The ECB gives a very clear non-answer to the European Parliament
The European parliament is belatedly waking up to the fact that the European Central Bank is not only designing and executing monetary policy but also designing and, to an extent, executing fiscal and ‘structural’ policies. It has asked the ECB a large number of questions about its role in designing and executing policy measures in especially Ireland, Portugal, Greece and Cyprus, which were answered by the ECB. The ECB however fails to answer at least part of these questions in a satisfactory way (look here for the questionnaire and answers). The questionnaire (including answers) is way too long to be repeated on this blog.
However – there is a question about the role which fiscal multipliers plaid in designing Troika policies, which is of course about multipliers for Ireland, Greece, Cyprus and Portugal. The ECB answers this question by not giving a real answer but by providing a link to a ‘box’ in its Monthly Bulletin. The link is however not even to this box itself, but to the Monthly Bulletin. Meta-message: ‘we’re not really that interested in the European Parliament’ (there is a well-known gesture, made with one of the fingers, which expresses this message quite well). This ‘box’ is however based upon an analysis which uses the New Area Wide Model of the ECB, which does not give any information about individual countries but only about the entire Eurozone. And it’s a DSGE model too, which does assumes away involuntary unemployment (see about the existence of involuntary unemployment this article, but of course also the common unemployment statistics. Meta-message of course: ‘we’re not really that interested in these individual countries’. Sauve qui peut la vie.
Below this question and the ECB ‘answer’.
Describe in detail assumptions and methodology (in particular as regards fiscal multipliers) used to forecast debt sustainability at the beginning and in the course of each programme and design fiscal measures. What was the modus operandi leading to the adoption of draft programmes?
• It would be impossible to summarize in a few lines the extensive and detailed macroeconomic analysis carried out for each program country before the beginning of each programme. The MoUs for each country outline the assumptions and considerations made in each case. The periodic staff reports published by the EC (the Occasional papers written by the Staff of the Directorate-General for Economic and Financial Affairs, to which the ECB staff contributes) and the IMF (Staff Reports) after each review mission detail the evolution in each area against the targets. These reports are publicly available.
• In general terms, it can be said that the ECB’s input into the troika advice is based on economic analysis, including expert judgement, that continuously processes a wide range of data.
• The analysis is continuously adjusted in view of new incoming data and also to factor in broader economic developments that may affect the country in question. In several instances (e.g. Greece and Portugal), targets were significantly reviewed, or even parts of the programme redesigned.
• On fiscal multipliers, it is the ECB’s view that the issue has in some fora been overly simplified and reduced to single absolute numbers, whereas reality is much more complicated and nuanced.
• The ECB’s Monthly Bulletin reviewed the issue in a box of its December 2012 edition, see http://www.ecb.europa.eu/pub/pdf/mobu/mb201212en.pdf.