Part 4 Inhalt Flashcards
What different Monetary Policies are there in the whole EU?
- single MP conducted b the Eurosystem for the Euro Area Members
- Each none-euros area MS conduct its own through national central banks
What is the Eurosystem?
comprises the ECB and the national central banks of MS is Euro -> monetary authority
What are the base tasks of the Eurosystem?
- definition and implementation of the monetary policy of the euro area
- conduct of foreign exchange operations
- holding and management of the official foreign reserves of EU MS
- promotion of smooth operation of payment systems
What is the primary/main objective?
main objective is to maintain price stability: safeguarding the value of the euro
What is a conventional and unconventional monetary policy?
Conventional: normal times-> central bank sets interest rate and manages liquidity -> pursuing its primary objective of price stability
Unconventional: abnormal time-> tool may prove insufficient to achieve the objective: ECB involved in direct lending to privat sector or government
What is the interest rate channel?
ECB lowers interest rate in conventional monetary policy to keep prices stable-> private banks (borrowing from ECB) have to set same I to their ccustomers
What are unconventional monetary policy tools?
in shock, I is at zero already and cannot be lower-> direct quantitive easing, depict credit easing and Indirect (endogenous) quantity/credit easing
What are main aspects of the Economic and Monetary Union (EMU)?
- coordination of economic policy-making between MS
- fiscal policies notably through limits on government debt and deficit (STABILITY AND GROWTH PACT)
- independent monetary policy run by ECB-> price stability
- single currency and euro area
- single rules and supervision on financial institutions within the euro area (Banking Union)
What do national governments control in economic policies?
- fiscal policy that concerns government budget
- tax policies that determines how income is raised
- structural polices determine pension systems, labour and capital market regulations
Wie ist die Economic governance under EMU ausgestaltet?
there is no single responsible institution-> responsibility devised between MS and EU institutions
Which Institution has which power regarding the EMU?
- EUROPEAN COUNCIL: sets the main policy orientations
- COUNCIL OF THE EU (THE COUNCIL): coordinates EU economic policy making and decides wether a MS may adapt the euro
- EURO GROUP: coordinates policies of common interest for the euro-are member states
What is the role of the MS in the EMU?
set their national budgets within agreed limits for deficit and debt, and determine their own structural policies involving labour, pensions and capital markets
What is the role of the European Commission in the EMU?
monitors performance and compliance
What is the role of the ECB?
sets monetary policy with price stability as the primary objective and acts as central supervisor of financial institutions in the euro area
What is the role of the European Parliament in the EMU?
shares the job of formulating legislation with the council and subjects economic governance to democratic scrutiny in particular through the new Economic Dialogue
Of what does the Stability and Growth Pact (SGP) consist of?
two main building blocks-> preventive arm and corrective arm
- corrective arm: governs Excessive Deficit Procedure (EDP, which is triggered by deficit breaching the 3% GDP threshold or debt being above 60% of GDP and not diminishing at a sufficiently rapid pace
Why was it introduced? How (again)?
under Maastricht treaty (introduced the EMU) each MS had to take care of its own sovereign debt or banking problems; SGB was only common instrument besides ECB
-> new approach by the two-pack and six-pack measures as well as the Fiscal Compact of the intergovernmental treaty on Stability, Coordination and Governance -> all aimed to reinforce monitoring and surveillance of economic policies as well as to improve enforcement of EU fiscal rules
Why was further integration of the banking union needed? How?
financial crisis, euro area debt crisis,
-> Single Supervisory Mechanism (SSM) and Single Resolution mechanism (SRM) for banks -> applies to euro are but MS not in can also join
further step: European deposit insurance scheme (EDIS) as full fledged banking union
What are the 3 pillars to break the Sovereign Bank link?
- Single Supervision Mechanism-> ECB + National authorities
- Single Resolution Mechanism-> Single Resolution Board + National Authorities & Single Resolution Fund
- European Deposit Insurance Scheme (EDIS)
What is the ESM?
The European Stability Mechanism provides financial assistance to euro area countries experiencing or threatened by sever financing problems-> granted only if proven necessary to safeguard
On which instruments does the ESM count?
Loans within a macroeconomic adjustment program
loans for indirect bank recapitalization
primary and secondary market purchases precautionary credit line
What is the purpose of the ESM loans?
provide financing to an ESM Member that has lost market access thus it cannot refinance its debt by issuing bonds on the market due to the excessively high interest that it would have to pay
What is the Sovereign-Bank Doom Loop?
negative outlook of economy in one MS-> leads to an increase of spread of public bonds (which are in the balance sheets of the banks) -> thus value of these securities decrease -> banks balance sheet will suffer -> chances of banks needing to be bailed out increases -> imply deficit and debt would increase -> worsens economic outlook and so on…
