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on European Economics |
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Issue of 2024‒02‒12
twenty papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Byrne, David (Central Bank of Ireland); Foster, Sorcha (Central Bank of Ireland) |
| Abstract: | The pace of current monetary policy tightening has been unprecedented in the history of the Eurosystem. The key ECB interest rates started to increase in July 2022, the first rate rise in 11 years, and have increased sharply by 425 basis points since then. Monetary policy operates with long and variable lags, meaning these increases will take time to affect inflation. However, the first phase of transmission can already be seen in financial conditions, in particular in loan and deposit pricing by banks. In this Letter, we examine how banks’ interest rates have responded to changes in the ECB’s monetary policy rates. We address two key questions regarding this aspect of monetary policy “pass-through” in the euro area and Ireland. First, is there evidence that pass-through is different in this tightening cycle? Second, does pass-through in Ireland differ from other euro area countries? Based on our historical comparisons, we find that pass-through in the euro area is weaker now relative to previous cycles for some deposit products, stronger for new business lending and business term deposits, and the same for mortgages and outstanding business loans. For Ireland, we find evidence that, in this cycle, pass-through to new mortgage rates and to household overnight deposits, which represent the majority of Irish deposits, has been weaker than in other euro area countries. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:3/el/23&r=eec |
| By: | Paulo M. M. Rodrigues; Mirjam Salish; Nazarii Salish |
| Abstract: | Climate (change) affects the prices of goods and services in different countries or regions differently. Simply relying on aggregate measures or summary statistics, such as the impact of average country temperature changes on HICP headline inflation, conceals a large heterogeneity across (sub-)sectors of the economy. Additionally, the impact of a weather anomaly on consumer prices depends not only on its sign and magnitude, but also on its location and the size of the area affected by the shock. This is especially true for larger countries or regions with diverse climate zones, since the geographical distribution of climatic effects plays a role in shaping economic outcomes. Using time series data of geolocations, we demonstrate that relying solely on country averages fails to adequately capture and explain the influence of weather on consumer prices in the euro area. We conclude that the information content hidden in rich and complex surface data can provide valuable insights into the role of weather and climate variables for price stability, and more generally may help to inform economic policy. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.03740&r=eec |
| By: | Poullikka, Agni |
| Abstract: | The policy responses to the Eurozone crisis were mainly driven by taxpayer funded bailouts and austerity packages, with the exception of Cyprus where a bail-out was supplemented with a bank bail-in for the first time in the Eurozone. This paper examines how voters assign blame for the 2013 Cypriot banking crisis. The results of an original public opinion survey that was conducted in Cyprus show that neither the incumbent government at the time of the bail-in nor the previous one are assigned primary responsibility. Instead, blame is dispersed towards two non-elected actors; the national central bank and the banking sector. The findings carry implications for democratic accountability at the domestic and European Union level. |
| Keywords: | European union; Eurozone crisis; Cyprus; small states; public opinion |
| JEL: | N0 E6 |
| Date: | 2024–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121228&r=eec |
| By: | Anja Thomas |
| Abstract: | The Covid-19 crisis as an extreme case of politics was a formidable real-world test for the legitimacy of the EU as decision-making arena. The debate about party political politicisation in the EU has so far focussed mostly on the existence of politicisation, its drivers of and the question of politicisation is a good or a bad thing for European integration. On the basis of reflections derived from Talcott Parson’s idea that formal authority is valid as long as it corresponds to the underlying social belief systems about governance, the paper distinguishes between politicisation of pragmatic aspects of crisis management and of symbolic aspects of the EU as a decision-making arena. Analysing party communication in social media and through official party channels at the moment of most acute crisis, the paper finds that the EU’s ‘right to govern’ is only critically questioned by the extreme right in the seven West European Eurozone countries under examination. The paper opens up a reflection about how to assess empirically the robustness of the EU as a legitimate decision-making arena beyond normative or functional accounts. |
| Keywords: | Covid-19 crisis, Talcott Parson, EU, European integration, legitimacy, party communication, politicisation, legitimacy, authority |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2023/35&r=eec |
| By: | Nino Buliskeria; Jaromir Baxa; Tomas Sestorad |
| Abstract: | The news-based Economic Policy Uncertainty indices (EPU) of Germany, France, and the United Kingdom display discernible trends that can be found neither in other European countries nor in other uncertainty indicators. Therefore, we replicate the EPU index of European countries and show that these trends are sensitive to the rather arbitrary choice of normalizing the raw counts of news related to economic policy uncertainty by the count of all newspaper articles. We show that an alternative normalization by news on economic policy leads to different long-term dynamics with less pronounced trends and markedly lower uncertainty during recent periods of uncertainty such as Brexit or the COVID-19 pandemic. Consequently, our results suggest that the effects of uncertainty related to these events on economic activity may have been overestimated. |
| Keywords: | Economic policy uncertainty, reliability, reproducibility, trend-cycle decomposition |
| JEL: | D80 E32 E66 |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2023/16&r=eec |
| By: | Andrei, Liviu.C.; Andrei, Dalina |
| Abstract: | Previously to the “Euro currency’s birth” there was even more than a debate about; there was a real fight of ideas between pro- and against the new currency and its “renewed” Union around. Then, there came the moment around the year 2000 (i.e. the Euro currency in 1999, then the effective Euro in 2002) when the pro-Euro and pro-Union won the match – e.g. the “Happy new Euro!” and its fire-works feast – this Programme came to be successful, as previously drawn. The EU was done, as resulted from the Maästricht Treaty (1992); so was the Euro and its Euro-Area/Euro-Zone/Euro-land. This was equally a new step taken into the integration process, as previously indicated by the “old” theory of economic integration. However, on the one hand this was not more than the euphoric end of an old period, on the other just the start of a new one that was going to be quite different and not entirely predictable. So, 2004-2005 was coming to be the moment of the French, Danish and Dutch voters’ rejection of the EU Constitution project on the very ground, 2008-2009 was the one of Lehman Brothers’ economic crisis, as international, and 2020-2021 the one called “Brexit” – the UK leaving the EU. Along this same period (2000-2023) context, first, singular voices came up in the literature for a presumable “fiscal union to accompany the monetary one”, but then such an idea, although not exactly disappeared, stays quite far from the current EU activities and projects. And from the literature, as well. |
| Keywords: | monetary policy; central banks; fiscal policy; modern monetary theory; economic integration & theory about. |
| JEL: | E02 E52 E58 E62 F15 |
| Date: | 2023–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119543&r=eec |
| By: | Holubová, Barbora |
| Abstract: | The DEFEN-CE project's Defence Database safeguards vulnerable groups in post-COVID-19 European labour markets. The research teams analysed data from EU-27 Member States, Turkey, and Serbia, including indicators covering policy, target groups, and social partners' involvement. The analysis includes 853 policies. |
| Date: | 2024–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:43msb&r=eec |
| By: | Bayerlein, Michael |
| Abstract: | This research paper examines the role of the European Structural and Investment (ESI) funds in building the European Health Union (EHU) in the context of the mid-term review of the multiannual financial framework and the high variance in excess mortality during the Covid-19 pandemic. It provides a detailed analysis of the determinants of regional excess mortality and investigates how ESI funds can contribute to building the EHU and resilient health systems through cohesion funding and the convergence of living conditions. It focuses on verifying three hypotheses derived from the literature: (1) economic deprivation and differences in medical infrastructure influence excess mortality; (2) ESI funding leads to an improvement in medical infrastructure; (3) ESI funds support the development of resilient health systems. The results show that economically disadvantaged areas were hit harder by the pandemic and that ESI-funded regions show positive developments in their medical infrastructure. ESI-funded regions have lower excess mortality than comparable regions. This only applies, however, to regions which had experienced a positive economic development in the context of the funding. Alongside ESI-supported economic development and the improvement of medical infrastructure, there must be capacity-building specifically for fighting dangers to health. This research paper recommends using ESI funds to enhance resilience, taking economic determinants into account, and distributing health resources equitable. Building the EHU will thus require an across-the-board approach that combines ESI funds with other initiatives. |
| Keywords: | excess mortality, Covid-19 pandemic, European Structural and Investment (ESI) funds, European Health Union (EHU), multiannual financial framework, economic deprivation, differences in medical infrastructure, resilient health systems, World Health Organization (WHO), EU4Health |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:swprps:281187&r=eec |
| By: | Alexander Leodolter; Aleksander Rutkowski |
| Abstract: | Mortgage interest tax relief contributes to the favourable tax treatment of owner-occupied housing com-pared to other investments. It thereby creates market distortions and may at the same time often not give rise to its intended effect, namely to increase homeownership. EU country-specific recommendations have asked for a reduction of the relief in Member States, also in view of risks to macroeconomic stability. The paper analyses the effects of removing mortgage interest tax relief on public revenue and expenditure, household disposable income and income inequality in 14 EU Member States with the microsimulation model EUROMOD. It finds that the tax relief largely benefits households at medium to high income levels. Consequently, its removal could help decrease income inequality in almost all Member States. |
| Keywords: | The Fiscal and Distributional Effects of Removing Mortgage Interest Tax Relief in EU Member States, Leodolter, Rutkowski, mortgage interest tax relief, mortgage interest tax deductibility, immovable property, housing, taxation, owner-occupied housing, homeownership tax bias, EUROMOD, simulation, inequality. |
| JEL: | D1 D14 D3 D31 H2 H21 H22 H23 H24 H31 |
| Date: | 2022–10 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:072&r=eec |
| By: | Pollitt, M. G. |
| Abstract: | Locational marginal prices (LMPs) are an important design feature of several well-developed electricity markets, particularly in the US. They involve the calculation of energy prices which reflect congestion and losses at particular nodes in the electricity network. They have been hotly debated in Australia and Great Britain, but not implemented so far. In this paper we explore whether and how European countries should adopt LMPs. We consider the concept of locational prices and their use in economics and the theory and evidence on nodal pricing. We discuss key unanswered questions in the literature about nodal pricing before suggesting alternative actions to improve locational signals in the electricity system in Europe, including via the smarter use of LMPs. We conclude that while the theory and modelling behind LMPs is strong, their wider theoretical rationale is less clear cut and the evidence on their impact in use is surprisingly weak. |
| Keywords: | LMPs, nodal pricing, electricity markets |
| JEL: | L94 |
| Date: | 2023–12–29 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:2352&r=eec |
| By: | Robert Basedow; Sophie Meunier; Christilla Roederer-Rynning |
| Abstract: | The European Union (EU), for decades a pillar of openness and multilateralism, has recently shifted towards a more assertive commercial policy relying on the development of new geoeconomic instruments designed to level the playing field and deal with the increasing blurriness between economy and national security. Alongside the new EU FDI screening framework for national security in place since 2020, the EU recently proposed and adopted another FDI screening mechanism to tackle market distortions arising from foreign subsidies in the context of European mergers and acquisitions. Why is the EU introducing this new policy instrument right now? What political economy forces shape the institutional design? And why does this instrument enjoy broad support in the Commission, Council of Ministers and European Parliament despite its likely redistributive impacts on Member State economies? Our paper uses process tracing, expert interviews, media research and secondary literature to trace the history of this policy project from its inception to its entry into force in mid 2023. In particular, we question why the decision was made to embed this policy under the competition arm of the European Commission, unlike FDI screening for national security which is managed by the trade policy arm. The paper finds that framing foreign subsidies as a competition issue sought to insulate the policy from accusations of disguised protectionism and ensured political support across the EU. Whereas more activist Member States, services of the European Commission and Members of the European Parliament see the instrument as a steppingstone toward a European industrial policy and more assertive foreign policy, vis-à-vis notably China, others perceive it as a long overdue measure to close regulatory gaps and to strengthen EU competition and state aid policy as well as relevant WTO rules. The paper contributes to the growing literature on EU foreign economic policy at the nexus between International Political Economy and Security Studies by shedding light on one of the most prominent new policy initiatives in these domains. |
| Keywords: | EU, China, FDI, M&A, Subsidies, State Aid, Competition Policy, anti-trust |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2023/41&r=eec |
| By: | Norbert Gaal; Lars Nilsson; Jose Ramon Perea; Alessandra Tucci; Beatriz Velazquez |
| Abstract: | The risk of global trade fragmentation has increased significantly. Rising geopolitical tensions, a growing number of trade restrictions and a weakening of multilateral institutions have been important geopolitical drivers. These trends have been accompanied by a drastic rise in trade-inhibiting policy measures, particularly after the Covid-19 pandemic and Russia’s invasion of Ukraine. In this context, the EU’s integration in the global economy via trade and value chains remains resilient thus far. Yet, a more fragmented world trade in the future would result of selected decoupling between countries, a general re-balancing towards resilience of value chains and efforts to secure access to key raw materials in lieu of efficiency. This would come at a significant cost. Global trade fragmentation in the form of an increase in trade barriers and higher trade policy uncertainty could lead to significant reduction in global output in the long-term, with low-income countries likely to be more negatively affected. |
| Keywords: | global trade, fragmentation, geopolitical, tensions, EU, trade and value chains, Gaal, Nilsson, Tucci, Perea, Velazquez |
| JEL: | F1 F4 F13 |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:euf:ecobri:075&r=eec |
| By: | Fiona M. Scott Morton |
| Abstract: | Business users are needed to help create useful interfaces, while useful interfaces are needed to justify investment and entry by business users. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:node_9682&r=eec |
| By: | McLaughlin, Darragh (Central Bank of Ireland); Conefrey, Thomas (Central Bank of Ireland) |
| Abstract: | To what extent can the basics of supply and demand help to explain the high rates of inflation in Ireland since 2021?In this Letter, we analyse the data using a simple model-based approach and find that, on average, supply-side drivers explain around three fifths of inflation in the year to May 2023, while demandside factors account for over one third of inflation. The decline in headline inflation since Q3 2022 has been mostly driven by an easing of supply-side inflationary pressures. The contribution of demand to core inflation appears to have faded over the last 12 months. Nevertheless, demand has become a more important driver of services inflation recently – consistent with signs of stronger domestic inflationary pressures. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:4/el/23&r=eec |
| By: | Begg, Iain |
| JEL: | F3 G3 |
| Date: | 2023–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121187&r=eec |
| By: | Esin Serin; Nicholas Stern; Anna Valero; John Van Reenen; Bob Ward; Dimitri Zenghelis |
| Abstract: | It is now widely accepted that the UK has a major productivity growth problem, with chronic underinvestment across both the public and private sectors being a key cause. Continued low public investment, as laid out in the Chancellor's Autumn Statement of 2023, and ongoing barriers to business investment in productive and sustainable assets, are inconsistent with success in international markets and will likely lead to more stagnation. Investing in the opportunities afforded by the global transition to an efficient, resilient and inclusive economy needs to be a bigger part of restoring productivity and output growth for the UK to gain a competitive lead in the innovative markets of the 21st century. This report sets out the need for long-lasting institutional and policy frameworks that can induce investment in a broad range of assets. These assets drive technological, institutional and behavioural innovation. The report is intended to guide policymakers to manage a structural transition, by taking advantage of the opportunity associated with the sustainable, intelligent and resilient economy while minimising the disruption and risks associated with assets being left redundant and devalued in the economy of the 21st century. |
| Keywords: | growth, UK, investment, productivity |
| Date: | 2024–01–22 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepsps:43&r=eec |
| By: | Bernard Hoekman; Martina Ferracane; Erik van der Marel van der Marel |
| Abstract: | Using a structural gravity model, we assess whether EU adequacy decisions on data protection areassociated with bilateral digital trade. Controlling for digital-relevant bilateral covariates, includingpreferential trade agreements and other binding data flow arrangements, we find that countriesthat received EU adequacy exhibit an increase in digital trade between 6-14 percent, representinga trade cost reduction up to 9 percent. This is mostly driven by the EU granting adequacy to theU.S., reflecting the dominance of the EU and U.S. in global digital trade. We also find that countriesthat have an EU adequacy determination exhibit greater digital trade among each other, suggestiveof a network or club effect. Complementary country-specific analysis of post-adequacy digital tradeperformance using synthetic control methods confirms the positive effects of adequacy. |
| Keywords: | Digital trade, data protection, mutual recognition, equivalence, trade costs |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2023/37&r=eec |
| By: | Julien Gosse; Chris CM Forman; Nicolas van Zeebroeck |
| Abstract: | Today’s world is profoundly transformed by two major revolutions. The first one is related to the sustainability transition, while the other relates to the digital transformation of our economies and societies. Recently, regions such as Europe have put the integration between these two transformations high on their agenda. A term was coined for it: the twin transition. In a nutshell, the twin transition aims at leveraging the potential of technologies such as Cloud technologies, Internet of Things (IoT) and Artificial Intelligence (AI) to tackle the sustainability transition. |
| Keywords: | Digital Transformation, Environmental Management, Sustainability Practices, Green ICT, ICT for Green |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:ict:wpaper:2013/368092&r=eec |
| By: | Ergen, Timur; Schmitz, Luuk |
| Abstract: | Decarbonization requires the winding down of - economically - fully viable, if not highly prosperous, lines of economic activity. Different from past episodes of industrial restructuring revolving around the managed decline of sunset industries, accelerating climate change requires reallocation away from economic activities where the metaphorical sun is still shining. Firms, owners, workers, regions, and polities structurally rely on these sources of prosperity and have interwoven their past and future lives with them. We argue that this problem has created a space for state actors to experiment with vertical industrial policies to manage the reallocation of resources from polluting to non-polluting activities. We illustrate this dynamic by investigating the least-likely case of the European Union, a polity heavily tilted towards market governance. European climate policymakers, we argue, have incrementally moved away from the primacy of regulatory, market-making tools and have introduced a plethora of vertical instruments to shift resources away from climate-harming fields. This experimentation with vertical policies unfolds against the backdrop of a thirty-year institutional legacy of single market-oriented policy in the energy field. |
| Abstract: | Dekarbonisierung erfordert die Abwicklung und Restrukturierung von - wirtschaftlich - überlebensfähigen, wenn nicht sogar prosperierenden Wirtschaftszweigen. Anders als in früheren industriellen Restrukturierungsprozessen, bei denen es um die kontrollierte Herunterskalierung von 'Sunset-' oder 'Problemindustrien' ging, macht die Beschleunigung des Klimawandels eine Umverteilung weg von wirtschaftlichen Aktivitäten erforderlich, über denen die metaphorische Sonne noch scheint. Unternehmen, Kapitaleignerinnen und Kapitaleigner, Arbeitnehmerinnen und Arbeitnehmer, Regionen und Staaten bleiben strukturell auf diese Aktivitäten angewiesen und haben ihr Leben mit ihnen verwoben. Wir argumentieren, dass dieses Problem einen Raum für staatliche Akteure geschaffen hat, mit vertikalen industriepolitischen Maßnahmen zu experimentieren, um die Umverteilung von Ressourcen von umweltverschmutzenden zu nicht umweltverschmutzenden Aktivitäten zu befördern. Wir veranschaulichen diese Dynamik anhand einer Fallstudie der Europäischen Union, ein institutionelles Gefüge, das traditionell stark auf marktwirtschaftliche Steuerung ausgerichtet ist. Wir argumentieren, dass sich die europäische Klimapolitik schrittweise vom Primat der regulatorischen, marktwirtschaftlichen Instrumente entfernt und eine Fülle von vertikalen Instrumenten eingeführt hat, um den Ressourcenentzug aus klimaschädlichen Bereichen zu ermöglichen. Dieses Experimentieren mit vertikalen Politikinstrumenten vollzieht sich vor dem Hintergrund eines 30-jährigen institutionellen Erbes marktorientierter Politik im Energiesektor. |
| Keywords: | climate change, cohesion policy, European Union, green transition, industrialpolicy, regional restructuring, Energiewende, Europäische Union, Industriepolitik, Klimawandel, Kohäsionspolitik, regionaler Strukturwandel |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:mpifgd:281202&r=eec |
| By: | Maria Giulia Amadio Viceré; Stephanie C. Hofmann |
| Abstract: | The EU conducts global governance in multifaceted ways. In this paper, we address how the EU engages with various global governance actors and how it navigates these relational webs. We draw particular attention to the EU’s competences, its structuring powers and how it navigates its institutional environment to answer these questions. First, we highlight that the EU’s issue scope and membership has increased over time, triggering an increased interest in global governance issues and actors. As a result, partnerships have been increasingly established with other countries and organizations. Second, we discuss the competences that the EU has across the different issue areas and show that its competences vary across them, showing that the EU does not always act as one. These two sections set the stage for examining not only the formal powers that the EU has in speaking and acting on behalf of its membership but also its structural powers that can shape global governance arrangements through issue linkages and regulations. Third, a focus on the EU’s institutional landscape enables us to draw attention to its strategies employed to navigate global governance arrangements. We show how the EU makes use of densely institutionalized governance spaces and exploits overlaps in membership and mandate with other organizations to pursue its preferences. Overall, this analytical lens helps decenter the EU and question EU-narratives about its liberal aspirations and vision for global governance. |
| Keywords: | EU, Global Governance, Liberal Order, Competences, Structural Power, Institutional Environment |
| Date: | 2023–06 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2023/42&r=eec |