Policy Briefs

C.Bastasin, L. Bini Smaghi, F. Bruni, M. Messori, S. Micossi, F. Passacantando, F. Saccomanni, G. Toniolo: EURO-ZONE, ITALY’S RESPONSIBILITY

We are all tempted to say that the worst is behind us once and for all. However, eight years after the crisis started, the stability of the euro-area is still at risk. Despite several attempts to improve the practices and institutions of common governance, European countries sharing the single currency continue to follow divergent trends. The current system does not seem capable of facilitating economic growth and spreading it around the euro-area. We are actually neither sure if available policy tools can significantly reduce risks of instability that have shaken the foundation of the euro-area, nor certain if these tools will allow governments and citizens in different countries to join forces and share appropriate countermeasures.

Monetary policy seems to be the only policy instrument in use, but it may only very gradually bring inflation to normal levels and support economic activity. However, since the use of non- conventional monetary policy also entails risk, we already need to take into account the eventuality that the ECB’s quantitative easing will end. Global, geopolitical, or financial factors will affect the duration of the Central Bank’s program. However, the March 2017 deadline has been explicitly mentioned by ECB officials, meaning the European economy is already only a year out from facing the end of the bond-buying program that has given it breathing room and stabilized the market for sovereign bonds.

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