There are two related issues currently on the EMU agenda: the need to strengthen the European Stability Mechanism “as a robust crisis management mechanism” (European Commission 2017a), and the need to enhance the EU’s capacity to provide risk sharing and fiscal stabilisation (Junker et al. 2015). Building on our ADEMU work “On the optimal design of a Financial Stability Fund” (Ábrahám et al. 2018), my co-authors and I show that the most efficient design would be to merge both functions into a European Stability Fund (ESF), which would effectively transform current risky debt liabilities into safe fund contracts, taking the form of long-term state contingent bonds subject to endogenous constraints, to avoid undesired redistribution or implicit bailouts and moral hazard problems. With this design as a constrained efficient mechanism, the ESF should also confront two additional pending issues: the ‘debt overhang’ problem, and the development of EU safe assets. Furthermore, the ESF can be implemented with minimal changes to the current structure and legal status of the ESM. In this chapter, I briefly summarise these findings. By Ramon Marimon, European University Institute, UPF – Barcelona GSE and CEPR. Continue reading
By Thomas Cooley (chair), Charles Bean, Jean Pierre Danthine, Lars Feld, Jose Manuel Campa, Fernandez, Lucrezia Reichlin, René Smits and Thomas Sargent.
We may be reaching the conclusion of our three-year Horizon 2020-funded project, but our campaign to share our results and proposals is just beginning.
Ademu’s final conference took place at the European University Institute in Florence on the 9th and 10th May 2018. During the conference, the results of the three-year Horizon 2020 project were debated and analysed by Ademu coordinators and esteemed economists, academics and legal experts. Gergő Motyovszki and Jan Teresiński have provided a detailed review of the proceedings.
As the ADEMU project closes, we now have 134 working papers in our extensive collection of research. Continue reading
In this chapter we offer novel answers to three related questions:
To properly address these questions, we first develop a dynamic equilibrium model with job search frictions, which provides a new characterisation of how different euro area labour markets are and therefore calls into question whether such an agreement can ever be reached. Nevertheless, our answer to the final question is: yes, it can be done! By Árpád Ábrahám, João Brogueira de Sousa, Ramon Marimon and Lukas Mayr, European University Institute Continue reading
Looking back at the first twenty years in the life of the euro, it is apparent that the institutions and policies in the euro area have failed to prevent both the gross underestimation of (country, private and public) risk during the first decade, and the magnification and polarisation of risk along national borders during the second decade. While the initial underestimation of risk was not specific to the euro area, risk polarisation was arguably a key unique feature of the euro area crisis. Understanding the root of this risk polarisation, and which steps can be taken to ensure that the euro area is not systematically vulnerable to this kind of crisis, has been a priority of ADEMU. By Giancarlo Corsetti, Cambridge University and CEPR