1st Edition
The European Monetary Union After the Crisis From a Fiscal Union to Fiscal Capacity
This book provides a much-needed detailed analysis of the evolution of Europe over the last decade, as well as a discussion about the path of reform that has been trodden in the aftermath of the financial crisis. It offers a multidisciplinary view of the E(M)U and captures the main factors that induced the reform of the monetary union – a process that has not been linear and is far from being concluded.
The author examines the policy responses designed throughout the development of the crisis and assesses the scale of the crisis in Europe, in comparison to other parts of the world, as well as its prolonged effects both in economic and financial terms. An update on the current ‘state of the art’ in the conception of risk-sharing mechanisms is provided. With its innovative approach, the book analyses the financing issues which need to be taken into consideration in the design of these instruments and highlights the main categories of governmental risk-sharing mechanisms – in particular, the ones to be used as ‘fiscal capacity’.
This is a timely and topical book and will be of interest to a broad audience, including experts, scholars and students of European affairs, particularly those with economic, financial, legal and political science backgrounds.
1 - Introduction
Part 1 – The Great Financial Crisis and the Economic and Monetary Union
2. From the financial crisis to the Euro crisis
2.1. The ‘twin and triple crisis’ theoretical framework
2.1.1. Twin and triple crisis
2.1.2. Twin crises and capital flows
2.2. Metamorphosis of the crisis in the EMU: from the financial crisis to the Euro crisis
2.2.1. Causal events that determined the mutation of the crisis
2.2.1.1. An outstanding event: the EMU crisis as an extension/expression of the subprime bubble
2.2.1.2. The immediate trigger: the revelation of the Greek deficit in 2009
2.2.1.3. The causal complexity of the metamorphosis of the crisis
2.2.2. The cascade effects driven by metamorphosis of the crisis
2.2.2.1. ‘Doom looping’ between sovereign debt and bank debt; bailouts to the banking sector; bank debt nationalization issue
2.2.2.2. Fiscal effects of the crisis
2.2.2.3. The Euro crisis and the fragmentation of the financial markets
2.3. The Euro area crisis as a balance-to-payments and a currency crisis
3. Misguiding signs in the policy responses to the EMU crisis
3.1. From market forces to public action
3.2. From fiscal stimulus to austerity; the magnitude of fiscal multipliers
3.2.1. The initial response: fiscal stimulus – the ‘European Economic Recovery Plan - EERP’
3.2.2. The magnitude of fiscal multipliers: results of investigations regarding the ARRA
3.2.3. The enthronement of austerity and the Ordoliberal justification
3.2.4. Economic reasoning for austerity
3.2.5. Austerity and the assistance programmes to peripheral countries
3.2.6. The multiple dimensions of austerity: from fiscal adjustment to structural reforms
3.3. From the ‘non-bailout clause’ to quantitative easing: the monetary policy during the crisis
3.3.1. The non-bailout clause in the TFEU
3.3.2. Central banks intervention to rescue the banking sector: the ‘Lender-of-Last-Resource’ function
3.3.3. The ECB’s non-conventional monetary policy; credit easing versus quantitative easing
3.3.4. The effects of the APP
3.3.4.1 The effectiveness of the APP
3.3.4.2 The APP and the transmission mechanism of the monetary policy
3.3.5. ECB’s monetary policy and the role of the Court of Justice of the EU
3.3.6. The normalization of monetary policy?
Part 2 - Governmental Risk-Sharing Mechanisms After the Crisis: from a Fiscal Union to a Fiscal Capacity
4. The ‘EMU’s Great Reform’ as an imperative
4.1. The evolution of the (mainstream) discourse about the crisis over the years: from national failures to E(M)U flaws
4.1.1. Introduction: from national failures to E(M)U failures
4.1.2. EMU failures in the tests for optimality; decentralization versus centralization of fiscal policy
4.1.2.1. Introductory remarks: a currency area as an exacerbation of a fixed exchange rate system
4.1.2.2. EMU failures in the tests for optimality
4.1.2.3. Decentralization versus centralization of fiscal policy; EMU atypical solution
4.1.3. E(M)U as a lopsided Fiscal Union
4.1.3.1. A review of Fiscal Federalism literature
4.1.3.2. Normative criteria for functions and revenues assignment: the two steps of Fiscal Federalism theory
4.1.3.2.1. Functions assignment
4.1.3.2.2. Revenues assignment
4.1.3.3. General and specific limitations in the transposition of the main prescriptions of Fiscal Federalism
4.1.3.3.1 General limitations: E(M)U ambiguities
4.1.3.3.2 Specific limitations in the transposition to the EU of Fiscal Federalism prescriptions
4.2. Catalogue of proposals for the ‘Great EMU’s Reform’: roadmaps or crossroads?
5. Risk sharing mechanisms as a panacea for saving the Euro: a fiscal capacity for the EMU
5.1. Basic conceptual elements of the notion of ‘risk-sharing’; a first justification for governmental risk-sharing mechanisms
5.1.1. Consumption smoothing versus international risk sharing; private versus governmental risk sharing instruments
5.1.2. Refining the notion of (governmental) risk sharing: types of shocks; stabilization lato sensu versus insurance
5.1.3 First generation of proposals for the creation of insurance devices at the European level
5.1.3.1 Analysis of the level of insurance in pre-existing fiscal federal experiences
5.1.3.2 Seminal proposals for the creation of insurance devices at the European level: main conceptual elements
5.2 From a fully-fledged fiscal union to a fiscal capacity in the EMU
5.2.1 The design of the fiscal capacity
5.2.1.1 Justification for creating a fiscal capacity
5.2.1.2 Financing issues of the Fiscal Capacity
5.2.1.2.1 Tax assignment: the EU ‘Own Resources system’ and future prospects
5.2.1.2.2 The current system of grants and perspectives
5.2.1.2.3 In or outside the EU budget; personal scope of the scheme
5.2.1.3 Discussing the borrowing capacity of the scheme; from debt restructuring to debt mutualisation and debt securitization
5.2.1.3.1 Introductory remarks
5.2.1.3.2. Models for debt restructuring: market-based versus statutory approaches
5.2.1.3.3 Models for debt issuing: debt mutualisation versus debt securitization
5.2.2 Taxonomy proposed for a fiscal capacity
5.2.2.1 Introductory remarks
5.2.2.2 A European unemployment insurance scheme
5.2.2.3 Anti-cyclical funds
5.2.2.4 Convergence-based funds: bottom up versus top down approaches
5.2.2.4.1 Bottom up approaches: the ‘Juncker Plan’
5.2.2.4.2. Top-down approaches: the European Investment Stabilization Function and the Budgetary Instrument for Convergence and Competitiveness
5.2.2.5 Fiscal backstops of private risk-sharing mechanisms: governmental risk-sharing mechanisms as ‘market-makers’
5.2.2.5.1 Introductory remarks
5.2.2.5.2 Promoting the (internal) market: the case with the Capital Markets Union
5.2.2.5.3 Insuring the Banking Union
5.2.2.5.4 Reshaping the European Stability Mechanism: a monetary fund or a (quasi) fiscal institution?
5.2.3. Concluding remarks
References
Index
Biography
Nazaré da Costa Cabral is Associate Professor at Lisbon School of Law of the University of Lisbon and principal researcher at the Center for European, Economic, Fiscal and Tax Law Research (CIDEEFF) of the same University. She is also Chair of the Senior Board of the Portuguese Public Finance Council.
