. The article finds that its selection of who gets favourable borrowing terms has indeed become more political. In 2008, the ECB decided the credit terms based on technocratic criteria, but twelve years later, it granted better lending conditions to countries that were close to adopting the euro. How the ECB balances its mandate for price stability in the Euro Area and its role as a supranational EU institution decides whether it will become more politicised. [ABSTRACT FROM AUTHOR]

Liquidity injections by central banks have become frequent and massive, but their real effects on corporate investment remain unclear. We examine the longer-term refinancing operations (LTROs) of the European Central Bank (ECB) during the eurozone sovereign crisis and show that greater LTRO funding to banks is associated with lower corporate investment. Riskier banks received funds through the LTROs and subsequently increased their holdings of risky sovereign debt. Corporate investment reductions are associated with these banks. Further, concurrent fiscal and regulatory policies impeded the effectiveness of the ECB liquidity injections. Our findings identify the contributing factors for these failures of monetary policy. (JEL E52, E58, G32) Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online. [ABSTRACT FROM AUTHOR]

We estimate the effects of shocks to interest rate expectations on the four largest euro area economies. We identify these shocks in a Bayesian vector autoregressive (BVAR) model augmented by survey expectations. We separate the expectations shocks from standard monetary policy shocks by assuming that they do not affect the current policy rate. Our sign restrictions also ensure that these shocks do not contain central bank information shocks. We find that an expected decline in the future short‐term rate leads to an increase in output and prices. The increases do not become larger for changes to interest rate expectations further in the future, that is, we do not find evidence of a forward guidance puzzle. Using the multicountry structure of our model, we test for cross‐country differences in the shocks' effects and find output and price effects to be greatest in Germany. We also compare the effects of shocks to interest rate expectations to those of standard monetary policy shocks and show the first type to affect output and prices more strongly in Germany and France. [ABSTRACT FROM AUTHOR]

Over the last decade economists have debated whether a country's exchange rate regime explains how it weathered the Great Recession. As Denmark is the only OECD country with a conventional currency peg, its experience brings unique perspective to the debate. After the collapse of Lehman Brothers in the fall of 2008, the Danish central bank raised the policy rate to defend the euro peg. The spread to the euro area was not normalized until the summer of 2009. Using the synthetic control method, I ask whether Denmark performed worse during 2009-2018 than the synthetic doppelganger, where the doppelganger is made up of comparable OECD countries with flexible exchange rates. I find that Danish real GDP per capita as a percentage of doppelganger ditto has on average been around 95 % to 98 % . Results are consistent across different specifications and samples. [ABSTRACT FROM AUTHOR]

In recent decades, and in particular since the shift towards independent central banks, there has been no explicit coordination of fiscal and monetary policy. In the Eurozone, this lack of coordination represents an important flaw, especially since the Eurozone is not an optimal currency area. Complementing monetary union with a transfer union represents one possible solution. This paper argues that the negative impact of post-2008 and post-Covid-19 unconventional monetary policy on income inequalities provides a second reason to coordinate fiscal and monetary policy. Among various institutional arrangements to implement such coordination, the paper defends the idea that the European Central Bank should be sensitive to distributive considerations when formulating its monetary policy. Such an arrangement would help both to contain the distributive side-effects of monetary policy and to at least partially remedy the flaw at the heart of the Eurozone as long as an outright transfer union remains unfeasible. [ABSTRACT FROM AUTHOR]

This paper discusses the introduction of a general-purpose Central Bank Digital Currency (CBDC) by the European Central Bank (ECB) that is directly accessible to consumers through national central banks (NCB). This paper finds that it is not possible to introduce such a system under the ECB's monetary mandate. The aim of direct access is to promote the socio-economic inclusion of the unbanked. This aim is not monetary but economic. Therefore such an introduction should be in accordance with the economic mandate of the ECB. This paper first analyses the legal foundation in "Legal foundation" section upon which CBDC can be introduced. It finds that it is possible to introduce CBDC based upon the ECB's authority to issue legal tender. However, this would not provide a sufficient foundation to provide for direct access. Nor does article 17 of the ESCB Statutes provide the legal foundation for direct access. New legislation would have to be drafted for the ECB to introduce a CBDC system with direct consumer access. Even with this new legal foundation, the ECB would have to comply with its economic mandate. This article first analyses the extent of the economic mandate in "Framework" section. It then continues by discussing the aim of the economic mandate in "Aim" section. It finds that the socio-economic inclusion of unbanked is an aim consistent with the Treaties. The aim of general purpose CBDC, therefore, complies with the ECB's economic mandate. The paper in "Efficient allocation of resources" section then discusses the criterion of efficient allocation of resources. It finds that the introduction of general purpose CBDC does not comply with this criterion. When introducing CBDC with direct access through NCBs the ECB is competing with commercial banks. This competition should be considered unfair based upon the ECB's exclusive power to issue legal tender and the public status of NCBs. Since the issue of unbanked in the EU is limited and decreasing, there is not enough reason to consider offering a bank account as a Service of General Economic Interest. The introduction of directly accessible general purpose CBDC would therefore be unlawful. [ABSTRACT FROM AUTHOR]

The article discusses the weak growth forecast for the Eurozone and the downside risks it faces. The European economy has stagnated, and recent data shows contraction in GDP, mainly driven by subdued activity in Germany and Italy. Inflation has eased, but core components are expected to reach the target by the end of next year. The European Central Bank has raised interest rates, but there are concerns that inflation and activity will slow more than expected. Tighter credit conditions and moderately restrictive fiscal policy are also affecting the economy. [Extracted from the article]

The EU ratification of the Paris Agreement initiated extensive political and legislative activities within the EU to reach agreed climate objectives. The declaration of the climate crisis, the publication of the European Green Deal, and the obligation to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels created the foundations for establishing an ambitious climate legal framework at the EU level. At the center of that legal framework is the European Climate Law, which obliges the EU to achieve climate neutrality by 2050. Completing the set goals requires a strong climate transition, which includes, among other actions, a change to a low-carbon economy. At the EU level, the obligation to fulfill the goals of the Paris Agreement and the related goals of the European Climate Law is primarily on the institutions of executive and legislative power that have the democratic legitimacy to act actively to achieve climate neutrality. However, the international agreements concluded by the EU (including the Paris Agreement) are binding upon all EU institutions, i.e., the European Central Bank, as explicitly prescribed in the TFEU. The European Central Bank, simply put, represents the supranational central bank of the eurozone. With regard to its legal nature, the European Central Bank is often defined as an EU institution sui generis, which reflects its unique position given by the TFEU and the Statute of the ESCB and the ECB. Apart from the fact that the European Central Bank has a legal personality and regulatory powers and that its financial resources are separated from those of the EU, the ECB’s unique position derives from the fact that the TFEU strictly limits its legal mandate. The primary mandate of the European Central Bank is to maintain price stability within the eurozone. The secondary mandate of the European Central Bank is to support, without prejudice to its price stability objective, the general economic policies in the EU, with a view to contributing to the achievement of the objectives of the EU, including a high level of protection and improvement of the quality of the environment. Considering its strictly prescribed goals, addressing the climate objectives could contradict the European Central Bank’s legal mandate. Even though the European Central Bank has already decided to take into consideration climate-related objectives, there is still an ongoing debate in academic and central banks’ circles whether the European Central Bank could or must address climate objectives in its activities or, following the rule of law principle, is precluded in doing so. This paper aims to contribute to this debate by giving the legal perspective of the European Central Bank’s price stability mandate and its secondary mandate, as well as their relation to EU climate objectives. [ABSTRACT FROM AUTHOR]

Between 2010 and 2015 Greek banks received capital injections as part of an EU-led rescue package that left the Greek state with large losses on their investments and a debt to repay; in the most acute moments of the crisis the European central bank twice forced the Bank of Greece to assume sole responsibility for any losses on lending to Greek banks, and; in 2015 Greek banks were subject to EU-mandated controls that restricted the transformation of Greek bank deposits into Euros in other forms. Why did European banking infrastructure leave the Greek state facing losses and liabilities alone, while still full members of the EU and Euro Area (EA)? We find that European banking infrastructure is combined-but-not-unified, and that integration requires both. Drawing on Marxist political economy we examine the financial mechanisms in detail and find a scalar split in state provision of banking infrastructure in the EU/EA. At the supranational level, the removal of barriers to cross-border banking and a common rule book. Meanwhile, promises of monetary support, such as deposit guarantees and lending of last resort have largely remained the responsibility of nation states. The combined-but-not-unified structure ensured that when crisis struck, Greece was isolated, yet still fully part of the EU/EA. [ABSTRACT FROM AUTHOR]

As new digital payments technologies such as cryptocurrencies emerge, the European Union has sought to provide cohesive and coherent solutions to protect its citizens from the risks associated with such instruments. In this context, this paper discusses the role of a possible digital euro as a tool to serve citizens on the one hand, and to protect monetary sovereignty on the other. To this end, the paper examines recent progress in the domain of central bank digital currencies, and assesses the considerations and risks involved. In particular, it discusses the legislative considerations relating to the possible introduction of a digital euro, ie whether the European Union and its institutions are already endowed with the sovereignty necessary to issue a digital euro, or whether ad hoc legislative intervention is necessary to legitimise the issuance of such a new instrument. The paper then goes on to assess the risks and benefits associated with the issuance of a digital euro. Finally, it will analyse the possible forms that a digital euro could take, evaluating the pros and cons of each. The conclusions will highlight how the introduction of such a new instrument provides an opportunity to be seized and exploited. [ABSTRACT FROM AUTHOR]

We analyse the trajectory of independence in the formation of the European Central Bank (ECB), conceptualized as a boundary organization that, by delineating the European economy, contributes to a supranational state effect. Success in the effort, however, requires the ECB to constantly assert a separate and special status, despite its embeddedness in multiple fields. Focusing on the European Monetary Institute, the ECB's predecessor, we trace how historically obscure bank-based legal experts enabled the ECB's assertion of separateness by reworking independence into a newly multivalent category that could be wielded in authority struggles with national central banks and European institutions. The ECB's dependence on independence, we argue, renders it uniquely vulnerable to the repoliticization of central banking. [ABSTRACT FROM AUTHOR]

During recent years, central banks have increased the levels of their international reserves at an unprecedented pace. In this paper, we introduce new country-specific reserve data and examine determinants of the composition of international reserves. Using a dataset of 36 countries (and the euro area) for the years from 1996 to 2016, we identify currency pegs and trade patterns as determinants of currency compositions. Our results emphasize the importance of transaction motives for the composition of currency reserves. The euro crisis appears to have been a setback for the euro, which temporarily seemed to challenge the US dollar as the most important international reserve currency and potentially impacted the determination of international reserve compositions. [ABSTRACT FROM AUTHOR]

In this paper, we aim at explaining a specific type of heterogeneity in the euro area pertaining to the diverging responses of countries and sectors to the European Central Bank's Unconventional Monetary Policy. Equipped with stock markets indices of 17 sectors for each euro area country, we first preform an event-study analysis to assess the reaction of the markets. Next, we regress the responses on a set of country-specific drivers. Our main findings show that variables related to the nature of banking industry (e.g. cost-to-income, return on assets), macroeconomic environment (e.g. gross debt) and macroprudential policy all contribute to observe diverging responses to ECB's monetary policies. While some sectors and countries responded more negatively than positively to the policies, the Unconventional Monetary Policy impacts the markets positively on average. A policy implication is that the heterogeneous response calls for domestic structural reforms that should target the discrepancies in the banking and the macroeconomic environments across euro area countries. [ABSTRACT FROM AUTHOR]

This paper is an answer to the question: What is new, what is good and what is relevant for Eurozone countries in Modern Monetary Theory (MMT)? The answer is organized under six questions: (1) What is MMT? (2) What is the definition of a sovereign currency — an important concept for MMT authors? (3) Does the institutional setup play any role in assessing monetary sovereignty? (4) Is the euro a foreign currency for eurozone countries, that is, are eurozone countries currency users or currency issuers? (5) Why could there be a eurozone financial crisis and was it a balance-of-payment crisis, as a number of authors have claimed? (6) And as a conclusion, what is the future of the Eurozone? It is argued that MMT is part of the Institutionalist branch of post-Keynesian economics; that the current definition of a sovereign currency is insufficient; that the Eurozone crisis arose from the combination of Maastricht-like rules and the convention that the European Central Bank would not act as a purchaser of last resort; and that this crisis can only be taken to be a balance-of-payment crisis when considering that bond investors thought some countries would leave the Eurozone and face currency depreciation. [ABSTRACT FROM AUTHOR]

The present paper provides an overview on current developments of cash usage and issue of central bank digital currency (CBDC) in the euro area and proposes a possible design of a digital euro that allows for instant offline payments. Cash usage at the point-of- sale decreased perceptibly in the past years mainly due to the ongoing trend towards digitalization. However, we show that there are also indications that consumers were somewhat pushed into cashless payments by government regulations and supply-side restrictions by commercial banks. Nonetheless, overall demand for euro cash remained strong and even increased relative to GDP since the financial crisis in 2008. In this process, however, we observe a supply-driven shift towards lower banknote denominations. Central banks all over the world are intensively thinking about the potential issue of CBDC as a substitute or complement to cash. Based on some of its preferred characteristics, we propose a double pre-paid scheme combining central elements of TARGET Instant Payment Settlement and electronic money features enabling offline and online instant payments. Since anonymity is categorically discarded by the ECB and as cash has some special advantages from a consumer perspective, the digital euro will rather co-circulate with cash than replace it in transactions. [ABSTRACT FROM AUTHOR]

Reacting to extreme uncertainty conditions caused by the global financial crisis, the European Central Bank implemented countercyclical strategy, combining conventional and non-traditional monetary policy tools to stabilize financial markets and euro area economies. We study the impact of the euro area monetary authority policy interventions on equity returns of four systemic Greek banks for the period January 2007 to August 2018. In the first step, we collect and classify interventions to several categories. Then, an event study analysis is carried out to evaluate cumulative abnormal returns. In the second step, a panel regression analysis is performed to identify Cumulative Abnormal Return (CAR) determinants. Our results suggest that expansionary conventional monetary policy interventions significantly affect equity returns of Greek banking institutions, assisting the regional banking equity stability. On the other hand, the harmful consequences of Greek debt crisis limited the effectiveness of non-standard measures. [ABSTRACT FROM AUTHOR]

We examine the role and the efficiency of the emergency liquidity assistance (ELA) tool in the Euro area which has been used to confront the contagion in the banking sector and the illiquid financial market conditions. We study four European countries (Belgium, Cyprus, Greece, and Ireland), which have received substantial ELA since the 2008 financial crisis. Through Bayesian VAR models, we seek to determine the effectiveness of national central bank lending, which includes the amount of ELA received by the domestic banking sector, an assessment of the direct effect of ELA on banks' liquidity and lending through deposits thus allowing banks to supply loans. In general, we find that the ELA tool was very effective in alleviating financial strains in these countries' central banks. For the Greek case, in particular, our findings indicate that the ELA was influenced not only from any changes in bank deposits but also from changes in the spread between the 10–year Greek and German government bond yields. Finally, the volume of non‐performing loans in Greek banks was declining to capital injections to banks as their capital base was continually being restored through the ELA mechanism. [ABSTRACT FROM AUTHOR]

The relationship between the environment and climate change on one hand and the financial system, financial regulation and monetary policy on the other is growing in importance. This paper examines the possible impact of the European Central Bank's monetary policy of quantitative easing on the environmental policy of the European Union. Using data from Climate Bonds Initiative, the paper analyses the variation in the amount of "green labelled bonds" issued in the individual member countries of the Eurozone areas, as a function of liquidity inducing monetary policy variables. The paper finds a positive and significant relationship between the two measures. [ABSTRACT FROM AUTHOR]

This paper uses an event-based analysis to describe how the European Central Bank's (ECB's) policy responses to the pandemic crisis have affected the European financial and economic system. The result of our exercise, which is based on the examination of the main measures taken by the ECB during 2020, is that these responses have positively affected the European economic system by improving banks' lending activity and by indirectly creating room for expansionary fiscal policies in the euro area's high-debt countries that do not have fiscal capacity. [ABSTRACT FROM AUTHOR]

This article analyzes the euro area's banking sector regulatory framework, known as the Banking Union. It shows how distressed banks' noncompliance with supervisory, state aid, or central bank lending policies can trigger the application of resolution or liquidation measures. Further, it provides new evidence on large banks distress episodes in the European Union and the United States, suggesting that recapitalization is a more cost‐effective policy instrument than resolution or liquidation. Finally, it argues that the Banking Union lacks an appropriate recapitalization instrument for borderline distressed banks and that a more nuanced and structured stance on regulatory forbearance is probably warranted. [ABSTRACT FROM AUTHOR]

Purpose: This study investigates which expectation formation mechanism governs Eurozone firms regarding their expectations on external finance availability. Design/methodology/approach: In this study, we link consecutive surveys from the Survey on the Access to Finance of Enterprises to bring new evidence on how non-financial corporations shape their expectations on external finance availability. Findings: In line with the past literature, we demonstrate that the data reject the Rational Expectations hypothesis, and we find evidence in favor of the Adaptive Expectation mechanism. Originality/value: This is the first study studying firms' expectations of external finance availability, implementing survey data of firms' expectations from the SAFE database on a country level. The formation of firm expectations is vital in directing policymakers in designing appropriate monetary policies, as both the employment and inflation targets of central banks around the world are highly dependent on the firm-level decision process. [ABSTRACT FROM AUTHOR]

Yet, if the PC is generally regarded as a good predictor of inflation, it is also reasonable to think that it is consistently used to elaborate inflation forecasts. Keywords: European Central Bank; monetary policy strategy review; Phillips Curve EN European Central Bank monetary policy strategy review Phillips Curve 15 23 9 09/26/22 20220601 NES 220601 1 Introduction After taking office on November 1, 2019, the President of the European Central Bank (ECB) Christine Lagarde announced the long-awaited official Review of the policy strategy (the last one dates back to 2003). Arguments about whether or not low inflation was the "new normal", and whether or not central banks were able to bring inflation back on target, were developed across two strands of literature centred on estimated Phillips Curves (PC). On one side, those arguing that inflation "below but close to 2%", was correct (if not too low) as a medium term target, and that the Review should rethink the policy strategy for a new world of secular stagnation, low inflation and low interest rates, and possibly recurrent financial bubbles. [Extracted from the article]

We examine the issue of macroeconomic uncertainty in the Eurozone Area using forecasts from the European Central Bank's Survey of Professional Forecasters from the inception of the Euro in 1999Q1 to 2020Q2. We provide new insights concerning the optimism or pessimism of the distribution of forecasts by examining the 25 th and 75 th quartiles of the forecast distribution for each three key macro economic variables, GDP growth, inflation and unemployment. In addition, we examine the over- or under-confidence of forecasters in the survey by deriving the term structure of ex-ante uncertainty for up to 2 years ahead and compare it to ex-post uncertainty, enabling us to make some comparisons with existing US studies. Our results suggest that GDP growth forecasts tend towards optimism, while those for inflation and unemployment tend towards pessimism. In addition, ex-ante uncertainty in forecasts for the Eurozone Area is less than ex-post uncertainty at both the short and longer-term forecasting horizons, for all three variables. This suggests a tendency towards over-confidence on the part of Eurozone forecasters. [ABSTRACT FROM AUTHOR]

This paper explores possible impact of the SSM's launch on the market power of banks in the large euro area economies. We employ the Lerner index and the Boone estimator, non‐structural measures that capture different aspects of competition. Using the results of the Lerner index, we find evidence of the significant decrease in market power for the ECB supervised entities in Austria, France, Germany and Spain. In a similar vein, the Boone indicator points towards an increase in competition among significant supervised entities of Austria, France, Germany, Italy and Spain. The evidence on changes for the total banking sector are mixed, whereas no significant effect is found for the banks remaining under national supervision. We do not find any support for significant increases in the market power of banks in Italy or Spain, suggesting that large increases in concentration do not necessarily result in anticompetitive conduct. [ABSTRACT FROM AUTHOR]

Research background: The contribution of banks' non-interest income to the total income becomes particularly important in the face of a severe financial crisis, usually accompanied by burdensome restrictions in economic activity, insolvencies of enterprises and households and low interest rates of central banks. Purpose of the article: This study investigates banks in 40 European countries to determine whether non-interest income had a significant impact on the bank's profitability and whether the severity of the COVID-19 pandemic influences the form of this relationship. Methods: This study used a linear cross-section model using bank-level data. In the model, the bank's profitability was regressed with the measure of income diversification, controlling for the pandemic's intensity and the state of the country's economy and bank characteristics. Banking data were obtained from the S&P Global MI. The Oxford COVID-19 Government Response Tracker (Hale et al., 2021, pp. 529-538) was the source of pandemic-related variables. Findings & value added: The obtained results indicate that the increases in non-interest income share in the bank's total income have a statistically significant positive impact on profitability for the European banking sector. The dependence of profitability on diversification was stronger with the growing adverse effects of the pandemic. Our results are in line with those for the US banks (Li et al., 2021) and the European Central Bank Banking Supervision's assessment that higher non-interest income has allowed banks' profitability in the euro area to be maintained at a prepandemic level (ECB, 2021). In addition, the study contributes to previous literature by testing the impact of the severity of the COVID-19 pandemic on the relationship between income diversification and bank profitability in 40 European countries. [ABSTRACT FROM AUTHOR]

The national central banks of the euro area are crucial to the monetary policy of the euro. Their Governors sit (on a personal title) on the Governing Council of the ECB, and they execute most of the monetary policies. Whereas the recent ruling by the German Constitutional Court on the Public Sector Purchases Program highlighted the uncomfortable role of the German Bundesbank in between national and EU law, the euro-crisis already showed other legal strains on the position of the national central banks in Economic and Monetary Union. This article argues that EMU empowered national central banks, even when it took away their power to individually set monetary policies for their respective Member States. The euro-crisis then disturbed the balance struck in the construction of the ECB between protecting national interests and effective decision-making, resulting in several legal problems. [ABSTRACT FROM AUTHOR]