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A holistic approach to ECB asset purchases, the Investment Plan and CMU

Author

Listed:
  • Natacha Valla
  • Jesper Berg
  • Laurent Clerc
  • Olivier Garnier
  • Erik Nielsen

Abstract

To stimulate and finance investment in Europe the three “policy stars” of Europe need to be aligned: the Capital Markets Union initiative, the €315bn Investment Plan, and the ECB’s €1,100bn asset purchase scheme. They jointly face a unique set of issues. First, the resilience and the cyclical performance of the European bank based system needs to be improved. Second, the “right” markets need to be developed for banks to outsource risks without jeopardising financial stability. Third, cross-border risk-sharing urgently needs to be rebalanced, because it has become, in the wake of the Great Recession, overly reliant on debt instruments as opposed to equity. We argue that to achieve alignment between initiatives, an overall strategic vision could: - Set an explicit, holistic strategy, ensuring that the instruments in the Investment Plan receive appropriate regulatory treatment within the CMU, and are eligible to the ECB’s purchase programme and collateral. - Set a strategic objective for the euro area financial structure. It could be a “spare wheel” model where (i) banks would remain predominant (with capital markets as a countercyclical “spare wheel”), and (ii) banks would outsource risk through covered bonds (with untranched securitisation acting as the “spare wheel”). - Proactively promote equity instruments in all three policy initiatives for more sustainable cross border risk sharing. - Promote a new business model for “credit assessment” with a value chain featuring the credit information collected by commercial and central banks. - Re-orientate the ECB’s purchases away from sovereign debt instruments towards the instruments that will finance the Investment Plan, those of the so-called “agencies”, and private sector assets. - Formally involve NPBs in the Investment Plan, preferably in the equity of the EFSI Fund. - Improve the governance of public investment ex ante via independent, supra-national investment committees, and ex post via strict disciplinary measures. - Be pragmatic but tangible in the objectives set for the Capital Markets Union (focus on cross-border insolvencies and improve national business environments).

Suggested Citation

  • Natacha Valla & Jesper Berg & Laurent Clerc & Olivier Garnier & Erik Nielsen, 2015. "A holistic approach to ECB asset purchases, the Investment Plan and CMU," CEPII Policy Brief 2015-07, CEPII research center.
  • Handle: RePEc:cii:cepipb:2015-07
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    References listed on IDEAS

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    1. repec:mes:emfitr:v:52:y:2016:i:10:p:2253-2266 is not listed on IDEAS
    2. Natacha Valla & Thomas Brand & Sébastien Doisy, 2014. "A New Architecture for Public Investment in Europe," CEPII Policy Brief 2014-04, CEPII research center.
    3. Christophe Destais, 2016. "Central Bank Currency Swaps and the International Monetary System," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(10), pages 2253-2266, October.
    4. Benjamin Carton & Jérôme Héricourt & Fabien Tripier, 2014. "Can the Euro Area Avoid a “Lost Decade”?," CEPII Policy Brief 2014-02, CEPII research center.
    5. Lionel Fontagné & Julien Gourdon & Sébastien Jean, 2013. "Transatlantic Trade: Whither Partnership, Which Economic Consequences?," CEPII Policy Brief 2013-01, CEPII research center.
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    More about this item

    Keywords

    ECB; Capital Markets Union; cross-border capital flows; policy strategy; securitization; covered bonds; financial structure; Quantitative Easing;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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