Publications on Europe
One-Pager No. 51 | December 2015Until market participants across the euro area face a single risk-free yield curve rather than a diverse collection of quasi-risk-free sovereign rates, financial market integration will not be complete. Unfortunately, the institution that would normally provide the requisite benchmark asset—a federal treasury issuing risk-free debt—does not exist in the euro area, and there are daunting political obstacles to creating such an institution.
There is, however, another way forward. The financial instrument that could provide the foundation for a single market already exists on the balance sheet of the European Central Bank (ECB): legally, the ECB could issue “debt certificates” (DCs) across the maturity spectrum and in sufficient amounts to create a yield curve. Moreover, reforming ECB operations along these lines may hold the key to addressing another of the euro area’s critical dysfunctions. Under current conditions, the Maastricht Treaty’s fiscal rules create a vicious cycle by contributing to a deflationary economic environment, which slows the process of debt adjustment, requiring further deflationary budget tightening. By changing national debt dynamics and thereby enabling a revision of the fiscal rules, the DC proposal could short-circuit this cycle of futility.Download:Associated Programs:Author(s):Mario Tonveronachi
Working Paper No. 856 | December 2015
Evidence from Europe, 2006–13
We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.Download:Associated Programs:The State of the US and World Economies The Distribution of Income and Wealth Economic Policy for the 21st CenturyAuthor(s):Markus P.A. Schneider Stephen Kinsella Antoine Godin
Public Policy Brief No. 140, 2015 | November 2015
Mario Tonveronachi, University of Siena, builds on his earlier proposal (The ECB and the Single European Financial Market) to advance financial market integration in Europe through the creation of a single benchmark yield curve based on debt certificates (DCs) issued by the European Central Bank (ECB). In this policy brief, Tonveronachi discusses potential changes to the ECB’s operations and their implications for member-state fiscal rules. He argues that his DC proposal would maintain debt discipline while mitigating the restrictive, counterproductive fiscal stance required today, simultaneously expanding national fiscal space while ensuring debt sustainability under the Maastricht limits, and offering a path out of the self-defeating policy regime currently in place.Download:Associated Programs:Author(s):Mario Tonveronachi