波兰经济和社会研究中心（CASE）：欧元25年：欧元区的现状及未来

IN-DEPTHANALYSIS

RequestedbytheECONcommittee

MonetaryDialoguePapers,February2024

EuropeanParliament

Euro@25:Wherehas

theeuroareabeen?

Wheredoesitgofrom

here?

#EUROat25

Author:

-PereSIKLOS

ks

EconomicGovernanceandEMUScrutinyUnit(EGOV)

Directorate-GeneralforInternalPolicies

EN

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Euro@25:Wherehastheeuroareabeen?Wheredoesitgofromhere?

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WhereHastheeuro

areabeen?Where

doesitgofromhere?

Abstract

Whenitcomestotheeuro,policymakersshouldnotfollowtheexpression:“ifitain’tbroke,don’tfixit”.Areviewofthefirst25yearsoftheeurosuggeststhatmistakesweremade.Yet,theECBhasalsobeenremarkablyadaptableunderdifficultcircumstances.Improvementstotheresilienceoftheeuroareaarepossible.Thispaperlooksbackoveraneventfulquartercenturyandofferapeakintotheeuroarea’spossiblefuturechallenges.

ThisdocumentwasprovidedbytheEconomicGovernanceandEMUScrutinyUnitattherequestoftheCommitteeonEconomicandMonetaryAffairs(ECON)aheadoftheMonetaryDialoguewiththeECBPresidenton15February2024.

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ThisdocumentwasrequestedbytheEuropeanParliament'sCommitteeonEconomicandMonetaryAffairs.

AUTHORS

PierreSIKLOS,CASE–CenterforSocialandEconomicResearchandBalsillieSchoolforInternationalAffairs

ADMINISTRATORRESPONSIBLE

MajaSABOL

DrazenRAKIC

GiacomoLOI

EDITORIALASSISTANT

AdrianaHECSER

LINGUISTICVERSIONS

Original:EN

ABOUTTHEEDITOR

TheEconomicGovernanceandEMUScrutinyUnitprovidesin-houseandexternalexpertisetosupportEPcommitteesandotherparliamentarybodiesinshapinglegislationandexercisingdemocraticscrutinyoverEUinternalpolicies.

TocontactEconomicGovernanceandEMUScrutinyUnitortosubscribetoitsnewsletterpleasewriteto:

EconomicGovernanceandEMUScrutinyUnit

EuropeanParliament

B-1047Brussels

E-mail:egov@ep.europa.eu

ManuscriptcompletedinJanuary2024.

©EuropeanUnion,2024

Thisdocumentwaspreparedaspartofaserieson“Euro@25:What’snextfortheEMU?”,availableontheinternetat:

https://www.europarl.europa.eu/committees/en/econ/econ-policies/monetary-dialogue

DISCLAIMERANDCOPYRIGHT

TheopinionsexpressedinthisdocumentarethesoleresponsibilityoftheauthorsanddonotnecessarilyrepresenttheofficialpositionoftheEuropeanParliament.

Reproductionandtranslationfornon-commercialpurposesareauthorised,providedthesourceisacknowledgedandtheEuropeanParliamentisgivenpriornoticeandsentacopy.

fromhere?

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CONTENTS

LISTOFABBREVIATIONS

6

LISTOFFIGURES

7

LISTOFTABLES

8

EXECUTIVESUMMARY

9

1.INTRODUCTION:STICKINGTOYOURKNITTINGISHARDTODO10

2.LOOKINGBACK25YEARS:HOWNICE?12

2.1.What'sNICE?

12

2.2.EvaluatingECBperformanceover25years

12

2.2.1.Interestratespreads

12

2.2.2.Gaps

13

2.2.3.ThroughthelensofTaylorprinciples

17

2.2.4.Deviatingfrommonetarypolicyrules:somedeterminants

21

2.2.5.Conclusions

23

3.THEDOGSTHATDIDN'TBARKASTHEEUROTURNS2524

3.1.Theissues

24

3.1.1.Therecessionthatwasn't?

24

3.1.2.Geopoliticalwhirlwinds

24

3.1.3.Thecomingfinancialcrisis?

24

3.1.4.TheEU:chuggingalong

25

4.CHALLENGESAHEADFORTHEEURO:WHEREDOWEGOFROMHERE?26

4.1.Theshort-run26

4.2.Thelonger-rur28

5.CONCLUSIONS:THEEURO'SHALLMARKS29

REFERENCES30

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LISTOFABBREVIATIONS

CBDC

CentralBankDigitalCurrency

CEPR

CentreforEconomicPolicyResearch

ECB

EuropeanCentralBank

EP

EuropeanParliament

EMU

EconomicandMonetaryUnion

ESDC

EuroSovereignDebtCrisis

ESCB

EuropeanSystemofCentralBanks

EU

EuropeanUnion

EUR

Euro

GDP

Grossdomesticproduct

GFC

GlobalFinancialCrisis

HICP

Harmonisedindexofconsumerprices

NextGENEU

NextGenerationEU

NICE

Non-inflationaryConstantExpansion

UMP

UnconventionalMonetaryPolicies

USD

USdollar

US

UnitedStates

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LISTOFFIGURES

Figure1:Inflationintheeuroarea,theUS,andChina,1990-202314

Figure2:ECBmacroeconomicprojections:selectedvintagessince200016

Figure3:GraphicalrepresentationoftheTaylorprinciples20

Figure4:Observedandshadowpolicyrates,calibratedTaylorruleestimates,1995-202321

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LISTOFTABLES

Table1:Summarystatistics:InflationgapsintheeuroareaandtheUS,1999-202314

Table2:Summarystatistics:euroarea,US,Chinainflationgaps,1999-202315

Table3:Selecthouseholdandprofessionalforecasterrors:euroareaandUS16

Table4:DeterminantsofthedeviationsfromaTaylorrule,1999Q1-2023Q223

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EXECUTIVESUMMARY

•EconomicandMonetaryUnion(EMU)hasprovedresilientthroughoutaquartercentury.Thisisnottosaythatimprovementscannotbemade.

•PolicymistakeshavebeenmadebuttheEuropeanCentralBank(ECB)hasalsofoundawaytoadapttothemanylargeshocksithassustainedoverthelast15yearsespecially.

•OverlyfocusingonmeaninflationignoressourcesofconcernabouttheECBperformancefoundinthehighermomentsofinflationbehaviour.

•Intermsofpolicydelivery,thependulumhasswungtoofarinthedirectionofbackward-lookingmonetarypolicy.Monetarypolicyneedstoreturntoamoreforward-lookingstance.

•TheECBshouldtry,wheneverpossible,to‘sticktoitsknitting’andavoidinterferingorbecomingembroiledindebatesaboutdigitalisationandclimatechangefinance.

•Overthelonger-termtherearegovernancequestionsthatwillneedaddressingrequiringaTreatychange.Fortheforeseeablefuture,however,thisisoffthetable.

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1.INTRODUCTION:STICKINGTOYOURKNITTINGISHARDTODO

Theeuromust,itseems,livewiththepossibilitythatitmightnotsurvive.Evenbeforethesinglecurrencybecameareality,scepticismwasrifeaboutthenovelexperimentofsovereignnationsbindingthemselvestoasinglecurrency.Forexample,JonungandDrea(2009)collectedtheviewsofalargenumberofUSacademicsandpolicymakerswhoconcludedthattheeurocouldnothappen,thatitwasabadidea,andthatitwouldneversurvive.Angstaboutthesinglecurrencyhasnotdiminished,despitetheemergenceofnewfaultlines'betweenmemberstates(Ahamed,2012;EichengreenandWyplosz,2016;TheEconomist,2023).

Thegoodnewsisthattheseriesoflargeshockssince2008,namelytheGFC,theEuroSovereignDebtCrisis(ESDO),Brexit,theglobalpandemicof2020-2023,namelyCOVID-19pandemicandtheongoingRussianinvasionofUkraine,havenotseeminglychangedtheprospectsforthedemiseofthesinglecurrency.Indeed,theEU,whichconsistsoftheeuroareaplusseveralcountrieswhichhaveretainedtheircurrency',mostofwhichareexpectedsomedaytojointhecommoncurrencyarea,continuestoreceivenotonlyhighfavourabilityratingsbutmanagestogenerateoptimismaboutitsfuture.?Thissuggeststhattheeurohas,sofar,metthetestofresilience.

Thatsaid,thispaperproposesthatpolicymakersshouldnotadoptthepositionthat,inthecaseoftheeuro,"ifitain'tbroke,don'tfixit".Areviewofthefirst25yearsoftheeurosuggeststhatmistakesweremade.However,improvementstotheresilienceoftheeuroareaarepossible.Whatfollowsthenisalookbackoverahighlyeventfulquartercenturyaswellasapeakintoapossiblefuturescenarioswhentheeurowillhopefullycelebrateahalfcenturyofexistence.

MyvisionfortheEuro@25,andEMUmoregenerally,goingforwardis,however,predicatedonafewfollowingguidingprinciples:

(1)WhiletheECBcancontributetothedigitalisationdebate,itshouldultimatelyadapttocircumstancesastheydevelop.Monetarypolicymaywellbeimpactedbycurrencydigitalisation(i.e.digitaleuro),andtheECBshouldmaketechnicalpreparationsforsuchaneventuality.However,otherthanresearchintothemonetarypolicyandfinancialstabilityconnectionstoCentralBankDigitalCurrency(CBDC),thepoliticalelementinthedebate(i.e.,theformaretainCBDCshouldtake,theroleofcommercialbanks,limitationsintransferringfundsinternationally,privacyandsafetycharacteristics,etc.)isoutsidetheremitoftheECB(eg,seeSiklos2021,2022,andreferencestherein).

(2)TheECBshouldremainneutralintheclimatechangedebate,includingthefinancialaspects.Clearly,theeffectsofclimatechangespilloverintofiscal,financial,andregulatorymatters.Totheextentfinancialstabilitymaybeimpacted,duetophysicalandfinancialdamagefromtheconsequencesofclimatechanges,theECB'staskistoassistgovernmentsandotherstakeholderswhoaredirectlyaccountableformanagingtheconsequencesofclimatechange.TheECBshouldnotbeaskedtofavoursomekindsoffinancialarrangementsoverothersbasedon'green'characteristics.Policydirectionsandapplicationsinthisfieldmustcomefromelectedrepresentatives.Aswithdigitalisation,thejoboftheECBistoadapttopolicydecisions

AlthoughprospectiveeuroareamembersmustmeetaseriesofconvergencerequirementssetoutintheMaastrichtTreaty.See

https://economy-finance.ec.europa.eu/euro/enlargement-euro-area/convergence-criteria-joiningen.

See,forexample,thelatestEurobarometersurvey(December2023):https://europa.eu/eurobarometer/surveys/detail/3053).70%ofEUcitizenssurveyedthoughttheEUisastabilizinginfluenceintheworld(ahighof91%inPortugalandalowof55%inEstonia).Around61%ofEUcitizensareoptimisticaboutthefutureoftheEU(ahighof83%inIrelandtoalowof47%inFrance).

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outsideitsremitandnotbecomeover-burdenedwithevenmoreresponsibilitiesthatareovertlypoliticalinnature.

(3)ReformsrequiringTreatychanges,oranewTreaty,arenotenvisagedfortheforeseeablefuture.Thelikelihoodofsuchchangestakingplaceare,Iassume,effectivelyzerooverthemediumterm(i.e.,5years).Thatsaid,somereformstotheMaastrichtTreatyareproposedbecausetheyaredeemedeventuallytobecomenecessary.

Thepast25yearshaveledtoawideningoftheresponsibilitiestheECBhastakenon,asdemonstratedinpartbyrepeatedrulingsbyboththeGermanConstitutionalandEuropeanCourtse.g.,seeFeldandWieland,2021).StateddifferentlytheECB,notentirelywithoutjustification,hasfoundithardto“sticktoitsknitting”,thatis,monetarypolicyasitiscurrentlygenerallyunderstood.AsitisstatedontheECBwebsite:“HereattheEuropeanCentralBank(ECB),weworktokeeppricesstableintheeuroarea.Wedothissothatyouwillbeabletobuyasmuchwithyourmoneytomorrowasyoucantoday.WealsocontributetothesafetyandsoundnessoftheEuropeanbankingsystem.Thishelpstoensurethatyourmoneystayssafeinthebank.”3Notetheuseoftheword“contribute”implyingthatthesafetyofthebankingsystemisasharedresponsibility.Notealsothealmostcompletefocusonthepricestabilityobjective.Whileitiscertainlydebatablewhethertheunconventionalmonetarypolicies(UMP)theECBhasengagedinarecompatiblewith“keep[ing]pricesstableintheeuroarea”,whatislesscleariswhetherthisobjectivehasbeenmet,andtheextenttowhichmonetarypolicyhassucceededornotinhelpingattainthepricestabilityobjective.4Sinceinstitutionalconsiderationsarealsoinvolved,Ibrieflyreturntothisissueintheconcludingsectionwhenprovidinga‘todolist’inforthelonger-run.

Whatisagoodwaytolookbackattheaccomplishmentsofmonetarypolicysincetheeuroareawascreated?PerhapsformerECBPresidentMarioDraghisaiditbestwhenwedefinedthelimitsofmonetarypolicyinthefollowingterms:“Oneisthewillingnesstoact,anotheristhecapacitytoact,andthethirdistheeffectivenessofouractions.”5IhavelittledoubtthattheECBhasrepeatedlydemonstratedwillingnessandcapacitytoactinseekingtomeetitsmonetarypolicyobjective.DebatethenpartiallycentresarounditsrecordandeffectivenesstowhichInowturn.

3https://www.ecb.europa.eu/ecb/html/index.en.html.

4PartofthedifficultywithassessmentsofUMPisthattheycanbesensitiveaccordingtowhetheronefocusesontherealeconomyorthefinancialsystem.See,forexample,Ouerket.al.(2020)orDell’Ariccia(2018).

5CommitteeonEconomicandMonetaryAffairs-MonetaryDialoguewithMarioDraghi,presidentoftheEuropeanCentralBank(pursuanttoArticle284(3)oftheTFEU)Brussels,15February2016.Seehttps://www.europarl.europa.eu/cmsdata/97664/15.02.2016EN.pdf.

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2.LOOKINGBACK25YEARS:HOWNICE?

2.1.What'sNICE?

TomanyeconomicobserversthedesideratumofmonetarypolicyistheNICEstate,thatis,non-inflationaryconstantexpansion.ThetermwascoinedbyformerBankofEnglandGovernorMervynKing(2003)todescribeeconomicconditionsthatprevailedduringthe1990s.Towhatextenthastheeuroareaeconomy,sincethesinglemonetarypolicycameintobeingin19996,beenNICE?Whatistheeconomicrecordoftheeuroareasince1999andhowmuchoftheresponsibilityshouldbelaidatthefeetofmonetarypolicy?'Toaddressthisquestion,Iconsiderthefollowingindicators:

(i)Interestratespreads;

(ii)Inflationgaps:gapbetweenobservedandtargetedinflation.Thisgoestotheissueofcredibility(BordoandSiklos,2022).Inaddition,gapsbetweeneuroareainflationandUSorChina'sinflationratestohighlighttheroleofglobalfactors;

(ii)Howhastherelationshipbetweeninflationandoutputgaps,andinflationversusoutputgapvolatilitychangedovertimeintheeuroareaandtheUS?Howsimilarordifferentarethey?Thisreferstotheso-calledTaylorprinciples(Nikolsko-Rzhevskyy,et.al,2019)thatdefinethe'optimal'conductofmonetarypolicy.PerfectionisnevertobeexpectedbutitisusefultoknowhowfarfromtheidealtheECBhasbeenoveritsexistence.

Ifurtherextend(il)byestimatingdeviationsintheECB'spolicyraterelativetocalibratedmonetarypolicyrulestodigdeeperintoaskingwhetherthesedeviationsareassociatedwithassetprices(housing,credit,exchangerate).8Ifso,thishighlightsthepotentialtrade-offsbetweenmonetarypolicyandfinancialstabilityobjectives.Itisatrade-offthatisnotlikelytodisappearinfuturebuthowthisrelationshipisgovernedisanimportantfuturepolicychallenge.

2.2.EvaluatingECBperformanceover25years

2.2.1.Interestratespreads

Interestratespreads,notablythedifferentialbetweenlongandshort-termgovernmentbondyieldsaresaidtohavepredictivecontentforeconomicdownturns.Whiletherearemanysuchspreadstwoespeciallyhaveattractedattentionovertime,namelythe10years-2yearsandthe10years-3monthsspreads.9Thatsaid,theliteraturereportsmixedresultsaswellasadeteriorationinrecentyearsintheinformationcontentofyieldspreadsforfutureeconomicgrowthandinflation.ThereisalsosomeevidencethattheusefulnessofspreadsaseconomicindicatorsdiffersasbetweentheUSandtheeuroarea(interalia,seeWright,2006;ChauvetandPotter,2005;Moneta,2005;ChinnandKucko,2015;Benzoniet.al.,2018).

Theorysuggeststhatin,normaltimes,long-shortyieldspreadsarepositiveinparttocompensatefordifferencesinholdingperiods(i.e,thetermpremium).However,whenspreadsdeclineorbecomeinverted,thissignalsshort-termgovernmentbondyieldsthatexceedlong-termoneswhichis

Cashwasfirstintroducedin2002in12EUcountries.Seehttps://www.ecb.europa.eu/euro/intro/html/index.en.html.

MervynKing's2003speechpredictedthatthe2000swouldnotlikelyremainNICE.

HofmannandBodganova(2012)performsimilarcalculationsbutdonotconsiderasmanyalternativeformulationsoftheTaylorrulenordotheyempiricallyinvestigatethedeterminantsofdeparturesfromcalibratedmonetarypolicyrules.However,theydodiscusstheroleofglobal

factorsandthedeclineintheneutralrealrate.Seealsobelow.

9Toconservespace,readerscanseechartsofthetwospreadsreferredtoabove,respectively,atfollowinglink.

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suggestiveofpoorereconomicprospectsand/orasurgeofinflation.Inthecaseoftheformer,highershorterratesrelativetolong-termyieldssuggeststhatfinancialmarketsareexpectinglowershort-terminterestrates(e.g.,seeFleming,2023).

Theimpactoftherecentinflationsurgeonspreadsisquiteapparentinthedata,beginningin2022,whenyieldspreadsturnnegative.Indeed,bylate2023,thespreadbetween10yearsand3-monthsyieldsapproaches-2%,avalueneverseeninthe25yearshistoryoftheeuroarea.Yet,ifonecomparesspreadbehaviourwithrecessiondatesasidentifiedbytheCEPR10,spreadsdoapoorjobasaharbingerofanimminentrecession.11

Yieldspreadsarepositiveandcloseto2%duringtheGFCandESDCeras,whichisbetween2008and2013.Theydriftdowntothe1%rangeduringthebriefrecoverybetween2015-2018beforestartingtotrendintonegativeterritory.Indeed,thehistoryofspreadbehaviourintheeuroareaappearstobeslowdeclinesfollowedbybriefreversals.IftherecordofspreadsisinformativeabouttheECB’sperformanceoverthepastquartercenturythen,withtheexceptionoftheongoinginflationsurge,theyappeartoreflectthelowinflationenvironmentandtheassumptionthatthecentralbankhasabiasinthedirectionofpolicyeasing.

2.2.2.Gaps

Arguably,amoretellingindicatorofECBperformanceasksaboutinflationperformance.Afterall,theMaastrichtTreatyclearlyassignspricestabilityasthecentralbank’sprincipaltask.12Howtoassessinflationperformance?Economistsarefondofusinggapstoassesstherecordofmonetarypolicy.Sincegapsrefertoadifferentialbetweenwhatisobservedandatarget,theyrepresentaconvenientwaytoassessmissesfromsomechosenordesirableoutcome.Ofcourse,therearemanycandidatesforgaps.BelowweconsiderafewtointerprettherecordofEMUsinceitwascreated.

Table1presentssummarystatisticsofthedifferencebetweenobservedinflationandthe2%objectivefortheeuroareaandtheUS.OnaveragetherecordoftheECBissuperiortothatoftheUSFederalReserve.Indeed,therecordofinflationintheeuroareasince1999appearsexemplary.Ofcourse,itmustberememberedthattheperiodexaminedincludesperiodsofbelowaverageaswellasamorerecentperiodofwellaboveaverageinflation.ThisistrueforboththeECBandtheUSFederalReserve.Accordingly,itisworthwhiletoconsiderotherindicatorsoftheperformanceoftheinflationgap.InflationgapsareconsiderablymorepositivelyskewedintheeuroareathanintheUS.Hence,thetailsofinflationarerelatively‘fatter’inthesinglecurrencyarea,anindicationthatlargerpositivevaluesoftheinflationgaparemorecommonintheeuroarearelativetoinflationgapperformanceintheUS.SincetheECBisprimarilyfocusedoncontrollingtheinflation,thissuggests,ifwemovebeyondthefirstmoment,lessofitthanfortheUScentralbankwhichtoutsitsdualmandate(i.e.,inflationand“maximumemployment”).13Indeed,thefourthmomentoftheinflationdistribution,thatis,kurtosis,isalsomuchhigherintheeuroareathanintheUS.Kurtosisissometimesthoughtofasashorthand indicatorofuncertaintysincehighervaluesindicatethepresenceofmoreextremevalues.Ifso,thenthesuccessoftheECBinminimisingtheaverageinflationgapoveritsexistenceisnotmatchedbya

10Thechronologyisavailablefrom/dc/chronology-euro-area-business-cycles.

11SimilaryieldspreadsintheUShavealsoinvertedalthoughnottothesamedegree,especiallyinthecaseofthe10year–3monthspread.See/series/T10Y2Yand/series/T10Y3M.

12Article2oftheESCBStatutestatesthat"theprimaryobjectiveoftheESCBshallbetomaintainpricestability.Withoutprejudicetotheobjectiveofpricestability,itshallsupportthegeneraleconomicpoliciesintheCommunitywithaviewtocontributingtotheachievementoftheobjectivesoftheCommunity....TheESCBshallactinaccordancewiththeprincipleofanopenmarketeconomywithfreecompetition,favouringanefficientallocationofresources."Seepage7inhttps://www.ecb.europa.eu/pub/pdf/other/ecbinstitutionalprovisions2011en.pdf.

13See/monetarypolicy/monetary-policy-what-are-its-goals-how-does-it-work.htm.

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reductioninuncertaintyaboutinflation.Finally,inflationgapsinbothmonetaryareasareroughlyequallylikelytobepositiveornegativesothereappearstoberelativelylittlebiasinthesignofinflationgaps.Thisimpliesanapproximateequalchancethatinflationwillbeaboveorbelowthe2%target.

Table1:Summarystatistics:InflationgapsintheeuroareaandtheUS,1999-2023

Geography

Mean

StandardDeviation

Skewness

Kurtosis

Sum

%

Negative

Euroarea

0.09

1.82

2.22

9.29

9.40

51

United

states

0.54

1.74

1.20

5.66

53.59

42

Sources;ECBDataPortal,https://dataecb.europa.eu/foreuroareadata.FederalReserveEconomicDataforUSdata.

/

.

Notes:InflationgapisobservedHICP(euroarea)orCPl(US)annualisedinflationless2%whichisassumedtobetheinflationtarget.Datausedarequarterly.Thesampleis1999Q1-2023Q3.%negativereferstothefractionofthesamplewhenobservedinflationisbelowthe2%inflationtarget.

Figure1:Inflationintheeuroarea,theUS,andChina,1990-2023

"HICPinflation(curoarea)CPIInfation(UhuitedStates)CP1inflation(MainlandChina)

Sources:SeeTable1andC