Volker Wieland's picture
Affiliation: 
Goethe University Frankfurt and IMFS
Credentials: 
Professor of Monetary Economics
Member of German Council of Economic Experts
Managing Director, Institute for Monetary and Financial Stability

Voting history

The Eurozone COVID-19 Crisis: EU Policy Options

Question 2: What is the best mechanism to pay for economic support provided by and to EU member states to combat the COVID-19 crisis?

Answer:
Other or no opinion
Confidence level:
Confident
Comment:
I chose "other" because I would favor the combination of national fiscal effort together with an ESM credit line or additional ESM facility if needed. This would involve a minimal degree of conditionality. It is most likely to be necessary for member states that entered this crisis already with high debt levels and low growth. ECB purchases under an OMT like program conditional on the ESM credit line or other facility can help prevent an up-surge in risk premia. EU and EIB can help with funding for targeted projects, especially in the health sector and those sectors needed to perform well to achieve an effective public health strategy. Close collaboration and some direct transfers to struggling member states are likely to be needed in this context. All member states are searching for a way to get out of the lockdowns that allows containing the pandemic in the absence of a vaccine while "re-starting" or accelerating economic activity. There is tremendous need for data and analysis, keeping an open mind and learning from each others strategies. Joint bond issuance under joint and several liability of member states while keeping full control over expenditure, tax and debt policies on the respective member state level is not a good idea. It would be likely to induce conflicts and politically de-stabilizing dynamics in the EU down the road. It would make more sense in a situation where a substantial degree of sovereignty is transfered to an EU federal government. But that's not on the table.

Question 1: What is the total size of funding that you would advocate at the EU level in support of its members to weather the COVID-19 crisis this year?

 

 

Answer:
5% of EZ GDP: No more than current commitments
Confidence level:
Confident
Comment:
I think 5% is rather a lot as EU contribution. Of course, on the national level much more is going to be needed. However, the taxation power and the control over the extent of spending is still on the national level. Further, in this major crisis the EU has rightly allowed member states to exceed deficit limits and forego policies aiming to return to debt limits. If a high-debt member state is in danger of loosing market access the combination of ECB intervention with an ESM program is the best bet to prevent a debt crisis.

Juncker's State of the Union Address

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Question 2: Do you agree that the euro has had more benefits than costs?

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Answer:
Disagree
Confidence level:
Confident
Comment:
To my knowledge there is no comprehensive scientific assessment that looks at all the economic benefits and costs of the common currency on a country per country basis. There are studies of partial aspects. Thus, I do not agree to a statement that claims certainty that the euro has had more benefits than costs (I add "in economic terms"). To give an example, giving up an independent monetary policy implies that a country cannot use monetary policy anymore as a stabilization tool directed towards national objectives. Monetary union policy is necessarily directed towards union-wide variables. Thus, inflation and output variability on a national level will be greater than in the case of national currencies and effective (credible) nationally-oriented monetary policies. There's evidence for that. See, for example, Wieland JIMF 1996, "Monetary policy targets and the stabilization objective ..." for an early study of EMS crisis and potential benefits and costs of a common currency and monetary policy. Of course, the relative improvement or loss relative to what existed pre-EMU likely differs across countries. On the other side, common monetary policy may help in improving credibility and independence of the monetary authority, and there by to maintain a low average inflation. That was an argument for some to join EMU. Recall "The advantage of tying one's hands .." Giavazzi-Pagano, EER 1988.

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Question 1; Do you agree that euro membership should be compulsory for all EU member states?

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Answer:
Neither agree nor disagree
Confidence level:
Extremely confident
Comment:
My understanding is that it is a fact already that all EU member states except Denmark and Great Britain are required to adopt the euro once they fulfil the conditions. This is also what Juncker repeated in his speech. I am somewhat surprised that he received so much attention with this statement. I agree that it is a fact at this point. I would not recommend starting an initiative to change the current rules. I would disagree with now requiring those EU members that received an opt-out to adopt the euro. I think great care should be given to the economic conditions. Clearly, there've been mistakes in the past, and countries admitted based on faulty data or insufficiently sustainable conditions. So , I agree with Juncker's statement to the extent it reflects the facts and disagree with wider interpretations suggesting that countries should adopt the euro without clearly fulfilling the conditions. Finally, whether it was a good idea in the first place is another question.

Wages and economic recoveries

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Question 2: Do you agree that the different behaviour of UK real wages relative to Eurozone wages during the Great Recession is in large part due to the UK having different labour market policies?

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Answer:
Agree
Confidence level:
Very confident

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