Dr. Steffen Murau| steffenmurau.com

‘Macro-Financial Innovation in Times of Crisis: The Role of the Recovery and Resilience Facility in Transforming the Eurozone’s Monetary Architecture’ (with Friederike Reimer, Andrei Guter-Sandu, and Armin Haas)

The Recovery and Resilience Facility (RRF), introduced as EU’s main macro-financial response to the Covid-19 pandemic, has been hailed as Europe’s Hamiltonian moment and raised great expectations for future fiscal integration. Despite its promised radicality, the actual status of the RRF in the Eurozone architecture remains ambiguous. On the one hand, it is integrated into the EU budget and therefore can be understood as the biggest joint debt-financed program on the EU ‘Treasury’ balance sheet. On the other hand, the RRF’s status as a temporary extra-budgetary fund allows it to be read as yet another off-balance-sheet fiscal agency (OBFA) that allows policymakers to eschew fundamental questions about the EU’s future as a common fiscal space. Building on the emerging critical macro-finance literature, we scrutinise the radicality of the RRF and investigate how it transforms the Eurozone’s monetary architecture. First, we clarify the position of the RRF as an ‘institution’ within the Eurozone’s web of interlocking balance sheets. Second, we discuss the conceptualisation of RRF debt as ‘instruments’, looking at similarities and differences with sovereign bonds and their implications for the emergent EU Primary Dealer System. Finally, we look at the intersection with the central banking segment, discussing their potential to function as European safe asset and implications for TARGET2 balances. We argue that given the EU’s propensity for governing through OBFAs, the RRF can be read as auguring a form of ‘quiet radicality’ in the EU’s evolution.

Co-authors:
Friederike Reimer, Global Climate Forum
Andrei Guter-Sandu, University of Bath
Armin Haas, Global Climate Forum, Berlin

Related articles

‘Green Macro-Financial Governance in the European Monetary Architecture. Assessing the Capacity to Finance the Net-Zero Transition’ (with Andrei Guter-Sandu and Armin Haas)

The Green Transition to net-zero carbon emissions in Europe requires massive financing efforts, with estimates of 620 billion EUR annually, but the headwinds are substantive. Central banks seem overstretched and busy tightening to combat inflation; treasuries are […]

Learn More

‘The Mefo Operation. A Macro-Financial Analysis of Hjalmar Schacht’s Shadow Money Scheme’ (with Armin Haas, Andrei Guter-Sandu, and Matteo Giordano)

In summer 1931, the collapse of two major banks pushed Germany into the nadir of its great depression. Large-scale credit creation programs were discussed but considered unfeasible due to the constrained macro-financial environment at the […]

Learn More

‘Primary Dealers in the Offshore US-Dollar System. Intermediating Treasury and Central Bank Balance Sheets’ (with Will Bateman)

This study analyzes the Primary Dealer model for the issuance and distribution of sovereign debt as a distinctive feature of today’s international monetary system, the Offshore US-Dollar System. Primary dealers are a group of private […]

Learn More