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Maria Demertzis and Nicola Viegi

Articles by Maria Demertzis and Nicola Viegi

Low interest rates in Europe and the US: one trend, two stories

March 10, 2021

Interest rates have been on a long-term decline, associated with declining productivity growth. To tackle this, the priorities are to reduce market concentration and, in Europe, change the financing model.

We thank Lionel Guetta-Jeanrenaud for excellent research assistance and Faÿçal Hafied for drawing our attention to ESOPs. We are grateful to seminar participants at Bruegel for comments and suggestions. This research has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement no. 822390.

In both Europe and the United States, interest rates have been declining for more than fifteen years. For much of this period, real interest rates have been negative and they are expected to remain negative for at least another decade. The

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The perils of more debt

April 10, 2020

Europe must find the “Ways and Means”.
The Bank of England has yesterday announced that it “will directly finance the extra spending needs of the UK government on a temporary basis…allowing the Treasury to bypass the bond market.” This will be done through the “Ways and Means” (sic) facility that will rise to an undisclosed amount, meaning probably big. This will allow the government to meet its exorbitant cash needs without having to pile on marketable debt.
This is an emergency facility but it smells of monetary financing. Yes, it is risky. That is why it is clearly stated that it will be temporary. And it needs to be done under the tight hand of the rule of law, that protects Central Bank independence from political involvement but understands that in times of “war” political leadership

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Inflation targets: revising the European Central Bank’s monetary framework

February 20, 2020

The ECB is looking to evaluate whether its definition of price stability is effective in helping anchor inflation expectations. We argue that the current definition does not make for a very good focal point. To become a focal point the ECB needs to do two things. Price stability should be defined as inflation at 2 percent,. Remove therefore the unnecessary ambiguity of "below but close to 2 percent". But that is not enough. Around that 2 percent, the ECB should say which levels of inflation it is prepared to tolerate. There need to be explicit bands defined around that 2 percent to provide a framework for economic agents to evaluate Central Bank performance. And as the ECB will have to operate under high levels fo uncertainty these bands need to be wider than tolerance of inflation between

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Brexit: When in doubt, slow down

March 29, 2019

Uncertainty over Brexit remains high despite looming deadlines. Here, the authors argue that the UK should take the necessary steps to make time to build consensus around the final shape of Brexit, and that the UK population should be consulted.

This article was published by La Voz de Galicia.

The UK parliament continues to try to exclude the possibility of no-deal Brexit, but at the same time continues to fail to find a suitable alternative. This week’s results in the latest round of parliamentary votes just confirm that a hard Brexit remains the default position.
Up till now, Prime Minister May had attempted to use the threat of no-deal to persuade her soft-Brexiter MPs to vote for her deal, and the threat of no Brexit to persuade the hard Brexiters to do the same. None of these

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How a second referendum could be the best way to overcome Brexit impasse

December 14, 2018

A new vote based on the revocation (or not) of Article 50 would give the UK government a clear signal to proceed in one direction or another, and thus trim down the number of options being touted – most of which are unworkable as things stand.

The harsh realities of Brexit – realities that have always been present – are becoming increasing visible as the end of the process nears.
Amid this distinct game of bluffs, threats and intransigence, there is one certainty: in the absence of anything else, the UK will officially leave the EU at the end of March 2019 without a deal.
Hard Brexit is the default option.  What this means is that if the British parliament chooses to vote down the prime minister’s current deal, it is implicitly choosing No Deal as the only real alternative. It is in

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Why a good Brexit outcome matters (and it’s not just the economy, stupid!)

February 22, 2018

Uncertainty still reigns over the future shape of the EU-UK relationship, as Brexit negotiations rumble on. Though the two parties are parting ways, a more cooperative approach from both would greatly improve the longer-term economic and political prospects for all concerned

At the current stage of Brexit negotiations, the two sides seem to have reached an impasse – a natural consequence of the strategic game the two parties are following. In fact, the process itself is beginning to look like a “prisoners’ dilemma”, where both parties have an incentive to be uncooperative, risking an outcome that would be unfavourable for all.
Like in a prisoners’ dilemma, there is a better outcome for both parties if they recognise their mutual interdependence, evaluate honestly the cost of the

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