nep-eec New Economics Papers
on European Economics
Issue of 2015‒02‒11
nine papers chosen by
Giuseppe Marotta
Università degli Studi di Modena e Reggio Emilia

  1. Shifts in euro area Beveridge curves and their determinants By Bonthuis, Boele; Jarvis, Valerie; Vanhala, Juuso
  2. Membership in the Euro area and fiscal sustainability. Analysis through panel fiscal reaction functions. By Cizkowicz, Piotr; Rzonca, Andrzej; Trzeciakowski, Rafal
  3. The exposure of European countries to Greece By Eric Dor
  4. Enhancing the Legitimacy of EMU Governance By Alcidi, Cinzia; Giovannini, Alessandro; Piedrafita, Sonia
  5. The potential growth impact of structural reforms in the EU. A benchmarking exercise By Janos Varga; Jan in 't Veld
  6. The role of survey data in nowcasting euro area GDP growth By Alessandro Girardi; Andreas Reuter; Christian Gayer
  7. (When) does austerity work? On the conditional link between fiscal austerity and debt sustainability By Vassilis Monastiriotis
  8. The European Economic Constitution and its Transformation through the Financial Crisis By Christian Joerges
  9. Structural reforms at the zero bound By Lukas Vogel

  1. By: Bonthuis, Boele (University of Amsterdam & Deutsche Bundesbank); Jarvis, Valerie (European Central Bank); Vanhala, Juuso (Bank of Finland Research)
    Abstract: This paper analyses euro area Beveridge curves at the euro area aggregate and country level over the past 25 years. Using an autoregressive distributed lag model we find a significant outward shift in the euro area Beveridge curve since the onset of the crisis, but considerable heterogeneity at country level. We test for factors underlying these developments using the local projections method of Jordà (2005). Skill mismatch, high shares of workers in the construction sector, as well as high pre-crisis financial slack and home ownership rates appear strong determinants of outward shifts in Beveridge curves in response to a negative shock. Higher female participation rates mitigate these effects.
    Keywords: Beveridge curve; crisis; mismatch; unemployment; labour shortages; vacancies
    JEL: E24 E32 J62 J63
    Date: 2015–02–03
  2. By: Cizkowicz, Piotr; Rzonca, Andrzej; Trzeciakowski, Rafal
    Abstract: We estimate various panel fiscal reaction functions, including those of the main categories of general government revenue and expenditure for 12 Euro area member states over the 1970-2013 period. We find that in the peripheral countries where sovereign bond yields decreased sharply in the years 1996-2007, fiscal stance ceased to respond to sovereign debt accumulation. This was due to lack of sufficient adjustment in government non-investment expenditure and direct taxes. In contrast, in the core member states ,which did not benefit from yields’ convergence related to the Euro area establishment, responsiveness of fiscal stance to sovereign debt increased during 1996-2007. It was achieved mainly through pronounced adjustments in government non-investment expenditure. Our findings are in accordance with predictions of theoretical model by Aguiar et al. (2014) and are robust to various changes in modelling approach.
    Keywords: fiscal reaction function, sovereign bond yields’ convergence, fiscal adjustment composition
    JEL: C23 E62 F34 H63
    Date: 2015–01
  3. By: Eric Dor (IESEG School of Management (LEM-CNRS))
    Abstract: The exposures of all the euro area countries to Greece are computed and detailed. The larger components of these exposures are due to the participation to the different mechanisms of the support programmes, in the form of loans or guarantees. Other components are the implicit shares of the claims of the Eurosystem on Greece or its central bank. They are related to TARGE2 or the securities market programme. Germany has the largest share of this claim accumulation.
    Date: 2015–01
  4. By: Alcidi, Cinzia; Giovannini, Alessandro; Piedrafita, Sonia
    Abstract: This CEPS Special Report investigates ways to enhance the legitimacy of economic governance in the Economic and Monetary Union (EMU) without introducing Treaty changes. It suggests changes in the governance framework at both the institutional and economic level. Input-oriented legitimacy can be improved by increasing parliamentary oversight on decisions related to EMU and increasing the accountability of the Eurogroup. Output-oriented legitimacy can be improved by strengthening the ability of EMU to reduce the emergence of negative externalities and to mitigate their impact, through market and fiscal risk-sharing mechanisms.
    Date: 2014–12
  5. By: Janos Varga; Jan in 't Veld
    Abstract: This paper presents a quantitative model-based assessment of the potential impact of structural reforms in the EU Member States. By comparing structural indicators of labour and product markets, a gap is defined for each indicator relative to the 3 best performers. Scenarios are then simulated in which half the gap vis-à-vis best performance is closed, to avoid setting unrealistic and/or unattainable targets. The simulations show large potential gains in output and employment, raising EU GDP by 3 % after five years and 6% after ten years. While competitiveness gains are smaller under simultaneous reforms, higher demand effects help to support growth in trading partners.
    JEL: C53 E10 F47 O20 O30 O41
    Date: 2014–12
  6. By: Alessandro Girardi; Andreas Reuter; Christian Gayer
    Abstract: This paper evaluates the impact of new releases of financial, real activity and survey data on the nowcasting of euro area GDP growth. We show that financial data are only essential for improving nowcasting in the first two months of a nowcast quarter. This contrasts with survey and real data, which are indispensable components throughout the entire nowcasting exercise. When treating variables as if they were all published at the same time and without any time lag, financial series lose all their significance, while survey data remain important. This evidence suggests that survey data offer more than just timeliness for the purpose of nowcasting GDP growth. The latter holds true for financial data only when restricting the analysis to the 2008-09 financial crisis.
    JEL: C22 C53 E37
    Date: 2014–12
  7. By: Vassilis Monastiriotis
    Abstract: The Eurozone crisis has given a new impetus to academic and policy debates about the merits and ills of fiscal consolidation policies (austerity). Fuelled by the huge contraction experienced by some ‘bailout countries’, and especially Greece, a new consensus seems to have emerged, that “austerity doesn’t work”. Yet, many Eurozone countries have seen a relatively fruitful implementation of fiscal consolidation programmes, with fiscal pressures being successfully curtailed and the adverse growth effects of austerity being very short-lived. The literature has only recently shifted its attention to the qualitative characteristics of fiscal consolidation to explain variations in economic performance (growth) across countries in the course of austerity. Still, attention to political-institutional and structural-economic factors is generally lacking. This paper makes a contribution in this direction, by showing that two domestic-context parameters – trade openness and quality of government – exert significant influence on the impact that austerity has on growth and debt-sustainability. Factoring-in these parameters allows us to contextualise a number of ‘stylised facts’ of the Eurozone crisis, including the huge recession and large snowball effect for Greece, the relatively painless fiscal consolidation in parts of the Eurozone north, and the surprising decline in nominal interest rates seen is some of the most agile Eurozone countries.
    Keywords: austerity; growth; debt sustainability; quality of government
    JEL: J1 N0 E6
    Date: 2014–06
  8. By: Christian Joerges (Zentrum für Europäische Rechtspolitik (ZERP), University of Bremen - Faculty Law)
    Abstract: The idea of an “economic constitution” was developed by a group of German economists and lawyers in the Weimar Republic which sought a “third way” – the “ordo-liberal way” – between laissez-faire liberalism and socialist politics. Ordo-liberalism survived the Third Reich untainted. In the 1950s, Ordo-liberalism was complemented by the concept of the social market economy. In the formative phase of the EEC, ordo-liberal scholars started to promote the ensemble of European economic freedoms and a system of undistorted competition as the constitutional core of the European integration project. The Economic and Monetary Union, as accomplished by the Maastricht Treaty, was expected to complete this project. However, the entire edifice soon proved to be much more vulnerable than its advocates had promised. Following the financial and the sovereign debt crises, EMU with its commitments to price stability and monetary politics is perceived as a failed construction precisely because of its reliance on inflexible rules. European crisis management seeks to compensate for these failures by means of regulatory machinery which disregards the European order of competences, disempowers national institutions, burdens, in particular, Southern Europe with austerity measures; it establishes pan-European commitments to budgetary discipline and macroeconomic balancing. The ideal of a legal ordering of the European economy is thus abolished while the economic and social prospects of these efforts seem gloomy and the Union’s political legitimacy becomes precarious.
    Keywords: Franz Böhm, Economic governance, Walter Eucken, Fiscal Compact, Greek rescue package judgment, Habermas, Maastricht judgment (Brunner case), OMT controversy, Ordo-liberalism, “Six Pack”, Social Market Economy
    Date: 2015–02
  9. By: Lukas Vogel
    Abstract: This paper uses the European Commission’s QUEST macroeconomic model to analyse the impact of structural reforms on economic activity in an environment in which the zero bound on monetary policy rates is temporarily binding. The simulations suggest that although such reforms can have a negative impact on economic activity in the short run, these effects tend to be small and short-lived when a variety of transmission channels are considered. The results also do not support the idea that postponing structural reforms improves economic conditions, in such and environment.
    JEL: E20 E30 E60 F40
    Date: 2014–11

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