|
on European Economics |
|
Issue of 2026–05–25
eleven papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Bondarenko, Yevheniia; Kang, Nayeon; Lewis, Vivien; Rottner, Matthias; Schüler, Yves |
| Abstract: | Geopolitical risk is a major concern for the euro area, yet widely used measures largely reflect a US perspective. We introduce a geopolitical risk indicator tailored to the euro area using local European news sources. Shocks to this index have significant recessionary and inflationary consequences in the euro area, effects that would be missed when relying on the corresponding US-based measure. We estimate that the Russo-Ukrainian War imposed substantial output losses and inflationary pressures on the euro area in 2022. Combining structural scenario analysis with end-of-sample now-casting, we show that euro area prospects are highly sensitive to future developments in geopolitical risk. We complement these analyses with two news-based measures of sanctions intensity and shortages for the euro area. |
| Keywords: | euro area, geopolitical risk, inflation, sanctions, shortages |
| JEL: | E31 E32 F42 F51 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:341100 |
| By: | Moritz Pfeifer; Gunther Schnabl |
| Abstract: | This paper reassesses whether the euro area satisfies the criteria of an optimum currency area. It contrasts early hopes of convergence with subsequent developments marked by persistent heterogeneity across member states. Differences in economic structures, fiscal policies, and financial cycles have produced asymmetries that a single monetary policy cannot offset. Labor mobility and fiscal integration remain limited, shifting adjustment burdens onto prices, wages, and financial flows. Credit expansion and later retrenchment amplified divergence, culminating in the sovereign debt crisis. Since then, cohesion has relied heavily on unconventional monetary policies and fiscal support mechanisms, with notable effects on inflation dynamics, growth performance, and income distribution. The analysis concludes that the euro area has not evolved toward optimality and faces rising risks unless institutional reforms or structural changes are undertaken. |
| Keywords: | optimum currency area, European Monetary Union, economic convergence |
| JEL: | E52 F33 F45 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12675 |
| By: | Martin, Reiner; Nagy Mohácsi, Piroska |
| Abstract: | The post-pandemic inflation surge tested monetary policy frameworks around the world. It was a particular test for the four Visegrad countries (V4) in Central-Eastern Europe, which provided a “natural experiment” to examine monetary policy outcomes under two different monetary regimes. With broadly similar economic characteristics, Slovakia was already in the Economic and Monetary Union (EMU) before the post-pandemic inflation hit, whereas the other three countries (Czechia, Hungary and Poland) were not. What was the inflation performance of the V4 countries under the two different regimes? What does this imply for the cost/benefit analysis of euro adoption for countries which are still outside the euro area? We find that EMU membership was beneficial both during “normal times” as the benefits of monetary sovereignty for small, open, integrated economies faded away, and particularly helpful during crisis times. |
| Keywords: | Central-Eastern Europe; ECB; EMU; Euro area; inflation; monetary policy |
| JEL: | E31 E42 E52 E58 F02 F31 |
| Date: | 2024–12–23 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137978 |
| By: | K. Peren Arin; Ozan Eksi; Neslihan Kaya Eksi; Moo-Sung Kim |
| Abstract: | We examine the international transmission of US monetary policy shocks to European firms using high-frequency identification and granular firm-level panel data. Exploiting monetary policy surprises around FOMC announcements combined with firm-level data across eight European economies over 2004-2024, we document a sharp divergence in spillover effects. A contractionary US monetary shock significantly reduces investment rates and sales growth among UK firms, with investment declining by approximately 4% and sales growth by around 0.7-0.8% at peak, with effects persisting for two to four years. By contrast, Continental European firms, whether members of the euro area or independent-currency economies such as Sweden and Switzerland, do not exhibit a significant response. Heterogeneity analysis reveals that large and small UK firms bear broadly similar average burdens, with large firms showing more precisely estimated responses, while leverage does not systematically differentiate transmission. The UK-EU divergence is not explained by the exchange rate regime: the null result for Continental Europe extends to non-euro countries, pointing instead to the exceptional depth of UK-US financial integration, and the centrality of London in global dollar funding markets. |
| Keywords: | monetary policy spillovers, firm-level heterogeneity, international transmission channels |
| JEL: | E52 F43 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-33 |
| By: | Grynberg, Charlotte; Vinci, Francesca; De Sanctis, Alessandro |
| Abstract: | The European energy market remains heavily reliant on imported fossil fuels and fragmented across Member States. This leaves the EU exposed to high and volatile energy prices, posing risks to its growth outlook and its international competitiveness. As the EU advances its energy security and climate neutrality objectives, the role of electricity and renewable energy is set to increase at the expense of fossil fuels. This paper argues that achieving a genuine European Energy Union would help to reach these goals and identifies five key policy priorities to support this process: strengthening cross-border infrastructure; mobilising innovative green finance; investing in tools to support flexibility and matching of supply and demand; improving the efficiency and harmonisation of energy taxation; and establishing a coherent industrial policy for clean tech. JEL Classification: Q40, Q41, Q48, O25, F15 |
| Keywords: | clean-tech industrial policy, EU energy market integration, European integration, industrial competitiveness, renewable energy |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026388 |
| By: | Yoonjung Kim (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)); Young Jun Lee (KOREA INSTITUTE FOR INTERNATIONAL ECONOMIC POLICY (KIEP)) |
| Abstract: | In recent decades, European Union (EU) enlargement has substantially altered the continent’s economic and political landscape by lowering barriers to trade, labor mobility, and capital flows. Migration emerges as a central factor in this transformation, especially following the accession of Central and Eastern European countries. This enlargement has intensified interest among policymakers and researchers in the factors driving intra-European migration and its economic and social implications.<p> This study specifically investigates the interplay between EU enlargement, the Freedom of Movement (FOM) agreements, and Brexit on labor mobility. Although EU enlargement has generally been associated with deeper economic and political integration, its most profound impact may lie in facilitating international migration. By distinguishing between the timing and impact of EU membership and the Freedom of Movement (FOM) agreements—often introduced at different times— the analysis provides a nuanced view of their respective roles.<p> Employing a gravity model framework with Poisson Pseudo-Maximum Likelihood (PPML) estimation and a heterogeneity-robust difference-in-differences (DiD) approach, this study examines bilateral migration flows across 224 origin-destination country pairs. The results reveal that EU membership significantly increases migration flows, particularly from newer to older member states, indicating a pronounced east-to-west asymmetry. This effect remains robust after accounting for FOM implementation, and further robustness checks confirm the consistency of the findings under different policy timelines and the inclusion of external mobility agreements.<p> Additionally, the study explores the impact of Brexit on return migration, uncovering a substantial rise in flows from the UK to EU member countries—especially those that joined after 2000—following the 2016 referendum. These patterns highlight the heterogeneous and asymmetric effects of different EU migration policies and suggest that Brexit exerts a stronger influence on return migration than FOM.<p> Consequently, the findings highlight the importance of policy-specific analysis in capturing the complexities of migration responses to institutional changes within the EU. |
| Keywords: | international migration; EU enlargement; Brexit; gravity model; immigration policies |
| JEL: | F22 J61 J48 C23 |
| Date: | 2025–06–27 |
| URL: | https://d.repec.org/n?u=RePEc:ris:kiepwp:022485 |
| By: | Claudia Ciccone (Roma Tre University.) |
| Abstract: | The recent reform of the European fiscal governance framework has been portrayed as a break with the austerity logic of the past. Yet its core logic remains largely unchanged. This paper investigates the possible effects of the fiscal consolidations required under the new European fiscal rules on Italy's debt-to-GDP ratio. Drawing on the reference trajectory for net primary expenditure transmitted by the European Commission to Italy in June 2024, the analysis shows that the projected decline in the debt-to-GDP ratio relies on an assumption for which the Commission gives no justification: that the contractionary effects of fiscal consolidation on GDP are only temporary and fully dissipate three years after the adjustment period. Once this assumption is removed and the effects of consolidation are allowed to persist - as suggested by empirical evidence on hysteresis - GDP growth weakens substantially, and the debt-to-GDP ratio may increase rather than decrease. The findings suggest that the new governance framework may lead to the pro-cyclical tightening, weaker growth and adverse debt dynamics that characterized earlier phases of EU fiscal governance. |
| Keywords: | Fiscal policy; European economic governance; Debt sustainability; Fiscal consolidation; Net primary expenditure; Potential Output; Output gap; Fiscal multipliers; Austerity. |
| JEL: | E02 E32 E6 E62 F42 H61 H62 H63 H68 |
| Date: | 2025–11–19 |
| URL: | https://d.repec.org/n?u=RePEc:thk:wpaper:inetwp243 |
| By: | Di Carlo, Donato; McNamara, Kathleen R.; Moschella, Manuela |
| Abstract: | Across advanced economies, states are reasserting a more directive role in shaping markets. One prominent expression of this shift is the resurgence of industrial policy as a form of interventionist economic governance. This introduction develops a tripartite framework to analyze contemporary industrial policy in terms of goals, instruments, and authority structures—asking for what ends states intervene, through what means, and by and for whom. Applying this lens to Europe and the European Union (EU), the special issue shows how a polity long seen as the archetype of the regulatory state is increasingly departing from this model through a renewed embrace of industrial policy. We identify four ideal‐typical phases of EU industrial policy since the postwar era and argue that, since the 2020s, the EU has entered a distinct Transformational Phase. This phase is marked by the geopoliticization of interventionist goals, hybrid fiscal, geoeconomic and regulatory instruments, and a vertical and horizontal decentering of European market interventionism. Together, the introduction and contributions to the special issue offer a conceptual and empirical lens on industrial policy as a defining feature of twenty‐first‐century activist economic governance. |
| Keywords: | economic governance; state capitalism; European Union; industrial policy; political economy; market interventionism |
| JEL: | R14 J01 |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:138096 |
| By: | Ugo Panizza (Geneva Graduate Institute and CEPR) |
| Abstract: | A well-designed European sovereign debt architecture should avoid debt mutualization, create a large safe asset, and reduce the risk of self-fulfilling crises. This note derives a European debt trilemma, showing that no feasible architecture can simultaneously achieve all three objectives. The note then develops a simple model to evaluate the Blanchard and Ubide (2025) proposal. The model establishes a safety condition justifying the 25 percent replacement threshold, average cost neutrality as a consequence of Modigliani–Miller, and, most importantly, strengthened fiscal discipline at the margin, since the rate on national bonds is strictly more sensitive to domestic fiscal conditions than the rate it replaces. |
| Keywords: | Eurobonds; European Safe Asset; Fiscal Discipline; Debt Seniority |
| JEL: | F34 F36 H63 E44 |
| Date: | 2026–05–18 |
| URL: | https://d.repec.org/n?u=RePEc:gii:giihei:heidwp15-2026 |
| By: | Abrell, Jan; Zaklan, Aleksandar |
| Abstract: | We analyze the extent to which marginal producers in four European day-ahead electricity markets pass through short-run marginal cost, and its components fuel and carbon cost, to wholesale electricity prices. Parametric estimates show that pass-through is complete in France and Germany, and incomplete in the Iberian and Dutch markets, mainly driven by fuel cost. For carbon cost, pass-through is more heterogeneous, with the evidence suggesting over-shifting in Germany and the Netherlands. Semi-parametric estimates show that pass-through increases with demand. In sum, we show that despite being located in interconnected power markets, electricity consumers receive different fuel and carbon price signals. |
| JEL: | Q54 Q58 L94 Q41 |
| Date: | 2026–05–07 |
| URL: | https://d.repec.org/n?u=RePEc:bsl:wpaper:2026/04 |
| By: | Aryee-Boi, Nii Lantey Malik; Hauck, Isabella; Noisten, Anna Lotta; Weinhold, Maurice |
| Abstract: | The European Union (EU) Emissions Trading System (ETS) is an example of market-based environmental governance. While it has delivered measurable emission reductions in covered sectors, especially after major post-2013 reforms, its fairness, legitimacy, and transformative capacity remain contested. Therefore, this paper asks to what extent the EU ETS has contributed to emission reductions in the EU and what limitations emerge when it is assessed from a social-ecological economics (SEE) perspective. Using a qualitative, literature-based approach, it combines empirical studies on environmental and economic impacts of the ETS with a comparative theoretical framework that contrasts neoclassical environmental economics with SEE. The analysis shows that, on neoclassical terms, the ETS qualifies as a relatively efficient and adaptive carbon market, achieving targeted abatements at limited aggregate costs. However, when evaluated against broader criteria of ecological adequacy, distributional justice, governance and power, transformation potential and precaution, the system's marketcentred architecture commodifies atmospheric capacity, leaves the scale of socioeconomic metabolism and growth dependence largely untouched, and only partially addresses inequalities through ex post correction. In doing so, the paper bridges mainstream carbon pricing debates with SEE, arguing that emissions trading can support mitigation but must be subordinated to more far-reaching strategies of regulation, sufficiency, and socio-ecological provisioning if the EU is to align climate policy with planetary boundaries and social justice. |
| Keywords: | Emissions Trading, neoclassic, socio-ecological economics, European Union |
| JEL: | F55 Q52 Q56 Q57 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ipewps:341097 |