Los Cambios en educación, en los centros educativos y la formación del docente

Presentation by Jochen Andritzky, discussion led by Dirk Schoenmaker

Participants (alphabetical)

Jochen Andritzky German Council of Economic Experts

Mathias Dolls ifo Institute

Daniel Gros Centre for European Policy Studies

Sam Langfield European Central Bank

Álvaro Leandro Peterson Institute for International Economics

Roberto Perotti Bocconi University

Pietro Reichlin LUISS Guido Carli University

Dirk Schoenmaker Rotterdam School of Management, Bruegel

Dirk Schoenmaker pointed out first that if countries lose market access and turn to the ESM,

then doubts about solvency cannot be excluded. This may make (ex post) conditionality necessary for precautionary instruments. Second, the safety net provided to banks at national level should also be mirrored at the euro area level. If banks are subject to European supervision, a ‘lender of last resort’ function at the euro area level and ESM direct recapitalisation have to be available. Current conditions for direct recapitalisation are too restrictive to make the instrument useful. As the funding needs for bank recapitalisations are typically limited (e.g. €20 billion in the case of ABN Amro), this instrument is not a major strain on ESM resources (a recapitalisation amounts to some 4.5% of assets). While the bail-in regime is welcome, it may not be realistic to achieve a full bail-in of 8%, especially for G-SIBs. Proper concentration limits for sovereign bonds are important, but risk reduction and risk sharing need to move together. Finally, unanimity gives small countries veto powers and can prevent decisions being taken swiftly - the case of Slovakia serves as reminder. Sapir and Schoenmaker (2017) propose an 85% supermajority (although the threshold is not decisive) to prevent small countries holding up decisions.

Jochen Andritzky responded that in the case of ESM involvement, the two-stage sovereign debt

restructuring process developed by the GCEE could apply (see Chapter 4). It foresees first a maturity extension when debt is high and, in a second step, resolves any solvency concerns with a restructuring during the course of the ESM program. Regarding bank recapitalisation, a strong framework needs to be in place to insulate bank management from political influence. Majority voting may raise constitutional issues not just in Germany, but also in other (possibly small) member states.

Daniel Gros agreed with the latter point and highlighted an update of his recent work with Thomas Mayer (Gros and Mayer, 2017). A key difference between the IMF and ESM is the magnitude of fiscal risk at stake. In addition, lending conditions differ. The IMF’s preferred creditor status and penalty interest rates are only feasible for relatively low lending volumes, not for financing as much of the public debt stock as the ESM does, for instance, in Greece. Therefore, ESM lending should be limited to about five times the ESM quota. The ESM would

then avoid having to provide solvency support. It would also limit political frictions from the mutual dependence of the debtor country and the ESM. Jochen Andritzky argued that limiting assistance may undermine the power of ESM to prevent crises. Daniel Gros agreed it is a difficult to solve conundrum. In his proposal, support would be unlimited for ‘innocent bystanders’, but limited for countries with high debt burdens, although the distinction may be difficult to make. A key indicator should be the rollover need, not the debt stock. Jochen

Andritzky recalled that the idea of a maturity extension at the onset of an ESM program for

highly indebted countries would achieve a very similar effect.

Roberto Perotti pointed out the large amounts of funding required by Italy, despite its long

maturity structure. While it is hard to imagine creditor countries would be willing to finance this, a proposal such as the automatic debt restructuring proposed by Germany is not acceptable to Italy and other member states.

Daniel Gros recalled that Italy’s public debt is mostly held domestically and asked – if domestic

investors do not trust the Italian government and trigger a crisis – why the ESM should step in. It may be more appropriate for the ESM to focus on limiting damage from contagion to other countries. Jochen Andritzky pointed out that a maturity extension would keep all creditors involved, and an ESM macroeconomic stabilisation programme would provide political leverage to unblock the necessary reforms to restore solvency. Roberto Perotti highlighted the importance of avoiding a collapse of the euro. Pietro Reichlin recalled that the Italian economy is sufficiently large and fiscal flows are stable. Therefore, a crisis in Italy would be a liquidity crisis, thereby constituting a case for a European intervention.

Participants agreed that the firepower of the ESM is sufficient to address banking crises, but banks remain intertwined with sovereigns. Roberto Perotti argued that the ESM’s firepower and procedures are not sufficient to deal with sovereign debt problems. Dirk Schoenmaker

recalled that crisis prevention should aim to separate banking and sovereign issues, which would make crisis arrangements more robust. Tough supervision remains essential in preventing moral hazard in banking. Daniel Gros agreed that the ESM has an important role to address crises in smaller countries and reduce contagion, contributing to overall stability. Asked about governance, Dirk Schoenmaker explained that in his proposal, a euro finance minister was not meant to run a big budget, but form a political counterpart, for instance vis- à-vis the ECB and the SSM, who would be accountable to the European Parliament. Jochen

Andritzky recalled the privilege the ESM currently enjoys of holding discussions at the level of

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A euro finance minister?

Guntram Wolff