Below you’ll find the links to the best publications of our Economic Research team of the past year, related to this year’s theme of The National Economists Debate: the future of the European Union.
Accompanying the recovery
The recovery is continuing at a rapid pace based on current estimates of potential growth. The eurozone is making up ground lost during the crisis, which should eventually trigger an upturn in inflation towards the central bank’s target rate. So far, however, wages and prices have barely reacted to the cyclical upturn. Structural factors are probably at play (globalisation, technological innovations, etc.), but the ECB continues to see it as a sign of persistent underemployment. Consequently, it will maintain an accommodating policy next year, even though this support will be adjusted to take into account the strong cyclical performances.
Euro area: How to explain the weakness of inflation?
Despite the strong recovery, inflation remains muted. How to explain this situation?
Eurozone: Credit environment
Bank lending environment remains favorable. The impulse stabilizes for households while demand for house purchase loans moderates somewhat and that for consumer loans slightly increases. The impulse improves marginally for non-financial corporations, which is consistent with a growing demand in a context where standards remain neutral (neither restrictive nor accommodative).
The eastern members of the EU: catching up fast
This article analyses the recent economic performances of the eastern countries of the European Union, specifically focusing on the so called Visegrad-6 group, comprising Poland, Hungary, the Czech Republic, Slovakia, Bulgaria and Romania. Long considered as the EU’s “junior partners”, their very strong macroeconomic performances in recent years suggest that they will soon catch up with their western EU counterparts. Are we about to witness the culmination of more than 10 years of convergence? Only if we ignore the structural challenges these economies are still facing.
A genuine recovery
Recent economic indicators published in the Eurozone confirm the solidity of the recovery.
Financial markets as self-appointed subcontractors
Financial markets are very much influenced by expectations about monetary policy. The recent euro strength reflects anticipations of a scaling back of the ECB’s asset purchase programme. Market anticipations complicate the ECB’s task.
ECB: October it should be
The bulk of decision on QE re-scaling should be announced in October: This is the key message delivered yesterday by Mario Draghi. Preliminary discussions already took place at the Governing Council and several scenarios are under study.
From “Believe me it will be enough” to “Believe me it will be slow enough”?
Mario Draghi’s speech on 26 July 2012 was instrumental in calming down markets. The dominating concern today is how to bring monetary policy normalisation without creating market disruption.
Eurozone : Time for structural policy
Eurozone economic growth is robust. This dynamism is shared amongst its members. However, important structural differences remain. The favourable cyclical environment calls for an economic policy to boost potential GDP growth and strengthen the resilience.
Eurozone : Cyclical convergence, structural differences
The eurozone has seen cyclical convergence in recent years with a reduced dispersion across of variables like fiscal balance, unemployment, inflation. Structural differences remain sizeable and influence long-term growth as well as the resilience to shocks.
ECB: More confident, still prudent
The ECB’s communication maintains a certain ambiguity over the direction of monetary policy. This permits to avoid too abrupt a transition from easing to normalisation.
Germany : Germany: building a fairer society
Germany will elect a new parliament on 24 September 2017. The main contenders are the outgoing CDU Chancellor Angela Merkel and the SPD leader Martin Schulz. Whereas the Chancellor is defending the economic record of her government, her opponent is emphasising the growing inequality in German society. The latter is related to the labour market reaction to globalisation. Nevertheless, in terms of income inequality, Germany compares still very favourably with the other European countries. Given the booming economy, it remains to be seen whether social justice is indeed a major issue for the voters.
France : Overview of the French economy
The French economy now seems to be in better shape than it was five years ago, but the improvement has been limited. Growth has picked up, but still lacks vigour. Although progress has been made to boost competitiveness, the country still has a long way to go. The fiscal deficit continues to be reduced, and the unemployment rate has finally begun to decline. Yet given the slow pace of adjustments, both indicators are still high. According to the European Commission, these imbalances are gradually being corrected, to the point that in 2018, France’s status could be revised from “excessive imbalances” to “imbalances”, and the country will probably exit the excessive deficit procedure.
Greece: Agreement on Greece: key points
19 June 2017
The second review of Greece’s financing programme is about to conclude. The European Stability Mechanism (ESM) is preparing to pay out EUR 8.5 bn to the Greek authorities, after all parties agreed that they had completely fulfilled their side of the agreement. As to debt relief measures, the Europeans essentially held to the framework of the May 2016 agreement: measures will not be adopted until the financing programme ends in mid-2018, and the size of debt relief is still unknown. The Europeans spelled out the procedure as clearly as possible. The IMF signed on to this procedure, although without making any fundamental concessions.
United Kingdom : Brexit: the field of possibilities
The June 2016 referendum and triggering Article 50 signalled the beginning of Brexit, the UK’s exit from the European Union. Brexit promises to be a long process fraught with obstacles. There are numerous sources of potential conflict, foremost of which are the so-called Brexit bill, the amount the UK must pay the European Union as part of its “divorce settlement”, and the rights of EU citizens residing in the UK. Given the close ties between the UK and the European Union, the big challenge in the years ahead will be the negotiation of a new trade agreement. Yet with the UK determined to halt the free movement of people, a priori very few options are open.
European Union : The European roadmap towards decarbonisation
Globally, production should become less energy and carbon intensive in order to reduce greenhouse gas emissions and eradicate energy poverty worldwide. According to the EU Reference Scenario, the increase in prices for carbon emission allowances is crucial for reducing carbon intensity in the power and manufacturing sectors. More measures will be necessary to reach the European climate goals. In particular, more could be done in the transport sector, which is clearly lagging behind. The European environmental policy could be an example for the rest of the world. However, to convince the emerging countries, carbon emissions should be faster reduced.
Eurozone : Patient optimism
The economic situation in the eurozone continues to improve: confidence surveys point to a very positive trend, although the latest “hard” economic data suggest that the prevailing optimism should be tempered somewhat. Our growth forecasts have been upgraded since the end of 2016. Yet, despite the economic improvement, labour market slack remains significant and results in very low inflation if we exclude the most volatile elements from the figures. With this in mind we continue to expect monetary policy to remain accommodating for some time, characterised by an extremely gradual withdrawal of non-conventional measures from January 2018.
A new momentum for the European Union
Europe’s momentum is picking up, not only in terms of economic performance but also as far as policy and vision are concerned, witness the agreement this week on simple and transparent securitisation and the publication of a reflection paper on the deepening of the economic and monetary union.
Eurozone : Institutional protection systems: are they banking groups?
In the eurozone, a large proportion of savings banks and co-operative banks belong to institutional protection systems, within which they undertake to support each other mutually. From a strictly accounting point of view, these networks do not constitute banking groups. However, regulators recognise that they are highly integrated and allow their members to apply a prudential treatment similar to that used by companies belonging to consolidated groups. These mutual support arrangements are to some extent part of the trend towards consolidation in the banking industry.
Eurozone: time for reforms?
There is nothing new or surprising about the emphasis on structural reforms in the eurozone: before the crisis, weak supply already seemed restraining European growth. Belonging to a monetary union also requires a certain degree of flexibility when it comes to price and wage formation. Yet the recent attention being given to structural reforms has taken on a new dimension: the aim is to stimulate demand in order to revive inflation. With monetary policy touching its limits, however, the implementation of structural reforms can hurt the recovery.
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