Fiscal rules are important commitment devices to limit fiscal profligacy. They have been an integral part of the euro area architecture and were introduced to insure against weaknesses in the functioning of the market discipline. Nonetheless, they have failed to provide sufficient fiscal discipline and avoid excessive market volatility. However, despite prevalent noncompliance, rules did –on average– influence the behavior of fiscal authorities. The evidence shows that well-designed rules worked better than others. Elevated debt levels and the record of weak compliance and lax enforcement make fundamental reform of the EU fiscal rules more urgent than ever. These reforms should aim at making the rules simpler and more transparent, and better aligning political incentives with rule compliance.
This article mainly summarises the content of a talk that Susanne Roehrig held at the Financial Forum in April last year. First it provides an overview of the general mechanics and relevant policies for the calculation of minimum capital requirements for credit risk. In the following the Article focuses on the assessment of capital requirements based on internal models (IRB) as mandated in Article 78 the CRD. This assessment includes a benchmarking exercise and entails tasks for EBA as well as for competent authorities. The methods and key results contained in EBAs report on the results from the 2017 Low defaults portfolios (LDP) exercise are summarised and some, more recently published results of the EBA Report on the results from the 2018 low and high default portfolios exercise are referred to. Lastly a possible amendment of the focus of EBAs benchmarking exercise as regards credit risk is discussed.
Over the last three years, Belgium's public debt has fallen by more than 4 percentage points of GDP, after having risen sharply during the financial crisis. This reversal is good news and was mainly due to stronger economic growth and fiscal consolidation. However, at 103.4% of GDP, the debt ratio remained among the highest in the euro area in 2017. To further reduce the debt to a sufficient extent, the primary budget surplus should continue to build up in the short term to above 2% of GDP, in line with the target set in the Stability Programme. In the longer term, new savings should -preferably be made at the same time to offset the costs of an ageing population. Otherwise, a declining primary surplus threatens to ultimately increase the debt without it having sufficiently fallen towards the 60% level. To reduce the debt ratio structurally in the context of a normalisation of the current historically low interest rate, the growth potential of the economy will also have to be increased. Despite the still high debt, Belgium is maintaining market confidence. This is related to the relatively healthy position of the private sector, as a result of which the Belgian economy as a whole is in a very positive net asset position vis-à-vis the rest of the world.
The budgetary situation of the local authorities in Flanders does not cause concern. Most municipalities recorded a surplus on their accounts at the end of last year and the municipal debt is also decreasing. A prudent spending policy axed at controlling the labour costs together with somewhat less investment spending are at the heart of this result. This being said, the future may be somewhat less rosy as rising pension costs and tax shift related lower municipal revenues are to be expected.
Book review of Sylvester Eijffinger’s and Donato Masciandaro’s (eds.) “Hawks and Doves: Deeds and Words. Economics and Politics of Monetary Policymaking.”
Critique du livre “De l’or des templiers aux cryptomonnaies.
Histoires d’économie” de Bruno Colmant.
First Lamfalussy Lecture by Mario Draghi, President of the ECB, at the Banque Nationale de Belgique, Brussels, 26 October 2018.
Due to the country’s geographical proximity, the UK is one of Belgium’s most important trading partners. 3,2% of Belgium’s value added (goods and services combined) is generated by the UK’s total final demand, with the UK being Belgium’s fourth largest export destination for goods. However, the bilateral trade relationship is starkly imbalanced, as Belgium has a trade surplus in goods of €14,3 billion vis-à-vis the UK. This paper shows that this strong intertwinement leaves Belgium vulnerable to the negative economic impact of the UK’s leave vote, something already made visible by the depreciation of the Pound Sterling. While one can only hope for an as deep as possible EU-UK economic integration to be negotiated after Brexit, it is of the utmost importance for businesses and certainly SMEs, which are very important for the Belgian economy, to prepare for all scenarios, including a ‘cliff-edge’, leading to BE-UK trade under WTO-rules.
Brexit is an important event for countries like Belgium which are heavily exposed to the UK’s economy. As talks on a Withdrawal Agreement and a future relationship between the UK Government and the European Commission’s Brexit Task Force are ongoing, this paper provides an assessment of 5 possible scenarios for Brexit: a no-deal leading to ‘cliff-edge’ chaos and a future relationship based on WTO commitments, an extension of the art.50 negotiation period, an extension of the transition period, a comprehensive EU-UK free trade agreement, and the UK’s ‘White Paper’ proposal. We show that for an orderly divorce with continued intense economic relations, one or both parties must move away from their ‘red lines’. The outcome of the negotiations is therefore impossible to predict at the moment, also because sound economic reasoning is falling victim to politics and these are most volatile in the UK. We conclude with an overview of the impact of the Brexit scenarios discussed on parties’ principles.
With less than six months until the UK leaves the European Union, businesses across Europe face significant political and regulatory uncertainty. Brexit is unprecedented in its scale and complexity and creates uncertainty for all sectors of the economy, but particularly for firms which have a large share of cross-border business including wholesale banks. This article focuses on the practical challenges which wholesale banks face in their preparations for 29 March 2019. To ensure an orderly withdrawal process and provide additional time for businesses to adapt, a transition period to the end of 2020 remains critical. It is important that an agreement on the Withdrawal Agreement is reached as soon as possible to provide certainty of the transition period. In the absence of certainty that there will be a transition period, firms are implementing their contingency plans to ensure that they can continue to service their clients and a number of operational and practical challenges remain. These include significant risks that urgently require policymakers and regulators to work with the industry on solutions. Given the extremely tight timescales, these issues have to be addressed as a matter of urgency by policymakers and regulators to ensure an orderly withdrawal which minimises disruption to clients and consumers and safeguards financial stability across Europe.