Abstract The recourse to common European debt has expanded significantly over the past two decades. From crisis resolution to public investment, debt instruments have proliferated in volume and design. As negotiations intensify on the next Multiannual Financial Framework (MFF), the role of debt-based funding has returned to the spotlight. Despite a widening scope of applications, debates on how common debt should evolve in Europe remain entrenched in a well-known standoff. Addressing long-standing concerns on the risk of moral hazard, implied costs and the role of conditionality will be central to any future consensus. This paper aims to understand how these concerns have evolved, and where key trade-offs arise, focusing on two important areas of contention. First, financial trade-offs have been central to political consensus, with the implied costs and benefits distributed differently across Member States. As fiscal space becomes more constrained in the future, these considerations will become increasingly important. Second, policy trade-offs, particularly regarding conditionality, have evolved considerably over successive crises. As use cases of common debt have expanded, different models of safeguards have emerged in line with the underlying aims of each instrument. Any future agreement will need to preserve these safeguards while ensuring they remain aligned with the purposes they are designed to serve.
Proposals to cap European Union direct payments for farmers are often defended as a matter of fairness. At first glance, the claim is intuitive: if support is paid per hectare, larger farms receive more, so limiting very large payments appears to make the Common Agricultural Policy (CAP) more equitable. This article argues that the fairness case is substantially weaker than this intuition suggests. First, the CAP pursues multiple objectives, and the identity of the intended beneficiary remains conceptually ambiguous. Second, the relevant distributive question concerns not only formal recipients but the ultimate incidence of support once payments are capitalized into land rents, wages, profits, and asset values. Third, the structural heterogeneity of European agriculture is consequential. In regions characterized by large-scale farming, especially eastern Germany and large parts of Central and Eastern Europe, capping would not merely reduce transfers to a small number of large recipients. It would also weaken liquidity, reduce regional value added, affect employment, and alter the competitive balance across regions and organizational forms. Drawing on payment data and model-based evidence for the Altmark region in eastern Germany, I argue that capping is less a fairness-enhancing measure than a politically expedient instrument that protects the western European family-farm narrative while imposing disproportionate costs on other agrarian structures, particularly most former socialist countries.
Three decades of monetary easing combined with chronic fiscal deficits and debt accumulation have severely narrowed the Bank of Japan's policy room. The article argues that the Bank of Japan is constrained by three channels: government bond markets, stock markets, and excess reserves. Monetary tightening would not only destabilize the financing of the government, financial institutions as well as households but also expose the Bank of Japan to institutional risks. By contrast, monetary easing fuels yen depreciation and inflation. The Bank of Japan is caught between institutional instability of the central bank, financial instability of the domestic economy and currency instability of the Japanese yen, offering a warning for other central banks issuing fiat-currencies.
Stablecoins are widely portrayed as a transformative financial innovation. This article argues that, despite their technological novelty, they are best understood as a modern variant of earlier private monetary instruments. Drawing on an examination of their technological features, it shows that stablecoins are unlikely to become widely used in everyday transactions in advanced economies. Their main use cases remain within the crypto ecosystem, cross-border transfers, and activities outside official financial channels. From a financial stability perspective, the key issue is not the underlying blockchain technology but the balance sheet structure of issuers, which face an inherent trade-off between safety and return. Recent regulatory initiatives, particularly in the United States, also reflect broader objectives, including support for demand for public debt. The appropriate policy response is therefore to recognise the limited role of stablecoins while ensuring transparency and containing potential spillovers to the wider financial system.
In the last two decades, the euro area was hit by multiple crises. Fiscal and monetary emergency actions broke important constraints and expectations set by the euro's founding principles. Several euro countries broke fiscal rules. As politicians expect European Central Bank (ECB) support for public debt in any crisis, they have weak incentives to build fiscal buffers, or to undertake needed fiscal reforms. Consequently, fiscal spaces for additional borrowing are dangerously narrow. Banks also expect ECB support, and bank regulators still treat sovereign debt as risk free. Consequently, banks hold large quantities of sovereign debt. Sovereign restructuring then imperils the financial system. Reforms are necessary to strengthen the euro, and with it the benefits the euro provides to euro area citizens. Euro countries must face market discipline to give incentives for responsible fiscal policy and economic efficiency. In the end, euro countries must be able to default, i.e. restructure their debt, in an orderly manner without this creating a major financial disaster. This possibility requires a banking regulation reform that avoids the current incentives for banks to accumulate large exposures to public debt, in particular of their own domestic sovereign. The euro area needs a well-constructed European Fiscal Institution (EFI) for the management of fiscal troubles and balance of payment problems of euro countries. The EFI needs all necessary powers, tools, the ability to make swift decisions, and sufficient capital financed by member states, to fully unburden the ECB. The ECB should reduce its footprint to protect its independence, its balance sheet, and thereby its ability to fight inflation even in times of fiscal trouble. The ECB must stop quashing true market signals that give incentives for sound fiscal policies and prudent risk management of banks. The ECB should stay away from quasi-fiscal interventions, such as balance sheet policies that favor fiscally fragile countries and their bondholders and create fiscal transfers between countries and from taxpayers to banks.
Gold has emerged as the dominant asset of the 2020s, rising from approximately $2,600 per ounce at the start of 2025 to an all-time high of $5,589 in January 2026. This article identifies five structural drivers behind the new gold rush: (1) an unprecedented shift in central bank reserve management, with over 1,000 tonnes purchased annually since 2022; (2) the geopolitical repricing of reserve assets following the weaponization of the dollar-based financial infrastructure; (3) a growing body of empirical evidence demonstrating that gold meets the criteria for classification as a High-Quality Liquid Asset under the Basel III framework, despite continued regulatory resistance; (4) the erosion of confidence in sovereign debt as a risk-free anchor amid sovereign debt levels at historic extremes; and (5) the structural transformation of the gold market itself through regulatory pressure toward allocated, physical holdings. We argue that these forces are mutually reinforcing and represent a secular regime change in the global monetary architecture rather than a cyclical price phenomenon.
Europe's payment landscape is rapidly digitising, heightening the strategic importance of the infrastructure that underpins everyday payments. As recent geopolitical developments have demonstrated, dependencies on critical infrastructure can pose resilience risks when external conditions change. The digital euro addresses this challenge by preserving access to central bank money in a digital economy, complementing cash and reinforcing the euro's role as a monetary anchor. It can also strengthen Europe's strategic autonomy by increasing the resilience of payments and fostering a more competitive ecosystem based on European standards and governance. Its key features - broad usability across contexts as well as both online and offline capability - are essential for public acceptance and practical relevance. Safeguards, including privacy by design and holding limits to protect financial stability, are not optional add-ons but prerequisites. Ultimately, the digital euro should be seen as an additional European means of payment that strengthens competitiveness and innovation while reducing unnecessary strategic vulnerabilities.
The expected change of the Chair of the Fed toward Kevin Warsh could fundamentally alter not only monetary policy but also the dominant paradigm in central bank research.
The euro area has debated a common safe asset for more than 15 years, almost always as a question of fiscal mutualisation - who pays when things go wrong. This article reframes the question. A safe asset is, first and foremost, financial-market infrastructure: it anchors yield curves, underpins collateral in repo and derivatives markets, and transmits monetary policy. The euro area built a monetary union without this infrastructure, and the costs are now visible. European repo markets are increasingly collateralised in US Treasuries. European banks cannot scale in the absence of a deep, integrated capital market. European savings flow overseas rather than financing European assets. An April 2025 episode, in which US Treasuries briefly lost their safe-haven properties, only sharpened the urgency. The choice facing Europe is not between fiscal sovereignty and fiscal mutualisation, but between building this infrastructure and continuing to import one from abroad.
Policy debates on European welfare states often rely on an incomplete notion of tax fairness that overlooks indirect taxes and in-kind public services. Using a comprehensive fiscal incidence framework, we show that once direct and indirect taxes, cash transfers, and in-kind benefits are jointly considered, the number of net contributor households in the EU declines substantially. While high-income households remain the primary net contributors, many low- and middle-income households are net beneficiaries due to the redistributive role of public services. I conclude that fiscal fairness, rather than tax fairness alone, provides a more appropriate basis for evaluating redistribution, sustainability, and welfare state reform.
Switzerland's Federal Council proposed the Entlastungspaket 27 ("Relief Package 27"), a predominantly expenditure-side federal budget relief package, in response to rising defense needs and shrinking fiscal space. In the parliamentary process, however, the package was substantially scaled back. We show that under the parliamentary version of the package the projected financing balances remain negative, real federal expenditure grows faster than real GDP, and the package does not imply a contractionary fiscal stance. Thus, the Relief Package 27 may slow expenditure growth, but it does not amount to substantive consolidation. If Switzerland is to remain compliant with the debt brake, higher defense spending cannot be financed durably on top of existing spending commitments, but primarily through further reprioritization within the federal budget. Beyond Switzerland, this case illustrates the fiscal trade-offs that arise when new security priorities meet rigid expenditure structures under a credible fiscal rule.
The United States (US) and European Union (EU) have opted to extend the regulatory perimeter to incorporate crypto-related activities. This risks the integrity and stability of the financial system. Defining features of the crypto world are fraud, theft and facilitating criminal activity; so far at least, it does little to support the real (legal) economy. The risk is that by conferring legitimacy on crypto, regulation will increase the demand for crypto assets, entrench a highly volatile asset in traditional financial institutions, undermine market discipline, and increase financial instability.
A larger EU common debt stock has been credited with improving financial stability, lowering public borrowing costs, facilitating capital market integration, and expanding the international role of the euro. While there are good theoretical and empirical arguments for these claims, they apply mainly in a politically unrealistic case: common debt issuance in a fiscal union where the EU-level issuer has control over tax revenue, conducts stabilization policy, and issues most new public debt. However, most of the associated benefits do not apply to the main proposals currently on the table: and almost none apply to the most politically realistic case, a temporary increase in common debt to finance a specific European public good. This said, some of the benefits of EU debt in a fiscal union could potentially be achieved by proposals that stop well short of fiscal union, either by strengthening the institutional basis of EU bond issuance or by issuing EU-level bonds backed by national bonds. Whether these proposals would succeed depends critically on whether the resulting debt would be treated as sovereign by investors. If so, borrowing costs could fall significantly; if not, the gains would remain marginal.
This paper examines the transformation of the monetary system since the end of Bretton Woods, highlighting Bitcoin and stablecoins as alternative responses to the limitations of fiat-credit money. Bitcoin introduces decentralised digital scarcity, while stablecoins combine blockchain technology with fiat-backed stability. The paper analyses their economic roles, business models, and strategic implications, particularly for the United States, where stablecoins may reinforce dollar dominance through increased demand for Treasury securities. It also contrasts Europe's more cautious approach and considers the implications for financial stability, arguing that digital money reintroduces constraints on money creation while creating new systemic risks.
Concerns about faltering productivity have led to calls for grand fiscal strategies to ignite economic growth. Targeted spending sprees are believed to be lifting economies out of stagnation. This policies shift stands in stark contrast to the type of fiscal restraint (austerity) advocated after the Global Financial Crisis. This paper examines whether fiscal policy can lift economic growth after recessions characterised by prolonged economic stagnation - also known as scarring-while keeping debt under control. I find the odds of such an expansionary debt-reducing fiscal policy are limited due to a typical deficit bias in the short term - a combination of much lower tax revenues and reduced government spending - and the use of tax-based consolidations in the longer run. Higher taxes even push governments to raise spending to higher levels a decade after the recession. The combination of procyclical fiscal policy in the short term, with distortionary tax increases in the long term is unlikely to lift productivity growth.
The conventional wisdom in economic thought labels the Austrian School of Economics as "market radical," while portraying other schools avs more nuanced or realistic. This article challenges that view, arguing that the Austrian School, rather than endorsing market fundamentalism, highlights the complexity and institutional fragility of markets, cautioning against uncritical interventions due to their potential to cause unintended disruptions. In contrast, interventionist schools may acknowledge market imperfections but otherwise maintain an unwavering confidence in the market's ability to adapt and coordinate perfectly in response to policy measures. This implicit assumption reflects a robust form of market optimism that underpins many interventionist policies, revealing a paradoxical form of market radicalism often overlooked. By exposing this dynamic, the paper calls for a reconsideration of widely held perceptions and emphasizes the need for a more balanced understanding of the market's capabilities and vulnerabilities with regard to interventionist policies. The paper can thus be understood as advocating for a revival of ordoliberalism, emphasizing the crucial role of institutional frameworks in sustaining market function and shaping prudent economic policy.
The conflict between the Trump Administration and the Federal Reserve is the most serious threat to the independence of the central bank in three-quarters of a century. This article explains why – and what the Fed can do about it.
The goal of development aid used to be development as proxied by economic growth. This goal was operationalized in cost benefit analysis. However, aid effectiveness has always been in doubt. The doubts have had two consequences: Aid is falling, and its goal has been widened to make it non-operational. This paper looks at the reasons for the doubt, the micro-macro paradox of aid: (i) Micro project evaluations find a fair efficiency. The cost-benefit tools used to evaluate aid projects should aggregate to the macro. (ii) Univariate macro estimates find a zero-correlation result, and that lags solve the causality problem. (iii) Multivariate macro estimates find highly variable results with a small meta-average. A list of possible explanations that may reduce the paradox is provided, but the effect-sizes of these possibilities are hard to assess. It is argued that as the operational goal of aid has vanished, so has the support for aid.
