Panicos Demetriades's picture
Affiliation: 
University of Leicester
Credentials: 
Professor of financial economics
Former Governor, Central Bank of Cyprus and ECB Governing Council member

Voting history

ECB's quantitative easing

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Question 1:

Do you agree that the design of the ECB's QE programme reduces its effectiveness? 

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Answer:
Agree
Confidence level:
Very confident
Comment:
The absence of risk sharing partially defeats the purpose of the exercise, although I appreciate that this may have been the best that could have been agreed by the Governing Council under the curcumstances. It is indeed likely that several countries are likely to face higher borrowing costs as a result, for the reasons provided by Giavazzi and Tabellini. Relatedly, there's also a new risk to central bank independence that arises from these arrangements, as politicians at the national level will, in effect, decide whether to honour their obligations to the national central bank, which can be used as means of putting pressure on the central bank on other issues. The threat of central bank insolvency and the process of recapitalisation this will instigate, are powerful tools in the hands of politicians who want to exercise control over their national central banks. In the end the central bank may end up being a senior creditor but not without a dent in its independence. This creates longer term risks to the viability of the euro and the effectiveness of monetary policy.

Deal or no deal: The Greece standoff

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Question 1:  

Do you agree that, on balance, the implementation of the agreement as outlined in media reports will have a non-trivial negative effect on Greek GDP?

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Answer:
No opinion
Confidence level:
Extremely confident
Comment:
Media reports are not terribly reliable in such fast changing circumstances. In any case, media reports suggest that there is as yet no agreement on new fiscal measures. It's therefore hard to comment on what the additional effects will be at this stage, without knowing the overall package of fiscal measures and structural reforms.

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
No opinion
Confidence level:
Extremely confident
Comment:
Without knowing what the agreement is, it's hard to express an opinion on this.

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Question 2: Do you agree that Greece would be better off defaulting right now rather than signing to the agreement under consideration?

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Answer:
Strongly Disagree
Confidence level:
Extremely confident
Comment:
A disorderly default will trigger a chain reaction of negative shocks that could prove truly catastrophic. If the ECB ceases to supply ELA to Greek banks, which would be almost inevitable in the event of default, the banking system will close down. Capital controls are not the answer, if there's no liquidity whatsoever. Shutting get down the banking system is like shutting down the entire economy. Cash will be king, those who have it will get by, those who don't would have no access to basic necessities, bread, milk, medicines, electricity. If this lasts for a few days, there will be blackouts and riots on the streets. What will happen next is highly uncertain, if there's still no agreement. This is clearly chartered territory. It may be necessary to issue IOUs to pay salaries and wages, that will start being traded allowing some domestic exchange. If there's still no agreement, Greece will be forced to introduce a new currency and may be forced out of the EU.

Monetary policy and the zero lower bound (ZLB)

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Question 2: Do you agree that the benefits of reforming the monetary system to allow materially negative policy interest rates outweigh the possible costs?

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Answer:
Strongly Disagree
Confidence level:
Extremely confident
Comment:
See my previous comment.

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