15/12/2016
Prof. Volker Wieland, IMFS and Council of Economic Experts
Presentation of the Annual Report 2016/17 of the German Council of Economic Experts

At the presentation of the annual report of the German Council of Economic Experts entitled "Time for reforms", Professor Volker Wieland was critical of the work of the grand coalition: “Since the start of the coalition we can see how many developments are undone”, Wieland said with regard to the retirement age of 63. At the moment, he sees the German economy close to full capacity utilization and warned of an overheating of the economy. Therefore, in his view it is necessary to safeguard future viability in Germany by pushing deregulation in the services sector, removing limitations of rental fees, and linking the retirement age to life expectancy.

According to Wieland, economic output per capita demonstrates that Europe and not Japan is the horror scenario. The economic situation in the euro area is very heterogeneous with France being worse off than Germany and Italy experiencing a dramatic downturn. “Since 2008 the Italian economy declined by 25 percent and still remains below the level of 1999”, Wieland said. As an alternative example Wieland mentioned Spain where the economy has been growing at a very fast pace since 2012. “Early on, Spain has implemented reforms and the economy has recovered in a very short time”.

In Wieland’s opinion, the monetary policy of the European Central Bank (ECB) is not adequate. For him, it is not necessary to change the ECB’s mandate of price stability. “The mandate gives the ECB room to consider other inflation measures besides consumer prices”, Wieland said. Although the ECB relies on the Harmonized Index of Consumer Prices (HICP), it could also take into account other inflation measures. “For five years the GDG deflator for the euro area has been showing an increase of one percent each year.” In Wieland’s view, the ECB could tighten monetary policy in the euro area. In this context, Wieland also pointed out the downside of the expansionary monetary policy, in particular the risks for financial stability, the change-interest risks in the banking sector, and how the governments in the euro area freed themselves from market discipline, which finally leads to fiscal dominance.

30/11/2016
Prof. Michael Haliassos, Goethe University, Prof. Athanasios Orphanides, MIT, Prof. Volker Wieland, Ph.D., IMFS
"European Union - Where To?"

Do we have to unwind the euro in order to sustain the EU project? Athanasios Orphanides, Michael Haliassos and Volker Wieland discussed the future of the European Union and the perils and pitfalls in the IMFS Working Lunch series. Although the economists agreed on the fact that the European Union had reached a decisive point in its history, they pointed out different approaches to solve this problem, stressing different risks. "The EU lacks the structure of a complete federation", Orphanides, a former Cypriot central banker with roots in Cyprus and Greece, argued. The leaders in the EU member states cared too much about their reelection. "The incomplete nature of the euro area is threatening the EU project", Orphanides warned. Therefore, he proposed thinking about unwinding the euro in order to save the EU. In Orphanides' opinion, an unanimous agreement on issues like the banking union, a common supervision, and deposit protection cannot be reached.

Haliassos, who is among the editors of the blog "Greek Economists for Refom", stressed the risks of rising populism as certain groups within countries feel neglected. With regard to Greece, he warned that reforms rather focus on austerity programs than measures to boost competitiveness such as broadening the tax base or improving the ease of doing business. "There is a lot of stick and no carrot," Haliassos said. In his view, crisis countries like Greece were not able to realize their potential. In order to stop the "cycle of alienation" Haliassos recommended to look at microdata. "There's a lot to be learned by microdata," he said. You could find about groups who fall behind in the labor market, he argued.

Wieland demanded to distinguish between the EU as a peace project and the alienation towards the Brussels bureaucracy. "Elections show that people want decisions made close to home", he said. However, a win win situation could be reached at a European level regarding questions like the border protection, Europol and a joint climate policy. In his opinion, in the euro area a government insolvency mechanism and a crisis mechanism are lacking. Besides, the nexus between governments and banks had to be broken. "The euro area is not stable yet", Wieland warned.

09/06/2016
Prof. ThomasM. J.  Möllers, University of Augsburg
The ongoing changes in capital market law - too much of a good thing?

Capital markets law is constantly in transformation. However, new elements are not always constructed consistently. This is the conclusion of Prof. Thomas Möllers of Augsburg University during his lecture in the series Working Lunch."During a long time, the harmonization of jurisdiction was paramount in Europe. Now complexity represents the biggest challenge," the Professor of Civil Law, Commercial Law, European Law, International Private Law and Comparative Law said. Previously, regulatory issues according to German law comprised 43 pages while they sum up to 120 pages according to European law, Möllers illustrated. For the framework directives and implementation measures regarding the packaged retail investment and insurance-based investment products (PRIIPs) and Markets in Financial Instruments Directive (Mifid II) Möllers has counted even 398 pages. In his view, the density of standardization is due to the Anglosaxon legal view. This is characterized by case law with the judges mainly referring to judgments.

To Möllers' mind, unnecessary complexity also arises from the national legislator rushing ahead. As an example he cited the German product information sheet introduced in 2011 although the differently structured key information documents under PRIIIPS were about to follow on the European level. "The legislator institutes new laws knowing well that they will be replaced by others," Möllers criticized. He ascribes this to "political activism" with politicians demonstrating that they are taking measures against the financial crisis although they do not necessarily address the right issues.

Additional complexity is caused by the application of regulations instead of directives. Whereas directives need to be transposed into national law, regulations are legal acts of the European Union that become immediately enforceable as law. However, Möllers cannot recognize any system. "Some issues are taken out and ruled by regulation," Möllers criticized. But on the second level, one can find regulations as well as directives. For Möllers, the application of regulations is a "long-term objective that is desirable" although, in his opinion, the necessary secondary law is still missing.

Prof. Thomas Möllers: "European Legislative Practice 2.0: Dynamic Harmonisation of Capital Markets Law - Mifid II and PRIIP" (PDF, 254 KB)

14/03/2016
Prof. Dr. Heike Schweitzer, Freie Universität Berlin and Kronberger Kreis
The eroding limits of the ECB's mandate - The OMT judgment and its consequences

As the Federal Constitutional Court has reopened the hearings regarding the OMT program of the European Central Bank (ECB), the six economists forming the Kronberg Circle, among them Heike Schweitzer, have warned in a new study of eroding the limits of the ECB’s mandate. According to the study, the prohibition of monetary financing will be fundamentally weakened in its significance for the Economic and Monetary Union.

For the first time in its history, the Federal Constiutional Court had made an order for referral to the European Court of Justice (ECJ). In June 2015, the ECJ gave final approval to the ECB's Outright Monetary Transactions (OMT) bond buying program, judging it was falling under the ECB’s responsibility and it was not violating the prohibition of monetary financing. On February 16, 2016, the Federal Constitutional Court has reopened the hearing. 

In their study, Schweitzer and her colleages of the Kronberger Kreis recommend the Federal Court to follow the operative part of the ECJ's judgement but base its ruling on an autonomous reasoning. Hence, "it could then use its judgements to lay out more demanding legal standards and retain scope for future judicial review of the measures and acts of the ECB," the authors argue.

In their opinion, the ECJ's findings that "the competences of the European System of Central Banks (ESCB) encompass the rectification of disruptions in the monetary policy transmission mechanism and the uniform transmission of monetary signals into each member state is bound to lead to systematic and continuous intrusions into the field of economic policy".

The slides of the presentation (PDF, 125 KB)

More information on the study of the Kronberger Kreis

Kronberger Kreis: "Dismantling the Boundaries of the ECB's Monetary Policy Mandate" (PDF)