European Politico-economics QA Mega-thread - Page 443

The European Central Bank is approaching the limits of its monetary policy, and further expansion of its asset-purchase program could give rise to legal and financial stability concerns, Governing Council member Klaas Knot said.

“A further expansion of the buying program will lead to increased tensions with the prohibition of monetary financing,” said Knot, who is also the president of the Dutch central bank. He made the comments in the bank’s annual report, published in Amsterdam on Thursday. The ECB is constrained by European Union law from directly funding government expenditure.

ECB President Mario Draghi unveiled a barrage of measures this month designed to arrest the euro-area’s slide toward deflation. As well as cutting its deposit rate by 10 basis points, the Frankfurt-based institution increased monthly bond purchases to 80 billion euros ($90 billion) from 60 billion, and added corporate debt to the list of assets its can buy. It also announced fresh targeted loans that could see banks paid to take central-bank cash and lend it to the real economy.

Knot said at a press conference in Amsterdam on Thursday that the marginal benefit of taking more measures is diminishing. “Technically it’s always possible to to more, but you can question whether the added value weighs against the side effects, and I’ve my doubts about that.”

Quantitative easing also leads to “higher risks of undesirable side effects like bubbles, an unhealthy search for yield, a rolling over of problematic loans, increasing wealth inequality and an addiction to low interest rates,” Knot said.

Another potential consequence is that governments become less inclined to work on structural reforms and reduce debt, given the generosity of monetary policy, Knot said. “The ball is now clearly in the court of the politicians”, he added.

Knot argued that more time is needed to evaluate the impact of the monetary policy measures already taken.
“Given the depth of the shock that took us away from the 2 percent inflation goal, it’s not a strange idea that the time which is necessary to get back to that level will be longer than the 18 to 24 months we normally consider for our medium term inflation goal.”

On March 27 2016 21:28 farvacola wrote:
My father did a bunch of work for the government of Belgium on behalf of the Justice Dept. relative to their forensics and investigatory procedures, and he was astounded as to just how inefficient they were compared to the US. This is not to trumpet US superiority, rather that it seems odd that they'd decline US assistance when they've previously sought it out and found themselves lacking.

Europe has been subject to nearly a decade of crises. After surviving its worst economic downturn since the Great Depression and the near collapse of its common currency, the region is now engulfed by hundreds of thousands of desperate migrants and refugees from the Middle East and Africa. Undeterred by the risks of death by drowning or suffocation in trucks, the refugees calculate, probably rationally, that the risks of escape are worth it. Many Europeans fear that these refugees are bringing social disruption and imposing fiscal burdens. Such fears, however, are misguided. Immigration into Europe is already an important source of economic growth,3 has at least a neutral impact on government finances,4 often contributes critically to countries’ human capital,5 and together with labor mobility is an important economic shock absorber.6 Maintaining a generally open door toward migrants and its open internal borders is hence critical to the continent’s economic future.

But Europe needs new and permanent migration institutions and the resources to accommodate the influx of refugees
and set up a new border control system throughout the region. These demands pose a challenge for European policymaking as serious as the euro crisis of the last five years. Yet the current situation also offers Europe an opportunity. The refugees and the challenges they present could speed a necessary process of integration and common migration institutionalization in Europe that would be politically impossible in normal times.

This Policy Brief proposes a migration and mobility union, to be implemented gradually, with the goal of comprehensively
reforming European migration policy. The proposed union would establish permanent common sea, land, and air external
border control and harmonize some national rules of asylum and other types of residency at the European level. It would
also establish new “blue” (common) and “red” (national) migration categories and create earmarked European-level funding
mechanisms or instruments to fi nance common external border control and migrant reception.

Funding for Europe’s immigration crisis—a sum that could reach tens of billions of euros—could come from a variety of
options proposed in this Policy Brief. Member states of the proposed union could fund the eff ort through the reallocation
of some existing national fi scal resources, for example. A possible “migration system user fee” could generate income
from administrative immigration levies or broader indirect user fees. In addition, the introduction of migration and mobility
bonds (MMBs), jointly guaranteed by member states and also backed by earmarked levies, would be consistent with Europe’s increasing mutualization of financial responsibilities in times of crisis, as happened during the recent economic downturn and financial emergency.