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Maria Demertzis and Guntram B. Wolff

Articles by Maria Demertzis and Guntram B. Wolff

Hybrid and cybersecurity threats and the European Union’s financial system

September 12, 2019

The authors document the rise in hybrid threats and cyber attacks in the European Union. Exploring preparations to increase the resilience of the financial system they find that at the individual institutional level, significant measures have been taken, but the EU finance ministers should advance a broader political discussion on the integration of the EU security architecture applicable to the financial system.Increasing cyber and hybrid risks will test the European Union’s system of fragmentation on issues of security but centralisation on financial and other economic issues. This asymmetry was not an obstacle in a world in which security threats were more contained or of a different nature. But the world is changing.We document the rise in cyber attacks in the European Union.

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Braver, greener, fairer: Memos to the EU leadership 2019-2024

September 3, 2019

This collected volume, edited by Maria Demertzis and Guntram Wolff, focusing on the most important economic questions at EU level. The memos covering 16 different files and written by 21 Bruegel scholars, are intended to present the strategic to-do list based on an assessment of the state of affairs and the challenges that will greet the new Commissioners.The policymakers who will lead the European Union until 2024 take office in the context of a more favourable economic environment than their predecessors faced. Growth is steady, employment is up and investment is recovering. But in other ways, the new leadership confronts formidable challenges. The multilateral consensus is breaking down and a geopolitical confrontation between the United States and China has become a reality. Global

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Providing funding in resolution: Unfinished business even after Eurogroup agreement on EMU reform

December 7, 2018

The recent Eurogroup agreement on euro-area reform foresees a greater role for the European Stability Mechanism (ESM) as a backstop to the banking union. This is a welcome step forward but important issues remain. We assess the agreement on how to fund banks after resolution and the best way to organise the fiscal role in liquidity provisioning to banks. We argue that the bank resolution framework will remain incomplete and its gaps could result in important financial instabilities.

The Banking Union rule book dictates that when banks are deemed “failing or likely to fail”, they are either dissolved or enter a “resolution scheme”. The ECB’s Single Supervisory Mechanism (SSM) and the Single Resolution Board (SRB) both play crucial roles in the decision as well as the execution of such

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The economic potential and risks of crypto assets: is a regulatory framework needed?

September 6, 2018

What is the economic potential and the risks of crypto assets? Regulators and supervisors have taken great interest in these new markets. This Policy Contribution is a version of a paper written at the request of the Austrian Presidency of the Council of the European Union for the informal ECOFIN meeting of EU finance ministers and central bank governors.

This Policy Contribution is a version of a paper written at the request of the Austrian Presidency of the Council of the European Union for the informal ECOFIN meeting of EU finance ministers and central bank governors (September 2018).

We analyse and assess the economic potential and risk of crypto assets and discuss key regulatory questions that European Union policymakers need to confront. Crypto assets can be broadly

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Eurozone QE and bank profitability: Why it is too early to taper

December 8, 2016
Eurozone QE and bank profitability: Why it is too early to taper

In the eyes of the critics, the quantitative easing programs have been of little help to growth and inflation and have instead been an attack on savers, undermining the profitability of banks and insurances. Do these arguments stand scrutiny?

This op-ed will be published in El Economista, Finance, Hospodárské Noviny, and Tagesspiegel.

The quantitative easing (QE) programs that started in the second quarter of 2015 remain controversial, especially in Germany. The sums involved are substantial: since the start of the first program, the ECB’s balance sheet has increased three-fold, reaching 117% of euro-area GDP.
But in the eyes of the critics, the programs have been of little help to growth and inflation and have instead been an attack on savers, undermining the profitability of banks and insurances. Do these arguments stand scrutiny?
There is a fairly broad but cautious agreement that QE has stimulated demand. The causality is hard to prove, but since the launch of QE growth has picked up in both of its main aspects: investment and consumption. Studies document the positive impact on asset prices and a reduction in long term borrowing costs.
The bigger question is when we should begin to exit the programme. Some argue that the time is now.

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What impact does the ECB’s quantitative easing policy have on bank profitability?

November 30, 2016

This Policy Contribution shows that the effect of the ECB’s QE programme on bank profitability has not yet had a dramatically negative effect on bank operations.

Quantitative easing (QE) affects banks’ profitability in three main ways.
First, as QE drives up bond prices, banks holding such bonds see their balance sheets strengthened.
Second, QE reduces long-term yields and thereby reduces term spreads. With this, the lending-deposit ratio spread falls, making it harder for banks to generate net interest income on new loans.
Last, QE improves the economic outlook, which should help banks exposed to the economy find new lending opportunities and should reduce problems with non-performing loans. The effects of QE on bank profitability are therefore not one directional. If anything, the immediate effect should be positive.
Banks themselves have been quite negative about the impact of QE on their net interest income, but they have also acknowledged its positive impact on capital gains (ECB Bank Lending Survey).
Lending-deposit spreads for new lending have fallen significantly. Looking at actual bank profits, net interest income has been stable. Moreover, bank profitability has increased mostly as a result of efforts to clean balance sheets of impaired assets (at least until the end of 2015).

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What are the prerequisites for a euro-area fiscal capacity?

September 9, 2016

In this Policy Contribution, Maria Demertzsis and Guntram B. Wolff discuss three progressive steps for strengthening the fiscal framework at the euro-area level. These lead to less interference in national fiscal policymaking thanks to a more credible no-bailout clause, increased risk sharing and different degrees of provision of euro-area-wide public goods and fiscal stabilisation.

Executive Summary

This is the background paper for the presentation given at the informal ECOFIN in Bratislava on 9 September 2016.
A shortened version of this paper was circulated to the Ministers, click here to download it.

A monetary union without fiscal union is generally considered to be incomplete. We consider three steps for increasing the centralisation of fiscal functions, and discuss the prerequisites for moving forward at each one. Above all, fiscal integration is a matter of trust, which is currently at a low level.
The first step would be to complete banking union and establish a more credible no-bailout clause. The conditions for addressing the fiscal dimensions of banking union are a denationalisation of the banking policy framework – including as regards exposure to sovereign debt – addressing non-performing loans and legitimising the fiscal backstop.
The second step would move on from the first by adding funds for public goods and investment in the EU.

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The effectiveness of the European Central Bank’s Asset Purchase Programme

June 23, 2016

Since the end of 2014, inflation has been at or very close to zero. With very little ability to move the actual interest rate further into negative territory, the ECB has resorted to unconventional measures. The latest of these includes a programme to purchase corporate bonds, which started on 8 June 2016.

The general macroeconomic situation and weak inflation dynamics justified quantitative easing (QE) in the euro area. Doubts have emerged about its effectiveness as inflation has remained weak.
However, we do not know where inflation would have been without QE and the still large slack in the economy suggests that inflation might increase only in a few years.
Two major channels through which QE operates are visible: a weaker exchange rate and lower long-term yields. Lending, investment and housing have somewhat increased. However, banks have not shed sovereign debt from their balance sheets at a significant scale.
Bank profitability is squeezed by QE but we do not see a generalised financial stability risk as credit creation remains meager. Further monetary policy action is unlikely to generate strong benefits. It is important that other government action supports the ECB in achieving its goals.
Executive summary

For full references and footnotes, please see the PDF version of this publication.

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