Beyond the economics of the euro - analysing the institutional evolution of EMU 1999-2010, September 2011

This Occasional Paper examines how and why the institutional framework governing EMU has evolved since the creation of the euro. Building on theories of institutionalism, the paper in particular investigates to what extent functional spillovers from the single currency into other policy domains, like macroeconomic policies or financial regulation, met with an adequate institutional response, and to what extent the existing institutional framework conditioned the response to the financial crisis. The interaction between policy requirements and institutional capabilities is examined both in “ordinary times” (1999-2007) and under “crisis conditions” (2007-10). The paper uses a typology of change which helps to put into perspective both the resilience of the institutional framework of EMU and its capacity to adapt. In this respect, it allows for a better understanding and framing of the current reforms of EMU economic governance. It concludes that even though the crisis will accelerate institutional development, it will do so only gradually, as path dependence and an inbuilt bias towards incremental change will prevent policy-makers from pursuing a “clean slate” strategy. JEL Classification: E52, E31, D84EMU institutional architecture, historical institutionalism, institutional change., rational choice

Beyond the economics of the euro - analysing the institutional evolution of EMU 1999-2010, September 2011

This Occasional Paper examines how and why the institutional framework governing EMU has evolved since the creation of the euro. Building on theories of institutionalism, the paper in particular investigates to what extent functional spillovers from the single currency into other policy domains, like macroeconomic policies or financial regulation, met with an adequate institutional response, and to what extent the existing institutional framework conditioned the response to the financial crisis. The interaction between policy requirements and institutional capabilities is examined both in “ordinary times” (1999-2007) and under “crisis conditions” (2007-10). The paper uses a typology of change which helps to put into perspective both the resilience of the institutional framework of EMU and its capacity to adapt. In this respect, it allows for a better understanding and framing of the current reforms of EMU economic governance. It concludes that even though the crisis will accelerate institutional development, it will do so only gradually, as path dependence and an inbuilt bias towards incremental change will prevent policy-makers from pursuing a “clean slate” strategy

Fighting Fires from Crisis to Crisis: The Evolution of Central Banking in Europe

The year 2019 ushered in the end of an era for the European Central Bank when Mario Draghi stepped down as ECB President. The financial crisis left a legacy of central banks as “the only game in town”. The COVID-19 pandemic reinforced the role of central banks as critical firefighters during crises, in contrast to earlier periods. This contribution examines the evolution of central banking in Europe. First, it evaluates the ideational shifts that allowed for a more expansive interpretation of the role of a central bank. Second, it looks at the ECB’s response to the Covid-19 crisis and assesses the underlying reasons why the use of the bank’s balance sheet is here to stay. Third, it looks at these issues in a comparative perspective, contrasting the issues and policy responses faced by the ECB to those of the Bank of England and the US Federal Reserve. The final section concludes

“Loose lips sinking markets?": the impact of political communication on sovereign bond spreads

Taking a cue from the assertion that “loose lips sink markets” (Carmassi and Micossi, 2010), this paper investigates to what extent and why political communication has had an impact on the sovereign bond spreads of selected euro area countries over the German Bund. Drawing on 25,000 news media releases between January 2009 and October 2011, it empirically compares political communication across various political actors at the supranational and national levels in the euro area. It finds empirical evidence that, in the short term, certain types of political communication have a quantifiable effect on sovereign bond spreads. This effect can be positive or negative depending on the type of communication, possibly fueling self-reinforcing feedback loops between markets and policy actions. Subsequently, this paper explores possible reasons for this observed phenomenon. It analyses the specific economic, political and institutional context in which political communication works in Europe and finds that the potential for miscommunication is structurally higher in the euro area than in other nation-based currency areas. Finally, the paper identifies avenues to make communication policy more effective and puts forward possible measures to mitigate the risks of miscommunication