Explores how the monetary-fiscal institutions of the euro were set up and
how they have evolved over time, analyzing the fragility of the contemporary
euro and suggesting ways to fix its architecture. Examines policy as being
encoded in expectations, rules, regimes, institutions, commitments, norms,
and traditions. Looks at the design of the Economic and Monetary Union set
out in the 1992 Treaty of the European Union. Describes the monetary-fiscal
innovations to the institutions of the euro taken in response to crises and
how they overturned the separation of monetary, fiscal, and financial policy
that existed at the euro's outset. Explains how the concentration of
sovereign debt in domestic banks contributed to the depths and costs of the
sovereign debt crisis. Considers how the mechanisms to offer fiscal support
with conditionality during the sovereign debt crisis evolved toward a
permanent institutional structure, highlighting how a slowing down of these
reforms has left monetary policy more exposed in fighting subsequent crises.
Assesses fiscal implications for the European Central Bank (ECB) of policies
such as interest rates below zero, forward guidance about future interest
rates, expanded lending to banks at low rates and with easy collateral, and
massive asset purchases, primarily of government debt. Investigates the
issuance of joint European debt to finance cross-border fiscal transfers, a
major fiscal innovation at the EU level implemented during the COVID-19
pandemic. Reflects on lessons for institutional reform illustrated by three
inflation stories. Addresses negative consequences of a reliance on ECB
intervention by sovereigns, bond investors, market participants, banks, bank
regulators and creditors, financial institutions, and governments. Promotes
the argument that EU member states should retain sovereignty over most fiscal
and economic policy.
