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Debt overhang, macroeconomic adjustment and EMU economic governance: challenges ahead for the euro area

ECB conference and workshop

Frankfurt am Main, 19 and 20 November 2015
Sonnemannstrasse 20, Frankfurt am Main

- Participation upon invitation only -


Thursday, 19 November 2015 - Conference

Press Conference Room

Registration and coffee

Welcoming remarks

Benoît Cœuré, Member of the Executive Board, European Central Bank


Session 1 Debt overhang, structural reforms and competitiveness

Chair: Isabel Vansteenkiste, European Central Bank


Paper 1 Structural reforms in a debt overhang

Javier Andrés, University of Valencia
Óscar Arce*, Banco de España
Carlos Thomas, Banco de España

Discussant: Máté Tóth, European Central Bank


Paper 2 Financial heterogeneity and monetary union

Simon Gilchrist, Boston University
Raphael Schoenle, Brandeis University
Jae Sim, Board of Governors of the Federal Reserve System
Egon Zakrajšek*, Board of Governors of the Federal Reserve System

Discussant: Federica Romei, European University Institute

Coffee break

Invited speaker: Global imbalances and currency wars at the ZLB

Emmanuel Farhi, Harvard University

Discussant: Olivier Blanchard, Peterson Institute for International Economics


Session 2 Private sector indebtedness and investment

Chair: Günter Coenen, European Central Bank


Paper 3 Debt overhang, rollover risk and investment in Europe

Sebnem Kalemli-Özcan, University of Maryland
Luc Laeven*, European Central Bank
David Moreno, University of Maryland

Discussant: Benoît Mojon, Banque de France


Paper 4 The gains from resolving debt overhang: evidence from a structural estimation

Robert Kurtzman*, Board of Governors of the Federal Reserve System
David Zeke, University of California, Los Angeles

Discussant: Luca Fornaro, CREi


Session 3 Private and public indebtedness

Chair: Francesco Drudi, European Central Bank


Paper 5 The legacy debt and joint path of public deficit and debt in the euro area

Alberto Caruso, Université Libre de Bruxelles
Lucrezia Reichlin*, London Business School
Giovanni Ricco, University of Warwick

Discussant: Bartosz Maćkowiak, European Central Bank

Coffee break

Invited speaker:

Philip Lane, Trinity College Dublin

Discussant: Livio Stracca, European Central Bank


Paper 6 Interlinkages between private and public debt overhangs

Nicoletta Batini, International Monetary Fund
Giovanni Melina*, International Monetary Fund
Stefania Villa, KU Leuven and University of Foggia

Discussant: Jacopo Cimadomo, European Central Bank


Paper 7 Fiscal policy and the distribution of consumption risk

Mariano Massimiliano Croce, Kenan-Flagler Business School, University of North Carolina at Chapel Hill
Thien T. Nguyen, Wharton School, University of Pennsylvania
Lukas Schmid*, Fuqua School of Business, Duke University

Discussant: Ivan Jaccard, European Central Bank

End of conference
* indicates the presenter

Friday, 20 November 2015 - Workshop

Conference centre C 2.01

Registration and coffee

Session 1 Achieving a genuine Economic and Monetary Union

Chair: Benoît Cœuré, Member of the Executive Board, European Central Bank

Discussants: Pervenche Berès, European Parliament
Olivier Blanchard, Peterson Institute for International Economics
Martin Selmayr, European Commission
Vittorio Grilli, J.P. Morgan

Coffee break

Session 2 Public and private debt overhang: possibilities and impossibilities

Chair: Peter Praet, Member of the Executive Board, European Central Bank

Discussants: Lorenzo Codogno, London School of Economics and Political Science
Emmanuel Farhi, Harvard University
Raquel Fernández, New York University
Jean Pisani-Ferry, France Stratégie


Session 3 Capital Markets Union: what could it look like?

Chair: Vítor Constâncio, Vice-President, European Central Bank

Discussants: Lorenzo Bini Smaghi, Société Générale
Isabel Schnabel, Johannes Gutenberg University Mainz
Huw Pill, Goldman Sachs International
Sean Berrigan, European Commission

End of workshop
Workshop summaries

Debt overhang, macroeconomic adjustment and EMU economic governance: challenges ahead for the euro area

The economic and financial crisis continues to have a strong impact on economic performance, which in turn impacts the readiness to integrate further in the euro area. Against this background, the European Central Bank organised a policy workshop on “Challenges Ahead for the Euro Area”, which took place on 20 November 2015. The three sessions of the workshop – chaired by Mr. Coeuré, Mr. Praet, and Mr. Constâncio, respectively – were devoted to (i) “Achieving a genuine Economic and Monetary Union”; (ii) “Public and private debt overhang”; and (iii) “Capital Markets Union”. Discussions also stood under the impression of recent events, which underlined the importance of cooperation in European policy making. The workshop was preceded by an academic conference focusing on debt overhang. Papers of this conference are published on the website.

Achieving a genuine Economic and Monetary Union

The Five Presidents’ Report was the main reference point for discussions in the panel on “Achieving a genuine Economic and Monetary Union”. Participants welcomed the report as a commitment to further integration. For some, rapid progress toward deeper integration seemed the only option to make EMU more sustainable, while others emphasised the need to be pragmatic and proceed with incremental improvements. Some also argued that progress towards risk sharing via fiscal policy must not reduce incentives for national governments to implement sound national policies. Participants highlighted the inter-dependence between deeper integration and other pressing challenges currently faced by the EU (economic recovery, refugee influx and security concerns). In particular, they agreed that more democratic legitimacy was a prerequisite for deeper integration and greater solidarity. Participants also broadly welcomed the progress made on banking union and argued that it provided a useful reference for how to achieve progress by linking various elements in a comprehensive policy agenda.

Public and private debt overhang

Discussions on “Public and private debt overhang” focused on the implications of the high public and private debt levels for economic governance. Discussants differed on the reasons behind the accumulation of high debt levels and the fragmentation of debt markets, but widely agreed that the relevance of vicious circles between banks and sovereign debt was one of the most important lessons from the euro area sovereign debt crisis. These vicious circles were also, but not uniquely, due to the fact that, during the crisis, debt markets had fragmented and banks held high amounts of their own countries’ sovereign debt securities. Against this background, some argued that limits should be imposed on the exposure of banks to individual sovereigns. In this respect, it was important that political capital would be invested to acknowledge the fiscal dimension of banking union and address its implications.

Capital Markets Union

Discussants of “Capital Markets Union” agreed that CMU could help unlock financing for SMEs and encourage private risk sharing, thereby better linking the financial system to the real economy and helping to break the link between banks and sovereigns. While some welcomed the Commission’s recent action plan and argued for the need to secure quick wins, others were more sceptical and pointed out that more ambition was needed and that institutional change had to be accompanied by a structural change in investment behaviour. Furthermore, discussants warned against trying to copy the U.S., pointing out that the importance of bank finance in Europe was linked to historically grown economic structures and that capital markets would not necessarily be superior in spreading risk. Therefore, CMU should be regarded as a complement to a well-functioning banking system, helping to prevent cross border capital flows from reversing in times of crises.

General information

Conference venue

European Central Bank
Sonnemannstrasse 20
60314 Frankfurt am Main

+49 69 1344 0
Fax: +49 69 1344 6000

Conference language



Participants are requested to arrange their own transfers from and to the airport, unless indicated otherwise.


David Sondermann
Directorate General Economics
+49 1525 3055 044

Demosthenes Ioannou
Directorate General International and European Relations

Annekatrin Bergmann
Directorate General Economics
+49 174 340 9797

Jutta Auth
Directorate General Communications - Outreach Division
+49 69 1344 7417