A ll rights reserved. N o part o f this paper m ay b e reproduced in an y form w ithou t p erm ission o f the authors. © M ich a el J. A rtis and Bernhard W in k ler Printed in Italy in O cto b er 1 9 9 7 European U n iv ersity Institute B ad ia F ie so la n a I -5 0 0 1 6 San D o m e n ic o (F I) Italy AbstractThe 'Stability Pact' agreed at the Dublin Summit in December 1996 and concluded at the Amsterdam European Council in June 1997 prescribes sanctions for countries that breach the Maastricht deficit ceiling in stage three of European Monetary Union. This paper explores possible motivations for the Stability Pact as an incentive device for fiscal discipline and as a partial substitute for policy coordination and a common 'stability culture'.JEL classification-. F33, F36, F42, E58, E61

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may ABSTRACTThis paper aims to make two contributions: to review the ECB's non-standard monetary policy measures in response to the financial and sovereign debt crisis against the background of the institutional framework and financial structure of the euro area; and to interpret this response from a flow-of-funds perspective. The paper highlights how the rationale behind the ECB's nonstandard measures differs from that underlying quantitative easing policies. As a complement to rather than a substitute for standard interest rate decisions, the non-standard measures are aimed at supporting the effective transmission of monetary policy to the economy rather than at delivering additional direct monetary stimulus. The flow-of-funds analysis proposes an interpretation of central banks' crisis responses as fulfilling their traditional role as lender of last resort to the banking system and, more broadly, reflecting their capacity to act as the "ultimate sector" that can take on leverage when other sectors are under pressure to deleverage. It also provides examples that trace the impact of non-standard measures across different sectors and markets. Keywords:Monetary policy, asset purchases, financial structure, economic and monetary union, sovereign debt crisis, flow of funds JEL: E02, E40, E50, E582 NON-TECHNICAL SUMMARYThe institutional set-up of Economic and Monetary Union (EMU) and the financial structure of the euro area economy -where financing is mostly bank-based rather than market-based -both frame the ECB's monetary policy. It is particularly important to recognise this specific backdrop when making comparisons of the ECB's response to the crisis with that of other central banks.The existence of a single currency in a multi-country area can be seen to create disincentives for individual governments to properly tackle fiscal and structural policies as well as to safeguard financial stability. The crisis has shown that the original institutional set-up of EMU only partially corrected for such disincentives. Excessive debt and leverage had built up prior to the crisis, in private and public, financial and non-financial sectors, with imbalances emerging across the euro area and elsewhere.The global financial and economic crisis has put the spotlight on central banks using their balance sheets as backstops to the financial system. Against this background the paper reviews the ECB's specific non-standard monetary policy ...

This paper contributes to the ongoing debate over European Monetary Union (EMU), reviewing the economics literature on the merits of a single currency (‘optimum currency area’) and on the requirements for astable currency (‘credibility’). To understand Europe's drive for EMU and the transition strategy adopted at Maastricht both issues must be analysed together. The controversial convergence criteria in the Maastricht Treaty, in particular, primarily address valid concerns about the (price) stability performance of a future single currency by determining the timing and membership of EMU. In general, we propose to interpret the Maastricht design as a mechanism that must reconcile conflicting interests, solve credibility problems over time and extract information about candidate countries’ ‘stability culture’ in the run-up to monetary union.

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This paper examines the importance of central bank communication in ensuring the effectiveness of monetary policy and in underpinning the credibility, accountability and legitimacy of independent central banks. It documents how communication has become a monetary policy tool in itself; one example of this being forward guidance, given its impact on inflation expectations, economic behaviour and inflation. The paper explains why and how consistent, clear and effective communication to expert and non-expert audiences is essential in an environment of an ever-increasing need by central banks to reach these audiences. Central banks must also meet the demand for more understandable information about policies and tools, while at the same time overcoming the challenge posed by the wider public's rational inattention. Since the European Central Bank was established, the communications landscape has changed dramatically and continues to evolve. This paper outlines how better communication, including greater engagement with the wider public, could help boost people's understanding of and trust in the Eurosystem.