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Comments on Amtenbrink & De Haan. DNB workshop on Macroeconomic Imbalances in the Euro Area 13/14 October 2011 Jeroen Hessel Senior Economist De Nederlandsche Bank. Outline paper eurobonds: legal & economic view. Failure of current governance: enforceability

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Comments on amtenbrink de haan

Comments on

Amtenbrink & De Haan

DNB workshop on Macroeconomic Imbalances in the Euro Area 13/14 October 2011Jeroen HesselSenior EconomistDe Nederlandsche Bank


Comments on amtenbrink de haan

Outline paper eurobonds:

legal & economic view

  • Failure of current governance: enforceability

  • Eurobonds to i) increase budgetary discipline and ii) avoid market speculation

  • Feasibility under current European and national (German) law


Comments on amtenbrink de haan

Main comments:

balance law & economics

  • Enforceability is very important, but not the only problem. That is a simplification.

  • If enforeability is the only problem, why far-reaching proposal to introduce eurobonds?


Comments on amtenbrink de haan

Enforceability (i): starting positions

  • Rules were insufficiently enforced for several peripheral countries, but not for all of them


Comments on amtenbrink de haan

Enforceability (ii): deficit increase


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Enforceability (iii): debt increase


Comments on amtenbrink de haan

Enforceability (iv): conclusion

  • Enforceability should definitely increase

  • But financial crisis was a very big shock

  • Role of “forgotten” macro-imbalances

  • Rules cannot foresee all future problems

  • Budgetary problems never fully excluded


Comments on amtenbrink de haan

Eurobonds (i): what reason?

  • If enforceability is key, why eurobonds?

  • Why should we prevent market speculation?  Asian crisis, Latin American debt crisis

  • Key reason: is a monetary union different?


Comments on amtenbrink de haan

Eurobonds (ii): EMU seems special


Comments on amtenbrink de haan

Eurobonds (iii): why is EMU special?

  • Political effectiveness?

  • Macro-imbalances and competitiveness

  • Larger risk of contagion

    • Deeper financial integration

    • Many countries in a similar position

  • De Grauwe (2011) inherent instability in EMU:

    • No exchange rate, monetary policy, lender of last resort


Comments on amtenbrink de haan

Eurobonds (iv): conclusion

  • Main reason eurobonds:

  • Budgetary and macro-rules never prevent all future budgetary problems

  • EMU inherently unstable once this leads to doubt about debt-sustainability


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