long-term sustainability of a monetary and fiscal union
TRANSCRIPT
ADEMU Work Package 1:‘Long-term Sustainability of a Monetary and Fiscal Union’
Charles Brendon
University of Cambridge
Long-run sustainabilityThe purpose of WP1
“To conduct a rigorous investigation of risks to the
long-run sustainability of EMU, and to develop
detailed institutional proposals aimed at mitigating
these risks.”
Three components to analysis:
1. Understanding sovereign debt crises2. Ensuring debt sustainability3. Improving fiscal risk-sharing
Long-run sustainabilityThe Five Presidents’ Roadmap: steps towards fiscal union
Immediate step:I European Fiscal Board
I “The board would provide a public and independentassessment ... of how budgets – and their execution –perform against the economic objectives andrecommendations set out in the EU fiscal framework.”
Long-term step:I Euro-area `macroeconomic stabilisation function'
Long-run sustainabilityThe intergovernmental approach
EU fiscal framework → Decentralised decisions, central scrutiny
What concerns should shape this framework?
1. Recommendations & remedies for debt crisesI Firefighting/prevention
2. Minimising public debt burden & ensuring sustainabilityI Long-term oversight
Long-run sustainabilityThe intergovernmental approach
EU fiscal framework → Decentralised decisions, central scrutiny
What concerns should shape this framework?
1. Recommendations & remedies for debt crisesI Firefighting/prevention
2. Minimising public debt burden & ensuring sustainabilityI Long-term oversight
Long-run sustainabilityThe intergovernmental approach
EU fiscal framework → Decentralised decisions, central scrutiny
What concerns should shape this framework?
1. Recommendations & remedies for debt crisesI Firefighting/prevention
2. Minimising public debt burden & ensuring sustainabilityI Long-term oversight
Long-run sustainabilityThe intergovernmental approach
EU fiscal framework → Decentralised decisions, central scrutiny
What concerns should shape this framework?
1. Recommendations & remedies for debt crisesI Firefighting/prevention
2. Minimising public debt burden & ensuring sustainabilityI Long-term oversight
Long-run sustainability1. Understanding sovereign debt crises: ADEMU research
I Minimising future sovereign risksI Improved assessment of public-sector balance sheet risk
(Von Hagen)I EZ crisis in comparative historical context
(Corsetti, Teulings)
I Minimising impact of financial crisesI Pass-through from financial shocks to real economy
(Ulbricht, Hellwig)I Impact of financial crises on inequality
(Fornaro)
Long-run sustainability2. Minimising debt burden: ADEMU research
I Implementing fiscal reformsI Effect of reforms on private wealth & uncertainty
(Corsetti, Teulings)I Improvements to labour & capital tax structure
(Ábrahám)
I Designing targets for public debtI Role of debt in absorbing savings
(Gottardi)I Desirable simple policy rules
(Brendon)
Long-run sustainabilityThe more ambitious agenda...
“Intergovernmentalism has been necessary to handle the
crisis, but it has failed to provide Europe with a
common project ... We need transfers to accompany
reforms. We need responsibility and solidarity.”
Long-run sustainability3. Risk-sharing: ADEMU research
I A Financial Stability Fund as a component of fiscal unionI Risk of unforeseen shocks to debt stocksI EMU obvious basis for cross-country insuranceI How to design a scheme with incentives to participate?
(Marimon, Kapicka, Pappa, Ábrahám)
I Mutualisation of short-term debt?I Minimise liquidity shocks to debt service costs
(Hellwig)