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on European Economics |
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Issue of 2026–02–02
twelve papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Joe Cannataci; Benjamin Fehrensen; Mikolai G\"utschow; \"Ozg\"ur Kesim; Bernd Lucke |
| Abstract: | The European Central Bank (ECB) is working on the "digital euro", an envisioned retail central bank digital currency for the Euro area. In this article, we take a closer look at the "digital euro FAQ", which provides answers to 26 frequently asked questions about the digital euro, and other published documents by the ECB on the topic. We question the provided answers based on our analysis of the current design in terms of privacy, technical feasibility, risks, costs and utility. In particular, we discuss the following key findings: (KF1) Central monitoring of all online digital euro transactions by the ECB threatens privacy even more than contemporary digital payment methods with segregated account databases. (KF2) The ECB's envisioned concept of a secure offline version of the digital euro offering full anonymity is in strong conflict with the actual history of hardware security breaches and mathematical evidence against it. (KF3) The legal and financial liabilities for the various parties involved remain unclear. (KF4) The design lacks well-specified economic incentives for operators as well as a discussion of its economic impact on merchants. (KF5) The ECB fails to identify tangible benefits the digital euro would create for society, in particular given that the online component of the proposed infrastructure mainly duplicates existing payment systems. (KF6) The design process has been exclusionary, with critical decisions being set in stone before public consultations. Alternative and open design ideas have not even been discussed by the ECB. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.18644 |
| By: | Hirschbuehl Dominik (European Commission - JRC); Ceglar Andrej; Cojoianu Theodor; Emambakhsh Tina; Qi Yifan; Rho Caterina (European Commission - JRC); Hu Elsie; Petracco Marco (European Commission - JRC); Biganzoli Fabrizio; De Jager Alfred (European Commission - JRC); Garcia Herrero Laura (European Commission - JRC); Mandrici Andrea; Pasqua Carlo |
| Abstract: | This study examines how euro area banks factor pollution-induced biodiversity risks into lending decisions, using data from 832 banks and 5, 000 major polluters. Our results show that banks are increasingly pricing these risks by adjusting loan-to-value ratios and interest rates. Banks adjust lending conditions in line with EU pollution and biodiversity protection legislation, particularly for companies with large pollution footprints near biodiversity-protected areas or those contributing to Environmental Quality Standards failures of downstream surface waters. The former is driven primarily by banks' adoption of biodiversity policies and public commitments to the Equator Principles, while the latter is a result of regulatory risks. Our findings inform financial supervisors on how banks manage risks associated with the EU's zero pollution ambition, shed light on the interplay between biodiversity protection legislation and banks' lending decisions, and offer actionable guidance on leveraging existing regulatory frameworks to address the climate-biodiversity-pollution nexus. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:jrs:wpaper:202510 |
| By: | Iñaki Aldasoro; Leonardo Gambacorta; Rozalia Pal; Debora Revoltella; Christoph Weiss; Marcin Wolski |
| Abstract: | This paper provides new evidence on how the adoption of artificial intelligence (AI) affects productivity and employment in Europe. Using matched EIBIS-ORBIS data on more than 12, 000 non-financial firms in the European Union (EU) and United States (US), we instrument the adoption of AI by EU firms by assigning the adoption rates of US peers to isolate exogenous technological exposure. Our results show that AI adoption increases the level of labor productivity by 4%. Productivity gains are due to capital deepening, as we find no adverse effects on firm-level employment. This suggests that AI increases worker output rather than replacing labor in the short run, though longer-term effects remain uncertain. However, productivity benefits of AI adoption are unevenly distributed and concentrate in medium and large firms. Moreover, AI-adopting firms are more innovative and their workers earn higher wages. Our analysis also highlights the critical role of complementary investments in software and data or workforce training to fully unlock the productivity gains of AI adoption. |
| Keywords: | artificial intelligence, firm productivity, Europe, digital transformation |
| JEL: | D22 J24 L25 O33 O47 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1325 |
| By: | Harry Aytug |
| Abstract: | Two decades of research on the euro's trade effects have produced estimates ranging from 4% to 30%, with no consensus on the magnitude. We find evidence that this divergence may reflect genuine heterogeneity in the euro's trade effect across country pairs rather than methodological differences alone. Using Eurostat data on 15 EU countries from 1995-2015, we estimate that euro adoption increased bilateral trade by 24% on average (15.0% after fixed effects correction), but effects range from -12% to +68% across eurozone pairs. Core eurozone pairs (e.g., Germany-France, Germany-Netherlands) show large gains, while peripheral pairs involving Finland, Greece, and Portugal saw smaller or negative effects, with some negative estimates statistically significant and interpretable as trade diversion. Pre-euro trade intensity and GDP explain over 90% of this variation. Extending to EU28, we find evidence that crisis-era adopters (Slovakia, Estonia, Latvia) pull down naive estimates to 5%, but accounting for fixed effects recovers estimates of 14.0%, consistent with the EU15 fixed-effects baseline of 15.0%. Illustrative counterfactual analysis suggests non-eurozone members would have experienced varied effects: UK (+24%), Sweden (+20%), Denmark (+19%). The wide range of prior estimates appears to be largely a feature of the data, not a bug in the methods. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.19664 |
| By: | Harry Aytug |
| Abstract: | Does euro adoption affect long-run economic growth? Existing evidence is mixed, reflecting limited treated countries, long horizons that challenge inference, and heterogeneity across member states. We estimate causal dynamic and heterogeneous treatment effects using Causal Forests with Fixed Effects (CFFE), a machine-learning approach that combines causal forests with two-way fixed effects. Under a conditional parallel-trends assumption, we find that euro adoption reduced annual GDP growth by 0.3-0.4 percentage points on average. Effects emerge shortly after adoption and stabilize after roughly a decade. Average effects mask substantial heterogeneity. Countries with lower initial GDP per capita experience larger and more persistent growth shortfalls than core economies. Weaker consumption and productivity growth contribute to the overall effect, while improvements in net exports partially offset these declines. A two-country New Keynesian DSGE model with hysteresis generates qualitatively similar patterns: one-size-fits-all monetary policy and scarring mechanisms produce larger output losses under monetary union than under flexible exchange rates. By jointly estimating dynamic and heterogeneous treatment effects, the analysis highlights the importance of country characteristics in assessing the long-run consequences of monetary union. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2601.20169 |
| By: | Mele, Marco; Costantiello, Alberto; Anobile, Fabio; Leogrande, Angelo |
| Abstract: | This paper evaluates the structural, environmental, and climatic factors influencing carbon dioxide emissions from the building sector (CBE) in 27 European Union member states from 2005 to 2023. This analysis uses panel data from the World Bank and four econometric models—Random Effects, Fixed Effects, Dynamic Panel GMM, and Weighted Least Squares—coupled with machine learning and clustering to provide a robust analysis of emissions. The econometric models show that all models support a negative relationship between agriculture, forestry, and fishing value added (AFFV) and forest area (FRST), suggesting that a robust rural economy and substantial natural carbon sinks are accompanied by lower emissions in the building sector. On the other hand, water stress (WSTR), PM2.5 pollution, heating and cooling degree days, and nitrous oxide emissions (N2OP) are found to significantly, yet positively, affect CBE. Tests of diagnostic analyses support Fixed Effects and Weighted Least Squares models, whereas results from GMM models are limited by instrument validity violations. In machine learning analysis, K-Nearest Neighbors (KNN) models are found to be most diagnostic, with all performance metrics being improved, establishing a prominent role for coal electricity, water stress, agricultural intensities, and climatic factors. Subsequently, a solution with 10 clusters, selected using Bayesian Information Criteria and silhouettes, identified a set of environmental and economic characteristics based on differences between low- and high-emission groups. High-emitting groups result from agricultural intensification, pollution, and low energy efficiency, while low-emitting groups are associated with renewable energy, low pollution, and a favorable climate. This analysis, hence, presents a multifaceted assessment of building sector emissions, with climatic, structural, and energy transition patterns as driving factors for meeting decarbonization targets for the European Union. |
| Keywords: | Building-sector carbon emissions; Panel data econometrics; Machine learning prediction; Environmental and climatic drivers; Cluster analysis |
| JEL: | C3 C33 C38 Q41 Q54 Q56 |
| Date: | 2025–12–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127321 |
| By: | Jacob Funk Kirkegaard (Peterson Institute for International Economics) |
| Abstract: | Despite the increasingly direct military threat from Russia and a weakening US commitment to the North Atlantic Treaty Organization (NATO), the European Union's 27 member states have proven unwilling to harness their union to provide a common defense. Instead, EU members have responded individually, based on their own national interests and circumstances, such as their geographic proximity to Russia and levels of government debt. Failure to act collectively represents a wasted opportunity with potentially far-reaching and negative implications for the prospects of any further meaningful EU institutional integration. This Policy Brief analyzes the drivers of rearmament, especially military aid to Ukraine, and the ways in which such aid is increasingly being provided by different "coalitions of the willing" consisting of subsets of EU members and other countries, working with the Ukrainian military industrial sector. Kirkegaard argues that this approach will likely reduce the European Union to a peripheral role in providing for the continent's military defense and national security. Instead, the European Union's principal role will be that of a financier, limited to providing financial support for Ukraine, increasing sanctions pressure on Russia, overseeing Kyiv's accession to the European Union, and trying to carve out a coordinating role in EU defense-related research and development. Rather than the European Union as a single institution, subsets of EU members together with nonmembers will drive European rearmament and the establishment of a largely independent long-term military deterrent to Russia. |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:iie:pbrief:pb26-1 |
| By: | Khalid, Usman; Ali, Amjad; Audi, Marc |
| Abstract: | This paper examines the impact of mobile payments, financial literacy, and access to formal financial systems on borrowing practices among individuals residing in the European Union. It utilises data from the 2023 Flash Eurobarometer 525 and predicts the probability of consumer loan ownership through a logistic regression model. The analysis shows that borrowers generally possess higher financial literacy, suggesting an empowered approach to managing debt. Surprisingly, users of digital financial services tend to borrow less, potentially indicating that they prefer alternative tools or manage their finances more prudently. Moreover, possessing financial products such as savings accounts, mortgages, and insurance increases the likelihood of borrowing, whereas access to long-term investment products like pensions is linked with lower borrowing levels. These results suggest that borrowing decisions are partially influenced by access to financial instruments, individual financial knowledge, attitudes towards digital finance, and targeted policies emphasising education alongside comprehensive financial strategies. |
| Keywords: | Consumer Financial Behaviour, Financial Literacy, Borrowing Patterns, Digital Finance, European Union |
| JEL: | G2 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127308 |
| By: | Budzinski, Oliver; Stöhr, Annika |
| Abstract: | Since Mario Draghi's 2024 report on "The Future of European Competitiveness", identifying European (i) weaknesses in global innovation and, consequently, in global market impact, as well as (ii) regulatory overburden, the term competitiveness has been propelled into massive popularity. For instance, competitiveness has been established as a core guiding principle for the work of the European Commission (the competitiveness compass as a new roadmap for EU economic policy. But what does competitiveness exactly mean and how does it relate to competition? This contribution addresses possible concepts of competitiveness and their relationship with concepts of competition. Furthermore, we compare current narratives surrounding the competition-competitiveness interrelation with stylized academic empirical evidence. We conclude that (i) it should always be explicitly specified which notion and concept of the term competitiveness is referred to, (ii) effective competitiveness policies must be competition-based (i.e., promote competitiveness through competition), (iii) a selective firmor industry-focused competitiveness policy is likely to decrease welfare in a world where lobbyism, rent-seeking, and imperfect political incentives are prevalent, (iv) narratives that we have experienced a specifically competition-centric era during the last decades are not supported by scientific findings, and (v) competition policy and merger control should be reinvigorated to promote public interest goals such as social welfare and economic resilience. |
| Keywords: | competitiveness, competition, antitrust, industrial policy, resilience, lobbyism, locational competition, innovation, rent-seeking |
| JEL: | L40 L50 L52 F13 K21 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:tuiedp:335048 |
| By: | Federica Arena |
| Abstract: | This study aims to advance the analysis of Italian economic growth by examining the long-term relationship between autonomous demand and GDP through time series econometrics, while providing a comparative assessment of autonomous demand multipliers. The econometric analyzes support two key conclusions: first, that autonomous demand has been the long-term growth engine in Italy; and second, that the economic slowdown following Italy’s accession to the EU may have been driven by the low multiplier values associated with exports |
| Keywords: | Supermultiplier Model, Italian Economic Growth, Vector Error Correction Model (VECM), Local Projections, Multipliers Jel Classification: C32, E12, E62 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:usi:wpaper:937 |
| By: | Chatellier, Vincent |
| Abstract: | Global trade in animal products, excluding trade between European Union (EU) Member States, has increased significantly over the past two decades, reaching € 226 billion in 2023. This represents approximately 17% of total agricultural and agri-food trade. With a trade surplus of nearly € 50 billion in 2024, the EU has the largest trade surplus in animal products in the world. Despite the implementation of several free trade agreements, the EU’s trade balance has improved considerably over the past twenty years, in particular due to dairy products and pork. While trade agreements with the United Kingdom and Canada have been beneficial for European trade, more restrictive measures were introduced in 2025 with respect to Ukraine to curb the substantial rise in exports (notably poultry) since the outbreak of the war. |
| Keywords: | International Relations/Trade, Livestock Production/Industries |
| Date: | 2026–01–23 |
| URL: | https://d.repec.org/n?u=RePEc:ags:inrasl:388971 |
| By: | Stöhr, Annika; Budzinski, Oliver |
| Abstract: | State-owned firms from third countries play an increasingly significant role in international mergers and acquisitions, raising concerns about distortions of competition. These distortions arise from state-backed financial advantages, preferential treatment, and industrial policy objectives, potentially undermining market competition. This paper categorises different forms of competitive distortions, focusing on acquisitions financed by foreign state resources. Through an analysis of German and EU merger control cases (2012-2023), we assess the extent of this phenomenon and the treatment of such transactions by the respective competition authorities. While direct state involvement remains rare, it is prevalent in strategic industries such as energy and transport. We discuss potential policy responses, including expanded notification requirements, revised theories of harm, and stricter intervention criteria. However, we caution against excessive regulatory overreach that could lead to protectionist distortions. Our findings advocate for a nuanced approach to merger control that ensures competitive neutrality while safeguarding against state-driven market distortions. |
| Keywords: | competition policy, state-owned enterprises, merger control, foreign subsidies, EU competition law |
| JEL: | K21 L40 L44 L50 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:tuiedp:335042 |