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on European Economics |
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Issue of 2024–12–09
sixteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Arnal, Judith; Lannoo, Karel; Lastra, Rosa |
| Abstract: | After the end of the euro area sovereign debt crisis and the sovereign-bank feedback loop receded, EU Member States’ appetite for progress in the Banking Union significantly decreased. Against the background of lessons learnt from several resolution and liquidation cases during the first few years of the Banking Union, the European Commission tabled a proposal in April 2023 to reform the Crisis Management and Deposit Insurance (CMDI) framework. While this proposal has its merits, it falls short of the real pending issues for completing the Banking Union, namely the third pillar (EDIS or the European Deposit Insurance Scheme), a mechanism for liquidity provision in resolution, and the ‘missing pillar’ regarding the provision of Emergency Liquidity Assistance (ELA). In this CEPS Policy Brief, we make three key recommendations on how to improve the CMDI proposal, namely: 1. Full harmonisation, or at least the harmonisation of the most relevant aspects of liquidation procedures; 2. Updating and aligning the Banking Communication with the BRRD/SRMR; and 3. Further facilitating access to industry funds. Finally, we strongly discourage ‘a piecemeal approach’ during the ongoing negotiations over the CMDI reform. |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:42127 |
| By: | Koeniger, Winfried (University of St. Gallen); Kress, Peter (University of St. Gallen) |
| Abstract: | We use novel transaction-level card expenditure data to estimate the effect of the temporary value-added tax (VAT) cut in Germany 2020. We find that the annualized growth rate of expenditures for durables increased by 6 percentage points (pp) during the tax cut, with a particularly strong increase of up to 11 pp for consumer electronics. The expenditure growth rate for semi-durables and non-durables did not change by and large. The estimates imply a consumption multiplier of 0.2 and an elasticity of fiscal revenues to a VAT rate reduction of two thirds. |
| Keywords: | consumption expenditure, transactional data, temporary VAT cut, unconventional fiscal policy |
| JEL: | D12 E21 E62 E65 H31 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17412 |
| By: | Jose González Mínguez (BANCO DE ESPAÑA) |
| Abstract: | Europe is facing a number of major challenges in the near future, including managing the climate transition, the effects of technological transformations and geopolitical changes. European and national authorities are aware that the tools currently in place are insufficient to address these challenges and that a determined reform drive is therefore needed. At the start of a new European institutional cycle, the set of proposals in the Letta report, aimed at completing the Single Market and adapting it to the new circumstances, constitute a major contribution to the European economic policy debate. The most important initiatives include the revitalisation of the capital markets union, the creation of a pan-European State aid scheme based on national contributions, the promulgation of a European code of commercial law as an alternative to the harmonisation of the 27 existing national systems, the incorporation into the Single Market of sectors that have so far been largely outside it (such as energy and telecommunications) or, in the legislative field, the prioritisation of the use of regulations, which are directly applicable in the Member States, over directives, which require transposition into the legal systems of each country. The report’s diagnosis is largely shared by the various national authorities, who also welcomed the main thrust of the proposals. However, it is not difficult to see that the implementation of the latter requires a consensus that, in practice, may be difficult to achieve. |
| Keywords: | Single Market, European integration, capital markets union, industrial policy, competitiveness, climate change, geopolitics, innovation |
| JEL: | E61 E62 F13 F15 F36 F45 G28 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bde:opaper:2430e |
| By: | Florian Dorn; Lisandra Flach; Isabella Gourevich |
| Abstract: | The service sector has been a key driver of growth in the European Union (EU) over the past two decades. However, despite the principle of free movement of services, the single market still faces significant national barriers and remains a patchwork of 27 systems across member states. Administrative hurdles are the most significant obstacles. These barriers significantly hinder cross-border trade in services.Our quantitative analysis shows that reducing barriers and better harmonizing regulations within the EU would deepen the integration of the EU internal market for trade in services. This would lead to gains in value added across all sectors, strengthening Europe's economy and competitiveness and generating substantial welfare gains. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:econpr:_52 |
| By: | Thomadakis, Apostolos; Lannoo, Karel; Shamsfakhr, Farzaneh |
| Abstract: | A new study highlights that to ensure widespread adoption, the digital euro must offer a compelling value proposition and clear benefits to consumers and merchants in the EU, while the EU’s legislative framework should allow for these benefits to gradually emerge over time. There is a need to minimise the risk of crowding out European private solutions, which would impact competition and the attractiveness of the European payments market, while at the same time hinder the digital euro’s adoption. Formed in April 2023, a CEPS-ECMI-ECRI Round Table brought together a working group of market operators and infrastructure providers, central bank representatives, regulators, and academics to take part in research and in-depth discussions over a six-month period. Prior to deciding whether to proceed with the digital euro project, the study argues that: The benefits of an eventual digital euro and its added value for end users (i.e. individuals, merchants and businesses), compared with existing payment solutions, should be crystal clear, well understood and clearly communicated. The digital euro should be cost efficient, economically viable and contribute to making payments – and ultimately the European economy – more competitive. The effectiveness of holding limits should be better justified and explained. If a decision is made to proceed with the digital euro project, our study proposes approaching it as follows: Start with a digital euro that is as simple as possible and includes only the most basic functionalities. Rely on and build upon existing mechanisms in the payment infrastructure as much as possible and take full advantage of current service processes. Establish a regulatory framework that ensures a level playing field for the payment ecosystem, between providers and between currencies (public and private money). Finally, so as not to impact the euro’s attractiveness as a means of payment relative to other major currencies, decisions on the digital euro (either a retail or wholesale one) cannot be taken in isolation from central bank digital currency developments in other major jurisdictions. |
| Date: | 2023–10 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:41185 |
| By: | Mirjana Miletic, Danilo Cerovic and Aleksandar Tomin; Mirjana Miletic (National Bank of Serbia); Danilo Cerovic (National Bank of Serbia); Aleksandar Tomin (National Bank of Serbia) |
| Abstract: | The aim of this paper is to examine the extent to which global factors – supply chain disruptions and rising oil prices – affect inflation in Serbia and other European countries, this being particularly important in the context of the ongoing episode of global inflation growth, which is largely a consequence of the outbreak of the Covid-19 pandemic, but also of the energy crisis and the conflict in Ukraine. The analysis was carried out using the panel method, whereby an estimation was made for 31 European countries considered together and separately for European advanced and emerging economies. The analysis was carried out for the period from Q1 2006 to Q2 2023 using the panel ARDL model and estimates were obtained using the PMG and DFE methods, as well as the asymmetric ARDL model, where the inflationary impact of the rise and fall in global energy prices and of the tightening and easing of supply bottlenecks was tested separately. The obtained results suggest that global supply chain disruptions have a statistically significant effect on consumer and producer prices in the long term, and global oil prices in both the short and long term (controlled for the influence of domestic factors). The link between inflation and supply bottlenecks has been confirmed for both advanced and emerging economies, as well as by various disruption indicators (the European Commission’s Business Climate Indicator, measuring the level of disruption specific to a country, and the Fed’s Global Supply Chain Pressure Index, gauging the intensity of global pressures), which indicates the robustness of the obtained estimates. When the asymmetric ARDL model is applied, a higher coefficient is obtained for the indicator of global supply chain disruptions (measured by GSCPI) when a negative shock occurs (their loosening) than in the case of a positive shock (tightening), which is a consequence of the significant drop in this indicator in the last three quarters of the period analysed. This suggests that the obtained result is not robust in relation to the period analysed, which is why, before drawing final conclusions regarding this part of the analysis, the model should be re-evaluated once data for a few more quarters become available. |
| Keywords: | inflation, global supply chain disruptions, energy, panel |
| JEL: | C32 C33 E43 |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:nsb:bilten:19 |
| By: | Karau, Sören |
| Abstract: | I show that the majority of short-term nominal exchange rate fluctuations among large economies can be explained by changes in the relative stance of their monetary policies. Adapting recently developed instrumental variable techniques for shock identification, I find that monetary policy shocks of the US relative to the euro area account for 76 percent of the short-term fluctuations of the USD-EUR exchange rate over a one-month horizon - substantially more than previously documented. Similar results are obtained for exchange rates involving the British pound and Japanese yen. Relative monetary policy shocks explain a larger fraction of variability of the exchange rate than of interest rate differentials throughout the yield curve, and small changes in risk-free rates are associated with sizable jumps in the exchange rate. Identifying US and euro area shocks separately reveals that both are important for the USD-EUR rate. Taken together, these findings speak to the significance of (not only US) monetary policy in driving frictions in interest parity relations that have recently been found to be crucial for understanding exchange rate behavior from a theoretical perspective. |
| Keywords: | Monetary Policy, Exchange Rates, Proxy VAR |
| JEL: | E44 E52 F31 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:305278 |
| By: | Thomadakis, Apostolos |
| Abstract: | The current international system that coordinates corporate income tax is increasingly unable to deal with a highly integrated and digitalised economy. To avoid taxes, multinational enterprises (MNEs) exploit the system’s inadequacies by shifting profits to low or non-tax jurisdictions – about 40 % of EU MNEs’ profits have been shifted to low-tax jurisdictions. In July 2021, to ensure that profits are taxed where economic activities take place, the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreed on an historic two-pillar solution. Following this, in December 2021 the European Commission proposed a directive to implement Pillar Two in the EU. In December 2022, after several attempts to harmonise taxes, Member States finally and unanimously agreed to adopt the Directive, ensuring a global minimum level of taxation of 15 % for MNEs. A new study ‘EU corporate taxation in the digital era’, highlights the main developments in corporate taxation over the last few decades in both the EU and the US. It analyses MNEs’ activity and profit shifting, and the impact of a 15 % minimum corporate tax. It also discusses the critical points in Pillar Two’s design that have raised concerns and require careful calibration. Finally, it proposes recommendations on how to improve Pillar Two’s functioning and how to implement the Business in Europe: Framework for Income Taxation BEFIT, stressing the importance of simplicity and uniformity. Launched in February 2022, a CEPS-ECMI Task Force brought together a working group of industry experts, corporates, academia and EU/international institutions for research and discussion over a period of 18 months. To improve the functioning of Pillar Two, the study specifically proposes that: There should be consistency between the sequencing of the Global Anti-Base Erosion (GloBE) rules in the EU Directive and the OECD’s Administrative Guidance. The principles of the single market must be adhered to, while the constant streamlining of national rules should be promoted. Cleary defining safe harbours should stabilise and substantially simplify the GloBE rules, and if this takes longer than anticipated to finalise, extending the transitory country-by-country safe harbour rules should be considered. The rules for settling litigation should be a high priority within the Inclusive Framework, while special rules at EU level should also be considered. To ensure the coordination of Pillar Two with the BEFIT, the study recommends that: BEFIT should aim for simplification, a reduction in compliance costs and uniformity within the EU to increase the EU’s competitiveness. In short, it should build on Pillar Two rules as much as possible. The optionality of rules could be considered, at least on a temporary basis. BEFIT should be based on strict derivation from financial reporting, with very few corrections. For the sake of simplification and uniform application within the EU, International Accounting Standards and International Financial Reporting Standards should apply and, contrary to the GloBE rules, the use of national accounting rules should not be allowed. As for when to implement BEFIT, an adequate timespan relating to the implementation of the GloBE rules would be best, to avoid overburdening tax administrations and taxpayers. |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:40760 |
| By: | Corti, Francesco; Ounnas, Alexandre; Ruiz de la Ossa, Tomás |
| Abstract: | Should we make SURE a permanent instrument? To answer this, one might look at whether SURE – as a loans-based financial instrument – has been effectively taken up by Member States and used to support Job Retention (JR) schemes and other similar measures. Using the loan, however, is not enough to assess its effectiveness if the financed JR schemes have not been useful in cushioning unemployment caused by the pandemic. SURE did not come with any conditions attached regarding the design of the JR schemes. And yet there is considerable institutional variation in job retention programmes across Europe. This affects their efficiency, as well as their direct effect on unemployment. A badly designed JR scheme risks the misallocation of resources, ‘moral hazard’ (i.e. firms and workers partially internalising the costs of excessive use of the schemes) and adverse selection (i.e. support for firms that aren’t able to maintain the employment contract once the crisis is over). While empirical studies have been conducted on the role of JR schemes in mitigating unemployment and bolstering domestic demand, looking at individual countries or a subset of countries, no study – at least to our knowledge – has systematically examined how the design of these schemes impacted their actual take up. This CEPS In-Depth Analysis study tries to fill this gap by providing a first illustration of how the design of JR protection schemes impacted their use across the EU27 countries, both during the Great Recession and the Covid-19 pandemic. The study finds that take up is significantly affected by each of the following institutional dimensions: scope, the financing system, generosity, and the permanent nature of the scheme. It concludes that any possibility of a ‘SURE 2.0’ cannot come without a reflection on introducing more stringent positive conditions when designing future JR schemes. |
| Date: | 2023–01 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:38658 |
| By: | RICCI Mattia (European Commission - JRC); PEREZ DOMINGUEZ Ignacio (European Commission - JRC); HRISTOV Jordan (European Commission - JRC); VANDYCK Toon (European Commission - JRC); VAN HOUTVEN Stijn (European Commission - JRC) |
| Abstract: | Although agriculture is an important source of greenhouse gas emissions, the sector remains out of scope for greenhouse gas (GHG) pricing policies. To align the future food system with the transition to net zero emissions, two key questions arise: To what extent can tax policies help achieving this transition in a fair and effective way? And, would it be preferable to levy a GHG tax on the production or the consumption side? We employ an EU agro-economic model to compare production and consumption-side GHG taxes and to quantify their environmental impact. We find that supply-side pricing in agriculture displays leakage rates of over 40% and leaves EU producers in a situation of competitive disadvantage; on the other hand, demand-side measures level the playing field in the Single Market and generate positive leakage as they boost the export of (greener) EU producers. Focussing on four countries – Spain, France, Romania and Poland – we therefore consider a real-world reform based on adjusting Value-Added Taxes to reflect climate change externalities. Using microsimulation techniques and household-level data we show that - while this reform can generate reductions in emissions - is regressive without complementary measures. Feebate and equal-per-capita revenue recycling address equity concerns and produce welfare gains for the majority of the population, while the top 20-30% of meat consumers experiences welfare losses. Overall, findings suggest that price-based measures can help align agriculture with climate goals but trade and equity aspects should be reflected in policy design. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:taxref:202410 |
| By: | Renda, Andrea; Rosa, Aaron; Laurer, Moritz; Roess, Andrea; Sipiczki, Agnes; Warnke, Philine |
| Abstract: | The Covid-19 pandemic is having a profound impact on EU integration, and on the role of the EU in the global governance context. In this report, we present four possible scenarios that may materialize in the coming years, and up to 2040, by using an ‘alternative futures’ approach. This is an exploratory method deployed to develop a better understanding of what may yet happen, as opposed to postulating what is most likely to happen. The project included two digital workshops with the goal to develop a set of scenarios examining the impact of Covid-19 on the potential futures for EU integration. The scenarios, set in the year 2040, aim to communicate a series of alternative worlds that might emerge from developments of internal and external factors. We describe an ‘Optimistic New Deal’ scenario, which portrays a strong EU backed by Member States and leading the world towards tackling global challenges; a ‘Wretched fortress’ scenario, in which the EU faces severe difficulties due to rising Euroscepticism and a significant slowdown in the process of integration; a ‘United Force’ scenario, with the EU focusing on a limited number of global challenges and Member States relying on inter-governmental agreements for a wide array of policy domains; and a ‘Chinese province’ scenario, in which the EU splits, and the Member States that remain merge with a Eurasian bloc under the leadership of an increasingly eco-authoritarian China. The report then explores the consequences of these scenarios for the domains of development and health policy. |
| Date: | 2023–02 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:39052 |
| By: | Beri, Parfait Bihkongnyuy; Mhonyera, Gabriel; Ho, Sin Yu |
| Abstract: | This paper examines the effects of the COVID-19 pandemic and the Russo-Ukrainian war on FDI in central and eastern European countries (CEECs) from 2020Q1 to 2022Q2. Using the panel quantile regression, it finds that COVID-19 and the conflict had a detrimental impact on the largest FDI recipient countries but not on those in the lower quantiles. Therefore, CEECs should encourage FDI inflows from several sources to reduce vulnerability to shocks and the consequences they bring, diversify investments, and conduct a thorough analysis to identify sectors most affected, and tailor policies to address the sustainable inflow of FDI from those sectors. |
| Keywords: | FDI, COVID-19, CEECs, Russia, Ukraine, quantile regression |
| JEL: | F1 F14 F2 F21 F23 |
| Date: | 2024–10–05 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122553 |
| By: | Timothé Beaufils; Joschka Wanner; Leonie Wenz |
| Abstract: | The European Union (EU) is implementing a Carbon Border Adjustment Mechanism (CBAM) at its borders, which will require exporters of basic materials to surrender emission permits when exporting to the EU market. Since it makes foreign producers compete under a carbon price, the EU CBAM may motivate some trade partners to implement their own carbon pricing mechanisms, thereby encouraging the creation of a coalition of countries with ambitious carbon pricing policies protected by a joint CBAM. Such geostrategic potential of the EU CBAM has been identified in previous literature, but the conditions under which it could be realised remain largely unknown. Here, we present a modelling framework to simulate the potential of CBAMs to motivate the creation of climate coalitions. We use a fully interlinked New Quantitative Trade model to evaluate the pay-offs of a dynamic club negotiation model. Compared to previous research, our approach allows for a more granular definition of climate policies and requires relatively little input data and numerical power. This allows us to explore the formation and stability of climate coalitions under a broader range of CBAM implementation options. Our results highlight that the potential of a CBAM-based climate coalition strongly depends on the exact CBAM design. In its current version, the EU CBAM would only trigger the formation of a modest coalition. Future extensions of the EU CBAM could motivate the adoption of carbon pricing in all countries except China, India and Russia. Meanwhile, export rebates shrink its coalition-building potential. |
| Keywords: | Carbon Border Adjustment, climate policy, international trade, climate cooperation, climate clubs |
| JEL: | C68 F18 Q56 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11429 |
| By: | Glenk, Gunther (U of Mannheim and MIT); Meier, Rebecca (U of Mannheim); Reichelstein, Stefan (U of Mannheim and Stanford U) |
| Abstract: | Companies in various industries are under growing pressure to assess the costs of decarbonizing their operations. This paper develops a generic abatement cost concept to identify the cost-efficient combination of technological and operational changes firms would need to implement to drastically reduce greenhouse gas emissions from current production processes. The abatement cost curves resulting from our framework further serve as a decision tool for managers to determine the optimal abatement levels in the presence of environmental regulations, such as carbon pricing. We calibrate our model in the context of European cement producers that must obtain emission permits under the European Emission Trading System (EU ETS). We find that a price of €85 per ton of carbon dioxide (CO2), as observed on average in 2023 under the EU ETS, incentivizes firms to reduce their annual direct emissions by about one-third relative to the status quo. Yet, this willingness to abate emissions increases sharply if carbon price were to rise above the €100 per ton of CO2 benchmark. |
| JEL: | M1 O33 Q42 Q52 Q54 Q55 Q58 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecl:stabus:4202 |
| By: | Renda, Andrea; Del Giovane, Chiara; Iacob, Nadina; Nguyen, Hieu |
| Abstract: | The creation of the Health Emergency Preparedness and Response Authority (HERA) was one of the EU’s key institutional reforms triggered by the Covid-19 pandemic. Having been operational in 2022, HERA is expected to contribute to Europe’s resilience against future health emergencies and other risks. The making of HERA and its first months of operations have been subject to a very lively debate. Initial rumours had it that it would be established as an independent agency; however, eventually the European Commission announced that it would create HERA as an internal department. Some stakeholders argued that this would undermine the transparency and accountability of HERA, its pursuit of health as a public good, its budgetary autonomy and its ability to represent the EU in international forums. Against this backdrop, the report outlines the main challenges faced by EU institutions in their response to Covid-19, the opportunity cost of not remedying existing problems in the near future and the role of HERA in the EU’s evolving multi-level governance in the health domain including the European Health Union and the emerging EU Global Health Strategy. The report does not take a pre-determined stance on the independence of HERA: rather, it shows that there are pros and cons of setting up HERA as an internal department rather than an independent authority, and discusses ways to mitigate the risks associated with the current setup. Furthermore, it identifies six main domains in which HERA can be improved going forward: its mission, governance, operational capacity, budget, management of intellectual property rights and prospective role in global health-security governance. Research on these six areas, and two lively workshops organised with a diverse group of stakeholders, led to identifying 27 recommendations. The latter cover both short- and medium-term actions that could ensure that HERA, in its current governance configuration, can deliver on the ambitious mandate it was given at the inception of its operations. |
| Date: | 2023–01 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:38637 |
| By: | Ayadi, Rym; Ronco, Sara |
| Abstract: | Development aid is considered a policy area where the EU is particularly influential. This CEPS In-Depth Analysis report provides an overview of the evolution of global and European governance in development policy and relations with the African continent. Exploring the period 1995-2021, the research highlights how global governance in development aid and relations with Africa have evolved in terms of both the tools used and the actors involved during the last decades. As supported by the EU, another important pattern is the shift from traditional official development assistance (ODA) to public-private financial frameworks, and from financing development projects to financing investment for infrastructure development. Assessing the dimensions of the EU’s actorness over time reveals an increasing trend, notably concerning its authority, autonomy and cohesion. However, more external dimensions of actorness (such as the opportunity to act and recognition) show a decreasing trend over the time period studied. The need for coherence is one of the main challenges facing the EU if it is to increase its actorness and effectiveness in development policy and its relations with Africa. Future EU policies on migration issues will also play a critical role in the EU’s actorness vis-à-vis Africa. Another challenge will be for the EU to maintain its key role as a development actor, better coordinating its development agencies and financial institutions (both national and international) to implement and coordinate public-private partnerships, co-guarantee schemes and collaborative blended finance platforms. This report is part of a series drawing on the outcomes of the EU-funded TRIGGER (Trends in Global Governance and Europe’s Role) project that ran from 2018 to 2022. Using the conceptual framework developed as part of TRIGGER, the report moves beyond observing the characteristics of the EU as an actor to explore its actorness/effectiveness over time in a specific policy domain – in this case, development policy. |
| Date: | 2023–04 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:39494 |