Aspects of the ECB’s monetary policy: State-of-play and future prospects

Speakers: Iannis Mourmouras (Deputy Governor, Bank of Greece)

Chair: Charles Enoch (St Antony’s College, Oxford)

As the debate over ECB’s monetary policy continues, it was a pleasure to host a renowned policymaker and academic such as Iannis Mourmouras, Deputy Governor of Bank of Greece, at this joint PEFM-SEESOX event. Prof. Mourmouras drew on his experience to analyze the current targets and instruments of the ECB and offered some thoughts over the thorny question of ‘exit strategies’.

Prof. Mourmouras began his talk by discussing the track record of inflation targeting regimes over the last 15 years. Whereas they have been exceptionally successful in bringing inflation down, policymakers in Europe today face the challenge of how to push inflation back up given a persistent negative output gap. Prof. Mourmouras argues that low inflation is the symptom, not the cause of low nominal demand. The ‘suspects’ for the effect include demographic changes that lead to increased household saving, the legacy of the sudden stop and sovereign debt crisis in Southern Europe, and expectations for future low rates. Mario Draghi, the ECB president, argues further that there is insufficient investment demand to absorb all savings in the global economy.

Does IMF conditionality lead to political illiberalism? A comparative South East European perspective

Speaker(s): Merih Angin (Blavatnik School of Government, Oxford), Saliha Metinsoy (Wadham College, Oxford), Alex Kentikelenis (Trinity College, Oxford)

Chair: Charles Enoch (St Antony’s College, Oxford)

Political illiberalism, in South East Europe as well as across the world, is a topic of rising concern. However, is it possible we have overlooked an important driver – economic conditionality imposed by the IMF in crisis-hit countries? This was the provocative question posed to the three scholars who have focused their research on the IMF at this joint PEFM-SEESOX seminar. The picture that emerges does not provide for easy and clear cut answers, but these scholars argue that under particular conditions the IMF might inadvertently strengthen illiberal currents.

Merih Angin tackled the topic by looking at the role of the IMF in the AKP’s rise. In 2001, Turkey was hit by a financial crisis, leading to an agreement with the IMF. Shortly thereafter, the conservative AKP won parliamentary elections. However, during this period Dr. Angin describes the AKP as “in government but not in power”. Therefore, it had strong incentives to implement IMF conditionality given its need to overcome suspicions of its Islamist image in the West, as well as to generate economic growth, which was crucial to its domestic legitimation. Therefore, it ardently pursued the IMF program as it allowed it to accumulate power, gain external support, and undertake an extensive process of state transformation. Indeed, the AKP itself signed a new deal with the IMF in 2005, promising the privatization of the four largest state enterprises.

What does the FICC Standards Board do?

Rebuilding trustworthiness in financial markets

Speaker: Mark Yallop (Chair of FICC Markets Standards Board)

Chair: Adam Bennett (St Antony’s College)

One of the key questions in the aftermath of the global financial crisis is how to restore trust, especially in wholesale financial markets? A string of large-scale market manipulation scandals have made this discussion even more topical. Given its prominence, PEFM was delighted to host Mark Yallop, chair of the FICC Markets Standards Board, to share his analysis of the issue. In his talk Mr. Yallop identified some perennial problems with financial markets and advocated for a standards-led approach to rebuilding trustworthiness.

Mr. Yallop began his talk with two examples of market manipulation. In the later stages of the Napoleonic Wars, de Beringer and his associates sought to spread news of Napoleon’s demise in order to inflate gilt prices and sell their holdings at a profit. They were eventually discovered, and tried by the English courts in the first case of market manipulation in their history. Much more recently, Tom Hayes, an interest rate derivatives trader in Tokyo, was accused of using more modern means to the same goal. Through instant messaging, he was supposed to have communicated with the traders setting the daily Yen LIBOR rate, convincing them to slightly change their estimates in the direction that suited his portfolio. In 2015, Hayes was sentenced to prison in the most recent market manipulation case in front of British courts.

Brexit and the Future of European Integration: A Trans-Atlantic Perspective

Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speaker: Russell Kincaid (former IMF director)
Chair: Charles Enoch (St Antony’s College, Oxford)

Since the June referendum a lot of ink has been spilled on the causes and consequences of Brexit for the UK and for the future of European integration. Given the rather inward focus of much of the discussions so far, experts with more distance from the immediate issues can sometimes shed more light. This is exactly what Dr. Russell Kincaid offered to participants in this PEFM seminar by presenting a transatlantic perspective on Brexit and the EU.

Dr. Kincaid argued that the key issue from the US perspective is what Brexit tells us about the future of European integration. Overall, US policymakers see a number of structural problems that plague the EU and believed that they have a better chance to be addressed with the UK inside rather than outside the Union. Indeed, Brexit will not provide solutions to any of the EU and euro problems and instead the resulting complex negotiations risk turning into a powerful distraction for EU policymakers.

More fundamentally, Kincaid identified the source of many of the EU problems as the lack of a clear vision about the ultimate ambition. He recognized that the incremental approach was fundamental to the process of European integration, but noted that it has mostly been an elite-led project suffering from a democratic deficit. Until now, a permissive consensus has allowed integration to proceed, but today these elites find themselves instead constrained by distrust among European publics. 

Book launch: Governance of the European Monetary Union

Blogpost: Alexandra Zeitz, St. Antony’s College, University of Oxford

Speaker: Francisco Torres, LSE
Chair: Charles Enoch, St. Antony’s College, University of Oxford

The edited volume Governance of the European Monetary Union, published by Routledge in 2016, is dedicated to the memory of Max Watson, honouring his scholarship, policy-making and commitment to interdisciplinary research and cross-disciplinary conversation. That commitment to reaching across disciplines and forging common understanding seems particularly necessary in these fraught and challenging times for Europe. 

Francisco Torres (LSE) introduced the book to an Oxford audience at a PEFM seminar in December. In his presentation, he outlined the contributing authors’ case for urgent institutional reforms in the European monetary union. Torres said the book, which he edited together with Erik Jones (Johns Hopkins University), is based on a broadly consensual narrative of the Eurozone crisis.

In this narrative the crisis is understood to have emerged from pervasive economic imbalances among Eurozone members, with flows primarily going from Germany, Netherlands, and France to Spain, Italy, Greece, and Ireland. Excessive public and private debt, which mostly took the form of foreign borrowing, left economies vulnerable to a “sudden stop” in credit. Torres explained that these imbalances arose out of EU countries’ failure to internalize the common objectives agreed upon in the Lisbon Treaty or the Stability and Growth Pact, with necessary reforms delayed in the absence of market pressure or binding and enforceable rules. 

Brexit – what are the options?

Ivaylo Iaydjiev (St Antony’s College, Oxford)

Speaker: Anatole Kaletsky (Gavekal, Reuters, International Herald Tribune)
Chair: Adam Bennett (St Antony’s College, Oxford)

Since the referendum, the options facing Britain have been debated extensively (except by the government which remains tight-lipped), and the discussion is only likely to intensify further as the prospect of invoking Article 50 looms. Anatole Kaletsky, who last appeared before PEFM in January 2016 to discuss the evolution of capitalism in light of the global financial crisis in 2008, returned to PEFM eleven months later to divulge his thinking on the implications of the shock Brexit referendum of 2016, a political and economic event that has finally eclipsed the events of 2008 as the inexorable topic of everyone’s conversation (at least in the UK). Kaletsky’s overarching thesis was that there was still a real possibility that Brexit might not actually take place.

Kaletsky began by deciphering the underlying reasons for the Brexit vote. In light of the US presidential election, it is arguable that the referendum had less to do with particular European issues but is rather symptomatic of a global phenomenon sweeping across the West, driven by demographics, educational attainment and regional disparities. However, Kaletsky sees limited evidence in globalization driving the voting patterns, noting that supporters of Brexit usually had slightly higher incomes than average and were to a large extent outside the labour force (chiefly older retired voters and non-working women). Indeed, those potentially most affected in terms of the impact of immigration on jobs – those just entering the labour market, see freedom of movement not as a threat, but as a benefit of the EU.