| Author (Corporate) | European Parliament: European Parliamentary Research Service |
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| Publisher | EU |
| Series Title | In-Depth Analysis |
| Series Details | May 2017 |
| Publication Date | May 2017 |
| ISBN | 978-92-846-0824-9 |
| Content Type | Report |
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Please note: Each In-Depth Analysis is assigned a DOI (digital object identifier), which is a safe and long term way of ensuring a hyperlink to the full text of this report. However, when ESO creates this record, on occasion the DOI still has not been activated by the EU Bookshop. If you find the source url hyperlink does not work please use the alternative location hyperlink listed as a related url.There is no need for Europe to replicate the International Monetary Fund (IMF). The European Stability Mechanism (ESM) The ESM will be called upon to act as a backstop only intermittently, in times of great financial market instability. The need for it will evolve as a function of the nature of financial markets and their cross-border integration. It is not possible to forecast with any precision when the next financial crisis might break out and what form it will take. Any evolution in the functioning of the ESM should thus aim at enhancing flexibility and clarity of its overall mandate (financial stability), rather than revising the details of the rescue mechanism (which should be extended to the Single Resolution Fund) and its modus operandi. Moreover, the ESM should be viewed as the natural instrument for unifying the euro area’s representation in the IMF. External author: Daniel Gros Note also separate In-Depth Analysis(available via the related url hyperlinks): An evolutionary path for a European Monetary Fund? A comparative perspective. Eurozone reformers are looking to the United States and other federations as they seek to craft a more sustainable architecture for the Euro. This paper first extracts lessons about mechanisms of inter-regional insurance and redistribution, and then turns attention to related debates about moral hazard and fiscal discipline. In the United States, inter-regional fiscal stabilization is achieved through a progressive income tax. Contrary to common wisdom, federal direct expenditures and grants are targeted neither to states suffering from short-term asymmetric negative shocks nor to relatively poor states in the long term. Fiscal policies of state and local governments are highly pro-cyclical, and partially undermine the stabilizing role of the system of federal taxes and transfers. Thus the U.S. experience suggests a number of design challenges facing any future Eurozone stabilization mechanism. The paper also places proposals for even stronger top-down surveillance and correction mechanisms of Eurozone member states’ fiscal policies in comparative perspective, arguing that such powers are not found in unions of sovereigns like the United States, Canada, and Switzerland. Moreover, there are reasons for concern about the credibility of such efforts in the Eurozone as currently structured. Unless political will can be found for extraordinary political and fiscal centralization, reformers should assume that member states will continue as sovereigns, and hence will be disciplined (or not) by voters and credit markets rather than European regulators. Thus it might be useful to consider policies that would make the 'no-bail out clause' credible. |
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| Source Link | http://dx.publications.europa.eu/10.2861/839167 |
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| Countries / Regions | Europe |
