ECB debt certificates: The available euro safe asset

 This webinar is convened by the European Political Economy Project

On 2 November 2020, EuPEP hosted a European Studies Seminar series webinar on Daniel Hardy’s proposal for the ECB to issue debt certificates (The underlying paper is available at https://www.economics.ox.ac.uk/materials/working_papers/5342/ecb-debt-certificates-v9.pdf). The event, chaired by Tim Vlandas, brought together the two main agencies that could be involved in such an innovation, with Demosthenes Ioannou from the ECB and Gabriel Giudice from the European Commission acting as discussants.

The development of an EU-level safe asset is a key building block for the capital markets union, which in turn is a priority for strengthening EU architecture and preventing a repeat of Europe’s debt crisis. Hardy’s proposal for ECB debt certificates would create a safe asset with many attractive characteristics, while avoiding many of the objections that have impeded the creation of such an asset in the past. Specifically, Hardy recommends that the ECB regularly issue a large volume of liquid short-term financial paper, along the lines of US T-bills, which might be called “euro liquidity management instrument” (or ELIs).

Currently, the EU has no region-wide financial instrument akin to T-bills, meaning that banks with excess liquidity have few alternatives to piling up large deposits at the ECB, and euro investors and liquidity managers are short of best-quality, usable collateral. The creation of ELIs would give banks more flexibility and would expand the capital market beyond banks by giving investors a new euro-denominated security. Its short maturity (Hardy proposes six months), and capacity for the ECB to issue it in large volume (Hardy envisages an eventual stock of 1.3 trillion euro), would make it safe, liquid, and desirable. Its existence would create a new source of high-quality collateral and help stabilize risk premia across the EU financial system. All of these attributes would enable the euro to expand its role in global financial markets.

The EU stumbles in its approach to industrial agriculture

The European Green Deal and the Farm to Fork strategy indicated the ambition of the European Commission to overhaul EU farming policy and make it more sustainable. The Green Deal proposed that 40% of the Common Agricultural Policy (CAP) should “contribute to climate action.” (my blog of 5 May).

The European Council conclusions of 13 July stated that industrial agriculture “increases the risk of future pandemics and need to be tackled” (my blog of 22 July).

Then, in the week beginning 19 October, the European Parliament undid much of the good achieved by the Commission and the Council. The Parliament rejected the proposal to ban the term “veggie burger”; BUT approved a ban on applying dairy terms (e.g. creamy, yogurt-style and cheese substitute) to plant-based products; AND voted against limiting agricultural subsidies to intensive factory farms e.g. by not providing support to concentrated animal feeding operations.

This demonstrated a total lack of ambition to use EU farm subsidies to achieve significant improvements for animals and the environment; and above all wasted (indeed spurned) a valuable opportunity to achieve comprehensive and radical reform of the CAP in the wake of the Green Deal. The Council were reduced to issuing a statement that the Green Deal and the Farm to Fork strategy were simply “recommendations”: thus failing to support the Commission at a crucial time.

The UK and Multi-Level Financial Regulation: From Post-Crisis Reform to ...

The UK and Multi-Level Financial Regulation. Post-Crisis Reform to Brexit

This blog reports on a webinar on 19 October, 2021, in which the panel discussed a new book entitled 'The UK and Multi-Level Financial Regulation. Post-Crisis Reform to Brexit'. The panel included authors Scott James (King’s College, London) and Lucia Quaglia (University of Bologna) and was chaired by Daniel Hardy, EuPEP, Oxford. The discussants were Alexander Lehmann (Breugel) and Sam Lowe (Centre for European Reform). 

In their book Scott James (King’s College, London) and Lucia Quaglia (University of Bologna) look at the UK’s stance on and involvement in various international and EU initiatives to strengthen resilience in the financial system since the global financial crisis (GFC). They seek to explain why the UK took different approaches in different policy areas as a product of political forces within the UK, and of the situation in the relevant international and EU fora facing the UK. Contrary to the pre-GFC perception that the UK has always been on the side of lax regulation, and has foot-dragged on international and EU initiatives to strengthen regulation, the authors find a complex picture.

The authors select five important regulatory areas, related to: the level of bank capital; bank resolution; bank structure; hedge fund regulation; and derivatives markets, in particular the role of centralized credit counterparties (CCPs). Each of these has been subject to international and/or EU initiatives since the GFC—the Basel 3 agreement on bank capital, for instance, and the Financial Stability Board’s (FSB’s) “Key Attributes on bank resolution”. James and Quaglia divide the UK’s position on each issue into “pace setting”, “foot dragging”, and “sitting on the fence”. While the UK’s attitude to some of these initiatives, for example the regulation of hedge funds, can be characterized as foot dragging, the UK was pace setting on other issues, such as bank capital requirements.

EU priorities at the UN: European Council conclusions on industrial agriculture

Industrial agriculture increases the ‘risk of future pandemics and needs to be tackled’, according to the European Council, which calls for action to be taken on a global basis alongside other major issues including climate change and deforestation.

The full wording of the Council’s conclusions on this point, published on 13 July, and setting out the EU’s priorities for the coming year at the United Nations, are as follows.

“Deforestation, industrial agriculture, illegal wildlife trade, pollution, climate change, water scarcity, inefficient sanitation and waste management and other types of environmental degradation increase the risk of future pandemics and need to be tackled…The EU will support inclusive preparations for effective deliverables at the UN Secretary General’s Food Systems Summit in order to scale up action to continue the transformation of the current food systems to make them healthier, more resilient and environmentally sustainable.”

The Council added that the Covid-19 crisis had “sharpened the focus on the inadequacy of the global response to the climate and biodiversity emergencies… A new reality after COVID-19 should also mean a more modern, climate-neutral and circular economy that will make us less dependent on resources and boost our resilience…The fifth UN Environment Assembly provides an important opportunity to set the stage and drive ambition to foster a green recovery agenda and environmental sustainability.”

Political economy effects of COVID-19 on Central and South East Europe

Political economy effects of Covid-19 on Central and South Eastern Europe

On July 9, 2020, the European Political Economy Project (EuPEP), in collaboration with SEESOX, hosted a tour d’horizon of how Central and South Eastern European countries have confronted Covid-19. The speakers were Charles Enoch (St Antony’s College, Oxford); Christos Gortsos (National and Kapodistrian University of Athens); Piroska Nagy-Mohacsi (LSE Institute of Global Affairs); Kaloyan Simeonov (European Studies Department, Sofia University, St Kliment Ohridski) and Kori Udovicki (Centre for Advanced Economic Studies, Belgrade). Daniel Hardy (St Antony’s College, Oxford) chaired.

There was consensus across panellists that the region has handled the pandemic relatively well, with fewer deaths and less output decline than elsewhere. Charles Enoch, summarizing the discussion, noted the dichotomy between old and new Europe (including Greece in new Europe): the difference in mortality rates so far has been extraordinary, in some cases 10-fold. Panellists attributed this to regional governments’ relatively quick and effective response, with helpful (though often not generous) fiscal packages, and to the valuable tailwinds from ‘innovative and forceful’ ECB and Federal Reserve monetary easing. There has been little politicization of the process. However, the future is far from secure. The impact of lower growth on the real economy will surely manifest itself in higher unemployment than seen so far, and in a resurgence of non-performing loans—reversing the hard-won recovery since the global financial crisis.