Latest documents

Summary : The study developed herein aims to address the concerns raised as to the field of retail investments. It aims at analysing market practices and the applicable legislative landscape in order to identify room for improvement and, ultimately, propose potential solutions to foster retail investor protection and participation in financial markets. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the Committee on Economic and Monetary Affairs (ECON).

Authors : Filippo ANNUNZIATA, Bocconi University, Milano. European Banking Institute, Frankfurt.

Summary : This briefing provides a summary of the recent economic developments in the EU Member States and gives an overview of relevant economic projections forecasted by major international and EU institutions.

Authors : SAMUEL DE LEMOS PEIXOTO, GIACOMO LOI

Summary : This briefing paper provides an overview of the role and mandate of the Eurogroup and the role and accountability of its President, including the procedures for his/her appointment. In addition, this note refers to the debate around the transparency of Eurogroup proceedings. The paper is an update of a previous version and will be updated in light of relevant developments.

Authors : Kajus HAGELSTAM, WOLFGANG LEHOFER, GIACOMO LOI

Summary : Paschal Donohoe is attending his fourth Economic Dialogue in the ECON Committee since being elected as President of the Eurogroup in July 2020. His previous Economic Dialogue took place on 2 February 2022. This briefing covers the following issues:); Economic situation and developments (Section 1); the Eurogroup work programme and Euro Area Recommendation (Section 2); Fiscal and economic surveillance (Section 3) and Completing EMU governance (Section 4). For an overview of the role of the President of the Eurogroup, please see Briefing: The role (and accountability) of the President of the Eurogroup.

Authors : Kajus HAGELSTAM, SAMUEL DE LEMOS PEIXOTO, GIACOMO LOI, Kai Gereon SPITZER

Summary : This document compares the draft 2023 Country Specific Recommendations (CSRs) proposed by the Commission on 24 May 2023 with the 2023 CSRs approved by the Council on 16 June 2023. The Council will finally adopt the recommendations in July.

Authors : ADRIANA HAJNALK HECSER, DONELLA BOLDI, OVIDIU IONUT TURCU

Summary : This briefing provides a summary of all scrutiny activities of the European Parliament related to euro area monetary policy in the period between March 2023 and June 2023. These summaries are published regularly after each Monetary Dialogue (MD) with the European Central Bank (ECB). For a recap of the key monetary policy developments and decisions taken by the ECB’s Governing Council in that period, please refer to our briefing ahead of the 5 June 2023 MD.

Authors : Drazen RAKIC, GIACOMO LOI

Summary : This note has been prepared for a regular public hearing with the Chair of the Supervisory Board of the European Central Bank (ECB), Andrea Enria, which will take place on 28 June 2023. The briefing addresses: (i) the ECB’s recent Financial Stability Review, (ii) the results of four asset quality reviews, (iii) the ECB’s progress report on the disclosure of climate and environmental risks, (iv) three critical reviews of the SSM’s work (vii) the ECB’s views on the proposed changes to the Crisis Management Framework, and (viii) an update on activities of significant banks in Russia

Authors : Marcel MAGNUS, Kai Gereon SPITZER

Summary : There is a consensus among Parliament, Council and Commission that resolution should apply more often, including among smaller and medium-sized banks. To achieve this, the Commission has now proposed a number of changes to the criteria and process of the public interest assessment. This briefing reviews, against the background of the Single Resolution Board’s past practice, what impact the proposed changes might have. The proposed changes modify in particular the comparison between resolution and insolvency, while in the past, resolution was denied because it was not considered necessary. In practice, going forward, the public interest test may matter less if the SRB succeeds in making use of new possibilities to prevent and better prepare for resolution.

Authors : Marcel MAGNUS, Kai Gereon SPITZER

Summary : High inflation negatively affects firms and households in a variety of ways, including by eroding real incomes and by widening inequality. Central banks responded by tightening monetary policy stances significantly. This has naturally constrained demand through rising borrowing costs and smaller credit flows to the real economy. The negative impact on economic activity and growth is a standard feature of tightening, yet it deserve to be closely monitored. Four papers were prepared by the ECON Committee’s Monetary Expert Panel, discussing how the real economy is impacted by high inflation and monetary tightening. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 5 June 2023.

Authors : Klaus-Jürgen GERN, Nils JANNSEN, Nils SONNENBERG, Daniel GROS, Farzaneh SHAMSFAKHR, Charles WYPLOSZ, Christopher A. HARTWELL

Summary : This document provides an overview of key developments under the preventive and corrective arms of the Stability and Growth Pact on the basis of the latest Commission and Council decisions and recommendations in the framework of the Stability and Growth Pact and the latest European Commission economic forecasts. It also includes a section on the on-going review of the EU fiscal framework. This document is regularly updated.

Authors : Kajus HAGELSTAM, SAMUEL DE LEMOS PEIXOTO

Summary : Following recent episodes of stress in the banking sector in the US and Switzerland, the ECB’s role in safeguarding financial stability is under scrutiny. The ECB has claimed that no trade-off exists between its primary mandate on maintaining price stability and safeguarding financial stability. Furthermore, the 2021 monetary policy strategy review confirmed that financial stability is a pre-condition for financial stability, and vice-versa. Yet, further interest rate hikes may still give lead to headwinds for the financial sector. Four papers were prepared by the ECON Committee’s Monetary Expert Panel, analysing the implications of financial stability on the ECB’s conduct of its monetary policy. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 5 June 2023.

Authors : Christophe BLOT, Jérôme CREEL, François GEEROLF, Luigi BONATTI, Andrea FRACASSO, Roberto TAMBORINI, Christian GLOCKER, Stefan SCHIMAN-VUKAN, Thomas URL

Summary : Although the US Inflation Reduction Act (IRA) pursues a range of aims, the two main ones are the lowering of inflation by removing purchasing power from the US economy, and to provide the United State's contribution to fighting climate change. Unlike similar EU measures, most of its climate support is done via tax subsidies. Although hailed in the EU for heralding a new era in US climate policy, the IRA is being criticised for its outright 'Buy American' provisions. Amongst others, it is feared that EU exports to the US will be hampered, and that EU firms might be enticed to relocate to the US. So far, the EU has reacted by adapting its State aid rules and the legislative proposals of the Green Deal Industrial Plan, but it also relies upon the Recovery and Resilience Facility's dedicated climate subsidies to offset the IRA's effects on the EU economy. Further possible EU responses are currently discussed.

Authors : CHRISTIAN SCHEINERT

Summary : This briefing paper was prepared ahead of the Monetary Dialogue between the Committee on Economic and Monetary Affairs (ECON) and the European Central Bank (ECB) President on Monday, 5 June. It provides a summary of key monetary policy developments and decisions taken by the ECB’s Governing Council.

Authors : Drazen RAKIC, GIACOMO LOI

Summary : Restrictive monetary policy dampens inflation effectively, but it also raises stress in financial markets. This happens through revaluations of financial assets on banks’ balance sheets and through dampened economic activity. Moreover, apart from the positive effect of exiting negative interest rates, banks’ net interest margin is generally negatively affected by interest rate hikes. With most of the disinflationary impact of higher interest rates yet to materialise, monetary policy should allow the financial sector to digest the rapid rate hikes of last year by reducing the pace of tightening.

Authors : Christian GLOCKER , Stefan SCHIMAN-VUKAN , Thomas URL

Summary : We argue that a hard stagflation scenario is still possible. This would have the potential to create a conflict between price stability and financial stability. We therefore address four questions. Why should central banks be concerned with financial stability? What financial imbalances should central banks be worried about? Are monetary policy and macroprudential regulation two tools for two goals? Is the ECB poised to face the price stability vs. financial stability trade-off?

Authors : Luigi BONATTI , Andrea FRACASSO , Roberto TAMBORINI

Summary : The rise of policy rates in the euro area has led to a tightening of financing conditions raising concerns for financial stability. The risk of financial crisis should be neither ignored nor overstated. The euro area is not facing conditions for which there would be the highest probability of a crisis. The risk faced by banks depends on the share of adjustable-rate mortgages. At this stage, net interest margin of banks and profitability have slightly improved.

Authors : Christophe BLOT, Jérôme CREEL, François GEEROLF

Summary : Monetary policy tightening has led to a sharp steepening of the yield curve and this has had a negative impact on banks that were not well-positioned to cope with this shock. This paper reviews current banking tensions and argues that they are unlikely to have a major impact on the ECB’s monetary policy decisions in the current cycle.

Authors : Karl WHELAN

Summary : Inflation is often confused with changes in relative prices. The recent sharp increase in energy prices, which has also pushed up food prices, has hit poorer households especially hard, thus creating the impression that inflation increases inequality. However, it is the large changes in relative prices and not the average inflation rate (of now 7%) that is the real problem. We also show that rents – which are more important for low-income households – provide a significant offset for higher energy prices on average for the euro area, as they have lagged inflation, albeit with large differences across countries.

Authors : Daniel GROS, Farzaneh SHAMSFAKHR

Summary : As it brings inflation down, the ECB faces lingering real-side disturbances inherited from the pandemic and the invasion of Ukraine. Its actions sometimes even deepen these disturbances. The paper argues that it simply cannot deal with them, and should not try to.

Authors : Charles WYPLOSZ

Summary : The current situation in Ukraine has led to severe supply chain disruptions, contributing to a sharp increase in food and commodity prices globally and the limitation of fossil fuel imports from Russia to the EU. Moreover, to end Europe's dependence on semiconductor suppliers from Asian countries, it is necessary to take immediate action of a structural nature, involving all EU Member States and all participants in regional supply markets. The overall aim of this study was to identify drivers of and barriers to building up open strategic autonomy at EU level, before recommending coordinated solutions and addressing supply chain resilience in four critical areas: food security, energy security, semiconductors and satellite communications. This research seeks to contribute to the European Parliament's future work by providing insights into how to protect the European agricultural sector, ensure energy security and the technological sovereignty of semiconductor production, and improve satellite communications.

Authors : DG, EPRS

Summary : In this in-depth analysis, we summarise and explain the directions that the ECB has in mind for the digital euro, based on the ECB’s progress reports and statements. We also highlight further questions that have so far received less explicit consideration, but may deserve the legislators’ attention when the European Commission presents a proposal for ordinary legislative procedure. The analysis has been updated following the third progress report and now also entails a summary of external expertise commissioned by the ECON Committee.

Authors : GIACOMO LOI, Kai Gereon SPITZER

Summary : This overview provides a summary of the latest state of play on the implementation of the Recovery and Resilience Plans (RRPs). It focuses on the latest European Commissions’ preliminary assessments of payment request from Austria and Luxembourg; the Commission attested that all related milestones and targets were satisfactorily fulfilled. It also provides some information available in the public domain regarding Italy’s upcoming payment request.

Authors : Marcel MAGNUS, GIACOMO LOI

Summary : The Bank Crisis Management and Deposit Insurance (CMDI) framework should be enhanced with a view to completing the Banking Union. This study recommends harmonizing some key elements of the national bank insolvency regimes, granting the ECB a role in the provision of ELA and introducing improvements to the deposit guarantee schemes framework that could pave the way for the establishment of EDIS in the near future.

Authors : Emilios AVGOULEAS, Rym AYADI, Marco BODELLINI, Giovanni FERRI, Rosa LASTRA

Summary : This report considers that the digital euro can be introduced under the ECB's primary mandate as legal tender and be remunerated. However, in order to lawfully create the proposed digital euro app, the ECB would require a mandate from the EU legislator under its secondary mandate which has to comply with article 119 TFEU, fundamental rights and data protection regulation. The supervision should be through the European Data Protection Supervisor. Finally, the digital euro should not exclude those lacking digital skills and minimum standards should be introduced regarding the availability of cash.

Authors : Annelieke MOOIJ

Summary : This study assesses the ECB’s first three progress reports on the digital euro from a legal perspective. It looks into what key design choices proposed by the ECB reveal in terms of the legal qualification of the digital euro and discusses legal aspects of the infrastructure supporting it.

Authors : Seraina GRÜNEWALD

Summary : This study assesses the ECB’s first three progress reports on the digital euro from a legal perspective. It looks into what key design choices proposed by the ECB reveal in terms of the legal qualification of the digital euro and discusses legal aspects of the infrastructure supporting it.

Authors : Seraina GRÜNEWALD

Summary : Analysing a set of RRF measures proposed by four MSs under pillar 3, we address several questions: how successful was the facility in pushing for long-awaited economic reforms in these countries? To what extent are the proposed measures tackling identified challenges in a number of policy areas? How adequate are the corresponding milestones and targets for ensuring effective implementation? We conclude that the facility was effective in bringing important reforms to the policy agenda, but there is significant heterogeneity regarding the quality of measures proposed, as well as to their monitoring provisions.

Authors : Miguel LEBRE DE FREITAS

Summary : As the first EU act specifically regulating the EU's CRM supply, the proposed initiative aims to address an area previously identified as one of the EU's strategic dependencies. Following a clear problem description, the IA presents three (partially overlapping) policy options and a thorough analysis of their possible impacts, with a clear focus on economic impacts. The identification of the preferred policy option appears justified. The predominantly qualitative assessment draws merely on desk research and stakeholder input. In this respect, the IA admits to having 'significant data gaps' and a 'limited' evidence base, owing in part to 'the lack of a supporting study'. With regard to stakeholder input, the IA does not explain why the public consultation was open for only 8 weeks (instead of the default 12). It is notable that the proposed regulation deviates somewhat in scope from the IA: it adds a further specific objective – namely to diversify CRM imports in order to reduce strategic dependencies – and provides for a few measures that were either not assessed at all in the IA, or which were outside the preferred policy option.

Authors : Irmgard ANGLMAYER

Summary : This paper provides and overview of the role of the European Parliament in scrutinising the application and implementation of the EU economic governance framework, notably by holding Economic Dialogues with the EU executive institutions and, when applicable, with Member States’ governments. We also assess the envisaged role for EU parliaments in the European Commission’s economic governance reform proposals, notably as regards transparency and parliamentary involvement at EU and national level.

Authors : Kajus HAGELSTAM, SAMUEL DE LEMOS PEIXOTO, GIACOMO LOI

Summary : This study analyses the key elements for the review of the existing EU bank crisis management and deposit insurance (CMDI) framework, including the recent (April 2023) legislative proposals tabled by the Commission, and the need to – finally – reach political consensus on the creation of a European Deposit Insurance Scheme (EDIS).

Authors : Christos V. GORTSOS

Summary : An important gap in the EU Banking Union architecture is the absence of a clear and uniform regulatory framework for the crisis management of small- and medium-sized banks. The authors argue that, taking stock from the US experience, a limited number of revisions to the current legal framework would be sufficient to establish a “standard proceeding” favoring alternative interventions by DGSs.

Authors : Concetta BRESCIA MORRA, Alberto Franco POZZOLO, Noah VARDI

Summary : The argument for applying borrower-based measures (BBMs) to non-banks to make these institutions more resilient is weaker than in the case of banks, as non-bank failures create fewer negative externalities. At the same time, the implications of extending the scope of BBMs to non-banks for income and wealth distributions may be more negative, as this would leave younger and poorer households with no options to obtain housing finance. Therefore, it is not obvious that countries that apply BBMs to banks should be required to apply them to non-banks as well.

Authors : Harry HUIZINGA

Summary : This in-depth analysis covers the pending challenges of Europe’s bank crisis management framework, with special emphasis on small and medium-sized banks. It focuses on “transfer strategies” for selling failed banks, the framework of funding by deposit guarantee schemes (DGS) and resolution funds, the ranking of deposits to facilitate such transfers, and the need to address banking groups’ challenges.

Authors : David RAMOS-MUÑOZ, Marco LAMANDINI , Myrte THIJSSEN

Summary : National independent fiscal institutions (IFIs) are an important element in the EU fiscal governance landscape and can play a role in the envisaged fiscal-structural plans. To this end, minimum standards are needed. Even though an individual government may be reluctant to strengthen its IFI, it is in the collective interest to have a set of strong IFIs throughout the EU. This would need the support from the European Commission and the European Parliament, being the institutions that “internalise” fiscal policy externalities.

Authors : Roel BEETSMA

Summary : This study analyses the need to adopt further EU financial regulation on decentralized finance after the implementation of the Markets in Crypto Asset Regulation and the revision of the Transfer of Funds Regulation, with a special view on crypto lending, crypto staking, crypto custody, the use of non-formal information, NFTs and sustainability. This document was provided by the Policy Department for Economic, Scientific and Quality of Life Policies at the request of the Committee on Economic and Monetary Affairs (ECON).

Authors : D.A. Zetzsche, R.P. Buckley, D.W. Arner, M.C. van Ek

Summary : This position paper argues that the macroprudential policy framework should include the non-bank financial sector. As this sector is much more diverse than the banking sector, applying macroprudential instruments to non-banks is not the way forward. Instead, appropriate stress-testing that takes the interconnected nature of the sector into account in combination with proper microprudential regulation is more desirable. This approach is illustrated for the case of money market funds in the EU.

Authors : Jakob De Haan

Summary : The study argues in favour of the introduction of a digital euro because of its benefits for the public’s store of value and cashless payment options. It questions the assumption that caps on digital euro holdings would be necessary in the interest of financial stability and favours an approach that allows everyone unlimited access to digital euros.

Authors : Christian HOFMANN

Summary : The two progress reports provide an insightful overview over some of the thinking underlying the digital euro project. The reports remain vague in some respects, which is not surprising given the early stage of the project.

Authors : Dirk NIEPELT

Summary : This study assesses the first two ECB progress reports on the digital euro. It is socially desirable to have a digital euro. However, the envisaged design of the digital euro makes the use case for a digital euro from consumers’ point of view questionable, in part because it will offer less convenience than other, commercially provided, digital means of payment. This study lays out some desirable design features of a digital euro that can foster broad adoption.

Authors : Cyril MONNET

Summary : This paper assesses the state of preparation for the possible launch of a digital euro. It focuses on the main relevant aspects: market impact, implications for banks, design and technical issues, monetary policy, financial stability, the role of fintech and Big Techs, international dimensions, privacy, and financial inclusion. On each, brief recommendations for the ECON Committee’s work are offered. The concluding judgment is broadly positive on the preparatory work but doubtful on the wisdom of eventually launching a digital euro.

Authors : Ignazio ANGELONI

Summary : This briefing presents, in tabular form, information available on submitted payment requests under the Recovery and Resilience Facility (RRF), and of Commission disbursements following approval of such requests. It will be regularly updated.

Authors : ADRIANA HAJNALK HECSER

Summary : Executive Vice-President Dombrovskis and Commissioner Gentiloni have been invited to the tenth Recovery and Resilience Dialogue (RRD) under the Recovery and Resilience Facility (RRF) Regulation. Section 1 cover some recent developments relating to the implementation of RRF, such as the European Commission’s Communication of February, and the entry of force of the RePowerEU legislative framework. Section 2 focuses on the positive assessments by the Commission of the payment requests made by six EU Member States since the previous RRD with the Commission in February 2023.

Authors : MINNA OLLIKAINEN, SAMUEL DE LEMOS PEIXOTO, Marcel MAGNUS, WOLFGANG LEHOFER, KRISTINA GRIGAITE, GIACOMO LOI, MATTEO BURSI

Summary : This briefing provides a summary of all scrutiny activities of the European Parliament related to euro area monetary policy in the period between the November 2022 and March 2023 , along with a recap of the key monetary policy decisions taken by the European Central Bank’s (ECB’s) Governing Council in that period. These kind of summaries are published regularly after each Monetary Dialogue (MD) with the ECB.

Authors : Drazen RAKIC, GIACOMO LOI, VASILEIOS PSARRAS

Summary : In this briefing, we summarise and explain the directions that the ECB has in mind for the digital euro, based on the ECB’s progress reports and statements. We also highlight further questions that have so far received less explicit consideration, but may deserve the legislators’ attention when the European Commission presents a proposal for ordinary legislative procedure.

Authors : GIACOMO LOI, Kai Gereon SPITZER

Summary : The Commission’s reform orientations propose that debt sustainability analysis (DSA) should serve as an anchor in EU fiscal rules. After discussing the main assumptions of DSAs in projecting public debt ratios, we analyse four critical aspects in designing such a reform: making judgement calls with regard to DSA assumptions; ensuring transparency and democratic legitimacy; promoting public investment in the context of climate goals; and tackling cross-border effects of fiscal policy, in particular related to the euro area dimension. This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee.

Authors : P. HEIMBERGER

Summary : The term "quantitative tightening" refers to the process of decreasing the central bank's balance sheet through a reduction of asset holdings acquired during "quantitative easing". Over the years, the Eurosystem acquired a substantial portfolio of assets as part of its asset purchase programmes. While the European Central Bank (ECB)'s Governing Council decided already in 2022 to stop net purchases, reinvestments of principal repayments continued until March 2023, thus maintaining the exisiting stock of assets. As part of a broader monetary policy normalisation process, the ECB is now, for the first time ever, implementing quantitative tightening. Between March and June 2023, the Eurosystem will reduce its asset holdings under the asset purchase programme (APP) by EUR 15 billion per month. The subseqent pace of reduction will be decided at a later stage. Five papers were prepared by the ECON Committee’s Monetary Expert Panel, analysing the rationale, risks and benefits of quantitative tightening in the euro area. This publication is provided by the Economic Governance and EMU Scrutiny Unit (EGOV) for the Committee on Economic and Monetary Affairs (ECON), ahead of the Monetary Dialogue with ECB President Christine Lagarde on 20 March 2023.

Authors : Grégory CLAEYS, Nils SONNENBERG, Karl WHELAN, Daniel GROS, Farzaneh SHAMSFAKHR & Charles WYPLOSZ

Summary : 24 February 2023 marked one year since the start of the Russian invasion of Ukraine. Before the war, starting in 2021, the euro area was experiencing inflationary pressure attributed to supply-side factors, in particular to pandemic-related supply chain disruptions. The war in Ukraine amplified inflationary pressures through energy and food prices, later feeding into goods and services inflation. Later in 2022, the relative contribution of demand-side factors became more prominent. With the recent easing of energy prices, headline inflation is slowing down while core inflation continues to increase. Four papers were prepared by the ECON Committee’s Monetary Expert Panel, analysing current inflation dynamics and the inflation outlook. This publication is provided by the Economic Governance and EMU Scrutiny Unit (EGOV) for the Committee on Economic and Monetary Affairs (ECON), ahead of the Monetary Dialogue with ECB President Christine Lagarde on 20 March 2023.

Authors : Pierpaolo BENIGNO , Paolo CANOFARI , Giovanni DI BARTOLOMEO , Marcello MESSORI, Gökhan IDER , Alexander KRIWOLUZKY , Ben SCHUMANN , Frederik KURCZ, Pierre SIKLOS, Christophe BLOT , Jérôme CREEL , François GEEROLF

Summary : Even if QT is as inefficient as QE at affecting inflation, now is the time to cut the size of central banks’ balance sheets. The stabilising effects of large balance sheets are eroded as the financial markets adapt to excess reserves. If QT proves to be financially destabilising, it can be temporarily interrupted, possibly even reversed. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Charles WYPLOSZ

Summary : The surge in inflation rates experienced by the euro area since the beginning of 2021 is rooted in supply shocks that have led to bottlenecks and an energy crisis. This paper shows that the shifts of inflation expectations into prices could cause some persistence in the excessive inflation process. In this last respect, the flatness of the Phillips curve implies that the unemployment-inflation sacrifice ratio is high; hence, there are substantial costs of bringing inflation down through a contraction in aggregate demand. However, a restrictive monetary policy stance appears unavoidable to keep inflation expectations anchored. A compelling policy mix can overcome this trade-off by supporting a favourable scenario with a soft landing of the economy and an inflation rate returning to target at the medium-long horizon. This paper was provided by the Economic Governance and EMU Scrutiny Unit (EGOV) at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2022.

Authors : Pierpaolo BENIGNO, Paolo CANOFARI, Giovanni DI BARTOLOMEO & Marcello MESSORI

Summary : Inflationary pressures in the euro area slightly eased over the last few months, mainly due to the decrease in energy prices. However, the core inflation rate still remains well above the ECB’s target. A rise in inflation expectations is still a major risk to further increase in inflation, and thus should be monitored closely. We find that contractionary monetary policy by the ECB and the Fed decreases energy prices and the headline price level in the euro area. This paper was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Gökhan IDER ,Alexander KRIWOLUZKY , Ben SCHUMANN & Frederik KURCZ.

Summary : The ECB has orchestrated a U-turn in monetary policy since July 2022. However, inflation remains a considerable distance away from its own medium-term objective. The ECB relies too heavily on data dependence and uncertainty in communicating monetary policy to markets and the public. It also fails to acknowledge the inherent tensions that exist between monetary and financial stability policies. The current hawkish stance is appropriate but leaves the ECB open to more credibility losses should tail risks emerge. This paper was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Pierre SIKLOS

Summary : This note provides an overview of the implementation of the 2022 recommendation on the economic policies of the euro area proposed by the Commission and agreed by the Council. It makes use of public information and proxies such as on how the Eurogroup has integrated euro area recommendations’ concerns in their “thematic discussions” and work programmes. This note will be updated in light of relevant developments.

Summary : This note looks at the 2023 recommendation on the economic policies of the euro area proposed by the Commission and agreed by the Council. The note provides a review of the euro area recommendations from an institutional perspective and includes broad comparisons to earlier recommendations, in order to illustrate how policy concerns have evolved over time. This note is an update on a previous version and will be updated in light of relevant developments.

Summary : The paper explores the possible direct and indirect impacts of the Russian war in Ukraine on different measures of inflation in the euro area. It notably shows that the core inflation index is sensitive to energy and food prices, and questions its reliability for policy decisions. Finally, we discuss medium-term inflation prospects and the effectiveness of monetary policy measures. This paper was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Christophe BLOT, Jérôme CREEL & François GEEROLF

Summary : This briefing has been prepared for the public hearing with the Chair of the ECB Supervisory Board, Andrea Enria, in ECON on 21 March 2023, covering: • A European perspective on recent US bank failures, in particular Silicon Valley Bank • SREP results for 2022 • Supervisory Banking Statistics • EBF-commissioned study on the cost of regulation for EU banks • EBA 2023 EU-wide stress test scenario • ECB sanction for failing to report cyber incident within deadline • Enhanced Code of Conduct for high-level ECB officials • New MoU with EU national supervisors not part of the Banking Union

Summary : This note is prepared in view of a regular public hearing with the Chair of the European Systemic Risk Board (ESRB), Christine Lagarde, which will take place on 20 March 2023. The briefing (i) provides a European per-spective on recent US bank failures; (ii) provides summary of the risk outlook and the picking up of corporate insolvencies; (iii) describes the risks building up in housing markets; (iv) summarises the ongoing continuing work on the macroprudential policy toolkit for cyber resilience; (v) outlines the macroprudential policy for climate change; and (vi) delves deeper into commercial real estate. There is own emphasis added through-out the briefing to highlight key findings and conclusions.

Summary : The Eurosystem is now reducing its bond holdings. Provided this is carried out in a measured way, it should not have a big impact on financial conditions or cause financial instability. The reduction is the correct policy because of legal problems with the Eurosystem owning so many sovereign bonds and because it provides space to implement the Transmission Protection Instrument (TPI) effectively. On the costs of operating a large balance sheet, the ECB should re-introduce its tiering system for compensation of deposits. This paper was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Karl WHELAN

Summary : The ECB is now planning to run down its vast bond holdings acquired under the asset purchase programme ----- a ‘‘quantitative tightening’’. However, the ECB is not contemplating selling any bonds, only not reinvesting part of what is coming due. Under this approach, the continuing expansionary effect of keeping vast holdings remains large and is likely to complicate the fight against inflation. The ECB currently has two, fungible, policy instruments (policy rates and balance sheet operations), which make it impossible to determine the impact of quantitative tightening separately. This paper was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Daniel GROS, Farzaneh SHAMSFAKHR

Summary : In March 2023, the European Central Bank (ECB) launched its quantitative tightening (QT) policy, to unwind its portfolio of assets that resulted from its quantitative easing (QE) policy of the last decade. This paper discusses the main arguments in favour of QT in the euro area and their validity, the possible risks associated with this policy, and how the ECB should implement QT to minimise these risks. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Grégory CLAEYS, Bruegel

Summary : Confronted with a historic inflation surge, the ECB steps on the brake(s). While interest rate hikes are its primary tool, unconventional tools are also adjusted to strengthen the brake intensity. Quantitative tightening will reduce the stock of bonds in a slow process. The change from a scarce to an abundant reserve system will prevail. In contrast to previous monetary tightening cycles, in an abundant reserve system huge interest expenses result in central bank losses and fiscal costs for the coming years. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 20 March 2023.

Authors : Nils SONNENBERG

Summary : On 7 December 2022, the Commission tabled a proposal for a directive aimed at enhancing and harmonising insolvency law in the EU. The proposal seeks to make it easier to recover assets from the liquidated insolvency estate; render insolvency proceedings more efficient; and ensure a predictable and fair distribution of recovered value among creditors. The directive would complement two recently adopted pieces of legislation, namely, the directive on pre-insolvency proceedings and debt discharge following insolvency proceedings, and the regulation on the determination of jurisdiction and applicable law for cross-border insolvency. In the European Parliament, the referral was announced in plenary on 26 January 2023, and the file was assigned to the Committee on Legal Affairs (JURI). Parliament has expressed concern at the lack of harmonisation of insolvency law across the EU on several occasions in the framework of previous legislative procedures. First edition. The 'EU Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.

Authors : ISSAM HALLAK

Summary : The Monthly Highlights publication provides an overview, at a glance, of the on-going work of the policy departments, including a selection of the latest and forthcoming publications, and a list of future events.

Summary : This study documents the poor track record of implementation of the European Semester country-specific recommendations and discusses the novelties the Recovery and Resilience Facility (RRF) could bring to EU economic governance. While it is too early to evaluate the success of the RRF, this study draws out lessons for the future of the EU economic governance framework from certain aspects of the RRF design and the European Commission’s evaluation of the national recovery and resilience plans. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee.

Authors : Zsolt DARVAS, Lennard WELSLAU

Summary : This document presents some features of the National Productivity Boards (originally proposed as Competitiveness Boards), introduced in the context of the deepening of the Economic and Monetary Union. It also provides some information on the status of implementation of National Productivity Boards in the Euro area Member States. This is an update of a previous version published in 2018.

Summary : There is an emerging consensus among stakeholders to apply resolution more widely going forward, possibly through modifications of the public interest assessment. This briefing reviews the practice of the Single Resolution Board so far and presents some observations based on past experience and policy options that the legislators might want to consider as they set out to reform the resolution framework.

Summary : This note is prepared in view of a public hearing with the Chair of the Single Resolution Board (SRB), Dominique Laboureix, scheduled for 1 March 2023.

Authors : Marcel MAGNUS, KRISTINA GRIGAITE, GIACOMO LOI, Kai Gereon SPITZER

Summary : This paper provides a snapshot of multilateral financial assistance provided to Ukraine since the start of the Russian invasion in February 2022 by the European Union and its bodies (European Investment Bank), international financial institutions (International Monetary Fund, World Bank Group, and European Bank for Reconstruction and Development) and informal groups of bilateral creditors (“The Group of Creditors of Ukraine”). The paper aims to increase understanding and support public scrutiny related to international financial assistance to Ukraine and will be updated with new elements regularly.

Authors : Drazen RAKIC, VASILEIOS PSARRAS

Summary : Democratic control and legitimacy in the evolving EU economic governance frameworkThe European Semester (ES) is a centrepiece of the EU’s evolving economic governance architecture and its democratic legitimacy and accountability has been contested in pre- and post-pandemic times. This paper introduces two perspectives – a democratic and a technocratic perspective – to evaluate the accountability of the ES, based on a survey of existing literature. Whereas there is broad agreement that the ES has deficiencies according to both perspectives, procedural reforms have only a limited potential to narrow accountability gaps. A focus on proceduralism overlooks the more fundamental democratic deficits that plague the EU’s economic governance system. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee.

Authors : Berthold RITTBERGER

Summary : This activity report covers the year 2022 and presents an overview of the expertise provided by the Unit in the area of Recovery and Resilience Facility (RRF), Economic Governance and Banking Union in view of supporting the related scrutiny activities in the competent committee(s).

Authors : KRISTINA GRIGAITE

Summary : The necessary green transition in the EU requires substantial additional green public investment (GPI) by Member States throughout this decade and beyond. This briefing paper discusses four approaches for a reform of EU fiscal rules to better accommodate higher (debt-financed) GPI: (1) an exemption clause for GPI; (2) the implementation of a green golden rule; (3) a country-specific benchmark share of government expenditures dedicated to GPI recommended by the European Commission; and (4) an EU Climate Fund. We also discuss these options in relation to the recent Commission proposal from November 2022.

Authors : Atanas PEKANOV, Margit SCHRATZENSTALLER

Summary : This document provides an overview of Economic Dialogues with the other institutions of the European Union that has taken place in the competent committee(s) of the European Parliament since September 2019 under the European Semester for economic policy coordination. It also lists the Recovery and Resilience Dialogues with the European Commission as undertaken by the competent committee(s) since the entry of force of the Recovery and Resilience Facility in 2021. It also includes an overview of the respective legal bases for these dialogues.

Authors : Kajus HAGELSTAM

Summary : Brexit poses unique challenges for policymakers in the EU as the most important financial centre in Europe is now outside its regulatory framework. We expect significant divergence over the medium- to long-term, given recent legislative and regulatory initiatives in the UK, but also developments of the regulatory framework in the EU. However, there seem to be limited concerns of an easing of the tax evasion and Anti-Money Laundering framework in the UK. We expect a limited use of the EU equivalence regime for the UK.

Authors : Christy Ann PETIT, Assistant Professor, Dublin City University (DCU) and Deputy Director, DCU Brexit Institute. Thorsten BECK, Director, Florence School of Banking & Finance, European University Institute.

Summary : This briefing provides a recap of the key monetary policy decisions taken by the European Central Bank’s (ECB’s) Governing Council between December 2022 and February 2023, as complementary information to the briefing provided after the November 2022 Monetary Dialogue with the ECB President.

Authors : Drazen RAKIC, GIACOMO LOI, VASILEIOS PSARRAS

Summary : This paper provides an overview of stakeholders’ activities at EU, national, regional and local level, in relation to national Recovery and Resilience Plans (RRPs). It presents a set of latest opinions and assessments by EU stakeholders and other relevant institutions and bodies on the implementation of these plans.

Authors : WOLFGANG LEHOFER, PIA HANNA MOLITOR

Summary : This briefing provides a summarised comparative analysis of eight papers prepared by external experts at the request of the ECON Committee on the implementation of the six policy pillars of the Recovery and Resilience Facility. It further contains a summary of each of the eight papers provided. Both the comparative analysis and the summaries are prepared under EGOV responsibility; assessing and evaluating the integral views of the authors require a read-through of the full papers.

Authors : KRISTINA GRIGAITE, PIA HANNA MOLITOR

Summary : The briefing assesses the interaction between the Recovery and Resilience Facility (RRF) and the European Semester by outlining coordination mechanisms between the two in the broader context of economic governance in the EU. Two main elements of this interaction are emphasised: coordination of investments and implementation capacities. The briefing argues that coordination of investment programmes remains fragmented in the EU, while the notion of policy capacities and experimentation should be given more strategic consideration in the Semester and RRF evaluation frameworks.

Authors : Mariana MAZZUCATO, Marco CARRERAS , Olga MIKHEEVA

Summary : Executive Vice-President Dombrovskis and Commissioner Gentiloni have been invited to the eighth Recovery and Resilience Dialogue (RRD) under the Recovery and Resilience Facility Regulation. This briefing presents some developments relating to the implementation of Recovery and Resilience Facility (RRF) since the previous RRD that took place on 21 November 2022. It covers the latest positive assessments by the Commission of payment requests (i.e. Greece, Portugal and Malta), adoption of revised Recovery and Resilience Plans, including the adoption of the REPowerEU legal framework, recent developments relating to the rule of law conditionality, and financing aspects of the Facility.

Authors : MINNA OLLIKAINEN, András SCHWARCZ, FRANCISCO JAVIE PADILLA OLIVARES, SAMUEL DE LEMOS PEIXOTO, Marcel MAGNUS

Summary : While the Eurogroup did not agree on concrete steps towards the completion of Banking Union, its June 2022 statement does entail some elements that the forthcoming Commission proposals could build upon, making improvements to the crisis management and deposit insurance framework that eventually bring the completion of the Banking Union closer.

Authors : Marcel MAGNUS, KRISTINA GRIGAITE, Kai Gereon SPITZER

Summary : A special treatment for certain types of investments, such as green investments, in the European fiscal framework may be justified on the ground that there are priority objectives such as the future health of the planet. An “investment clause”, less restrictive than the existing one, can be envisaged for projects that are co-financed, financed or guaranteed by the European Union or by European Union Institutions, such as the European Investment Bank.

Authors : Giampaolo GALLI

Summary : This study analyses the measures addressing Pillar 4 (social and territorial cohesion) of the Recovery and Resilience Facility (RRF). It focuses on two policy domains: active labour market policies and public employment services. The study zooms in on the reforms and investments included in the RRF plans of three EU Member States (Italy, Spain and Croatia) and assesses their relevance, effectiveness and coherence.

Authors : F. Corti, T. Ruiz De La Ossa