Institutional Constraints and Liquidity Provision in the Eurozone Core and Periphery Before and After Crises:
A Preliminary Comparison of the Eurozone Crisis and the Coronavirus Pandemic
DOI:
https://doi.org/10.13133/2037-3643/17730Keywords:
Liquidity, Eurozone Crisis, Endogenous MoneyAbstract
This paper presents a preliminary comparison of the Eurosystem response to the Global Financial Crisis and Eurozone Crises with the onset of the Coronavirus Pandemic in 2020. It analyzes bank, national central bank (NCB), and government balance sheets to show the effect of ECB decisions to consrain or enable liquidity provision across the Eurozone, particularly along core and peripheral lines. It argues that these dynamics reflect Post-Keynesian theories of endogenous money, and the potential for monetary authorities to structurally influence liquidity preference and provision. As Eurozone governments debate whether to continue these practices, systemic liquidity crises that hurt financial and fiscal activity remain a risk at the time of writing.
References
Alderman L. (2021), “Europe’s Pandemic Debt is Dizzying. Who Will Pay?”, The New York Times, 17 February, updated 30 April. Available at: https://www.nytimes.com/2021/02/17/business/europe-pandemic-debt.html
Arnold M. and Stubbington T. (2020), “Lagarde Triggers Investor Jitters as ECB Launches Virus Response”, Financial Times, 12 March. Available at: https://www.ft.com/content/11ab8f84-6452-11ea-b3f3-fe4680ea68b5
Ban C. and Gabor D. (2016), “Banking on Bonds: The New Links Between States and Markets”, Journal of Common Market Studies, 54 (3), pp. 617-635.
Bindseil U., Corsi M., Sahel B. and Visser A. (2017), “The Eurosystem Collateral Framework Explained”, ECB Occasional Paper, n. 189, Frankfurt (Germany): European Central Bank. Available at: https://www.econstor.eu/bitstream/10419/175731/1/ecb-op189-en.pdf
Bonizzi B. and Kaltenbrunner A. (2020), “Critical Macro-Finance, Post Keynesian Monetary Theory and Emerging Economies”, Finance and Society, 6 (1), pp. 76-86.
Cecchetti S. and Schoenholtz K. (2015), Money, Banking, and Financial Markets, New York: McGraw-Hill.
Cesaratto S. (2022), “An ECB’s Staff Narrative of Two Decades of European Central Banking: A Critical Review”, Quaderni del Dipartemento di Economia Politica e Statistica della Universita di Siena, n. 866. Available at: https://www.deps.unisi.it/sites/st02/files/allegatiparagrafo/23-03-2022/866.pdf
Chick V. and Dow S. (2002), “Monetary Policy with Endogenous Money and Liquidity Preference: A Nondualistic Treatment”, Journal of Post Keynesian Economics, 24 (4), pp. 587-607.
Chick V. and Dow S. (2012), “On Causes and Outcomes of the European Crisis: Ideas, Institutions, and Reality”, Contributions to Political Economy, 31 (1), pp. 51-66.
Culham J. (2020), “Revisiting the Concept of Liquidity in Liquidity Preference”, Cambridge Journal of Economics, 44 (3), pp. 491-505.
Dow S. (2006), “Endogenous Money: Structuralist”, in Arestis P. and Sawyer M. (eds.), A Handbook of Alternative Monetary Economics (pp. 35-51), Cheltenham (UK) and Northampton (MA): Edward Elgar Publishing.
Eberl J. and Weber C. (2014), “ECB Collateral Criteria: A Narrative Database 2001-2013”, IFO Working Paper, n. 174, Leibniz Institute for Economic Research at the University of Munich, IFO Institute. Available at: https://www.cesifo.org/DocDL/IfoWorkingPaper-174.pdf
ECB – European Central Bank (2013), “ELA Procedures”, European Central Bank. Available at: https://www.ecb.europa.eu/pub/pdf/other/elaprocedures.en.pdf
ECB – European Central Bank (2015) “ELA to Greek Banks Maintained at Its Current Level”, European Central Bank. Available at: https://www.ecb.europa.eu/press/pr/date/2015/html/pr150628.en.html
ECB – European Central Bank (2020a), “Monetary Policy Decisions”, press release, European Central Bank. Available at: https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.mp201210~8c2778b843.en.html
ECB – European Central Bank (2020b), “Pandemic Emergency Purchase Programme”, European Central Bank. Available at: https://www.ecb.europa.eu/mopo/implement/pepp/html/index.en.html
ECB – European Central Bank (2022a), “Public Sector Purchase Programme (PSPP) – Q&A”, European Central Bank. Available at: https://www.ecb.europa.eu/mopo/implement/app/html/pspp-qa.en.html
ECB – European Central Bank (2022b), “The Transmission Protection Instrument”, press release, European Central Bank. Available at: https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.pr220721~973e6e7273.en.html
ECB – European Central Bank (July, 2022), Statistical Data Warehouse. Available at: https://sdw.ecb.europa.eu/
Eichacker N. (2017), Financial Underpinnings of Europe’s Financial Crisis: Liberalization, Integration, and Asymmetric State Power, Cheltenham (UK) and Northampton (MA): Edward Elgar Publishing.
Eichengreen B. (2015), “The Irish Crisis and the EU from a Distance”, IMF Working Paper [preprint], Washington: International Monetary Fund. Available at: https://www.imf.org/external/np/seminars/eng/2014/ireland/pdf/Eichengreen_IrishCrisisEU.pdf
Febrero E., Uxó J. and Dejuán Ó. (2015), “The ECB During the Financial Crisis: Not So Unconventional!”, Metroeconomica, 66 (4), pp. 715-739.
Fiebiger B. and Lavoie M. (2021), “Central Bankers and the Rationale for Unconventional Monetary Policies: Reasserting, Renouncing or Recasting Monetarism?”, Cambridge Journal of Economics, 45 (1), pp. 37-59.
Gabor D. (2021), “Revolution without Revolutionaries: Interrogating the Return of Monetary Financing”, Transformative Responses to the Crisis, Berlin, Germany: Finanzwende and Heinrich-Böll-Foundation. Available at: https://transformative-responses.org/wp-content/uploads/2021/01/TR_Report_Gabor_FINAL.pdf
Grad D., Mehrling P. and Neilson D. (2011), “The Evolution of Last-Resort Operations in the Global Credit Crisis”, SSRN Working Paper, n. 2232348.
Gros D. and Bini Smaghi L. (2000), Open Issues in European Central Banking, New York: St. Martin’s Press.
IMF – International Monetary Fund (2022), “Special Drawing Rights (SDR)”, fact sheet, International Monetary Fund. Available at: https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14/51/Special-Drawing-Right-SDR
Kaldor N. (1985), “How Monetarism Failed”, Challenge, 28 (2), pp. 4-13.
Lavoie M. (2014), Post Keynesian Economics: New Foundations (pp. 17-34), Cheltenham, UK and Northampton, MA: Edward Elgar Publishing.
Lustgarten A. 2022, “The Barbardos Rebellion”, The New York Times, 27 July. Available at: https://www.nytimes.com/interactive/2022/07/27/magazine/barbados-climate-debt-mia-mottley.html
Maurer H. and Grussenmeyer P. (2015), “Financial Assistance Measures in the Euro Area from 2008 to 2013: Statistical Framework and Fiscal Impact”, Statistics Paper Series, n. 7 [preprint]. Available at: https://www.ecb.europa.eu/pub/pdf/scpsps/ecbsp7.en.pdf#%5B%7B%22num%22%3A55%2C%22gen%22%3A0%7D%2C%7B%22name%22%3A%22XYZ%22%7D%2C83%2C757%2C0%5D
Mehrling P. (2020), “Payment vs. Funding: The Law of Reflux for Today”, Working Papers, n. 113, New York, NY: Institute for New Economic Thinking. Available at: https://www.ineteconomics.org/uploads/papers/WP_113-Mehrling-Payment-vs-Funding.pdf
Minsky H. (1980), “Capitalist Financial Processes and the Instability of Capitalism”, Journal of Economic Issues, 14 (2), pp. 505-523.
Nikas S. (2022), “ECB Weighs Plan to Extend Greek Debt Collateral Status to 2024”, Bloomberg, 16 February. Available at: https://www.bloomberg.com/news/articles/2022-02-16/ecb-weighs-plan-to-extend-greek-debt-collateral-status-to-2024?sref=QQ2zZ4RD
Obstfeld M., Shambaugh, J. and Taylor, A. (2010), “Financial Stability, the Trilemma, and International Reserves”, American Economic Journal: Macroeconomics, 2 (2), pp. 57-94.
OECD – Organization for Economic Co-operation and Development (2022), Statistics. Available at: https://stats.oecd.org/
Prates D. (2020), “Beyond Modern Monetary Theory: A Post-Keynesian Approach to the Currency Hierarchy, Monetary Sovereignty, and Policy Space”, Review of Keynesian Economics, 8 (4), pp. 494-511.
The Irish Times (2014), “Jean Claude Trichet Letter to Brian Lenihan”, The Irish Times, November 6. Available at: https://www.irishtimes.com/business/economy/jean-claude-trichet-letter-to-brian-lenihan-1.1989801
Thompson H. (2015), “Germany and the Euro-Zone Crisis: The European Reformation of the German Banking Crisis and the Future of the Euro”, New Political Economy, 20 (6), pp. 851-870.
Tooze A. (2018), Crashed: How a Decade of Financial Crises Changed the World, New York: Viking.
Tooze A. (2021), Shutdown: How Covid Shook the World’s Economy, New York: Viking.
Valero J. (2022), “Dutch Finance Chief Backs Postponing Return of EU’s Debt Limits”, Bloomberg News, 4 April. Available at: https://www.bloomberg.com/news/articles/2022-04-04/dutch-finance-chief-backs-postponing-return-of-eu-s-debt-limits?sref=QQ2zZ4RD
Whelan K. (2012), “ELA, Promissory Notes and All That: The Fiscal Costs of Anglo Irish Bank”, The Economic and Social Review, 43 (4), pp. 653-673.
Whelan K. (2014), “TARGET2 and Central Bank Balance Sheets”, Economic Policy, 29 (77), pp. 79-137.
Whelan K. (2016), “Banking Union and the ECB as Lender of Last Resort”, UCD Centre for Economic Research Working Paper Series, n. WP16/09, Dublin, IE: UCD School of Economics, University College Dublin. Available at: https://www.econstor.eu/bitstream/10419/175468/1/WP16_09.pdf
Wolff G. (2014), “Eurosystem Collateral Policy and Framework: Was It Unduly Changed?”, Breugel Policy Contribution, issue 2014/14. Available at: https://www.bruegel.org/sites/default/files/wp-content/uploads/imported/publications/pc_2014_14.pdf
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Nina Eichacker
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
