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on European Economics |
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Issue of 2026–06–15
seven papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Vujeva, Karlo |
| Abstract: | This paper examines TARGET2 imbalances in relation to the slowdown of the euro area overnight interbank market and the transformation of the Eurosystem’s operational framework after the global financial crisis and the European sovereign debt crisis. It argues that TARGET2 imbalances are not merely technical by-products of Eurosystem balance-sheet expansion, but balance-sheet traces of a structural reorganization of liquidity circulation inside the euro area. The paper develops and tests a substitution hypothesis: when private cross-border redistribution of central-bank liquidity through the overnight interbank market weakens, public settlement through TARGET2 increasingly records liquidity flows no longer intermediated through private money markets. Using a vector autoregressive framework for the euro area, the analysis links TARGET2 dynamics to overnight interbank market activity, the overnight money-market rate, and the Composite Indicator of Systemic Stress. The results show that positive shocks to TARGET2 imbalances generate a significant and persistent contraction in overnight interbank transaction volume, while financial-stress shocks generate an immediate and durable increase in TARGET2 imbalances. A complementary transmission analysis further shows that TARGET2 is the most persistent balance-sheet response to excess-liquidity shocks among the variables considered, exhibiting a larger and more durable response than sovereign bond yields, equity prices, or bank lending. Finally, regime-threshold results suggest that the center–periphery confidence gap becomes statistically relevant for TARGET2 accumulation only in the abundant-reserves regime, linking settlement dynamics to safe-asset scarcity and incomplete financial integration. The findings imply that TARGET2 should be interpreted not only as an accounting counterpart of central-bank operations, but also as a signal of impaired private liquidity circulation, financial fragmentation, and the evolving operational architecture of the Eurosystem. |
| Keywords: | TARGET2 imbalances; settlement infrastructure; euro area interbank market; excess liquidity; financial fragmentation; financial stress; monetary policy implementation |
| JEL: | E42 E44 E52 E58 F36 |
| Date: | 2026–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:129148 |
| By: | Balouktsi Despoina (European Commission - JRC); Joossens Elisabeth (European Commission - JRC); Le Blanc Julia (European Commission - JRC); Pagano Andrea (European Commission - JRC) |
| Abstract: | Housing affordability has become a pressing policy concern across the European Union, driven by rising costs and persistent demographic change. This report provides harmonised estimates of housing investment needs for all EU Member States using a common, bottom-up analytical framework that captures demand and supply dynamics at the NUTS 3 level. It identifies where gaps between household numbers and dwelling stock have emerged and quantifies the additional investment required to close them across the EU until 2035. The analysis demonstrates that housing needs are concentrated in a limited number of high-demand metropolitan and urban regions, with approximately two-thirds of total EU investment needs originating in Germany, France, Italy, and Spain. The findings are directly relevant to the European Affordable Housing Plan and support evidence-based targeting of housing investment across the Union. |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc144419 |
| By: | Gavresi, Despina; Litina, Anastasia |
| Abstract: | In an era marked by repeated crises and the growing traction of populist movements, understanding the deep-rooted factors shaping EU cohesion has become increasingly urgent. This paper investigates how lifetime exposure to economic recessions influences individual attitudes toward the European Union (EU). Resorting to rich micro-data from the European Social Survey (ESS) and the Eurobarometer, we construct a detailed measure of economic hardship experienced during lifetime, capturing not just isolated downturns but the accumulated burden of multiple recessions over time. Importantly, we distinguish between various types of shocks-including output contractions, unemployment surges, consumption drops, participation in IMF adjustment programs, and the asymmetry or symmetry of crises across EU member states. We show that individuals with greater lifetime exposure to these economic shocks are more likely to distrust EU institutions, oppose further integration, vote for Eurosceptic parties, and support exiting the EU. These patterns are especially pronounced for asymmetric shocks, which disproportionately affect specific regions or countries, in contrast to symmetric shocks, which appear to foster a sense of shared fate and solidarity. A series of robustness tests-including placebo checks, heterogeneity analyses, diverse shock types and designs exploiting EU institutional structure confirms the persistent impact of economic trauma on EU attitudes, underscoring the need to address historical recessions to safeguard cohesion and democratic legitimacy in the context of the EU. |
| Keywords: | Recessions, European Integration, EU Cohesion, Trust, EU Institutions, Euroscepticism |
| JEL: | D70 E60 F15 F36 H70 P16 Z10 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1760 |
| By: | Dräger, Lena; Marencak, Michal; Nghiem, Giang; Paloviita, Maritta |
| Abstract: | This paper examines cross-country differences in consumer expectations about macroeconomic outcomes and mortgage borrowing conditions within a monetary union. Using harmonized microdata from the ECB Consumer Expectations Survey for eleven euro area countries, we document significant national disparities. By sequentially adding a rich set of consumer- and country-specific macro controls to pooled regressions with country fixed effects, we find that these factors account for much, but not all, of the cross-country heterogeneity in expectations. These remaining differences likely reflect unobserved countryspecific factors, highlighting the need for country-tailored monetary policy communication to effectively stabilize consumer expectations. |
| Keywords: | Country heterogeneity, Expectations, Consumer Expectations Survey |
| JEL: | D30 D84 E31 E52 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:han:dpaper:dp-747 |
| By: | Alberto Montagnoli; Miroslava Quiroga-Trevino; Christoph Thoenissen |
| Abstract: | This paper provides empirical evidence on the balance sheet channel of ï¬ scal policy in peripheral European economies. Our ï¬ ndings using a Panel VAR, reveal that shifts in ï¬ nancial institutions' balance sheets following a debt-ï¬ nanced ï¬ scal expansion reduce credit provision and investment in these countries. Moreover, the analysis indicates that economies with higher sovereign exposure experience more severe credit crunches and investment declines. To explore the underlying mechanisms, we employ a DSGE model that incorporates banks as primary holders of sovereign debt. The model shows that sovereign exposure ampliï¬ es the negative effects on credit supply, lowering investment and capital formation. |
| Keywords: | SVAR, DSGE, Bayesian estimation, ï¬ scal policy, sovereign debt, bank capital regulation, crowding out, Euro Area |
| JEL: | C11 E32 E44 E62 H63 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-42 |
| By: | Tommaso Frattini; Giuseppe Pulito |
| Abstract: | The EU’s foreign-born population reached over 63 million in 2024 (14.1%), driven by non-EU inflows and post-2022 surges. Germany remains the main destination, with most immigrants of working age and uneven distribution across countries. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:crm:crmrep:2501 |
| By: | Filip, Marinela-Daniela; Setzer, Ralph; Peréz-González, Diego |
| Abstract: | This paper examines whether differences in the composition of investment help explain economic growth disparities in the EU and other advanced economies from 1996 to 2021. While overall investment levels in the EU and the US are broadly similar, the EU invests less in intangible and tangible ICT capital. This difference in composition is associated with part of the EU’s productivity gap with the US. Employing panel fixed effects and local projection methods, we find that intangible and tangible ICT investments -particularly in communications equipment, R&D, and other intellectual property products- are associated with higher GDP per capita growth than other forms of investment. To quantify these differences, we construct a novel investment efficiency ratio that relates the estimated economic growth contribution of each asset to its share in total investment. The results are robust across empirical methods, country samples, and time periods, and reveal substantial heterogeneity: the growth association of ICT-related investment is stronger in countries with higher income levels and greater human capital. Overall, the findings suggest that improving the allocation and efficiency of investment, rather than simply increasing its volume, is key to enhancing long-term growth. JEL Classification: E22, O47, O50, J24, C23 |
| Keywords: | intangible investment, investment efficiency, investment human capital, panel data, tangible ICT |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263242 |