Will a president Macron be able to reform the eurozone?

European financial markets are already betting on the victory of centrist French presidential candidate Emmanuel Macron in the country’s May 7 second-round election.

Are investors right to believe that the eurozone – the monetary union of countries that have incorporated the euro as their national currency – will gain new momentum with Macron in the Élysée Palace?

In this piece, written for The Conversation, I argue that Macron will have better chances to reform the Eurozone by pushing for a rebalancing of Eurozone governance rather than advocating “to set up a common eurozone treasury with a single finance minister”.

Instead, while in some areas centralization is needed to ensure stability, in particular with respect to a central bank that can effectively backstop financial crises and a full banking union, it might be advisable to renationalize fiscal policy.

The reasons are twofold: First, the political chances to install a European finance minister are minimal. Therefore, there is a high risk that Mr. Macron might achieve little or no progress in his term, eventually increasing the chances for populist in the next presidential election. Second, giving back full control over the budget to the national authorities also means transferring back the responsibility for solid finances and replacing the various fiscal pacts, which never have really worked.

Of course, this may require to reduce the debt overhang of the past. But by doing it, this would give more room for a sustained Eurozone recovery and – eventually – even more widespread support for new Eurozone-wide fiscal mechanism for burden sharing. Read more… 

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Finally, some good economic news from the Eurozone – but will it last?

Finally, good news from the Eurozone. Unemployment rates fell to 9.5% in February 2017. According to Eurostat, this is the lowest rate since May 2009. The 19 countries that have adopted the common currency are thus returning back to the unemployment level they experienced before the outbreak of the Eurozone crisis. In the last 12 months, the Eurozone recovery has lifted 1.25 million people out of unemployment.

This long-awaited decrease in unemployment is highly welcome; every person back in work is good news, even though it took nine years to recover. Yes, many economists believe that the recovery could have been faster with much less pain if there had been less initial emphasis on austerity and less reluctance “to do what it takes” at the ECB before Mario Draghi made that move in 2012. But that said, the Eurozone must now look forward.

So, is the worst over? Is wealth and prosperity – the ultimate promise of the EU to its citizens – finally coming back to the Eurozone? And is the fragility of the Eurozone that brought the crisis and the dramatic rise in unemployment a thing of the past?

In this piece, written for LSE EUROPP, I will argue that much more needs to done to return to the pre-crisis level and to make the European Monetary Union waterproof against future shocks. Read more…

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Impressions from the Jean Monnet Workshop “Financial Globalization and its Spillovers”

Copyright:Heike Fischer /TH Köln” 

Links to the videos of the keynote speeches by Benoît Cœuré and Barry Eichengreen and the subsequent panel discussions can be found here. Moreover, links to the workshop website, the speeches and some foto impressions can also be found here. The event has been listed by Reuters as Top Economic Event.

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Benoît Cœuré on Euro Area Exit Options

Reuters titles “Letting countries leave euro zone would break ECB policy: Coeure” in their coverage of the event  “25 Years after Maastricht: The Future of Money and Finance in Europe“, held at Maastricht University on February 16, 2017, which was part of the Jean Monnet Workshop “Financial Globalization and its Spillovers“. Benoît Cœuré is Member of the Executive Board of the European Central Bank, and participated as a keynote speaker and a panelist in the event.

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Benoît Cœuré: Keynote Speech on Sustainable Globalisation: Lessons from Europe

In his keynote speech at the special event on “25 Years after Maastricht: The Future of Money and Finance in Europe“, held at Maastricht University on February 16, 2017, which was  part of the Jean Monnet Workshop “Financial Globalization and its Spillovers“, Benoît Cœuré,  Member of the Executive Board of the European Central Bank, has pointed out that  globalization should be efficient, enduring and equitable. He argues that “the European project can be regarded as the most elaborate attempt ever to mitigate the inevitable political trade-offs arising in a globalised world, and that it has been largely successful.”

The full text of the speech can be found here.

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Livestreaming from “25 Years after Maastricht: The Future of Money and Finance in Europe”

Here is the link to the livestream of the special event at Maastricht University. The streaming will start on Thursday, 16 February 2017 at 3 p.m and last until about 6 p.m.

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Upcoming Jean Monnet Workshop “Financial Globalization and its Spillovers”

On 16-17 February a top-level Jean Monnet workshop on “Financial globalization and its spillovers -monetary and exchange rate policy in times of crises” will take place at TH Köln, organized by Harald Sander, Ansgar Belke, Joscha Beckmann and Stefanie Kleimeier. The workshop is co-financed by the European Unions’ Jean Monnet Program and will feature mix of top scholars and practitioners as well “rising stars” in the field. A major objective is to stimulate the dialogue between international scholars and practitioners. The Journal of Banking and Finance will publish a special issue on the workshop.

As part of this workshop a special public event “25 Years after Maastricht: The Future of Money and Finance in Europe will take place at Maastricht University in the afternoon of February 16. The event will feature keynote speeches by Benoît Cœuré,  Member of the Executive Board of the European Central Bank and Professor Barry Eichengreen, University of California at Berkeley.  More details can be obtained from the workshop website. Participation is on invitation only.



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Rebalancing EU governance could help rebuild support for the EU

The impact of Brexit on the future of the EU lies in the hands of European policymakers. In a best case scenario, Brexit will serve as a forceful push toward reforming European governance. The British vote has highlighted the political limits of ever-deeper economic integration and challenged the view that an ever-closer European Union is the best answer to it. However, the concept of national sovereignty is illusive in the presence of (financial) globalisation. Rather than simply opting out of integration, policymakers should focus instead on rebalancing European governance and national sovereignty.

In this piece, written for LSE Europp I argue that re-nationalization of fiscal policy is vital for regaining support for the European project, while in other areas such as banking union centralized or co-operative approaches are needed to maintain financial stability and revive the European economy.

Read more…



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The Morning After Brexit

I am now going to say something that will astonish you. The first step in the re-creation of the European Family must be a partnership between France and Germany. In this way only can France recover the moral and cultural leadership of Europe. There can be no revival of Europe without a spiritually great France and a spiritually great Germany. The structure of the United States of Europe, if well and truly built, will be such as to make the material strength of a single state less important. Small nations will count as much as large ones and gain their honour by their contribution to the common cause.
Winston Churchill, Speech at University of Zurich, 19 September 1946

Europe must now face the facts and rebuild its foundations to convince all Europeans that a united Europe can and will contribute to provide peace, stability and welfare to all its members. Most arguments have been exchanged in the past months. Therefore just a short wrap-up with some links to insightful and thought-provoking recent analyses.

First, it is clear the Brexit will bring self-inflicted harm on the British economy. Paul Krugman has summarized the major points. However, a majority of British people seems to be willing to accept welfare losses in exchange for more hoped-for national sovereignty. So Brexit is mainly about governance. And it is the governance issue that the EU minus UK must now address seriously.

Second, in a world of highly integrated markets, especially with respect to financial globalization, the concept of national sovereignty is illusive. As Dani Rodrik has argued forcefully, that the world economy is facing a political trilemma. Without rolling-back (financial) globalization, going the national route would submit the society only to the “golden straitjacket” of global market forces and will thus limit, not enhance sovereignty.

Democratic legitimation of effective decision-making would thus require handing-over sovereignty to supranational bodies, which – in turn –need democratic legitimization. The EU has been and still is often viewed as such an attempt. Unfortunately the performance of the EU in terms of democratic legitimization and economic decision-making to promote welfare in all member state is increasingly not convincing both the electorates and scholars. In the view of the Brexit-debate Dani Rodrik writes now:

I viewed the EU as the only part of the world economy that could successfully combine hyperglobalization (“the single market”) with democracy through the creation of a European demos and polity. … But I now have to admit that I was wrong in this view (or hope, perhaps).

And he blames in particular the way Europe has been dealing with the Euro crisis:

The manner in which Germany and Angela Merkel, in particular, reacted to the crisis in Greece and other indebted countries buried any chance of a democratic Europe.

In fact, Euro-area crisis governance has brought serious asymmetries into a union that was thought of as a union of equals (see also my take on the threatening impact the overly intrusive conditionality in Greece for the European project).

Third, the impact of Brexit on the future of the EU is unclear. Much depends on how strong European politician will react.

On the positive side, Brexit can be regarded as a wake-up call and a forceful push factor to renew leadership and bring new visions to the EU – not least to contain dangerous nationalistic and populist movement in Europe. LSE professor Paul De Grauwe views Brexit as a chance for Europe:

I  conclude that it is not in the interest of the EU to keep a country in the union that will continue to be hostile to “l’acquis communautaire” and that will follow a strategy to further undermine it.
I therefore also conclude that it will be better for the European Union that the Brexit-camp wins the referendum. When Britain is kept out of the EU it will no longer be able to undermine the EU’s cohesion. The EU will come out stronger.

On the negative side, however, the demonstrated willingness of European politician for a big leap forward even is severe crisis has been very low – if not nil. And the major elections coming up in Germany and France next year may not increase the appetite of politicians for major reform projects.

Fourth, what about domino effects? To start with, the way the EU-UK negotiations will be conducted will send a signal to others contemplating about exit. The EU will therefore make sure that such negotiations will lower the appetite for leaving the union. Moreover, by leaving the EU, Britain and – even more so smaller countries who want to follow the example – will be weaker not stronger. All decisions taken by the EU will remain to have an important impact on the British economy and Britain will have to re-act to these decisions without having a say in these decisions anymore.

Before following the British example, other countries should therefore think twice and reject the rhetoric of their populist politicians. Instead of losing influence on Europe by contemplating an exit, they should contribute making Europe work better and more democratic. In the words of Nobel laureate Michael Spence (written before the decision):

Regardless of the outcome of the Brexit referendum (…) the British vote, along with similar strong centrifugal political trends elsewhere, should bring about a major rethink of European governance structures and institutional arrangements. The goal should be to restore a sense of control and responsibility to the electorates.



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New Research Paper: The Resurgence of Cultural Borders during the Financial Crisis: The Changing Geography of Eurozone Cross-Border Depositing

This paper, jointly written with Stefanie Kleimeier and Sylvia Heuchemer, has just been published by the Journal of Financial Stability 24(2016) and can be dowloaded here (free access until June 23, 2016).

The paper investigates the impact of cultural borders on the geography of international finance during stable and crises times. It shows that cultural distance limits international financial integration over and above what can be expected from economic trade and transaction costs. While it provides evidence that cultural borders lost influence during a “Europhoria” phase after the introduction of Euro notes in 2002, it also indicates that cultural borders resurge during the 2007/08 financial crisis and severely limit financial integration.


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