Publications on Single market
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
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
Policy Note 2015/1 | February 2015
Financial Fragility and the Survival of the Single CurrencyGiven the continuing divergence between progress in the monetary field and political integration in the euro area, the German interest in imposing austerity may be seen as representing an attempt to achieve, de facto, accelerated progress toward political union; progress that has long been regarded by Germany as a precondition for the success of monetary unification in the form of the common currency. Yet no matter how necessary these austerity policies may appear in the context of the slow and incomplete political integration in Europe, they are ultimately unsustainable. In the absence of further progress in political unification, writes Senior Scholar Jan Kregel, the survival and stability of the euro paradoxically require either sustained economic stagnation or the maintenance of what Hyman Minsky would have recognized as a Ponzi scheme. Neither of these alternatives is economically or politically sustainable.Download:Associated Program:Author(s):