1. Factsheet 2 – Economic & Monetary Union
1. Intro
The financial and banking sectors constitute the backbone of every modern society. Within the EU, they are a symbol and a
major result of the harmonized process of progressive economic integration of EU Member States, started in 1969 with the
creation of the Economic and Monetary Union and culminated in 1999 with the adoption of the single currency.
The financial stability of the Euro system is a major pillar of the EU single market, where capitals, goods, labor, and services
move freely and under a common regulation. The coordination of fiscal, monetary, and economic policies at the EU level are
the result of a shared responsibility between Member States and various EU institutions.
The scientific support provided by the JRC in this sector provides ground for establishing common rules and limiting the risks
linked to the fragility of an integrated economy.
2. Stories
Story 1
Greek citizens have learnt the meaning of the expression 'country bail out' against their will: fearing that their economy was
going to collapse, thousands of people queued in the streets to get access to their cash in July 2015 and many experienced
the impact of austerity measures.
The fragility of our interconnected global banking system revealed its magnitude starting from the default of Lehman
Brothers in mid-September 2008. At that time, given the concrete risk of default all around Europe, EU banks were forced by
the EU to retain an amount of deposits considerably higher than before, in order to be able to reimburse citizens in case of
bankruptcy.
Once depositors were secured, the priority of the EU Commission became strengthening the resilience of the financial sector
to future crises and systemic shocks. JRC's economists - together with the DG for Internal Market and Services – simulate the
systemic risk associated to bank failures. The system, called SYMBOL, estimates the probability of economic losses occurring
in the banking sector.
In 2014, it has been used to support the construction of a 'buffer mechanism' for the Banking Union: its aim is to 'resolve' a
bank efficiently and at minimum costs to taxpayers and the real economy.
Story 2
If you bought a house in Spain in the years between 1985 and 2008, you certainly experienced the 'housing bubble'.
After a big boom in previous decades, housing prices in Spain began to fall: in coincidence with the financial crisis of 2007–
08, the value of residential real estate dropped and the price of mortgage loans became incredible high. Since many Spanish
had contracted a mortgage to buy a house, their indebtedness grew disproportionately.
The Spanish government needed structural reforms on growth and employment to avoid bankruptcy, and the EU helped with
the identification of all possible rebalancing scenarios for public finances.
By running a simulation tool with DG ECOFIN, JRC scientists investigated the economic drivers of the bubble and indicated
which adjustments in domestic demand, imports, and exports could rebalance the Spanish economy. Policy recommendations
made in JRC are aimed at avoiding spill-over effects on other EU countries.
2. Story 3
XXX is a remote EU region where high-speed internet connection and new ICT equipment would radically change people
lifestyles and living standards.
One of the advantages of bringing new technologies in isolated EU areas would be an increase in industrial productivity. As
productivity is linked to economic growth and job creation, boosting new technologies and innovation in certain areas
contribute to reduce existing structural disparities among well-favored and least-favored regions, a major objective of the EU
from 1986.
To tailor the level and type of investments needed to reduce backwardness and improve jobs and growth, DG REGIO relies on
the answers provided by RHOMOLO, a system developed at the JRC that evaluate both the positive and negative effects of a
given regional policy.
Based on the results of RHOMOLO, for instance, the EU decided to invest XXX million in high-speed internet connection and
new ICT equipment to increase the productivity of XXX and XXX(name of a couple of remote regions).
3. Benefits for Society
Guaranteeing the safety of EU citizens' deposits, even in the event of financial crisis
Creating inclusive policies for regional development, jobs, and growth
Evaluating the effects of fiscal policies and taxation levels on national economies
Monitoring and assessing the effectiveness of Member States' public spending
Supporting the creation of appropriate rules for the banking sector
4. JRC @Work
Financial and economic analysis To maintain sustainable levels of growth and employment in the EU while also
ensuring financial stability and stable public finances
Financial markets regulation To support the Commission in improving financial markets regulation, taxation and
competition policies
Fiscal policy analysis To understand the implication of national tax policy reforms on the economy and welfare of
Member States
Macroeconomic analysis for monitoring EU economic stance To improve surveillance of Member States' budget
spending, reforms, and public finances
Monitoring fiscal imbalances To assess the economy's capacity to generate sustainable growth in the short and
long term
Regional economic analysis and modelling To assess the impact of EU investment policies and reforms, especially
in vulnerable regions, and to foster EU cohesion