The spectre of financial dominance in the eurozone

Pierpaolo Benigno, Paola Canofari, Giovanni Di Bartolomeo () and Marcello Messori

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: Differently from previous crises, the European institutions responded promptly to the Covid-19 pandemic by implementing an appropriate policy mix. However, this policy mix has proven to be insufficient for reducing the risks of financial instability in the European Union due to the temporary horizon of the centralised fiscal policy and the persistence of adverse shocks. In fact, the impact of the pandemic was exacerbated by the dramatic consequences of the war in Ukraine. The possible inefficiencies in implementing the Next Generation-EU (NG-EU) and an inadequate response to the war’s shock could trigger, at best, the revival of financial and fiscal dominance in the euro-area economies. However, by using a simple model referred to the post-pandemic and war period, we show that the overburdening of the European Central Bank’s role would come with high costs. Hence, we argue that it is necessary to pursue sustainable development based on the successful implementation of the NG-EU and the related transformation of the one-shot centralised fiscal policy into a recurrent policy tool.

Keywords: Fiscal dominance; Financial dominance; ECB; Monetary policy (search for similar items in EconPapers)
JEL-codes: E31 E51 E58 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-03
New Economics Papers: this item is included in nep-cba, nep-cis, nep-mac and nep-mon
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https://repository.uantwerpen.be/docstore/d:irua:17085 (application/pdf)

Related works:
Journal Article: The Spectre of Financial Dominance in the Eurozone (2024)
Working Paper: The spectre of financial dominance in the eurozone (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ant:wpaper:2023005

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