EuPEP Oxford will embark on several strands of research in its first year:
- An issue that remains very live, a decade after the global crisis, concerns experience with Monetary and Financial Integration in Europe – analysing why this has not lived up to expectations, exploring how and whether it can be fixed, and assessing the implications for banking and fiscal union in the Eurozone and for EMU governance generally (including e.g., the “two pack”, “six pack”, and “Fiscal Compact”).
- Depending on the outcome of Brexit, an emerging area of research is likely to be the appropriate institutional arrangements between Britain and Europe from now on. EuPEP will provide a useful forum for identifying new institutional needs and contributing to developing policy solutions.
- A further research initiative concerns the role of Ethics in Finance – the erosion of which may have contributed to (or even caused) the global financial crisis. This is a developing and interdisciplinary area of study (combining economists, lawyers, philosophers, historians and political scientists), questioning the premise that current governance arrangements for banks and firms are sufficient to ensure sound financial practice and serve society’s broader objectives, and exploring whether and how ethics in finance could be more satisfactorily defined, encouraged, and/or enforced.
EuPEP research will address the themes above by examining particular institutional and political economy questions. Thus:
- EuPEP’s research includes examining the institutional structure of a multidimensional EU: while the Euro Area now covers the greater part of the EU (and will have a dominant share if the UK leaves and stays outside the EU), member states outside the Euro Area face their own challenges, rights and preferences. Recognition of these can serve to enhance the resilience of the EU as a whole, including in the face of populist pressures.
- EuPep is also looking at the role of macroprudential policies in Europe. They are often overlooked in discussions focusing just on fiscal and monetary policies, but especially since the global financial crisis have been recognized as a critical complement to them. Given their novelty, the institutional structures for the operation are rather complicated and still evolving; but this provides opportunities for fresh thinking for this area of policy that may be critical for the economic stability of the EU in the future.
- Progress in building the monetary and banking union and the development of new tools post-global financial crisis has profoundly affected the governance of financial sector policies, and in particular the relationships between monetary, micro-prudential, macro-prudential, and crisis management policies. The forces of “regulatory capture,” “inaction bias,” etc. may have shifted and interact in new ways. Therefore, research is under way to investigate how individual European states should reconsider their internal mechanisms, and how they should mesh with the European structures.
- EuPEP will make use of evidence from the European context of how and why similar countries end up with different policies, and what political and institutional characteristics lead to the observed degree of divergence. A relevant example of such divergence relates to the management of sovereign debt—no small matter with the stock outstanding on the order of euro 1013--and why some countries take the lead in innovation while others are more conservative.
- The proposals under discussion for strengthening fiscal architecture of the EU and euro area are important for filling institutional gaps but the effectiveness of a strengthened fiscal arm will depend on its design. Research is under way to compare the value of different options: for instance, a small euro area budget; a dedicated stabilization fund; unemployment insurance; a fiscal backstop for banks; or a debt redemption facility. Likewise, how any supranational fiscal capacity is financed will affect its economic impact.