nep-eec New Economics Papers
on European Economics
Issue of 2010‒11‒20
eleven papers chosen by
Giuseppe Marotta
University of Modena and Reggio Emilia

  1. The Euro Area Crisis Management Framework: Consequences and Institutional Follow-ups By Ansgar Belke
  2. Measuring the price elasticity of import demand in the destination markets of Italian export By Alberto Felettigh; Stefano Federico
  3. Coverage and adequacy of Minimum Income schemes in the European Union By Figari F; Haux T; Matsaganis M; Sutherland H
  4. Fiscal stimulus and exit strategies in a small euro area economy By Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria
  5. Coopetitive game solutions for the eurozone economy By Carfì, D.; Magaudda, M.; Schilirò, D.
  6. Social Pensions in Europe: The Aim, The Impact and The Cost By Frieda Vandeninden
  7. EU enlargement and theories of economic integration By Susan Senior
  8. Direct job creation in Germany revisited : Is it effective for welfare recipients and does it matter whether participants receive a wage? By Hohmeyer, Katrin; Wolff, Joachim
  9. Islamic finance and conventional financial systems. Market trends, supervisory perspectives and implications for central banking activity By Giorgio Gomel; Angelo Cicogna; Domenico De Falco; Marco Valerio Della Penna; Lorenzo Di Bona De Sarzana; Angela Di Maria; Patrizia Di Natale; Alessandra Freni; Sergio Masciantonio; Giacomo Oddo; Emilio Vadalà
  10. Optimal size of government and economic growth in EU-27 By Magazzino, Cosimo; Forte, Francesco
  11. External Dimension of EU Social Policy By Werner Eichhorst; Michael J. Kendzia; Jonathan Benjamin Knudsen; Mette Okkels Hansen; Barbara Vandeweghe; Ingrid Vanhoren; Eva Rückert; Bernd Schulte

  1. By: Ansgar Belke
    Abstract: The current instruments in the EU to deal with debt and liquidity crises include among others the European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). Both are temporary in nature (3 years). In terms of an efficient future crisis management framework one has to ask what follows after the EFSF and the EFSM expire in 3 years time. In this vein, this briefing paper addresses the question of the political and economic medium-to long-term consequences of the recent decisions. Moreover, we assess what needs to be done using this window of opportunity of the coming 3 years. Which institutions need to be formalized, into what format, in order to achieve a coherent whole structure? This briefing paper presents and evaluates alternatives as regards the on-going debate on establishing permanent instruments to support the stability of the euro. Among them are the enhancement of the effectiveness of the Stability and Growth Pact combined with the introduction of a "European semester" and a macroeconomic surveillance and crisis mechanism, fiscal limits hard-coded into each country's legislation in the form of automatic, binding and unchangeable rules and, as the preferred solution, the European Monetary Fund.
    Keywords: EU governance, European Financial Stability Facility, European Financial Stabilisation Mechanism, European Monetary Fund, policy coordination, Stability and GrowthPact
    JEL: E61 E62 P48
    Date: 2010
  2. By: Alberto Felettigh (Bank of Italy); Stefano Federico (Bank of Italy)
    Abstract: The aim of this paper is to compare the price elasticity of import demand in the destination markets of Italian exports to the price elasticity in the destination markets of the other main euro-area countries’ exports. To this end, we use the elasticities of substitution across varieties estimated for each destination market (defined as a country-product combination) by Broda, Greenfield and Weinstein (2006). We find that Italy exports to markets which have, on average, a lower price elasticity than the markets where France, Germany and Spain sell their exports. The result is mainly driven by the motor vehicle and other transport equipment sectors. Net of these two industries, the export elasticities of the four countries are basically identical. The sectoral and geographical composition of Italian exports therefore does not seem to expose them to a relatively more elastic demand, contrary to the indications of part of the literature.
    Keywords: exports, elasticity of substitution, Armington varieties, international specialization, price elasticity of exports
    JEL: F12 F14
    Date: 2010–10
  3. By: Figari F (Institute for Social and Economic Research); Haux T (Institute for Social and Economic Research); Matsaganis M (Athens University of Economics and Business); Sutherland H (Institute for Social and Economic Research)
    Abstract: The purpose of this paper is to explore and compare the effectiveness of Minimum Income (MI) schemes in protecting people of working age from poverty in the European Union. Using the EU-wide microsimulation model EUROMOD, we investigate (a) coverage and (b) adequacy of MI schemes in 18 countries. In contrast to previous comparative studies of MI benefits, relying on comparisons of the effects on stylised families, we are able to capture the full range of individual and household circumstances and to quantify the effects on people entitled to MI schemes using a comparable approach across countries.
    Date: 2010–11–10
  4. By: Vanda Almeida; Gabriela Lopes de Castro; Ricardo Mourinho Félix; José Ramos Maria
    Abstract: This article is focused on fiscal stimulus and exit strategies in a small euro area economy. The analysis is based on a New-Keynesian general equilibrium model with non-Ricardian features introduced in Almeida, Castro and Félix (2010). We define a benchmark fiscal stimulus and, conditional on alternative exit strategies, clarify its macroeconomic effects. We investigate if a fiscal stimulus can be enhanced (or harmed) by particular exit strategies. The impact multipliers proved insufficient to discriminate between alternative strategies. However, since the policy impacts are not limited to the short run, there are relevant effects over the medium run that can be used to evaluate the different strategies. It will be claimed that (i) the announcement of a promptly and timely exit strategy, contemporaneous to the announcement of the fiscal stimulus, with a consolidation period that is not prolonged indefinitively, may improve the effectiveness of the stimulus and that (ii) exit strategies based on Government<br>consumption cuts tend to dominate over other alternatives, such as transfers cuts or tax rate increases.
    JEL: E62 F41 H62
    Date: 2010
  5. By: Carfì, D.; Magaudda, M.; Schilirò, D.
    Abstract: This paper aims at providing, through a game theory model of coopetition, feasible solutions in a cooperative perspective to the problems that affect the Eurozone economy after the Greek crisis. In particular, it focuses on stability and growth as the primary goals, which should drive the Eurozone economy in consequence of the financial and economic crisis of the Greek economy with its effects throughout the Euro area. By means of two coopetitive models derived by an original general analytical framework of coopetition, we show in our paper the strategies that could bring to feasible solutions in a cooperative perspective between Germany and Greece, where these feasible solutions aim at “sharing the pie fairly”, by offering a win-win outcome for both countries, within a growth path represented by a non-zero sum game. A remarkable analytical result of the paper consists in the determination of the winwin solution by a new selection method on the transferable utility Pareto boundary of the coopetitive game.
    Keywords: Eurozone Economy; Coopetition; Game Theory
    JEL: F40 C71
    Date: 2010–09
  6. By: Frieda Vandeninden
    Abstract: The aim of this paper is to evaluate the impact in terms of poverty and cost of the introduction of social (or noncontributory) pensions in Europe. We use data from the household survey EU-SILC and focus on 17 countries. After reviewing the existence of social pensions in Europe and evidence of old-age poverty, we simulate – in a static framework – the introduction of two social pension schemes: universal and means tested social pensions. We see that the old-age poverty would substantially decrease (average poverty rate goes from 19.7 to 2.5 percent with the universal scheme) but not totally, even though the level of the universal pension is set up to the poverty line. The impact on poverty with the means tested social pension is quite similar (though always smaller) than the one with the universal pension, since most elderly have few other income sources than pensions. On the opposite, it costs less. In fact, the means test reduces substantially the number of entitled elderly while the universal pension leads to a ‘leakage’ to non-poor elderly.
    Date: 2010
  7. By: Susan Senior
    Abstract: The fifth wave of EU enlargement taking place in 2004 and 2007 was the culmination of a long process beginning in 1989. Early on the Central and Eastern Europe countries began requesting membership, taking the then European Community by surprise. Only slowly during the 1990s were criteria for accession drawn up and empirical studies of the likely effects of enlargement began to emerge. The theoretical basis for analysis of the enlargement process was heterogeneous and piecemeal, and it is difficult to talk of ‘enlargement theory’. None the less the aim here is to indicate the main theoretical approaches used to study the fifth wave of enlargement. A strand of integration theory relies on the seminal work of Balassa to synthesize this process into ‘stages’ or grades of integration: a free trade area; a customs union; a single market (with the four freedoms of movement of goods, services, capital and labour); economic and monetary union; and political union. Though these stages do not constitute clearly defined steps in an ascending scale, as will be shown here, they are reflected in the evolution of ‘enlargement theory’. The paper illustrates that economic theories of enlargement and those dealing with more general aspects of European integration have at times developed in parallel, with spillovers occurring in both directions, but in other cases they have taken rather diverging routes.
    Keywords: European integration, EU enlargement, theories of integration.
    JEL: F15
    Date: 2010–11
  8. By: Hohmeyer, Katrin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Wolff, Joachim (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Bringing welfare recipients into jobs is a major goal of German labour market policy since a reform of the year 2005. Direct job creation providing participants with temporary subsidized jobs mainly in the non-profit sector plays an important role for achieving this goal. There are three schemes that differ only with respect to a few features: traditional job creation schemes, One-Euro-Jobs and work opportunities subsidising contributory jobs. We study and compare the effectiveness of these three job creation schemes for welfare recipients starting their participation in these programmes in mid 2005. Looking at three similar schemes enables us to study the implications of different programme features for the effectiveness. One major differ-ence between the schemes is that traditional job creation schemes and work opportunities as contributory jobs provide participants with regular earnings, whereas One-Euro-Job participants only receive their benefit and on top a small allowance to cover costs of working. Hence, participation in One-Euro-Jobs in contrast to the other two programmes should provide higher incentives to search for regular jobs during participation. We estimate participation effects on employment outcomes, earnings and welfare benefit levels with propensity score matching using rich administrative data. We find that the programmes are partly effective in moving welfare recipients to work and reducing their welfare benefit dependency. Moreover, our findings imply that the incentives to search for regular jobs are not much lower for participants in the two schemes offering regular wages than for the alternative One-Euro-Jobs. Next, we find the most beneficial impacts for participants in work opportunities as contributory jobs which is the only scheme that can subsidize commercial jobs." (author's abstract, IAB-Doku) ((en))
    Keywords: Arbeitslosengeld II-Empfänger, arbeitsmarktpolitische Maßnahme, Arbeitsbeschaffungsmaßnahme, Arbeitsgelegenheit, berufliche Reintegration, Arbeitsmarktchancen, Einkommen, Wirkungsforschung, Transferleistung
    JEL: C13 I38 J68
    Date: 2010–11–10
  9. By: Giorgio Gomel (Banca d'Italia); Angelo Cicogna (Banca d'Italia); Domenico De Falco (Banca d'Italia); Marco Valerio Della Penna (Banca d'Italia); Lorenzo Di Bona De Sarzana (Banca d'Italia); Angela Di Maria (Banca d'Italia); Patrizia Di Natale (Banca d'Italia); Alessandra Freni (Banca d'Italia); Sergio Masciantonio (Banca d'Italia); Giacomo Oddo (Banca d'Italia); Emilio Vadalà (Banca d'Italia)
    Abstract: The paper analyses Islamic finance from the central bank and supervisory authorityÂ’s perspective, focusing on the European and Italian context. It depicts a rapidly expanding sector, with recent annual growth rates of between 10 and 15 percent and a geographical presence that now reaches several Western countries. Future prospects, however, could be hampered by problems concerning the standardization of products, governance structure, supervisory regulation, monetary policy instruments, and liquidity management. Islamic intermediaries are not necessarily riskier than traditional counterparts but their operational structure tends to be more complex. Key issues in supervision include the treatment of investment accounts and transparency. It has been seen that there are limits to the efficiency of the monetary policy instruments developed so far to remedy the prohibition of interest; moreover, the growth of interbank and money markets is hindered by a shortage of "Shari'ah-compliant" products. Problems arising from the participation of Islamic banks in payment systems are also discussed.
    Keywords: Islamic finance, Islamic financial institutions, supervision, monetary policy instrments, payment systems
    JEL: G20 F39 Z12
    Date: 2010–10
  10. By: Magazzino, Cosimo; Forte, Francesco
    Abstract: Using time-series techniques and panels data, the paper analyses for the EU countries in the period 1970-2009 the existence and shape of the “BARS curve” (Barro, Armey, Rahn, and Scully), connecting the size of Government (measured by the share of public expenditure on GDP) to the rate of economic growth. Individual countries research has been conducted for 12 countries for whom enough time series were available, while panel analysis has been performed both for EU-27 and for subgroups, distinguished by their different socio-economic and monetary structures, and per capita GDP. BARS curves were generally found, and the shares of actual public expenditures generally exceed substantially those related to the maximization of GDP growth. However, great differences do emerge. For the 12 countries examined by time-series techniques, the difference between the actual level and the peak of the BARS curve ranges from 5.7 points for Germany and 18.1 points for Belgium. Panel data analysis for EU-27 shows a peak of the BARS curve at 37%, while the actual level is about 47%. While, panel data disaggregation shows a similar situation for the Western Continental Countries, with a smaller gap for Anglo-Saxon countries. For low per capita GDP countries the peak is higher than for the mature economies. So, further research may prove useful to show light on the disparities emerging in the empirical analysis of individual countries and of the panel sub-groups. However, the present research provides enough evidence that high GDP countries of EU have overcome the level of government size compatible with GDP growth rate maximization.
    Keywords: Government size; economic growth; BARS curve; public expenditure; EU-27.
    JEL: E62 H60 C23 C22 O40
    Date: 2010–09–01
  11. By: Werner Eichhorst (IZA); Michael J. Kendzia (IZA); Jonathan Benjamin Knudsen (NIRAS); Mette Okkels Hansen (NIRAS); Barbara Vandeweghe (IDEA); Ingrid Vanhoren (IDEA); Eva Rückert (WIFO); Bernd Schulte (MPISOC)
    Abstract: Report based on a study conducted for the European Parliament, Bonn 2010 (95 pages)
    Date: 2010–10

This nep-eec issue is ©2010 by Giuseppe Marotta. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.