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on European Economics |
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Issue of 2025–08–18
33 papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | International Monetary Fund |
| Abstract: | The institutional framework for macroprudential policy in Euro Area (EA) is complex, but in line with IMF guidance. While the European Systemic Risk Board (ESRB) is responsible for the macroprudential oversight of the European Union (EU) financial system as a whole, there is a clear designation of tasks, responsibilities and tools for macroprudential supervision in the EA to the European Central Bank (ECB) The relevant EA national authorities and the ECB share the responsibility for the macroprudential policy tools specified in EU legislation concerning banks. The ECB has successfully advanced macroprudential actions for these tools without formally using its top-up power. The ESRB has contributed to the stability of the European financial system via its warnings, recommendations and with a focus that goes beyond banks. The ECB, ESRB and national authorities’ collaboration is very important to harness the knowledge in the membership efficiently. |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/206 |
| By: | Matthes, Jürgen |
| Abstract: | Compared to 2020, the deficit in merchandise goods trade with China is 3.6 times higher for Germany in 2025 (annualised based on data from January to April 2025) and it has doubled for the Euro area. However, the nominal exchange rate of the Yuan against the Euro has hardly changed between 2020 and 2025. This is all the more striking as European goods have become much more expensive: Producer prices have risen by more than 35 per cent in Germany and the Euro area compared with early 2020, whereas Chinese producer prices have hardly increased at all. The immense producer price divergence is mostly due to an external shock in Europe that resulted from supply chain restrictions in the course of the COVID-19-pandemic and from the energy cost increases after the Russian invasion of Ukraine. This constellation has caused a very large real appreciation (based on producer prices) of the Euro against the Yuan of more than 40 per cent for Germany and for the Euro area between early 2020 and spring 2025. The resulting huge cost disadvantage has likely contributed considerably to the rise in the trade deficit as an appreciation of the Euro renders European exports more expensive and imports from China less costly. Moreover, the real appreciation appears to be an important reason why about half of German industrial firms facing Chinese competition reported in 2024 that Chinese competitors undercut their prices by more than 30 per cent (Matthes, 2024). This large European cost disadvantage would have been prevented if the Yuan had appreciated against the Euro to a significant degree. In fact, a rising trade deficit leads to higher netdemand for Yuan in Euro on the exchange rate market as European importers sell Euro to obtain Yuan in order to buy goods from Chinese sellers. Thus, the Yuan should have appreciated if it was floating freely. However, the Yuan exchange rate is managed by the central bank of China relative to the US Dollar and to a basket of other currencies. As the Yuan did not appreciate against the Euro, the question arises whether this is a case of currency manipulation and whether China's significant cost advantage can be deemed unfair. To investigate this question, also other components of the bilateral balance of payments between the Euro area and China have to be taken into consideration as they also influence the net demand for Yuan in Euro. Indeed, the balances in services trade and in primary incomes (other components of the current account apart from the balance in merchandise goods trade) are positive. Thus, these components reduce the net demand for Yuan in Euro that is caused by the negative goods trade balance, but only to a small degree. Moreover, also capital flows have to be considered (that are measured in the financial account balance). However, there is a lack of data for portfolio investment inflows from China to the Euro area so that total capital inflows cannot be calculated. However, this missing component can be estimated (Chapter 3.2). Based on this estimation, the overall change in the net demand for Yuan in Euro between 2020 and 2024 can also be estimated: it has significantly risen by EUR 125 billion. These findings provide strong indications for currency manipulation and for a significant and unfair undervaluation of the Yuan against the Euro. If there had been a free and market-based bilateral exchange rate market, the rising net demand for Yuan in recent years should have led to a significant appreciation of the Yuan against the Euro. As this was prevented by the central bank of China's currency management policies, a considerable unfair price advantage for China has resulted, which comes at the expense of European companies that compete with Chinese firms on the world market. The large increase in the merchandise trade deficit with China is a clear indication of the relevance of the Yuan's undervaluation against the Euro. As European industry is seriously threatened by this development, trade policy action is urgently warranted in order to re-establish a level playing field. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwkrep:323227 |
| By: | António Afonso; José Alves; Alessio Ferrara; Sofia Monteiro |
| Abstract: | This paper estimates the fiscal multipliers of green public spending using a linear Bayesian Panel VAR and a Smooth Transition VAR framework, with quarterly data for the period 1995Q1–2022Q4 for EU member states. We group EU member states based on similarities in debt trajectories and green spending intensity, forming three regional aggregates: Southern Europe, Eastern Europe, and Northern Europe. Our results show that green spending multipliers on GDP are generally below one, but the response of private investment is significantly stronger — particularly in Southern and Eastern Europe. Multipliers tend to be larger in periods of high public debt, suggesting that green fiscal expansions may be more effective during downturns. Another key finding is that in response to green spending shocks, both long-term interest rates and public debt tend to decline — especially in high-debt regimes — indicating improved market expectations about fiscal sustainability. In contrast, when we estimate the effects of a shock to total public spending net of green spending, we find that both interest rates and debt increase. This suggests that economic agents perceive green spending more favorably than undifferentiated fiscal expansions, likely due to its role in mitigating climate risks, lowering long-term energy costs, and signaling credible long-term policy commitments. |
| Keywords: | green fiscal multipliers, debt trajectories, interest rates, Bayesian Panel Vector Autoregression (BVAR) |
| JEL: | C23 E44 E62 G15 H62 H63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12039 |
| By: | Puonti, Päivi |
| Abstract: | Abstract The EU’s defence industry is fragmented and inefficient, which hampers the rapid strengthening of military capabilities. For member states, defence is a core issue of national sovereignty, and the EU has only limited means to influence national rearmament. The new SAFE instrument offers jointly guaranteed loans for defence procurement, with the aim of centralising production and strengthening the European defence industrial base. Only a few countries, such as France and Italy, benefit from the instrument’s loan terms. The Finnish government supports SAFE but seeks to use it for domestic procurement, which may conflict with the instrument’s original objectives. Centralisation may disadvantage smaller actors, such as Finnish SMEs. The EU’s efficiency goals are in tension with member states’ efforts to ensure supply security. Decentralised production supports resilience but is expensive and inefficient. The EU should develop a single market for defence materials and focus on areas where member states share a common view and which complement national defence efforts. |
| Keywords: | EU defence policy, Defence industrial policy, SAFE instrument, EU internal market |
| JEL: | L52 L64 O52 |
| Date: | 2025–08–04 |
| URL: | https://d.repec.org/n?u=RePEc:rif:briefs:161 |
| By: | International Monetary Fund |
| Abstract: | Progress has been made in several areas highlighted in the 2018 FSAP (Appendix I). Most notably the European Central Bank (ECB) strengthened its liquidity monitoring framework and modified the central clearing counterparty (CCP) credit facility. A key recommendation of the 2018 FSAP to centralize emergency liquidity assistance (ELA) has not progressed. |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/209 |
| By: | Disch, Wendy; Hauser, Lea; McQuinn, Kieran |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:esr:wpaper:wp801 |
| By: | Kase, Hanno; Rigato, Rodolfo Dinis |
| Abstract: | We introduce an estimated medium scale Heterogeneous-Agent New Keynesian model for forecasting and policy analysis in the Euro Area and discuss the applications of this type of models in central banks, focusing on two main exercises. First, we examine an alternative scenario for monetary policy during the early 2020s inflationary episode, showing that earlier hikes in interest rates would have affected more strongly households at the lower end of the wealth distribution, whose consumption our model suggests was already depressed relative to the rest of the population. To provide intuition for this result, we introduce a new decomposition of the effects of monetary policy on consumption across the wealth distribution. Second, we show that introducing heterogeneous households does not come at the cost of forecasting accuracy by comparing the performance of our model to its exact representative-agent counterpart and demonstrating nearly identical results in predicting key aggregate variables. JEL Classification: D31, E12, E21, E52 |
| Keywords: | forecasting, heterogeneous-agent New Keynesian models, inequality, monetary policy |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253086 |
| By: | António Afonso; José Alves; Najat Bazah; A. J. Sánchez-Fuentes |
| Abstract: | We evaluate the efficiency of public expenditure in the 27 European countries in achieving the Sustainable Development Goals (SDGs) of the 2030 Agenda. Using Data Envelopment Analysis (DEA), we map performance over the period 1995-2023, incorporating Musgravian functional spending – redistribution, allocation, public services, and private activities – as input variables, and constructing synthetic indices for the five pillars of the 2030 Agenda –people, planet, prosperity, peace, and partnership – as outputs. Results indicate that input efficiency scores range from 0.77 to 0.95, while output scores range from 0.88 to 0.93, suggesting a potential 5%-23.5% increase in inputs or a 7%-11.7% improvement in outputs. Denmark, Ireland, and Finland are efficient throughout the entire period, with strategic reductions in public spending correlating with high SDG performance. Sweden also has high efficiency and leads in multiple pillars by 2023. Conversely, the peace pillar remains the least achieved, while the people pillar shows the greatest progress. |
| Keywords: | public spending, sustainable development goals (SDGs), data envelopment analysis (DEA), government spending efficiency |
| JEL: | C61 H11 H72 O57 Q56 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12036 |
| By: | Mrs. Sage De Clerck; Joseph Cavanagh; Mariano D'Amore |
| Abstract: | This Working Paper explores the relationship between the uptake of accrual basis of accounting in government and the use of the resultant accrual information in fiscal statistics, using the European Union (EU) as a case study. The Paper looks at the current state of accounting practices in the general government sector (GGS) of the 27 EU member states. The study of accounting practice is based primarily on two sources that provided a comprehensive picture of government accounting in all the 27 member states, namely the PwC/Eurostat survey of Accounting Maturities of EU Governments and the International Federation of Accountants and the Chartered Institute of Public Finance and Accountancy (IFAC/CIPFA) International Public Sector Financial Accountability Index. The analysis then uses data compiled by Eurostat, the EU statistical office, to explore the extent to which the accrual information is being used in the separate statistical reporting of EU member state public finances. The study draws out some general observations which may be of relevance to all countries during accounting and fiscal reporting reforms. |
| Keywords: | accrual accounting; accounting reforms; fiscal reporting; fiscal statistics; reconciliation |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/148 |
| By: | International Monetary Fund |
| Abstract: | The euro area financial system had proven resilient through multiple shocks, supported by significant bank capital and liquidity buffers. While nonbank financial intermediation (NBFI) has expanded rapidly, diversifying the financial landscape, renewed efforts to create deeper and more integrated markets remain hindered by national fragmentation. The sector is currently experiencing heightened volatility. At the outset of the FSAP, inflation was declining, monetary policy easing, and economic recovery was gradually gathering strength. However, geopolitical tensions and trade policy uncertainty have since clouded the outlook, amplifying financial market volatility. |
| Date: | 2025–07–23 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/203 |
| By: | Abendroth Dias Kulani (European Commission - JRC); Soguero Escuer Jorge (European Commission - JRC); Fernández Cruzado Ana (European Commission - JRC); De Prato Giuditta (European Commission - JRC) |
| Abstract: | This policy brief presents an analysis of the virtual worlds ecosystem. We explore the technologies, firms and institutions involved in shaping one of the digital areas that are being rapidly integrated across a variety of sectors, from healthcare to manufacturing. We compare the state of play in the EU with respect to other competing nations, assess the EU’s VC landscape and the extent of EU control over virtual world companies globally, as well as foreign control of EU virtual world businesses. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc142876 |
| By: | Di Cataldo, Marco; Renzullo, Elena |
| Abstract: | The EU Cohesion Policy, with its capacity to shape the socio-economic development of European regions and cities, also holds the potential to influence the political preferences of citizens. While existing research has explored the effects of EU funding on national electoral outcomes, its impact on local elections remains underexamined, overlooking the inherently territorial nature of Cohesion Policy and the crucial role local policy-makers play in its activation and implementation. This study leverages detailed administrative data on European development projects to examine how EU funds affect political support for incumbent local politicians in Italy. It analyses the relationship between the inflow of European funds and the electoral support for Italian mayors, considering different project types that reflect the mayors’ ability to attract European funds. The findings demonstrate that Cohesion Policy significantly shapes local voting behaviour. Larger, more visible projects significantly increase the likelihood of mayoral re-election. Moreover, municipalities experiencing faster economic growth, where EU projects contribute to public service improvements, witness the strongest electoral gains for incumbents. These results highlight the critical importance of project design, visibility, and effectiveness in determining the political consequences of EU redistributive policies. |
| Keywords: | EU cohesion policy; incumbent re-election; political preferences; redistribution; local voting behaviour |
| JEL: | D72 I38 H70 R58 |
| Date: | 2025–06–27 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128651 |
| By: | Di Pietro Giorgio (European Commission - JRC) |
| Abstract: | This policy brief presents a meta-analysis of micro-econometric evaluations of training programmes adopted by EU countries during the 1980-2020 period. The sample used in this study comprises 379 estimates of the labour market effects of training programmes that have been extracted from 103 studies. Overall, these programmes are found, on average, to be moderately effective, but their positive impact on labour market outcomes is greater in the longer-term. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc142871 |
| By: | International Monetary Fund |
| Abstract: | While gradually declining in market share, Europe remains the second largest asset management market globally. The industry is mostly concentrated in a few member states (MS) with a significant amount of delegation of portfolio management services outside of the EU. The majority of funds are held by institutional investors, and the share of funds held by investors outside of the EU continues to grow. |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/212 |
| By: | von Daniels, Laura |
| Abstract: | Zwischen den USA und der Europäischen Union (EU) könnte sich ein vollumfassender Handelskrieg entwickeln. Vor drei Monaten erhob US-Präsident Donald Trump am "Liberation Day" hohe Einfuhrzölle gegen fast alle Länder, auch die EU. Dann setzte er sie kurzfristig aus, um mit über 90 betroffenen Handelspartnern zu verhandeln. Anfang Juli, als sie hätten in Kraft treten sollen, hat Trump die Zölle gegen die EU und andere Staaten erneut um einen Monat verschoben. In einem Brief an die EU hat Trump höhere Zölle von 30 Prozent ab 1. August angedroht. Dieses Hin und Her zeigt, dass sich die Mitgliedstaaten auf eine Eskalation des Konflikts vorbereiten müssen - diese könnte weit über die Zölle hinausgehen und sogar die Sicherheit der EU gefährden. |
| Keywords: | USA, EU, Deutschland, Donald Trump, Europäische Kommission, Bundesregierung, Zollpolitik, Zollstreit, Zollkrieg, Handelskrieg, Handelsinstrumente, Zölle, Einfuhrzölle, "reziproke Zölle", Wirtschaftskrieg, ACI, Anti-Coercion Instrument, Instrument gegen Zwangsmaßnahmen, Sicherheit der EU, Nato, Grönland |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpakt:321906 |
| By: | International Monetary Fund |
| Abstract: | This note discusses the assessment of systemic risks within Non-Bank Financial Institutions (NBFIs) as part of the Financial Sector Assessment Program (FSAP) for the euro area (EA). It outlines the assessment of counterparty credit risk related to Central Counterparties (CCPs) and the potential system-wide spillovers from NBFI liquidity distress with a focus on the investment funds sector. In addition, spillovers to and from the insurance sector to the fund sector were quantified based on detailed EA insurers’ assets holdings and derivative positions. |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/211 |
| By: | António Afonso; José Alves; Frederico Silva Leal |
| Abstract: | We examine the impact of government size on economic fluctuations and the role of fiscal policy in promoting macroeconomic stability in the period 1980-2024. The results indicate that indirect taxes, capital taxes, and social security contributions (as a percentage of GDP) are associated with lower output volatility, whereas direct taxes tend to amplify it, particularly over longer horizons. On the expenditure side, current spending – especially public wages and interest payments – also exerts a stabilising influence. We further provide new estimates of output losses from the two most severe recent recessions in the EU27 – the Great Recession and the COVID-19 pandemic – and find evidence that the severity of these losses may be linked to the scale of the government, both before and after the crises. |
| Keywords: | government size, fiscal policy, macroeconomic stability, output losses |
| JEL: | E32 E62 H20 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11993 |
| By: | Bedük, Selçuk (University of Oxford); Benassi, Enrico (University of Oxford); Lersch, Philipp M. (German Institute for Economic Research) |
| Abstract: | Homeownership has declined among younger generations in most European countries. A common assumption is that this trend is increasingly stratified by parental homeownership, due to worsening affordability and the growing importance of parental financial support. In this study, we show that this assumption does not hold for the average European. Using data from EU-SILC 2011 and 2019 across 27 European countries, we examine trends in both relative and absolute mobility of homeownership for cohorts born between 1950 and 1984. We find that individuals with homeowner parents are more likely to own a home than those with renter parents, but this difference remains stable across cohorts. This stability in relative mobility masks important and counteracting trends in absolute mobility: downward mobility increased from 16% to 36%, while upward mobility declined from 25% to 9% between those born in the 1950s and 1980s. While the absolute decline in upward mobility is smaller, its impact on relative mobility is greater due to the high and growing share of individuals with homeowner parents. The importance of the underlying distribution of parental homeownership is also evident in cross-national comparisons. While absolute mobility follows similar trends across countries, relative mobility has increased in some and declined in others. Country case studies suggest that differences in the prevalence of parental homeownership drive these divergent patterns. Our findings highlight the importance of complementing relative with absolute mobility measures, especially when analysing binary outcomes with skewed group distributions. |
| Date: | 2025–07–16 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:zdu2n_v1 |
| By: | Siedschlag, Iulia; Vanegas, Juan Duran |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:esr:wpaper:wp802 |
| By: | International Monetary Fund |
| Abstract: | The FSAP reviewed the supervision and oversight of cyber risk and operational resilience of Significant Banking Institutions (SIs) in the Single Supervisory Mechanism (SSM) and the Financial Market Infrastructures (FMIs) operated by the Eurosystem. From an institutional perspective, the review included the ECB’s relevant organizational units in the ECB Banking Supervision, Directorate General Market Infrastructure and Payments (DG-MIP), and the European Supervisory Authorities’ (ESA) joint Directorate in charge for Digital Operational Resilience Act (DORA) oversight; jointly referred to as ‘authorities’. |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/213 |
| By: | Till Köveker; Robin Sogalla |
| Abstract: | Carbon pricing policies are usually combined with compensation for exposed firms to prevent adverse competitiveness effects. In cap-and-trade systems, this carbon cost compensation mostly occurs through free allocation of emission permits. Using an administrative panel of German manufacturing firms, this paper investigates how free allocation in the European Union Emissions Trading System affects firms’ competitiveness and their incentives to reduce emissions. Leveraging a reform of free allocation rules in a continuous difference-in-differences design, we find that that a reduction of freely allocated emission permits decreased firms’ emission intensity. Our results suggest that this decrease is driven by energy efficiency improvements instead of outsourcing of emission intensive production. On the other hand, we do not find statistically significant effects on firms’ employment, sales, value added, investments and exports – indicating that the reduction in free permits did not reduce firms’ competitiveness. |
| Keywords: | Cap and trade, permit allocation, industry compensation, greenhouse gas emissions, competitiveness, manufacturing firms |
| JEL: | Q54 Q58 H23 D22 F18 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:diw:diwwpp:dp2133 |
| By: | Saussay, Aurélien |
| Abstract: | This report examines the potential future ramifications that tariff proposals put forward by US Presidential Candidate Donald Trump in August 2024 could have on EU member states, the UK and also on China and other major emerging market economies. The proposed tariffs, framed as measures to correct trade imbalances and protect US industries, have the potential to significantly reshape international trade relations and supply chains, with notable consequences for the EU and its trade priorities. |
| Keywords: | UK; carbon border adjustment mechanism; carbon price; cars; United States; CBAM; China; electric vehicles; emerging markets; EU; GDP; Germany; supply chains; tariffs; trade; Trump |
| JEL: | L81 R14 J01 N0 |
| Date: | 2024–10–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129067 |
| By: | Dimakopoulou, Vasiliki; Economides, George; Philippopoulos, Apostolis |
| Abstract: | This paper quantifies the future implications of repayment of bailout loans received by Greece from the EU in the previous decade. These debt obligations amount today to around 240 billion euros or 70% of the country’s total public debt and have to be repaid by 2070. This is investigated in a dynamic general equilibrium model calibrated to the Greek economy, in which fiscal policy is conducted under the rules of the new fiscal governance framework and quantitative monetary policy is subject to the rules of the Eurosystem. Our simulations show that, other things equal, repayment will have recessionary implications in the years to come, although the magnitude of these unpleasant implications will depend on how much privately-held public debt rises as the EU-held public debt falls. We then search for ways to mitigate these recessionary effects. While NGEU/RRF funds as they take place at the moment, as well as a new hypothetical support from the ES in the form of more quantitative easing are found to have small and/or temporary beneficial effects only, our simulations show that what can really help is an improvement in total factor productivity. |
| Keywords: | fiscal policy; international loans; monetary regimes |
| JEL: | F34 E62 E42 |
| Date: | 2025–07–19 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128999 |
| By: | Di Girolamo Francesca (European Commission - JRC); Fiorani Federico; Kutlina-Dimitrova Zornitsa; Martinez Cillero Maria (European Commission - JRC); Nardo Michela (European Commission - JRC); Zaurino Elena (European Commission - JRC) |
| Abstract: | This policy brief looks at the evolution and distribution of EU outbound investments, as well as patent transactions and joint applications, against the background of potential technology transfer. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc142490 |
| By: | International Monetary Fund |
| Abstract: | Over the past five years, the institutional structure for insurance regulation and supervision in the euro area (EA) has evolved incrementally, and at the time of the FSAP important legislative processes were in development. Insurance supervision remains a national responsibility, but the European Insurance and Occupational Pensions Authority (EIOPA) is assuming a growing, central role. This includes EIOPA’s responsibilities under the Digital Operational Resilience Act (DORA), which establishes an oversight framework for critical Information and Communications Technology (ICT), along with the Insurance Recovery and Resolution Directive (IRRD), which gives EIOPA new roles and responsibilities, including the establishment of a resolution committee and other more permanent tasks (such as participating in the resolution colleges). In addition, at the time of the FSAP, important legislative review processes were in course, such as the Solvency II Review and the Retail Investment Strategy (RIS) proposal. |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2025/208 |
| By: | Samsonov, Volodymyr |
| Abstract: | This research examines impacts of austerity on the political instability in the European Union, defined as elevated levels of electoral volatility and ideological polarization. By analyzing macroeconomic theories that elucidate the effects of austerity on citizens' wealth and the national economic agenda, and, alongside, political theories that explore how voters' economic mindsets and interests are mobilized during national legislative elections, this study formulates hypotheses that assess the political viability of Keynesian versus Neoclassical (taxation- versus spending-based) approaches to austerity. Statistical analyses were performed to test these hypotheses across various groups of EU Members. The overall findings indicate that political repercussions of austerity are not uniform among European states. In EU Members with Continental European, Social- Democratic and Market-based capitalism, austerity has not emerged as a significant contributor to political instability. Conversely, the situation in South European states raises considerable concern. The dissonance between voters' Neoclassical perspectives and the prevailing Keynesian mainstream has led to increased electoral and populism. Importantly, this research does not posit that political risks should be regarded as the paramount consideration in the formulation of austerity policies. Rather, the primary objective of this study is to provide insights that can assist policymakers in macro-financial imperatives with political ramifications during austerity implementations. |
| Keywords: | fiscal austerity, political stability, electoral volatility, ideological polarization, ideological dispersions, populism, Keynesian theory, Neoclassical theory, economic voting, European politics |
| JEL: | P16 E62 H12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cessdp:321892 |
| By: | Burilkov, Alex; Bushnell, Katelyn; Mejino-López, Juan; Morgan, Thomas; Wolff, Guntram B. |
| Abstract: | This report updates and expands the data-driven work of our initial study from September 2024, which concluded that Europe would only be fit for war in several decades. We show that the situation today is even more concerning if Europe aims to be fit for war by 2030. First, Russia continues to outproduce four European countries across multiple weapon systems. We demonstrate that production must increase by a factor of around five to tilt the balance decisively in Europe's favour. Procurement needs to accelerate and be frontloaded, as delivery delays of three years or more persist. Second, transatlantic tensions are weakening the strength of the U.S. security guarantee. Europe depends heavily on the U.S. not only for readily deployable troops but also for strategic enablers. While overall U.S. weapon imports are not excessive, reliance on American systems in critical modern capabilities remains a concern. Third, military strategy and technology are evolving rapidly. Military planners must modernise weapons and strategy while simultaneously scaling existing and effective systems - a major challenge for often slow and bureaucratic procurement structures. Investment in European technology is essential for modernisation. European weapons tend to be expensive due to low production volumes in a fragmented market; a focus on cost-effectiveness is vital to ensure the EU's planned €800 billion defence spending is sufficient and fiscally sustainable. |
| Keywords: | Defence, Armament, Weapon industry, Budget, Germany, Europe, Russia |
| JEL: | H41 H56 H60 L64 N44 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkrp:323950 |
| By: | Maximilian Langer; Joshua Hassib; Lars P. Feld; Daniel Nientiedt |
| Abstract: | This paper assesses the effectiveness and public finance implications of the German debt brake, a constitutional balanced budget rule introduced in 2009 that aims to ensure a sustainable path of public indebtedness. In order to estimate its causal effects, our paper employs a synthetic control strategy: We compare the counterfactual developments of six relevant outcome variables in a synthetic Germany without this rule to their actual developments. Overall, our empirical analysis suggests that the debt brake bears the main responsibility for the consolidation of German public finances during the 2010s. By reducing the deficit, the debt brake in all likelihood also reduced financing costs, though this effect cannot be solely attributed to it. Furthermore, our analysis finds that the debt brake did not negatively and robustly impact public investment, at least on the federal level. The results are supported by a variety of significance and robustness tests. |
| Keywords: | fiscal rules, fiscal federalism, german debt brake, policy evaluation, synthetic control method |
| JEL: | C13 C53 D78 H60 H63 H77 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11933 |
| By: | Ikeda, Kiyohiro; Kogure, Yosuke; Aizawa, Hiroki; Takayama, Yuki |
| Abstract: | This paper investigates how international trade competition influences cross-country migration by using a general equilibrium model of economic geography. We employ a global--local system to represent local places grouped into countries, which collectively form a global network. Through the place-to-country reduction analysis proposed herein, the governing equation at the place level are reduced to a country-level equation that efficiently describes each country’s trade environment. We model and analyze international trade competition---including trade liberalization and protectionism---among the UK, France, and Germany, using the Helpman (1998) model. The recommended strategies for the UK and the EU include reducing domestic transportation costs, while tariffs and retaliatory tariffs act as a double-edged sword, potentially enhancing or undermining their trade positions. |
| Keywords: | Brexit, economic geography model, global--local system, hierarchical spatial economy, reduction analysis, tariffs, trade liberalization, trade strategy. |
| JEL: | F15 F22 R12 |
| Date: | 2025–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125691 |
| By: | Markus Dertwinkel-Kalt; Christian Wey |
| Abstract: | We analyze the equilibrium effects of different subsidies on target goods under both perfectly competitive and monopolistic market structures. We concentrate our analysis on three particularly common forms of subsidies: (i) a per-unit subsidy, (ii) an ad valorem subsidy, and (iii) an "inversely related" subsidy, which increases as the price of the target good decreases. To evaluate the price effects of the subsidies, we rely on two criteria, an "equal-relief" criterion - which relies on a pass-through analysis - and a cost‑effectiveness criterion. Overall, the ad valorem subsidy always yields the strongest price-increasing effect, whereas an inversely related subsidy leads to the lowest price increase. Consequently, the ad valorem subsidy induces the largest output expansion under perfect competition, whereas the inversely related subsidy dominates the other subsidies in a monopoly under both criteria. Those findings are consistent with several empirical facts, such as observed price differences for green target goods across European countries. |
| Keywords: | subsidies, target coods, equal-relief, pass through, cost effectiveness |
| JEL: | D04 D40 H20 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12010 |
| By: | Bickenbach, Frank; Görg, Holger; Liu, Wan-Hsin |
| Abstract: | Trade in services is an important component of international trade and is becoming increasingly more important with growth rates exceeding the rates with which goods trade increases. This is also true in the bilateral U.S. - EU relationship: Trade in services, and especially trade in digitally deliverable services, is a highly important element of the economic relations between the U.S. and the EU. And it is growing much faster than goods trade between the two economies. Despite its importance, trade in services has received much less attention in political and public discussions on the transatlantic trade relationship - even beyond the current narrow focus on the U.S. goods trade deficit. Against this background this policy brief attempts to explore major developing trends over time in EU-U.S. services trade in general and EU-U.S. trade in digitally deliverable services in particular. In addition to services trade, we analyze the development of services supplied by affiliates of U.S. multinationals in the EU and of those supplied by EU affiliates in the U.S. We provide policy suggestions based on data-driven insights derived from the analysis. |
| Abstract: | Der Handel mit Dienstleistungen ist ein wichtiger Bestandteil des internationalen Handels und gewinnt zunehmend an Bedeutung, da seine Wachstumsraten die des Warenhandels übertreffen. Dies gilt auch für die bilateralen Beziehungen zwischen den USA und der EU: Der Handel mit Dienstleistungen, und insbesondere der Handel mit digital erbringbaren Dienstleistungen, ist ein äußerst wichtiger Bestandteil der Wirtschaftsbeziehungen zwischen den USA und der EU. Und er wächst viel schneller als der Warenhandel zwischen den beiden Volkswirtschaften. Trotz seiner Bedeutung hat der Handel mit Dienstleistungen in den politischen und öffentlichen Diskussionen über die transatlantischen Handelsbeziehungen bisher wenig Beachtung gefunden. Vor diesem Hintergrund untersucht dieser Policy Brief die wichtigsten Entwicklungstrends im EU-US-Dienstleistungshandel im Allgemeinen und im EU-US-Handel mit digital erbrachten Dienstleistungen im Besonderen. Zusätzlich zum Handel mit Dienstleistungen analysieren wir die Entwicklung von Dienstleistungen, die von Tochtergesellschaften multinationaler US-Unternehmen in der EU erbracht werden, sowie von Dienstleistungen, die EU-Tochtergesellschaften in den USA anbieten. Die EU sollte darauf dringen, den Dienstleistungshandel zum Teil der laufenden Zoll-Verhandlungen mit den USA zu machen, um den politischen Spielraum für eine Lösung zu erweitern. |
| Keywords: | services trade, trade balance, digitally deliverable services, U.S., EU, Dienstleistungshandel, Handels- und Dienstleistungsbilanz, digital erbringbare Dienstleistungen, USA, EU |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:323206 |
| By: | Benjamin Schoefer |
| Abstract: | This paper explores a repositioning of Europe’s labor market institutions as potential drivers of the transatlantic gap in macroeconomic performance. Institutional diagnoses were prominent in times of high European unemployment in the 1980-90s. But interest waned as joblessness fell—even though the decline was uneven, precarious work arrangements have grown, and labor markets remain largely unreformed (unlike product and financial markets). Yet, rigid labor market institutions might continue to matter because they can stifle labor market and business dynamism: Europeans switch jobs much less frequently, and restructuring is much rarer. Recent research argues that such immobility impedes wage and productivity growth. Moreover, this low dynamism might contribute to Europe’s specific underperformance in tech, R&D, disruptive innovation, ICT adoption—where creative destruction requires fluid reallocation. This institutional labor market perspective on European competitiveness complements prevailing diagnoses focused on capital and product market fragmentation. Tight labor markets, lower unemployment, and shrinking labor supply might keep this nexus timely. |
| JEL: | E0 J0 O0 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33975 |
| By: | Garcia Calvo, Angela; Hancké, Bob |
| Abstract: | When does industrial policy succeed and fail in advanced economies? Most approaches to these questions concentrate on policy design and state power. Instead, we draw attention to the historical legacies, industrial structures, and institutional arrangements that shape industrial policy outcomes. We use insights from historical institutionalism and international business to develop a relational argument based on two first-order conditions: a critical mass of firms with sufficient capabilities to leverage the resources resulting from industrial policy, and the alignment between industrial policy goals and national institutional systems. Industrial policy could succeed, given the important second-order conditions that many have examined, when one of these conditions is present and public intervention produces the other. But industrial policy is certain to fail when both conditions are absent. Using a most different systems design, we assess our framework through short case-studies of industrial policy success and failure in Europe in the past 6 decades. |
| Keywords: | industrial policy; O43 Institutions and growth; growth; Europe; economic policy; high-tech; institutions |
| JEL: | O38 |
| Date: | 2025–07–28 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128970 |