“Fossil Fuel to the Fire: Energy and Inflation in Europe” is a research paper with three main findings. First, fossil fuels were the main cause Europe’s recent inflation. Second, replacing fossil fuels with renewable energy can increase price stability. Third, the right policy are needed today to realise this potential in the future.
This paper traces the transformation of the monetary architecture and concomitant sovereign debt issuance practices in Prussia and the German Empire from 1740 to 1914 in order to reflect on contemporary ideas regarding the appropriate relation between states’ treasuries, central banks, and the private banking system in matters of sovereign debt issuance.
This paper studies the emergence of sovereign spreads in the Eurozone prior to the financial crisis. We find that the Eurosystem’s move from unconditional to conditional collateral eligibility of sovereign bonds in 2005 triggered the emergence of sovereign spreads in the Eurozone, becoming effective through a periphery premium.
Europe needs LNG imports to ensure energy security, but decisions taken now should not undermine the achievement of climate goals. This background paper presents facts and solutions for reconciling energy security and climate in LNG decisions.
Statement by Philippa Sigl-Glöckner at the European Parliamentary week 2023 – Plenary session: Review of the EU economic governance framework – exchange of views, at February 28th 2023.
Italy’s economic stagnation is a problem for both Italy and Europe. This paper summarises and evaluates its main explanations. The best account is not that Italy’s didn’t reform, but that it undertook the wrong reforms and stuck with them for too long.
In this paper, we show that the case law on the legality of bond purchases by Eurosystem central banks is based in part on the economic theory of monetarism and, in particular, on a 1981 paper by Thomas Sargent and Neil Wallace (“Some Unpleasant Monetarist Arithmetic”). But monetarism, already controversial in the 1970s and 1980s, is now outdated. The assumptions on which Sargent and Wallance built their argument were already partly inaccurate then; today it is generally accepted that they do not apply in reality. This scientific progress should be taken into account in the interpretation.
We therefore develop in this paper an updated, “non-monetarist interpretation” of Article 123 TFEU.
In the paper, we very briefly sketch out the reform proposal put forward by the EU-Commission and make five suggestions on how this could be developed further. The annex contains two short papers covering (1) the EU methodology for computing debt sustainability and (2) expenditure rules in practice drawing on the Dutch experience.
Introductory statement at the Committee on Economic and Monetary Affairs of the European Parliament Public Hearing by Philippa Sigl-Glöckner – On shrinking the public balance sheet and the use of debt sustainability analyses, at November 30th 2022.
Central banks define a monetary policy strategy in which they set out the instruments they use to achieve their monetary policy objectives as well as the incoming data they take into account when using these instruments. Independent central banks in particular are expected to provide a detailed and comprehensible explanation of their monetary policy strategy, since the absence of direct democratic legitimation comes along with particular accountability requirements.
There is consensus that the Stability and Growth Pact (SGP) needs to evolve. In this paper, we put forward reform ideas aimed at reducing debt levels, enabling sustainable growth and strengthening Europe’s sovereignty without a change in primary legislation. The current fiscal framework leads to a suboptimal trade-off between austerity and growth. Our proposals therefore focus on two ideas: first, putting more emphasis on the primary deficit in both the corrective and the preventive arm of the SGP; and second, simplifying and revising the preventive arm, in particular the estimation of potential output. These reforms would make the SGP more effective in reducing debt ratios, reduce the risk of contractionary austerity while allowing for growth, and contribute to economic convergence. A clearer focus of fiscal policy on primary deficits would also sharpen the distinction between fiscal and monetary policy, as monetary policy has no direct influence on the primary balance. Finally, we argue that substantive progress towards European sovereignty would require major reform. Given today’s understanding of monetary policy transmission mechanisms, mechanically limiting sovereign credit at an arbitrary debt-to-GDP ratio seems particularly problematic as it can no longer be justified with the aim of avoiding fiscal dominance.
The Stability and Growth Pact (SGP) is up for review. It is also in urgent need of reform if rule-based fiscal policy is to be maintained without impeding the recovery from the Covid crisis, without standing in the way of achieving the climate targets, and without undermining European sovereignty in an era of new geopolitical challenges. Yet, legislative reform faces significant challenges, given the position of countries such as Germany. Thus, we argue that a first reform step that is both viable within the current framework and supportive of economic recovery and growth could be a useful start.
Debt brake (Schuldenbremse) reform is often understood to require constitutional change.
Frequently overlooked, however, is that a crucial part of the debt brake is governed by ordinary
law, namely the cyclical component (Konjunkturkomponente). By allowing for more or less net
borrowing depending on the level of economic activity, this component was intended to enable a
counter-cyclical fiscal policy, while both limiting and legitimising new spending. Sections 1-7 of this
paper assess to what extent it is fulfilling this purpose.Recent research, however, has shown that this paradigm yields suboptimal results in the current environment: It neither ensures the long-term sustainability of public finances, nor limits external imbalances, nor effectively contributes to solving the challenges Germany faces today, in particular decarbonisation and demographic change. As this is increasingly being recognised, a lively debate on the future of fiscal rules has developed, both in Germany and internationally. This working paper contributes to that debate by developing reform ideas that depart from a positive goal for fiscal policy rather than from the deficiencies of the current rules.
The sustainability of public finances should be measured by the debt-to-GDP ratio; the debt-to-GDP ratio is best controlled by keeping the deficit in check. For decades, these ideas shaped German fiscal policy. In 2009, with the introduction of the debt brake, this approach found its way into the German constitution.
Recent research, however, has shown that this paradigm yields suboptimal results in the current environment: It neither ensures the long-term sustainability of public finances, nor limits external imbalances, nor effectively contributes to solving the challenges Germany faces today, in particular decarbonisation and demographic change. As this is increasingly being recognised, a lively debate on the future of fiscal rules has developed, both in Germany and internationally. This working paper contributes to that debate by developing reform ideas that depart from a positive goal for fiscal policy rather than from the deficiencies of the current rules.
