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on European Economics |
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Issue of 2026–09–28
seven papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Hellmers, Emilio; Henry, Jérôme; Santone, Arianna Pilar |
| Abstract: | This paper reviews system-wide liquidity stress-testing (SLST) frameworks in the European Union and illustrates the impact of a common aggregate liquidity shock on the EU financial system using a range of modelling approaches. Motivated by recent episodes of market turmoil, including the COVID-19 crisis, the 2022 energy shock and the 2023 banking stress, the analysis focuses on the propagation of liquidity stress across financial sectors and institutions. The paper combines a survey of SLST practices among EU authorities, a mapping of cross-sectoral financial interconnections in the euro area, and stress-testing simulations based on jurisdiction-specific models, an ESRB cross-sectoral balance sheet tool and the ECB’s system-wide stress-testing framework. The results suggest that the financial system remains broadly resilient to a severe aggregate liquidity shock over a 30-day horizon, with net outflows ranging from 0.5% to 0.7% of total financial assets. However, second-round effects, including fire sales, mark-to-market losses and behavioural responses, can significantly amplify the initial shock. The findings highlight the importance of financial interconnections, the role of non-bank financial intermediaries in shock transmission and the stabilising effect of central bank interventions. This paper also provides a stocktake of existing SLST practices and discusses priorities for the further development of SLST in Europe. JEL Classification: C63, G01, G21, G23, G28, E58 |
| Keywords: | contagion, financial interconnectedness, financial stability, fire sales, liquidity stress testing, macroprudential policy, non-bank financial intermediaries, stress testing, system-wide liquidity stress testing, systemic liquidity risk |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:srk:srkops:202631 |
| By: | Tiziano Ropele (Bank of Italy); Giordano Zevi (Bank of Italy) |
| Abstract: | This paper provides a comprehensive empirical assessment of investment developments in the euro area and its four largest member economies over 1996-2025, using National Accounts data disaggregated by country, asset type, and sector. Investment dynamics are tightly synchronised during systemic downturns, while recoveries are markedly heterogeneous. A shift-share decomposition shows that persistent cross-country differences in investment growth are driven mainly by within-category performance rather than by differences in allocation across assets and sectors. At the same time, investment is gradually shifting towards intangible assets, with intellectual property products displaying a sustained upward trend largely independent of the business cycle. An augmented accelerator model identifies economic activity as the main driver of investment fluctuations, with financial conditions exerting a significant influence - especially for construction - and confidence and uncertainty playing a complementary role at cyclical turning points. Estimated elasticities vary substantially across countries and asset classes, pointing to heterogeneity in shock transmission within the monetary union. A historical decomposition highlights cross-country differences in recent dynamics, with Germany's weakness reflecting structural and supply-side factors, and Italy's post-2019 recovery also driven by fiscal measures. More broadly, the post-2022 period is characterised by a generalised weakening in investment, consistent with tighter financial conditions and heightened geopolitical uncertainty. |
| Keywords: | investment, euro area, accelerator model, financial conditions, economic uncertainty, cross-country heterogeneity |
| JEL: | D22 E22 E32 F13 F14 F45 G21 O16 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1059_26 |
| By: | Szörfi, Béla |
| Abstract: | Estimates of potential output and the output gap are widely used in monetary, fiscal and structural policy analysis, but they are unobservable and subject to substantial real-time uncertainty. This paper examines revisions to output gap and potential growth estimates produced by the European Commission, the Eurosystem, the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) for the euro area and its member countries. Using annual forecast vintages covering up to 20 euro area countries from 2002 to 2025 and a balanced panel of 11 countries from 2007 to 2025, the paper compares the reliability of estimates across institutions, decomposes output gap revisions into their main sources and estimates the impact of real GDP data revisions and forecast errors on potential growth revisions. The results show sizeable differences across institutions: European Commission estimates revise least in the balanced country sample, OECD estimates revise most, and Eurosystem estimates have become markedly more stable over the past decade. Output gap revisions are driven mainly by revisions to real GDP data and potential growth, while nowcast errors play a smaller role. Panel regressions show that both real GDP data revisions and medium-term forecast errors are significantly associated with revisions to potential growth, implying that revised or unexpected GDP developments are to some extent absorbed into estimates of potential growth. The findings highlight the uncertainty surrounding real-time output gap estimates and support the use of complementary indicators of economic slack. JEL Classification: E23, E27, E32, C53, C82 |
| Keywords: | data revisions, euro area, forecast errors, output gap, potential growth, potential output, real-time estimation |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbops:2026399 |
| By: | Raffaela Giordano (Bank of Italy); Luigi Infante (Bank of Italy); Andrea Neri (Bank of Italy); Giada Andrea Prete (Bank of Italy); Matteo Spuri (Bank of Italy) |
| Abstract: | In this paper, we investigate the impact of population ageing on household portfolio choices in Italy, France, Germany, and Spain, drawing on HFCS data for the period 2010–2020. The findings indicate that the propensity to hold risky assets follows an inverted U-shaped pattern over the life cycle and is comparatively lower in Italy; this difference cannot be attributed to demographic factors but rather reflects structural determinants. However, when business wealth is incorporated into the definition of risky assets, cross-country disparities are substantially reduced, suggesting that Italian households are not less exposed to risk per se, but instead hold it through alternative asset compositions. |
| Keywords: | household portfolio, life cycle, financial wealth, non-financial wealth, risky assets |
| JEL: | C25 D14 D15 D31 G51 J11 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:opques:qef_1036_26 |
| By: | Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Ukraine’s post-war reconstruction represents one of the largest economic challenges in modern Europe, requiring financial resources that far exceed the country’s domestic capacity. This paper argues that the European Union should not view the reconstruction as a burden but rather as a strategic investment in Europe’s long-term security, competitiveness, and resilience. It assesses the scale of Ukraine’s reconstruction needs, examines lessons from previous post-conflict recovery experiences, and analyses potential benefits for the EU from providing sustained financial support to Ukraine. The paper further evaluates policy instruments needed to mobilise private capital, a key driver of long-term recovery, including enhanced de-risking mechanisms, blended finance, and public-private partnerships. The paper concludes that a successful reconstruction strategy will require sustained grant-based international support, stronger investment risk mitigation, continued institutional reforms in Ukraine, and closer integration with the EU, enabling reconstruction to generate lasting economic and strategic benefits for both Ukraine and Europe. |
| Keywords: | Ukraine, postwar reconstruction, the EU, Austria, the US; Marshall Plan, Croatia, South Korea, defence, economic security, renewable energy, critical minerals, economic integration, spillover effects, FDI, de-risking instruments, blended finance, public-private partnerships |
| JEL: | F15 F21 F34 F35 F51 F59 G20 H56 N10 N40 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:112 |
| By: | Trautmann, Simon; Hellenkamp, Detlef |
| Abstract: | The digital euro is intended to preserve access to public central bank money in an increasingly digital payments landscape while strengthening European payments sovereignty. Its potential success, however, will not depend on institutional legitimacy alone. The decisive question is whether it can offer consumers a discernible advantage over established payment instruments and be embedded in a viable intermediated model. This working paper therefore examines the design requirements under which a digital euro could generate tangible everyday utility while preserving the intermediation role of commercial banks. Methodologically, the analysis draws on recent primary sources issued by European institutions and central banks, relevant academic literature and selected international CBDC case studies. The findings indicate that user-friendliness, privacy, online and offline functionality, a sufficiently broad acceptance network and robust integration into existing payment infrastructures are particularly important. At the same time, the digital euro gives rise to tensions between attractiveness and financial stability, privacy and regulatory traceability, and public infrastructure and private-sector innovation. Holding limits, waterfall and reverse-waterfall mechanisms, and an appropriately calibrated remuneration model may help to mitigate these tensions. The digital euro can therefore contribute to European payments sovereignty, provided that it is designed as a user-oriented public infrastructure and underpinned by the functional and economically viable involvement of commercial banks. |
| Keywords: | Digital euro, Retail central bank digital currency (CBDC), European payments sovereignty, Consumer adoption, Bank intermediation, Payment systems, Financial stability, Offline payments |
| JEL: | E42 E58 G21 G28 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:343664 |
| By: | Rodríguez-Pose, Andrés; Dijkstra, Lewis |
| Abstract: | The European Union (EU) confronts a widening productivity gap with the United States (US) and China. Informed by the Draghi Report (2024), the emerging response is a bold but narrow one, dominated by massive investment in the technologies and sectors where Europe most conspicuously lags. This article argues that pursuing parity in areas where Europe shows considerable weakness is the wrong race. The surer path runs through Europe's existing strengths —its pharmaceutical hubs, aerospace clusters, machine-tool districts and chemical bases, among others— used not as a pretext for standing still but as a springboard for reinvention. This implies mobilising the potential of every European territory by climbing the complexity ladder, absorbing new technologies into living industrial ecosystems, and diversifying into related activities that grow organically out of existing capabilities. A differentiated, place-sensitive strategy built on path dependence, brownfield digitalisation and the deliberate strengthening of European chokepoints in strategic sectors offers a more durable route to competitiveness than chasing after American or Chinese shadows. Europe is not short of talent or invention: the problem lies in institutional barriers to integration, the weakness of its knowledge-to-innovation pipeline, and its chronic inability to help promising start-ups graduate into globally significant firms. Fix those, and the case for territorial myopia collapses. For if Europe is bound to struggle at imitation, it might as well succeed at being itself and, on its own terms, lead. |
| Keywords: | competitiveness;economic chokepoints;economic geography;Europe;industrial policy;place-sensitive strategies;regional inequality;related diversification;scale-up |
| JEL: | R11 O33 R58 F52 |
| Date: | 2026–09–07 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:141003 |