Despite the experience of the ongoing sovereign debt crisis, European banks continue to hold large amounts of bonds from their home governments. This ties the fates of the sovereign and the banks together, leading to the disruptive self-reinforcing feedback loops that brought the euro area to...

In 1995, when this paper was written, Daniel Gros pointed out that the Excessive Deficits Procedure lacked a strong enforcement mechanism. In particular he noted that the normal enforcement mechanisms of the Treaty (i.e. recourse to the European Court of Justice) cannot be used to ensure that...

What policy objective should a common central bank in a heterogeneous monetary union pursue? Should it base its decisions on the EU-wide average of inflation and growth or should it instead focus on (appropriately weighted) national rates of inflation and growth? We find that a central bank that...