The Eurosystem participates in printing, minting and distribution of notes and coins in all member states, and operation of the eurozone payment systems.

Member States Bulgaria, Denmark, Hungary, Austria, Poland, Romania, Slovakia, the Czech Republic, and Sweden, (still) use their own currency.

Now, more than 30 years since the decision in Maastricht to create the economic and monetary union, we were asked to analysis these profound questions head on, on request of the ViceChair of the Committee on Economic and Monetary Affairs, Michiel Hoogeveen, and Chair of the Committee on Budgets, Johan van Overtveldt. Both members of the European Parliament belong to the ECR Group.

Would there be a large demand for a digital euro? How would the digital euro project impact the current financial system? Could CBDCs be the ‘holy grail’ of cross-border payments? How can the digital euro help address the risk of disintermediating banks? What is the role of the digital euro on strengthening the international role of the euro and how could it contribute to Europe’s ongoing quest for open strategic autonomy? What are the operational and processing challenges of a digital euro (e.g. the complexity of integration, mitigation from KYC to EID, and the use of different SEPA models across Member States)?

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• the Economic and Monetary Union (EMU) emerged, what union was sealed with the Maastricht Treaty and later, in 1999, acknowledgement was launched by an agreement to introduce the single currency, the euro from 2001;
• Europe recognizes '2020-strategies' and common instruments, systems and mechanisms to strengthen economic governance;
• an investment plan for Europe is developed to mobilise finance for investment, to make finance reach the real economy and to improve investment environment. The Plan aims to mobilise public and private investments of at least € 315 billion over the next three years (2015-2017) to boost projects through European Investment Bank (EIB), . The three angles of the Investment Plan for Europe are:

  Mobilising Investment Finance.
  The aim is to provide potential investors (public and private), as well as those seeking to benefit from funding in the future, with practical information on how the new European Fund for Strategic Investments (EFSI) will work and how to get involved.With strong political support from Member States and the European Parliament, the new European Fund for Strategic Investments could be established in June 2015, with financing available for projects in autumn 2015. Funding could be available even earlier for SMEs as the existing European Investment Fund gets reinforced.
  
  The new Project Pipeline.
  A pipeline of trustworthy, viable projects will be created under the Investment Plan - screened by independent experts - which are attractive to investors. The roadshow will provide information on how interested parties, including Member States, regions or project promoters can submit projects for screening, as well as the service which will be provided by a new technical assistance hub, to ensure that projects are well structured and comply with regulatory requirements;
  
  The Regulatory reforms.
  The roadshow will gather political support for regulatory reforms, at EU and national level which are critical to removing barriers to investment, opening new investment opportunities (in sectors such as digital, energy and capital markets) and changing permanently the investment environment in Europe.

The PSPP seems to have had two implications in terms of financial stability of opposite sign. The very large commercial banks’ deposits at the NCBs, which constitute the counterpart to the government bond holdings of the Eurosystem, have increased the direct negative impact of increases in policy rates on government finances, but also a positive impact of higher rates on banks’ balance sheets.

Moreover, if the PSPP holdings are kept at present levels, a generalised increase in rates (policy and market) will have a stronger, and more immediate negative impact on public finances. But this latter effect operates at the aggregate euro area level. For each individual euro area member country, the PSPP holdings of the NCB are stabilising, as they would mitigate about one-quarter of the impact of higher national risk premia on the cost of servicing public debt.

The opposite impact of the PSPP on the stability of public finances and the banking system in the face of interest rate increases is a simple consequence of the fact that the PSPP has reduced the effective duration of public liabilities. The mirror image of this is a reduction in the duration of the assets of the banking system, i.e. the private sector. The public sector would gain, if interest rates did not increase. But this would come at the expense of the income of the banking system, whose capital might then remain weaker for longer. The main policy implication is that lengthening the maturity of public debt would make public finances more robust" (Financial stability implications of increasing interest rates, Daniel Gros, Policy Insights, No 2018/10, September 2018).

=> exit should have no adverse impact on inflation, could start now since => recovery is ‘self-sustaining

For years, the eurozone has been perceived as a disaster area, with discussions of the monetary union’s future often centred on a possible breakup. When the British voted to leave the European Union last year, they were driven partly by the perception of the eurozone as a dysfunctional and possibly unsalvageable project. Yet, lately, the eurozone has become the darling of financial markets – and for good reason. The discovery of the eurozone’s latent strength was long overdue. Indeed, the eurozone has been recovering from the crisis of 2011-12 for several years. On a per capita basis, its economic growth now outpaces that of the United States. The unemployment rate is also declining – more slowly than in the US, to be sure, but that partly reflects a divergence in labour-force participation trends.

Bridging visions for an economic and social union: The future of the Euro

28 October 2016, The Spinelli Group
organized the forum:

"Europe & nation states: friends or foes?

László Andor (ULB), Ramona Coman (ULB),
Amandine Crespy (UBL), Paul Jorion (UCL) and
Luca Visentini (ETUC) discussed the issues
that hit the euro.

"The single currency cannot
be an aim in itself, but an instrument to achieve wider objectives".

Since 2009, when the extent of the problems in Greece’s public finances first became known, Europe’s leaders have struggled to contain the ensuing crisis. The latest episode culminated in an agreement last month on yet another bailout for Greece, on condition that Greece implement yet more public expenditure cuts and accelerate its programme of economic reforms designed to improve the growth potential of the economy. These reforms will be challenging and many critics are already predicting failure leading to a further round of difficult negotiations. Against this gloomy backdrop, it is easy to be pessimistic about the chances of Greece staying in the euro and even about the long-term survival of the Eurozone. However, what is too easily overlooked is the strength of the political commitment to make a success of the euro, with both creditor and debtor countries agreed that an unravelling of the currency will not solve their problems. In addition, there have been significant changes in the governance mechanisms of the euro which give grounds for optimism. Even the UK, so often reluctant to participate in the deepening of European integration, has supported these initiatives, despite being outside most of them.

Several explanations for the Eurozone’s difficulties have been put forward, some focusing on fundamental design flaws, some on policy mistakes and others on political problems. Procrastination in confronting the crisis has also been evident, and even in the latest deal on Greece, it was clear that many euro members were torn between their own national interest and the common interest. The Greek leadership had not only miscalculated the strength of its bargaining position, but also upset many of its partners by the tone it adopted, especially towards Germany. But objections to the Greek demands were even greater from countries as different as (rich) Finland and (poor) Slovakia as from Germany. Quite simply, the others did not trust the Greeks. An underlying explanation is that the architecture of the Eurozone was always an uneasy compromise between competing national views on what was desirable. Unlike other monetary unions, the Eurozone was deliberately set up without any formal system of fiscal transfers between members of the sort that could have helped to deal with divergences in economic performance. By contrast, in the United States, if a state experiences a sudden downturn in its economy, for example because one of its key industries faces difficulties, additional spending from federal programmes is triggered automatically. Such transfers mitigate the effects of the downturn. Europe also has relatively limited flows of labour between countries, and private financial flows are markedly lower than elsewhere, meaning that other potential adjustment mechanisms are inadequate.

At an institutional level, elements that were lacking when the euro was launched were a lender of last resort function from the European Central Bank (ECB), the absence of tools for crisis management and no source of loans for countries (initially Greece, but also Ireland, Portugal and Cyprus) which faced a liquidity crisis. In fact, one of the features of the euro’s design is what is known as the ‘no bail-out clause’, a treaty article that prohibits both the ECB and other governments from directly buying the sovereign bonds emitted by euro member governments. These deficiencies were, to a considerable extent, disguised by the rather benign global economic conditions of the period from 1998-2008, greatly helped by the growth of China – a period sometimes referred to as the ‘great moderation’.

The comparative success of the euro during its first decade, both in maintaining price stability and in facilitating steady growth, proved to be built on shaky foundations. In much of southern Europe steady economic growth seemed to have been achieved and, in one of the many paradoxes of the euro’s history, Germany was seen by many as the ‘sick man of Europe’ until as late as the mid-2000s. With hindsight, though, it is now obvious that southern Europe was becoming increasingly uncompetitive. Unit labour costs, a measure of the cost of producing goods and services, had been rising continuously in the Mediterranean countries between the launch of the euro and 2008, but had been stable in Germany.

The annual change was small, with increases of two to three percentage points, but over a decade, the cumulative effect was substantial. By 2008, the increase relative to Germany was as much as 25 per cent, so that it should not be a surprise that the balance of payments positions of countries like Greece, Portugal and Spain had become alarming, with all three reaching deficits of 10 per cent or more of GDP by 2008. Financial markets, however, did not seem worried, with bond spreads converging during the first half of the 2000s and more money invested in these countries. In addition, the monitoring of individual Eurozone economies by the European authorities was lax. Spain and Ireland were also hit by speculative bubbles in the property market which resulted in bank failures and meant that the national governments had to bail out their banks. In the cases of Ireland and Cyprus, the cost was too high for them to bear and the state then had to be bailed out by the rest of the Eurozone. Spain narrowly avoided a similar fate, but still needed some support to rescue its banking system. These difficulties highlighted the absence of a Eurozone banking union and the inconsistency between a common currency and separate national banking systems.

How, then, can optimism about the future of the euro be justified? The answer is that Europe’s leaders have been introducing far-reaching reforms intended to improve the resilience and effective management of the single currency. Indeed, since 2009, another paradox of the euro is that while the rest of the world sees only dithering, denial and double-dealing, the pace of governance reform in the Eurozone has, at times, been frenetic. New measures have been introduced to strengthen national fiscal discipline and to improve the coordination of fiscal policy, and a procedure for identifying and, if required, correcting other sorts of macroeconomic imbalance – backed by the threat of financial sanctions for backsliders – has become law. A new loan fund to support countries in difficulty has also been established.

Significant steps towards creating a banking union have been taken with the agreement of a new structure for prudential supervision of banks (the single supervisory mechanism, with the European Central Bank at the pinnacle of a network of national supervisors), and a common approach to resolving failing banks (the single resolution mechanism). By taking on these and other new responsibilities, the European Central Bank is slowly becoming a fully-fledged central bank, rather than a mere custodian of price stability, and the first elements of a capital markets union are being introduced. Many of these new measures remain to be properly tested and there are bound to be concerns about their effectiveness, not least because of past experience of non-compliance, including by Germany. Nevertheless, there are good reasons for believing that the Eurozone’s leaders have made such substantial changes that – to misquote the American author, Mark Twain – rumours of the euro’s likely demise are greatly exaggerated.

The euro is the official currency of the eurozone: 19 of the 28 member states of the European Union, which consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The currency is also used in a further 5 European countries (Montenegro, Andorra, Monaco, San Marino and the Vatican) and the disputed territory of Kosovo. It is consequently used daily by some 332 million Europeans. Additionally, over 175 million people worldwide use currencies which are pegged to the euro, including more than 150 million people in Africa.

█ Eurozone, █ EU-member states with obligation to implement te euro, █ EU-member states with an opt-out about implemention of the euro, █ Areas outside the EU that use the euro without an EU agreement, areas outside the EU that use the euro through an agreement with the EU (San Marino, Monaco, Vatican city)

As said, since 2008 there is an enormous mountain of debt. Market fundamentalism, a wrong political economic system of capitalism and symptoms inherent to economics played a very important role. Inability to let take place the right exchange of information between macro and micro economy, the use of money as transfer without sufficient underlying matter, too complicated and mixed up products and services, stagnation of insight and overview and undeveloped law and regulation conducted the present billons of deficit, that is now pumped around.

In "The Great Slump of 1930", Maynard Keynes wrote the world as living in "the shadow of one of the greatest economic catastrophes of modern history. We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand".

The Chatham House, Elcano and AREL Report by Stephen Pickford, Federico Steinberg and Miguel Otero-Iglesias from March 2014, 'How to Fix the Euro. Strengthening Economic Governance in Europe', examines why the economic and monetary union (EMU) was so badly affected by the crisis, and assesses whether further changes need to be made to the structure of economic governance that underpins it.

Paul N. Goldschmidt, Director, European Commission (ret.); former Member of the Steering Committee of the Thomas More Institute, distributed an article entitled 'The ECB and austerity': As the forthcoming European elections approach, it is urgent to clarify the debate surrounding the ECB so as to avoid that simplistic and superficial slogans propagated by overzealous politicians misinform the elector. Indeed, many voices are suggesting that excessive (budgetary) austerity is counterproductive and capable of stalling the nascent economic recovery. These criticisms refer to declarations by personalities such as Christine Lagarde (IMF) or number of recognised economists – whose views are often misinterpreted or taken out of context – when they are not simply the ructions of politicians vaunting inapplicable measures such as “eurexit”, salary increases, protectionism, postponing budgetary rigour, etc. The debate would be, in part, more seriously grounded if, as is the case in Italy, the projected stimulus is accompanied by ambitious structural measures subject to a rigorous timetable (imposed under the threat of the government’s resignation) or recognises the impressive and painful reforms already implemented (Greece, Ireland, Portugal Spain); on the other hand it is not acceptable in the French case where the request for further European “indulgence” aims at obfuscating the dissensions within the governing majority allowing, once again, to postpone unpopular decisions.

There seems to be a broad consensus on the diagnosis which, in the absence of an agreement to reduce national deficits, aims, nevertheless, at reducing excessive indebtedness (lip service to the burden on future generations). This stance is structurally contradictory unless an EMU wide agreement to devalue the debt through inflation was achievable, which is clearly utopian. So the protagonists fall back on the easy way out by conferring on “Europe” the responsibility for stimulating economic growth while, simultaneously, denying it the necessary resources. Indeed, it is only at European level that a policy aiming at stimulating consumption in “healthy” Member States (Germany) can be envisaged so as to attenuate the impact of austerity measures on countries that have not yet even started to implement seriously the required structural reforms (France).

The preferred scapegoat of supporters of a European stimulated growth policy is the ECB whose independence is strongly contested in this particular regard. It is invited to finance the recovery through measures that would, if necessary, totally disregard its by-laws and/or the EU Treaties. Such a choice comes easily as it appears to exonerate national governments despite the fact that, together with their predecessors, they alone are responsible for drafting and ratifying the Treaties and Regulations that “Brussels” and “Frankfurt” are charged with implementing.

Any objective analysis would conclude that the ECB has already interpreted the rules that govern its operations with a significant degree of flexibility (enough to anger the Bundesbank) and, in so doing, can also claim to have, so far, done “everything it takes to save the €”. If the EMU’s monetary policy, implemented by the ECB, constitutes an important aspect of economic policy, it is, nevertheless, obvious that it cannot, in and of itself, be the sole spur to the recovery.

Thus, the ECB finds itself alone in imagining new tools to carry out monetary policy within the Eurozone. These concern principally “quantitative easing” which, as clearly explained by President Draghi, must take into account the structural differences between credit markets in the Anglo-Saxon world (based on capital markets financing)  and in the Eurozone (based on bank financing), a fact that largely escapes the understanding of politicians. Furthermore, while in the United States and England, their respective Central Banks dialogue with governments disposing of significant resources and budgets, the ECB has no legitimate interlocutor with which it can coordinate its interventions. Indeed this “Europe” that is supposed to finance the recovery is prohibited by the Treaties to indulge in monetary financing; additionally, by a unanimous decision of the Member States, it is endowed with an insignificant budget and derisory “own resources” limiting any significant recourse to issuance of Eurobonds, project bonds, etc. which, otherwise, might be eligible for purchases by the ECB, on the model of the American Federal Reserve Bank or the Bank of England. 

It should be perfectly obvious to any good faith observer that, within the framework of the current Treaties, any direct financing by the ECB of Member State’s deficits is impossible to implement without incurring important moral hazard risks; to avoid them, it would be necessary to frame such a policy very strictly which would be tantamount to reinstituting the provisions that are already in force in the Stability and Growth Pact, the Budgetary Treaty, the Six and Two Packs, which together – oh surprise – are precisely the safeguards Member States imposed for any recourse to the European Stability Mechanism!

It is clearly highly desirable that, one day, the ECB will be endowed with similar powers to those at the disposal of their American, British of Japanese counterparts in the financing of the economy as well as intervening efficiently in foreign exchange markets. This implies further integration towards a “federal” Eurozone and therefore a thorough revision of the Treaty, which is currently not on the cards.

Calling for further ECB intervention and purporting that it constitutes the panacea countering the need for austerity and structural reforms is a gross lie. It is being propagated not only by nationalist/populist Europhobic parties but equally by number of alleged Europhile members of government majorities who are always keen to ask of Europe what it cannot deliver because they refuse systematically to provide it with the necessary resources.

under construction

(*) Wolfgang Münchau from Eurointelligence ASBL, Timothy Garton Ash, Lorenzo Bini Smaghi member of the Executive Board of the European Central Bank, Christopher Alessi from Council on Foreign Relations, Jacques de Laroisère, Jean Claude Trichet, Daniel Gros CEPS, Thomas Mayer Deutsche Bank London, Paul de Grauwe university of Leuven and CEPS, George Soros, André Sapir University Libre de Bruxelles, Desmond Lachman American Enterprise Institute, L. Bini Smaghi ECB, Mohamed El-Erian PIMCO, Stanley Fischer governor Bank of Israel, Olli Rehn vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro, Carmen Reinhart, Robert Shiller drafted all comprehensible papers on the development and future of the currency, the EMU, and the EU.

Very recently (June 2012) a report was published on Completing the Euro. In the present context of tensions and crisis surrounding the functioning of the European Economic and Monetary Union, it is particularly enlightening to find in- depth analysis and a source of inspiration. The great interest of this Report is to call on “completion of the euro” on the basis of very acute and pragmatic analyses of the challenges at stake, but also with the objective of proposing both feasible.