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02 December 2009

MEPs hear experts at joint ECON-CRIS seminar on monetary exit strategies and systemic risk

EU co-ordination of exit strategies, links between ECB and European Systemic Risk Board and a possible ban on products that destabilize markets were key issues raised by MEPs at a recent hearing of experts.

At a hearing of experts held last Tuesday, the key issues raised by MEPs from the Economic and Monetary Affairs Committee and the Special Committee on Financial, Economic and Social Crisis were: EU co-ordination of exit strategies, links between the ECB and the European Systemic Risk Board and a possible ban on products that destabilise markets.

‘Have we really hit the bottom?’ asked Pervenche Berès(S&D, FR). ‘No, we could still go further down’, replied Stefan Collignon of the Saint Anna School of Advanced Studies (Pisa). There is no danger of another financial bubble bursting in the EU and the USA, but this cannot be ruled out in China, he added. As this would have an impact on the EU, he urged Europe ‘to develop the adequate instruments’ with which to respond.
Exit strategies
‘The fiscal exit strategy should precede the monetary one’, advised Guillermo de la Dehesa, Chairman of the Centre for Economic Policy Research, noting that it takes time for GDP and economic growth levels to recover. Both monetary and fiscal exit strategies should be ‘step-by-step’ and not ‘one-off’, said Ansgar Belke of Duisbourg-Essen University. Another precondition for an exit strategy is the restructuring and recapitalisation of the banking system, added Bruegel Director Jean Pisani-Ferry.
Toxic assets
In any event, the return to normality ‘will take a very long time’, warned Ansgar Belke of the University of Duisbourg-Essen, noting that ‘toxic assets are still on the books of EU banks.’ 
A European fund should be set up to take on failing banks, said Collignon, in reply to a question from Hans-Peter Martin (NI, AT) as to whether they should be nationalised.
How to avoid systemic risks?
Corien Wortmann-Kool (EPP, NL) asked the experts whether the ECB should be linked to the European Systemic Risk Board (ESRB). Gerlach of Frankfurt University and Whelan from University College Dublin felt it should.
Sibert of University College London, by contrast, argued that in a bureaucracy such as the ECB, the sort of independent thought needed to foresee financial crises, ‘is not career-enhancing’. She felt that a 61-strong ESRB would be cumbersome, doubted that a ‘lumbering army of central bankers and bureaucrats would provide an effective early warning system’ and argued instead for a 5-member board. 
Philippe Lamberts (Greens/EFA, BE)asked whether there should be a ban on products that by nature destabilise the markets. Gerlach replied that he was not sure whether this was the right solution, while Sibert suggested that the criterion for allowing such a product should be whether it can be explained to the ESRB.

© European Parliament

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