Going 'Belt and Braces': Domestic Effects of Euro-Crisis Law
This paper considers the effect of the recent EU measures relating to strengthened economic governance both at the EU level and the level of national (constitutional) law. We first explain the scope of EU competence in economic policy and its effects on Member State competence. We will then examine how this competence has been exercised during the past few years, in particular from the point of view of the domestic effects of the six-pack and two-pack, which constitute the ‘Belt’ needed to maintain stability in the euro area and thus hold the ‘trousers’ (economic policy decision-making) up. We then turn to the Fiscal Compact and the budgetary framework directive and their effects at national level, constituting the ‘Braces’ intended to ensure healthy national budgetary policies. The relevant question remains to be whether the current 'belt and braces' rules are the appropriate approach for preventing new crises. There are both legal and political reasons for reconsidering some of the solutions made during the crisis. Maybe the trousers are just too loose?
Toward A Fiscal Union for the Euro Area
This is on a highly topical issue and addresses a key policy issue for Europe—namely, reinforcing EMU institutional architecture along with the Banking Union. Some proposals have emerged in Europe, and it will be important to put out staff views on this issue. In that context, publication as an SDN is appropriate, given the high profile nature and relevance of the topic—much like the Banking Union paper done a few months ago.
Does the reserve options mechanism really decrease exchange rate volatility? The synthetic control method approach☆
After the invention of the Reserve Option Mechanism (ROM) by the Central Bank of Turkey (CBRT), it has been debated whether it can help decrease the volatility of foreign exchange rate. In this study, I apply a new microeconometric technique, the synthetic control method, in order to construct counterfactual foreign exchange rate volatility in the absence of ROM. I find that, USD/TRY rate is less volatile under ROM. However, it has not worked efficiently after CBRT raised interest rates as a reaction to the tapering tantrum in June 2013. Furthermore, it could have decreased the volatility of foreign exchange rate if CBRT had not increased interest rates as a reaction.