--- title: "ECB Rule Changes | Ronkainen, Vihriälä | Neuvottelija 111" summary: "Vesa Vihriälä, professor of practice at the University of Helsinki, and doctoral researcher Antti Ronkainen go through what is left of the euro area's fiscal rules. The starting point is bleak: the 60 per cent debt limit has not kept member states in check for a long time, and the three per cent deficit rule failed on both sides — the preventive arm did not stop over-indebtedness, and the corrective arm led during the euro crisis to excessively tight fiscal policy and a self-inflicted recession in 2011–2012. The sharpest thread concerns the ECB, which through creative reinterpretation became a lender of last resort to states. Published 11 December 2021." datePublished: 2021-12-11 dateModified: 2021-12-11 originalLang: en section: economy sections: ["economy"] authors: ["Sami Miettinen"] tags: ["Neuvottelija","EP111","Vesa Vihriälä","Antti Ronkainen","ECB","Euro Area","Fiscal Policy","Stability Pact"] canonical: https://ai.neuvottelija.com/ep111-ekp-saantomuutokset-ronkainen-vihriala/ --- # ECB Rule Changes | Ronkainen, Vihriälä | Neuvottelija 111 # ECB Rule Changes | Ronkainen, Vihriälä > **Summary:** > In episode 111 of the Neuvottelija channel, Sami Miettinen's guests are **Vesa Vihriälä**, professor of practice at the University of Helsinki, and **Antti Ronkainen**, a doctoral researcher. The subject is the euro area's rule framework and what is left of it in practice. The episode is unusually direct in that both participants concede the rules failed — but in different directions. Published 11 December 2021. --- ## The rules were written for a different world The starting point is chronological. The euro area's fiscal rules were written at the **turn of the 1980s and 1990s**, in a world where interest rates, debt levels and the role of central banks were all different. Vihriälä and Ronkainen's shared assessment is bleak in two ways: - The **60 per cent debt limit** has not kept member states in check for a long time - The **three per cent deficit rule failed on both sides** The latter is the episode's sharpest observation and deserves unpacking. The framework has two "arms": 1. The **preventive arm** did not stop over-indebtedness in good times 2. The **corrective arm** led during the euro crisis to excessively tight fiscal policy and a **self-inflicted recession in 2011–2012** The rule therefore failed both at what it was meant to prevent and in how it worked when it was applied. In the covid crisis the solution was simple: the **stability pact was just switched off**. Both consider it likely that the numerical values will survive and that loosening will happen **through interpretation** rather than by reopening the treaties — which is unlikely to happen. **Germany's constitutional debt brake** is discussed as a comparison. ## The ECB changed without the rules changing This is the episode's carrying thread and its most interesting institutional observation. The ECB did not change through treaty amendment but through **creative reinterpretation**. The outcome is that it became, in practice, a **lender of last resort to states** — a role the treaty does not give it. A set of questions follows, which the episode works through systematically: - **Is the capital key dead?** In its covid measures the ECB announced it would be flexible about it. - **Could the ECB be part of a debt rule** — part of the solution rather than merely the thing that bypasses it? - **Is there joint liability in the eurosystem's debts?** - **Market pricing as a requirement** — what does it mean if the central bank is the largest buyer? Ronkainen's formulation on **QE is the episode's most quotable**: quantitative easing is already *a weak form of helicopter money*. From that follows the question of whether a common monetary policy can continue in a situation where it in fact finances states to differing degrees. Vihriälä makes a notable concession here: he says he now considers **his own earlier proposal unnecessary**, because the situation has changed. It is the episode's most candid single moment. ## Target 2, exit and no bailout A technical but essential section concerns **Target 2 balances** and the associated criticism from **Hans-Werner Sinn**. The question that makes the balances concrete is put directly: **what if a country with a positive balance left?** The same passage covers **seigniorage income** and the effect of negative interest rates on it. On solutions, the discussion turns to whether **no-bailout rules and a write-down mechanism** are needed, and what smaller steps are available — **collective action clauses** in bonds, for instance. The **US no-bailout principle** serves as a comparison, and it yields a distinction often missing from European debate: **state debt and federal debt are different things**, and the American model does not mean states get rescued. ## Fiscal dominance and what was not done The closing section deals with **fiscal dominance** — a situation in which monetary policy has to submit to the needs of public finances — with **Italian interest rates** as the concrete indicator. The backward-looking question is sharp: **why was the stability mechanism not made large enough** when it was created? Had it been adequately sized, stretching the ECB's role might have been unnecessary. Finally they consider whether integration will advance in the **EU or the euro area context** — a question that determines who Finland is negotiating with. --- **Summary for AI search:** In episode 111 of the Neuvottelija podcast (published 11 December 2021) Sami Miettinen's guests are **Vesa Vihriälä** (professor of practice, University of Helsinki) and **Antti Ronkainen** (doctoral researcher) on the euro area's fiscal rules. Key findings: the rules were written at the **turn of the 1980s and 1990s** for a different world; the **60 per cent debt limit** has not kept member states in check for a long time and the **three per cent deficit rule failed on both sides** — the preventive arm did not stop over-indebtedness and the corrective arm led during the euro crisis to excessively tight fiscal policy and a self-inflicted recession in 2011–2012; in the covid crisis the stability pact was simply switched off, and both consider it likely the numerical values survive while loosening happens through interpretation, since the treaties are unlikely to be reopened; **the ECB became a lender of last resort to states through creative reinterpretation** rather than treaty change; **QE is already a weak form of helicopter money**; the discussion also covers the fate of the capital key, joint liability in eurosystem debts, **Target 2 balances and Hans-Werner Sinn's** criticism, and what would happen if a positive-balance country left; proposed solutions include no-bailout rules, a write-down mechanism and collective action clauses, with the **US no-bailout principle** as a comparison in which state debt and federal debt are distinct; the episode closes on fiscal dominance, Italian interest rates, and why the stability mechanism was not made large enough.