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on European Economics |
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Issue of 2026–01–19
fifteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Hormigos Feliu Clara (European Commission - JRC); Dijkstra Lewis (European Commission - JRC) |
| Abstract: | In this work, trends and drivers of rural trust in institutions are derived based on respondent-level data from the Standard Eurobarometer surveys. We find that, in terms of trust towards the EU, a considerable urban-rural gap exists, with 48% of rural residents declaring that they tend to trust the EU in 2024, 12 percentage points less than city residents (60%). Rural trust in the EU, however, can vary substantially between Member States, with lowest levels being found in France (35%). On the other hand, rural residents place high levels of trust in regional and local authorities (65%), independently of their opinions towards the EU. Less education, more financial difficulties and less qualified jobs, which are more common in rural areas, are all associated with a lower trust towards the EU. After controlling for socioeconomic and demographic factors, however, we find that living in a rural area is still significantly associated with lower trust in the EU, hinting at a connection between rural challenges and citizens’ opinions that goes beyond individual circumstances. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:termod:202511 |
| By: | Carboni, Giacomo; Fonseca, Luís; Fornari, Fabio; Urrutia, Leonardo |
| Abstract: | We investigate the impact of structural shocks on the joint distribution of future real GDP growth and inflation in the euro area. We model the conditional mean of these variables, along with selected financial indicators, using a VAR and perform quantile regressions on the VAR residuals to estimate their time-varying variance as a function of macroeconomic and financial variables. Through impulse response analysis, we find that demand and financial shocks reduce expected GDP growth and increase its conditional variance, leading to negatively skewed future growth distributions. By enabling this mean-volatility interaction, demand and financial shocks drive significant time variation in downside risk to euro area GDP growth, while supply shocks result in broadly symmetric movements. For inflation, supply shocks drive instead a positive mean-volatility co-movement, where higher inflation is associated with increased uncertainty, causing time variation in upside risk. JEL Classification: C32, C58, E32, G17 |
| Keywords: | downside risk, euro area, mean-variance correlation, quantile regressions, stochastic volatility, structural shocks, tail risk, vector autoregression (VAR) |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263171 |
| By: | Albora Giambattista (European Commission - JRC); Benoit Florence; Caldarola Bernardo (European Commission - JRC); Di Girolamo Valentina; Diodato Dario (European Commission - JRC); Napolitano Lorenzo (European Commission - JRC); Sciarra Carla (European Commission - JRC) |
| Abstract: | Over the past 25 years, the world has witnessed a significant surge in patenting activity, underscoring the crucial role of frontier technologies in driving economic growth and competitiveness. While the EU remains a leading global innovator, its competitive edge is under threat. To address this challenge, the EU must create a vibrant industrial ecosystem that nurtures innovation. Advanced Materials, with their potential to transform industries and enable breakthrough innovations, are a crucial component of this ecosystem, and offer a unique opportunity to strengthen the EU's economic growth, competitiveness, strategic autonomy, and digital and green transformation. This report is intended to lend support to the implementation of EU policies aimed at revitalising the EU economy – such as the forthcoming Advanced Materials Act – by identifying areas where Europe can enhance its technological leadership. The analysis is grounded in the Economic Complexity approach, which provides a framework to analyse the existing technological capabilities of the EU, and to identify untapped diversification opportunities for the Member States and their regions. The results of this report suggest that the EU leadership in many traditional technologies is threatened by rising innovation activities by its main competitors, mainly China and the US. To close its innovation gap, the EU can leverage its existing capabilities to enhance competitiveness in Advanced Materials, particularly in areas such as Biomaterials, Glass, and Cements. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc144431 |
| By: | Wolswijk, Guido |
| Abstract: | This paper examines how fiscal policy in the euro area reacts to monetary policy, by estimating fiscal policy reaction functions for the period 1999-2019. Inclusion of the monetary policy stance in the fiscal reaction function, approximated by a shadow interest rate, is a relatively novel aspect in this type of analysis. The findings suggest that fiscal policy acts in a substitutive manner, its stance moving in the opposite direction of monetary policy, though this effect may have ceased operating during ECB’s quantitative easing. Using local projections, the substitutive effect is found to increase over time before turning broadly neutral. Analysing the fiscal response to other monetary policy relevant variables - government debt and the output gap -, outcomes suggests that budget balances react positively to government debt, supporting fiscal sustainability, and that fiscal policy acts countercyclically in recessions. JEL Classification: E61, H11, H62 |
| Keywords: | debt sustainability, monetary policy transmission, policy interactions, reaction function |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263172 |
| By: | Sciarra Carla (European Commission - JRC); Caldarola Bernardo (European Commission - JRC); Domnick Clemens (European Commission - JRC); Hervas Fernando (European Commission - JRC) |
| Abstract: | This policy brief provides a digest of the scientific evidence and policy implications of the European Commission’s Conference on Corporate R&D and Innovation (CONCORDi 2025), which took place in Seville on 24-26 September 2025. The conference focused on strategic technologies, industrial policies, economic competitiveness, and sustainability, and it featured 63 academic presentations, 2 keynote talks, 2 policy round tables, 4 policy special sessions, and a science-for-policy debate. The conference highlighted the role of strategic technologies, such as AI, in helping Europe overcome the mid-tech trap, while also addressing their heterogeneous effects on labor markets. It emphasised the necessity for Europe to avoid low-productivity R&D and the importance of large R&D investors in driving higher returns through riskier and higher quality projects. This policy brief underscores the significance of supporting universities and public research centers in long-term research and fostering collaboration with firms. It addresses the incompleteness of the EU single market and calls for more capital market policies and integration efforts to remove barriers preventing firm growth. The integration of green and digital strategies is identified as essential for sustainable innovation, requiring complementary investments and institutional support. The brief discusses the importance of tailored industrial policies with directionality to accelerate transitions and strengthen technological sovereignty while minimizing negative side effects. The brief concludes by remarking that further research is needed to understand the enabling conditions for strategic technologies and to improve the measurement of policy impacts, ensuring adaptive and evidence-based policymaking. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc144677 |
| By: | Reimers, Paul; Michaelis, Henrike |
| Abstract: | Compared to 2021, the aggregate bank lending rate to firms in the euro area in- creased strongly during the monetary tightening and easing cycle of 2022-25. However, it rose up to 1.5 percentage points less than the rise in policy and money market rates. We approach this gap using granular credit registry data, revealing how changes in the composition and pricing of credit translate into developments of the aggregate rate. The tool we use is standard in labor economics, but scarcely used outside that context: the Oaxaca-Blinder decomposition. We are the first to apply it to analyze the development of an aggregate variable over time in the loan pricing literature. We find that changes in the pricing of credit compared to 2021 were the main reason why a gap opened up. Compositional shifts in firm and credit characteristics and changes in banks' market shares had minor effects. Our micro-level insights have implications for policy makers, bankers and debtors, as they help understand what shapes aggregate pass-through patterns and the strength of monetary policy transmission. Moreover, our approach opens up promising new applications in the loan supply literature. |
| Keywords: | Credit pricing, euro area, monetary policy transmission, interest ratepass-through |
| JEL: | E52 E43 E44 E58 G20 G21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:334533 |
| By: | Frederico Silva Leal |
| Abstract: | This paper assesses the relevance of macroeconomic, fiscal and political factors as determinants of sovereign yield spreads for 15 Euro Area Member States, using quarterly data for the period Q1:1999–Q4:2024. The results show that fiscal fundamentals, inflation and liquidity stress are the main drivers of spreads, while the QE regime reduced the sensitivity of spreads to debt levels. Political influences are selective: electoral periods raise sovereign risk only in highly indebted countries, whereas liberalising reforms are associated with lower spreads. Overall, the findings highlight the regime-dependent nature of sovereign risk pricing and provide updated evidence on how fiscal and political information is incorporated under different policy environments, offering a clearer understanding of how markets reassess sovereign risk as institutional and macro-financial conditions evolve. |
| Keywords: | Sovereign Spreads, Fiscal Policy, Politics, EMU |
| JEL: | E43 E62 D72 H63 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:ise:remwps:wp04022026 |
| By: | Matthes, Jürgen |
| Abstract: | Die deutschen Warenexporte in zwei wichtige deutsche Exportzielländer sind im Jahr 2025 deutlich gesunken. Im Fall der USA beträgt der nominale Ausfuhrrückgang in den ersten drei Quartalen dieses Jahres gegenüber dem gleichen Vorjahreszeitraum fast 8 Prozent, gegenüber China sogar über 12 Prozent. Bei den USA liegt das vor allem an der aggressiven Zollpolitik der Trump Administration. Bei China spielen viele Faktoren eine Rolle, unter anderem eine gestiegene Leistungsfähigkeit chinesischer Anbieter in einigen Sektoren, aber auch unfaire Wettbewerbsverzerrungen durch staatliche Subventionen und einen unterbewerteten Yuan-Wechselkurs gegenüber dem Euro. Die Exporteinbrüche in die USA und nach China ziehen für sich genommen die Veränderungsrate der gesamten deutschen Ausfuhren in den ersten drei Quartalen um über 1, 5 Prozentpunkte gegenüber dem gleichen Vorjahreszeitraum nach unten, die USA um minus 0, 81 Prozentpunkte und China um minus 0, 74 Prozentpunkte. Gleichwohl hat die nominale deutsche Gesamtausfuhr in alle Länder in dieser Zeit leicht um 0, 25 Prozent zugelegt. Das liegt vor allem daran, dass die deutschen Ausfuhren nach Europa (EU und Nachbarländer wie Schweiz, UK und Norwegen) gestiegen sind, wenn auch nur um weniger als 3 Prozent. Weil die europäischen Exportpartner aktuell für fast 70 Prozent der deutschen Ausfuhren stehen, zieht der nur moderate Ausfuhrzuwachs nach Europa die Veränderungsrate der gesamten deutschen Ausfuhr um fast 2 Prozentpunkte nach oben. Aus der EU allein kommt ein positiver Wachstumsbeitrag von über 1, 5 Prozentpunkten, der die summierten negativen Beiträge der USA und Chinas fast vollständig ausgleicht. Unter den europäischen Ländern sind es vor allem Polen, die Schweiz und Spanien, die jeweils für Wachstumsbeiträge von um die 0, 3 Prozentpunkte stehen, so dass sie zusammengenommen die jeweiligen negativen Wachstumsbeiträge der USA oder Chinas weit mehr als ausgleichen. Darüber hinaus wirken auch die stärker wachsenden deutschen Dienstleistungsexporte kompensierend. Das zeigt ein Blick auf die Außenhandelsdaten der Volkswirtschaftlichen Gesamtrechnungen. Die deutschen Gesamtexporte von Waren und Dienstleistungen haben sich daher etwas besser entwickelt als die Warenexporte. Das gilt in nominaler und ebenso in preisbereinigter realer Betrachtung. Doch trotz dieses kompensierenden Effekts gingen die realen Gesamtexporte (VGR-Basis) in den ersten drei Quartalen 2025 leicht um 0, 7 Prozent gegenüber dem gleichen Vorjahreszeitraum zurück, so dass die Exportentwicklung das Wirtschaftswachstum etwas dämpfte. |
| Abstract: | German merchandise goods exports to two important German export destinations fell significantly in 2025. In the case of the USA, goods exports fell by almost 8 per cent in the first three quarters of this year compared with the same period last year, and by more than 12 per cent in the case of China. Regarding the USA, this is mainly due to the aggressive tariff policy of the Trump administration. In the case of China, many factors play a role, including increased efficiency of Chinese suppliers in some sectors, but also unfair distortions of competition through state subsidies and an undervalued yuan exchange rate against the Euro. The slump in German goods exports to the USA and China alone dragged down the rate of change in total German goods exports in the first three quarters by more than 1.5 percentage points compared with the same period last year, with the USA accounting for minus 0.81 percentage points and China for minus 0.74 percentage points. Nevertheless, total German goods exports to all countries rose slightly by 0.25 per cent during this period. This is mainly due to the fact that German goods exports to Europe (the EU and neighbouring countries such as Switzerland, the UK and Norway) rose moderately, albeit by just under 3 per cent. Because European export partners currently account for almost 70 per cent of German goods exports, the only moderate growth in goods exports to Europe is pushing up the rate of change in total German goods exports by almost 2 percentage points. The EU alone is making a positive contribution to growth of over 1.5 percentage points, which almost completely offsets the combined negative contributions of the USA and China. Among the European countries, Poland, Switzerland and Spain are each contributing around 0.3 percentage points to the total export growth, meaning that together they more than offset the negative growth contributions of the USA or China, respectively. In addition, stronger growth in German services exports is also having a compensatory effect. This is evident from a look at the foreign trade data in the national accounts. Total German exports of goods and services have therefore performed better than German goods exports only. This applies in a nominal view, but also in real terms when adjusted for price changes, which is relevant for economic growth. However, despite the above-mentioned compensating effects of rising goods exports to EU countries and relatively dynamic services exports, German real exports of goods and services declined sightly be 0.7 percent in the first three quarters of 2025 compared to the first three quarters of 2024 - which implies a small drag on Germany's economic growth in 2025. |
| Keywords: | Export, Außenhandelsstatistik, Außenhandelsstruktur, Deutschland |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwkrep:334500 |
| By: | Casas Pablo (European Commission - JRC); Christou Tryfonas (European Commission - JRC); Garcia Rodriguez Abian (European Commission - JRC); Lazarou Nicholas (European Commission - JRC); Lopez Cobo Montserrat (European Commission - JRC); Salotti Simone (European Commission - JRC); Signorelli Serena (European Commission - JRC); Torrecillas Jodar Juan (European Commission - JRC); Torrecilla Salinas Carlos (European Commission - JRC) |
| Abstract: | → The Digital Agenda for Europe (2010) set in motion the EU's focus on digital technologies for economic growth and prosperity, laying the foundation for a digital single market. → The COVID-19 pandemic accelerated digital transformation, boosting telework, e-learning, e-commerce, and AI adoption driven by data and computing power. → This Insight reports the key insights of a mod-elling analysis of €175 billion of digital in-vestment deployed through five EU funds. → The analysis suggests that digital investment can have sizeable macroeconomic gains in terms of GDP, net exports and productivity, with territorial heterogeneity that should be taken into account by policymakers when devising the interventions. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc144734 |
| By: | Evgenidis Anastasios; Fasianos Apostolos; Papapanagiotou George; Lazarou Nicholas Joseph (European Commission - JRC) |
| Abstract: | Recent advances in Artificial Intelligence (AI) and the growing role of these technologies in enhancing productivity have attracted significant research and policy attention, yet the determinants of AI innovation remain relatively understudied. This study contributes to this emerging literature by examining the role of public R&D spending in fostering AI-related innovation across EU regions. Our analysis draws on bibliographic information from all patents registered at the European Patent Office (EPO) between 1980 and 2023. Using textual analysis of patent abstracts, we identify the share of AI patents among total patents and construct a novel dataset that allocates AI patents to NUTS-2 regions based on inventor addresses. This regional mapping enables us to assess the impact of public R&D funding on AI innovation while addressing endogeneity concerns by instrumenting regional public R&D spending with national defence-related R&D expenditure. The results show that public R&D plays a significant role in driving AI innovation: a 1% increase in public R&D spending raises AI patent output by approximately 0.27%. These findings speak directly to Europe’s innovation policy framework, providing evidence that public investment remains a powerful lever for stimulating AI development. They also reinforce the rationale for sustained funding under Horizon Europe, the Digital Europe Programme, and national innovation strategies aimed at building technological and reducing regional disparities in AI advancement. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:termod:202512 |
| By: | Álvarez, Inmaculada C.; Barbero, Javier; Orea, Luis; Rodríguez-Pose, Andrés |
| Abstract: | Most studies of institutional quality and regional growth assume uniform effects across territories. However, this may mask crucial regional heterogeneity, with direct policy implications. We use a latent class framework applied to 230 EU regions over 2009-2017 to identify institution-driven regional parameter groups, and to examine both average effects and catching-up effects associated with changes in the institutional environment. We demonstrate that institutional quality generates highly variable returns to investment in physical capital and innovation. Nordic and Central European regions show highest returns to physical capital and R&D investment, whereas less-developed regions benefit most from education spending. Crucially, we find that improving government quality not only raises average returns but also promotes territorial cohesion. By contrast, regional autonomy shows limited impact on returns. Our findings challenge the one-size-fits-all approach to cohesion policy and indicate that cohesion policy should explicitly promote institutional improvements in addition to capital deployment. |
| Keywords: | institutional quality; European funds; investment; regional development |
| JEL: | E61 H54 R11 |
| Date: | 2025–12–24 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130747 |
| By: | Felix ROTH (European Commission); Alessio MITRA |
| Abstract: | This paper examines the drivers of EU labour productivity before and after the 2007 financial crisis, across goods and services sectors, tangible and intangible assets, and Information and Communication Technologies (ICT) and non-ICT tangibles. |
| Keywords: | Economics, competitiveness, growth, ICT, labour productivity |
| JEL: | O32 O33 O38 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-25-006-en-n |
| By: | Nindl Elisabeth (European Commission - JRC); Napolitano Lorenzo (European Commission - JRC); Confraria Hugo (European Commission - JRC); Rentocchini Francesco (European Commission - JRC); Fako Peter (European Commission - JRC); Ince Ela (European Commission - JRC); Georgakaki Aliki (European Commission - JRC); Gavigan James (European Commission - JRC); Tuebke Alexander (European Commission - JRC) |
| Abstract: | The 2025 edition of ‘The EU Industrial R&D Investment Scoreboard’ monitors and analyses industrial research and development (R&D) investment trends in the context of the EU’s 3% of GDP R&D investment policy target and the related policy initiatives by the Competitiveness Compass. The 2025 Scoreboard analyses the world's top 2 000 industrial R&D investors, responsible for over 90% of R&D performed by the business sector globally, based on the financial information in the latest published audited accounts of firms. Following the introduction, chapter 2 analyses the main global trends and benchmarks the EU’s top R&D investing companies against global competitors. Chapter 3 provides details by sector, and chapter 4 does a deep-dive on a subsample of the EU’s top 800 R&D investing firms. Chapter 5 analyses R&D internationalisation and chapter 6 key green technologies. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc144638 |
| By: | Borsekova, Kamila; Korony, Samuel; Rodríguez-Pose, Andrés; Styk, Michal; Westlund, Hans |
| Abstract: | The importance of institutions and innovation for regional development is well established. How these two factors interact under different historical legacies and urban-regional contexts remains, however, insufficiently understood. This paper identifies which combinations of institutional and innovation indicators most effectively classify regions into distinct developmental archetypes, revealing critical thresholds that redirect regional trajectories. Employing decision-tree analysis on 233 EU NUTS-2 regions, we analyse 15 indicators spanning institutional quality, technological readiness, business sophistication, and innovation. This methodology uncovers non-linear relationships that traditional approaches cannot capture. The findings demonstrate that institutional quality acts as a necessary condition for innovation-led growth. High-performing regions, predominantly in Western and Northern Europe, benefit from robust institutions and strong innovation outputs. Many lower-performing regions, particularly in Central and Eastern Europe, exhibit innovation potential but are constrained by governance deficits. By integrating institutional and innovation indicators within a single analytical framework, we underscore how addressing governance and innovation in tandem can result in balanced and sustainable growth across Europe. |
| Keywords: | regional development; institutions; innovation; decision tree modelling; regional competitiveness |
| JEL: | J1 |
| Date: | 2026–02–28 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130741 |
| By: | Younghun Shim; Iglika Vassileva; Mengxue Wang |
| Abstract: | This paper examines EU global value-chain (GVC) integration and analyzes its drivers using machine learning models, with case studies of Portugal and Belgium. GVC participation appears to boost productivity and technology upgrading, but also brings concentration risks in the current environment. Results indicate labor cost, labor productivity and human capital as key drivers, supported by infrastructure, manufacturing base, and governance quality. Portugal remains downstream, constrained by low high-tech intensity, while Belgium is highly integrated but exposed to sectoral shocks. Strengthening the EU single market, capital-market integration, and individual countries’ investment in skills, innovation, and diversification would bolster resilience while preserving the benefits of openness. |
| Keywords: | Global Value Chain Integration; Export; Forward Linkages; Backward Linkages; Machine Learning Methods |
| Date: | 2026–01–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/002 |