The finance district and the European Central Bank (ECB) | Photo by Thomas Lohnes/Getty Images

Europe has to radically rethink its economic policies if it wants to move toward carbon-emission neutrality and apply lessons learned from past crises. But the European Central Bank can’t do all the heavy lifting.

That’s the message from Ireland’s central bank chief, Gabriel Makhlouf, who also sits on the ECB’s policymaking body, the Governing Council. Rather than relying on the central bank alone to pull Europe out of the pandemic recession, European capitals will need to better coordinate fiscal policies to kick-start and sustain economic growth, he told POLITICO in an interview.

“The Stability and Growth Pact was essentially a creature that was designed 30 years ago,” said Makhlouf, who previously served as secretary to the New Zealand Treasury and private secretary to Gordon Brown when he was the British chancellor of the Exchequer. “The question we all need to be asking ourselves is whether this is the right plan for the next 30 years. We should take the opportunity over the next year to look at how it can be improved.”

As Makhlouf sees it, the new economic realities demand longer-term thinking. This is especially the case as the EU aims for a climate-neutral economy by 2050. “We weren’t discussing 30 years ago … the need to achieve net-zero. We weren’t making these long-term commitments back then,” he said. “Now we are. But we don’t spend enough time, as policymakers, thinking long-term macro side.”

Current fiscal rules put too much emphasis on metrics like the structural budget balance — a country’s fiscal deficit adjusted for business-cycle effects — or simple ratios like debt-to-GDP, he argued. These are too narrow for policymakers to comprehensively assess the health of the economy.

In addition, more fiscal coordination among eurozone member countries, supported by a fiscal mechanism at the EU level, is needed, he said.  

The ECB has done its part, in his eyes, by slashing interest rates into negative territory and letting its balance sheet balloon to €8 trillion. But these measures haven’t been enough to nudge inflation — durably — up to its target rate of 2 percent for more than a decade — due to insufficient help from the fiscal side.

“Monetary policy doesn’t work in a vacuum,” he said. “Monetary policy needs friends.”

In its June statement, ECB said inflation would need to reach 2 percent in the medium term — and remain there for the rest of its three-year outlook — before it would raise interest rates and end all asset purchases. While inflation hit an annual 2.2 percent in July, driven by more volatile factors (like food and energy prices), the ECB’s own forecasts don’t see inflation hitting that target until late 2023.

Source: Johanna Treeck/ POLITICO, 3rd of August 2021, https://www.politico.eu/article/european-fiscal-rules-european-central-bank-ecb-irish-banker/ 

Brussels has set its sights on dirty money.

Photo source: POLITICO.COM/ Olivier Hoslet/ EPA

The European Commission on Tuesday unveiled a massive package of anti-money laundering initiatives to drive dirty money out of the bloc after repeated failures in supervision.

The crowning feature of the four-pronged package is a plan to introduce a new EU anti-money laundering authority, known as AMLA. The new EU agency should be set up within the next three years and begin direct supervision by 2026, complete with the power to issue fines worth millions of euros.

But some lawmakers and think-tankers warn that the package might not be enough to snuff out illicit financiers and suspicious activity amounting to some €160 billion across the bloc. Here are five reasons why money launders will likely be shrugging their shoulders over Brussels’ initiatives — for now.

1. AMLA won’t be built in a day

Tuesday’s package is ambitious. The new agency is set to hire 250 people to directly supervise the bloc’s riskiest financial institutions with a yearly budget of €45 million. But AMLA won’t be built in a day. The watchdog is set to only begin its direct supervisory duties from early 2026. That’s almost five years of the status quo, which has proved to be ineffective at tackling dirty money.“ 

2. The bloc still has blind spots

The Commission proposed a single rulebook Tuesday that will harmonize the bloc’s rules, which AMLA will police, to remedy the situation. Legislative negotiations over uniform rules can take years, however, and there are still some capitals that have yet to introduce the EU’s existing rules. Brussels has been cracking down on the bloc’s stragglers in recent years with threats of courts and penalties. All this takes time, too.

3. Other sectors remain vulnerable

“No EU authority can supervise all anti-money laundering law enforcers, especially in the nonfinancial sector such as trade in goods, real estate, lawyers and gambling,” German Green EU lawmaker Sven Giegold said. “Therefore, it is still up to the member states.”

4. The darknet can bypass fintech rules

Finance is becoming increasingly digital. So, it’s only natural that part of the Commission’s AML package would include a bill that targets financial technology, too. The bill aims to introduce disclosure requirements for the buying and selling of crypto assets within the EU. That means any company or financial firm in the EU that transfers a digital asset in or out of the bloc will have to provide details on who’s moving the money around.

5. Power politics — what else?

Even if EU legislators are quick to agree on common rules and the makeup of AMLA, there’s a risk that location politics could delay the watchdog’s planned introduction for 2024. You can’t put a spade in the ground if capitals can’t agree on where to start building. EU agencies come with influence and power while boosting national economies with their well-paid employees. Capitals have been willing to fight tooth and nail to secure the lucrative prize of an agency, most recently demonstrated in the EBA’s move to Paris.

Source: POLITICO/ BJARKE SMITH-MEYER, 20th of July, https://www.politico.eu/article/money-laundering-eu-crackdown-5-reasons/