Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum,...
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![Page 1: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/1.jpg)
Economic and Monetary Union
- Unfinished Business
Howard Davies
Director, LSEConvoco
HVB Forum, Munich
10 May 2010
![Page 2: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/2.jpg)
![Page 3: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/3.jpg)
Source: The Economist, 29 April 2010.
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1. Fiscal Discipline
Six Issues
![Page 5: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/5.jpg)
Greece: notified vs. actual budget balances, % of GDP, 2000 – 2008
Source: Bruegel Policy Brief, March 2010.
The true Greek fiscal position was worse than reported
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Fiscal tightening (% of GDP) needed between 2010 and 2020 to achieve 60% of GDP public debt ratio by 2030
Source: Citigroup Global Markets, Global Economics View, 26 April 2010.
Solvency gaps are massive
Note: Primary balance (assumed to improve gradually during 2011-20 and then maintained constant until 2030) improvement needed to stabilise debt at the end-2011 level. Japan’s target public debt ratio is 80% of GDP.
![Page 7: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/7.jpg)
1. Fiscal Discipline2. Competitiveness
Six Issues
![Page 8: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/8.jpg)
Real exchange rate* and relative export performance, cumulative change between 1999 and 2008
Source: Bruegel Policy Brief, March 2010.
There has been a remarkable divergence in competitiveness
*Real exchange rates are based on unit labour costs.
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Greece is the frontrunner as the most vulnerable country of the euro area
Source: CEPS Policy Brief, No. 202, February 2010.
Vulnerability index
![Page 10: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/10.jpg)
1. Fiscal Discipline2. Competitiveness3. European Monetary Fund
Six Issues
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- Established under Enhanced Co-operation provisions of the Lisbon Treaty
- Subscriptions in proportion to Euro Area countries’ equity stake in ECB
- € 2 trillion subscription, of which € 200 billion paid in
- Board: Euro Area member states, EC, ECB
European Monetary Fund (Buiter)
![Page 12: Economic and Monetary Union - Unfinished Business Howard Davies Director, LSE Convoco HVB Forum, Munich 10 May 2010.](https://reader036.fdocuments.in/reader036/viewer/2022062423/56649ec85503460f94bd4e97/html5/thumbnails/12.jpg)
Relative shares in the ECB’s capital in euro area, % of EA share
Germany would finance more than a quarter of the EMF
Source: Citigroup Global Markets, Global Economics View, 26 April 2010.
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1. Fiscal Discipline2. Competitiveness3. European Monetary Fund4. Financial Regulation
Six Issues
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Macro-prudential supervision
Micro-prudential supervision
Source: De Larosière Report, February 2009.
Members of ECB/ESCB
General Council (with alternates
where necessary)
European Systemic Risk Council (ESRC)(Chaired by President ECB)
Chairs ofEBA, EIA
& ESA
European Commission
European System of Financial Supervision (ESFS)
European Banking Authority
(EBA)
EuropeanInsurance Authority
(EIA)
EuropeanSecuritiesAuthority
(ESA)
National BankingSupervisors
National InsuranceSupervisors
National SecuritiesSupervisors
+ +
Information on micro-prudential developments Early risk warning
The de Larosière framework
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1. Fiscal Discipline2. Competitiveness3. European Monetary Fund4. Financial Regulation5. Fiscal Transfers
Six Issues
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1. Fiscal Discipline2. Competitiveness3. European Monetary Fund4. Financial Regulation5. Fiscal Transfers6. Euro System Reform
Six Issues
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The ECB is the most independent, and least accountable central bank
Source: CEPR Discussion Paper No. 5470, January 2006
Accountability vs. Independence, adapted from Sousa (2002)
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GDP and voting weights are very different
Source: H Berger (2006), Optimal central bank design: Benchmarks for the ECB.
Distribution of voting rights and economic size in EMU
Note: Relative size based on GDP.
Current situation Hypothetical EMU 24
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Source: Heinemann and Huefner (2004). Is the view from the Eurotower purely European?
Central/ Regional voting in the Federal Reserve and the ECB
Ratio of regional to central votes
0
0.5
1
1.5
2
2.5
3
EMU 15 Fed Bundesbank
2.5 – 1.0
0.7 – 1.0
1.1 – 1.0
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Economic and Monetary Union
- Unfinished Business
Howard Davies
Director, LSEConvoco
HVB Forum, Munich
10 May 2010