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The European Central Bank in the age of banking union

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  • Zsolt Darvas
  • Silvia Merler

Abstract

During the crisis the European Central Bank’s roles have been greatly extended beyond its price stability mandate. In addition to the primary objective of price stability and the secondary objective of supporting EU economic policies, we identify ten new tasks related to monetary policy and financial stability. We argue that there are three main constraints on monetary policy - fiscal dominance, financial repercussions and regional divergences. By assessing the ECB’s tasks in light of these constraints, we highlight a number of synergies between these tasks and the ECB’s primary mandate of price stability. But we highlight major conflicts of interest related to the ECB’s participation in financial assistance programmes. We also underline that the ECB’s government bond purchasing programmes have introduced the concept of ‘monetary policy under conditionality’, which involves major dilemmas. A solution would be a major change towards a US-style system, in which state public debts are small, there are no federal bail-outs for states, the central bank does not purchase state debt and banks do not hold state debt. Such a change is unrealistic in the foreseeable future.

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  • Zsolt Darvas & Silvia Merler, 2013. "The European Central Bank in the age of banking union," Policy Contributions 796, Bruegel.
  • Handle: RePEc:bre:polcon:796
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    2. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area," Economic Policy, CEPR;CES;MSH, vol. 26(67), pages 493-549, July.
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    4. N. Gregory Mankiw & Matthew Weinzierl, 2011. "An Exploration of Optimal Stabilization Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(1 (Spring), pages 209-272.
    5. Pierfederico Asdrubali & Bent E. Sørensen & Oved Yosha, 1996. "Channels of Interstate Risk Sharing: United States 1963–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1081-1110.
    6. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
    7. Melitz, Jacques & Zumer, Frederic, 2002. "Regional redistribution and stabilization by the center in Canada, France, the UK and the US:: A reassessment and new tests," Journal of Public Economics, Elsevier, vol. 86(2), pages 263-286, November.
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    Cited by:

    1. repec:voj:journl:v:63:y:2016:i:4:p:455-473 is not listed on IDEAS
    2. Beblavý, Miroslav & Maselli, Ilaria & Veselkova, Marcela, 2014. "Let’s get to Work! The Future of Labour in Europe," CEPS Papers 9486, Centre for European Policy Studies.
    3. Maylis Avaro & Henri Sterdyniak, 2014. "Banking union: a solution to the euro zone crisis?," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 193-241.
    4. Andrei HREBENCIUC, 2017. "Banking Union framework and the stability of the European Banking sector," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 291-298, Spring.
    5. Daniele Schiliro, 2014. "Changes in Eurozone Governance after the Crisis and the Issue of Growth," International Journal of Social Science Studies, Redfame publishing, vol. 2(2), pages 110-119, April.
    6. repec:agr:journl:v:xxiv:y:2017:i:1(610):p:291-298 is not listed on IDEAS
    7. Ida-Maria Weirsøe Fallesen, 2015. "The Challenges of the EU Banking Union - will it succeed in dealing with the next financial crisis?," Bruges European Economic Policy Briefings 36, European Economic Studies Department, College of Europe.

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