The sentiment that the euro is now in real danger is based in large part on the widespread conviction that interest rates of 6-7% are simply unsustainable for both Italy and Spain. After taking a closer look at the fundamentals, however, Daniel Gros concludes in this new Policy Brief that both...

Italian banks are in a precarious situation, burdened by non-performing loans (NPLs) that are almost of the same magnitude as their capital and provisions. The gradual approach of dealing with NPLs via more provisioning and some sales has yielded little results. The political crisis now gives an...

This paper describes the key economic variables and mechanisms that will determine the adjustment process in those euro area countries now under financial market pressure. (Greece, Ireland, Portugal, Spain and Italy = GIPSY). The key finding is that the adjustment will be particularly difficult...

The ECB has been arguing in the past that since there is no trade-off between price stability and financial stability, the pursuit of price stability is the best a central bank can do to also maintain financial stability. We argue that there is a potential trade-off between price stability and...

"This paper deals with potential instabilities in the Eurozone stemming from an insufficient interplay between monetary policy and reform effort on the one hand and the emergence of intra-Euro area divergences on the other. As a first step, we assess the effect of EMU on structural reform and...

This paper does two things. First it examines the use of real time inter-annual cash data and the role of early interventions for improving the monitoring of national fiscal policies and the correction of fiscal indiscipline. Early warnings are important because they allow us to spread the...