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on European Economics |
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Issue of 2025–06–30
twenty-two papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Olesya V. Grishchenko; Franck Moraux; Olga Pakulyak |
| Abstract: | We analyze evolution of inflation expectations in the euro area (EA) using a novel measure of inflation expectations implied by the French nominal and inflation-indexed bonds. Overall, we find that EA inflation expectations have been relatively well anchored in the 2004 -- 2019 sample but have been somewhat sensitive to the incoming macroeconomic news and monetary policy shocks in the sample that includes the COVID-19 pandemic. Our results are robust with respect to the use of different inflation-indexed securities data, such as the EA inflation-linked swaps. |
| Keywords: | Obligations Assimilables du Trésor; OAT; French inflation-indexed bonds; Nominal- indexed bond spreads; Inflation swaps; Inflation expectations; Macroeconomic news; Monetary policy shocks; Euro area; Inflation anchoring; Stability |
| JEL: | D84 E31 E37 E52 E58 |
| Date: | 2025–06–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-41 |
| By: | Juvonen, Petteri; Nelimarkka, Jaakko; Obstbaum, Meri; Vilmi, Lauri |
| Abstract: | We study recent inflation and labour market dynamics in the euro area within a general equilibrium framework. Rapid inflation was mainly caused by demand and supply shocks, but labor market-specific shocks also contributed to the surge in inflation. Our results underscore the significance of import price shocks in explaining the recent interactions between wages and prices. The observed exceptional labour market tightness has also been influenced by a decline in hours worked per person, alongside more commonly studied demand and supply shocks. |
| Keywords: | euro area, labour market shocks, inflation, labour market tightness |
| JEL: | E31 E32 E37 F41 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofecr:319705 |
| By: | Orphanides, Athanasios |
| Abstract: | The ECB can fulfil its mandate better and contribute to a stronger Europe by adopting sensible rules instead of relying on discretionary decision-making. A simple rule for the policy rate can promote systematic monetary policy and protect against significant policy errors. Ending the reliance on credit rating agencies for determining the collateral eligibility of government debt can improve the functioning of government bond markets and lower financing costs for governments. With sensible rules, the ECB can secure price stability and avoid unwarranted fragility in government bond markets. Alleviating fiscal stress can free fiscal resources for public investment aimed at boosting productivity, greening the economy and strengthening European defense. Within its mandate, the ECB can serve Europe better than in the past. |
| Keywords: | ECB, policy rules, forward guidance, fiscal stress, collateral framework |
| JEL: | E52 E58 E61 H63 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:319651 |
| By: | Pardy, Martina; Rodríguez-Pose, Andrés |
| Abstract: | This paper analyses how trade influences intra‐regional income inequality across Europe's NUTS‐2 regions. Drawing on newly compiled datasets capturing both inter‐regional trade and local‐level inequality for all EU member states plus the UK, we employ an econometric framework—complete with Instrumental Variable estimations and robust sensitivity analyses—to gauge the impact of trade on regional interpersonal inequality. In addition to examining aggregate trade, we distinguish between various trade channels, including exchanges within the EU versus those with the rest of the world, links to neighbouring regions versus non‐neighbours and domestic versus international flows. Our findings reveal that higher levels of trade are positively associated with changes in regional income inequality, as measured by the Gini coefficient. Crucially, this link depends on trading partners: trade within a single country, within the EU and with non‐neighbouring regions correlates with rising inequality, whereas international trade, trade with non‐EU partners or trade with neighbouring regions shows no statistically significant effect. These conclusions withstand a battery of robustness checks, including new control variables and a population‐weighted approach, further underscoring the role that particular types of trade play in shaping regional income disparities. |
| Keywords: | trade; interpersonal inequality; regions; Europe |
| JEL: | D63 F14 R13 |
| Date: | 2025–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128063 |
| By: | Lou, H. K.; Pollitt, M. G.; Robinson, R.; Arcos, A. V. |
| Abstract: | European wholesale power prices increased to an unprecedented level during the energy crisis in 2022. To tackle the adverse impact on consumers, Spain and Portugal implemented the Iberian Exception (IE) in June 2022, intending to decouple power prices from the rest of Europe to reduce consumer energy bills. The IE posed challenges and questions, including the impact of foreign demand for Spanish electricity, whether the policy would subsidise French power prices, and whether it would reduce energy bills for consumers. Given that this was a policy implemented in the middle of a continental gas supply crisis, we focus on the direct impact of the policy on gas demand in Spain and in Europe. This is interesting because other aspects of the IE – such as reducing consumer bills - could have been, and in other countries were, addressed by other policies. The ‘exception’ was allowed by the European Commission (on behalf of the EU27) because it was deemed to be likely to have a limited pan-European impact on electricity prices. By contrast, Spain competes directly with other European countries for LNG supplies on the global gas market and hence large effects in Spain would necessarily spillover to gas prices in the rest of Europe. Our findings suggested that IE successfully lowered the fossil fuel bids with a secondary effect of decoupling the Spanish power markets from France. Decoupled observations increased by +59.2% compared with our reference period. Even the border between Spain and Portugal was decoupled slightly by +0.9%. Daily net outflow to France increased by 2.3 GWh daily. Daily net outflow to Morocco increased 32 times, and outflow to Andorra increased by 25%. The power outflow increased the domestic electricity price by 24.8%, relative to the effect in the absence of interconnection. We also simulated the counterfactual scenario by investigating wholesale electricity prices without the subsidy paid to gas generators. Our demand and supply adjustment scenario shows that the subsidy reduced Iberian electricity day-ahead prices by 35.3%. The model was further used to compare the gas-fired generation between June 2022 and February 2023, when the gas price was above the gas cap. Depending on the scenarios, IE increased the Iberian gas burnt by 19.2%; On the EU level, gas burnt also increased by 1.3%. The total Iberian foreign demand also increased gas for power burnt by +5.47% in Iberia (+0.81% across the EU), relative to the effect in the absence of interconnection. |
| Keywords: | Iberian Exception, Energy Crisis, Gas Price Cap, Electricity Market |
| JEL: | L94 |
| Date: | 2025–05–31 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2535 |
| By: | Christl, Michael; Köppl-Turyna, Monika |
| Abstract: | This paper extends the traditional concept of disposable income by including in-kind transfers for education and health as well as consumption taxes in the analysis. This extended view of tax-benefit systems offers a more comprehensive understanding of redistribution mechanisms within countries and facilitates crosscountry comparisons. As a first step, our analysis identifies households as either net contributors or net beneficiaries based on this extended income concept. Our results show that there is considerable variability in net fiscal contributions across households, influenced by factors such as income level, household composition and age. We find that extending the income concept reduces the number of net contributor households, as the monetary effect of in-kind benefits outweighs the effect of consumption taxes paid. However, the number of net contributor households varies considerably across EU Member States. In a second step, we take a life-cycle perspective and estimate the contribution of each age cohort in each EU Member State. Our results show that individuals contribute very differently over the life cycle across Member States and that these contributions are highly correlated with individuals' retirement decisions. We show that corporatist welfare state regimes in particular tend to have low and even negative life cycle contributions compared to universal welfare state systems and the Baltic insurance systems, with early retirement playing a crucial role in shaping these differences. |
| Keywords: | tax-benefits model, EUROMOD, welfare state, in-kind benefits, indirect taxes, redistribution |
| JEL: | H23 I38 H24 D31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:glodps:1620 |
| By: | Matthias Busse; Ms. Huidan Huidan Lin; Mr. Malhar S Nabar; Jiae Yoo |
| Abstract: | The European Union’s budget—known as the Multiannual Financial Framework (MFF)—has over time been a key tool for enhancing economic efficiency, achieving redistribution, and helping the Union tackle pressing challenges. As the Union navigates an increasingly complex global environment and faces looming structural and demographic changes, it is increasingly evident that decisive EU-level actions will be needed to boost productivity and resilience. The MFF is a critical policy lever that can enable the needed EU-level actions. This paper argues for three key changes to the next MFF (2028-34) to help the budget play this role. First, bottom-up estimates of investment needs suggest that spending on European Public Goods to boost productivity and resilience needs to be increased to at least twice the current level. While this would require an at least 50 percent increase in the budget’s size or about 0.6 percent of EU GNI annually (if spending on programs such as the Cohesion Policy and Common Agricultural Policy is kept unchanged), focusing on activities that maximize positive externalities and reduce costly duplication can generate net positive values for member states. Second, reforms are needed to make the budget more streamlined, responsive to evolving needs, and more effective by incentivizing good performance. Lastly, the financing framework should be strengthened by integrating borrowing as a regular tool, alongside greater own resources to bolster debt service capacity. Increasing own resources by about 0.2 percent of GNI annually to cover peak debt servicing costs along with additional reserves for unexpected challenges would likely provide financial security to support the proposed increase in the budget. A clearer focus on strategic investments and measurable outcomes will reinforce the budget’s positive sum value, helping build support for a more ambitious EU budget. |
| Keywords: | The EU budget; Multiannual Financial Framework; European public goods |
| Date: | 2025–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/114 |
| By: | Bossong, Raphael; Lang, Kai-Olaf; Lippert, Barbara; von Ondarza, Nicolai |
| Abstract: | Germany's international and European policy environment is changing drastically. This necessitates a reorientation of Germany's European policy. The European Union (EU) is becoming increasingly important for Germany as a powerful community of action and should be further developed into an economic and security life insurance policy for Germany and the EU's other member states. In the coalition agreement between the CDU / CSU and the SPD, the new governing parties are claiming a pragmatic leadership role for Germany in European policy. To realise this ambition and advance key policies that are crucial for European self-determination, the new government should provide leadership that is marked by enhanced European policy coordination, grounded in an expanded partnership strategy, and aimed at strengthening the Union's overall capacity to act. |
| Keywords: | Germany's European policy, European Union (EU), policy coordination, partnership strategy, capacity to act, European Parliament (EP), NATO, Multiannual Financial Framework (MFF), migration policy |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:319690 |
| By: | Chiara Castelli (The Vienna Institute for International Economic Studies, wiiw); Ronald B. Davies; Javier Flórez Mendoza (The Vienna Institute for International Economic Studies, wiiw); Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This study examines the interplay between trade policy, in particular non-tariff measures (NTMs), and revealed technological comparative advantage (RTA) at the NUTS 2 level as drivers of foreign direct investment (FDI) over time. Combining data from the Orbis database (Bureau Van Dijk), the NTMs database (WTO I-TIP) and the European Patent Office (EPO PATStat), we construct a comprehensive panel database of European firms owned by foreign-owned EU and non-EU firms. This database includes financial information for both parent companies and their subsidiaries as well as detailed country- and sector-specific trade barriers from the perspective of both the home and host economies. Furthermore, this database allows us to compute tailored RTA variables reflecting firm-specific technological interests proxied by firms’ patent production across technology classes. Using a Poisson pseudo-maximum likelihood (PPML) estimator, our analysis reveals a heterogeneous impact of NTMs and RTAs on FDI investment in the EU regions. Specifically, while increasing the regulatory distance (RD) of technical barriers to trade (TBTs) and sanitary-and-phytosanitary-standard (SPS) measures hampers FDI investment from extra-EU companies, the results on tariffs support the regulatory jumping motive. Furthermore, local technological capabilities significantly support FDI, especially when RTAs reflect the technological interests of the foreign-owned subsidiary, while the effect is reversed when accounting for the innovation portfolio of the parent company. |
| Keywords: | FDI, tariff and non-tariff measures, revealed technological advantage |
| JEL: | F23 O24 O34 R58 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:wii:wpaper:264 |
| By: | Hannah L Winterberg |
| Abstract: | The higher aggregate prevalence of loan over bond funding in Europe is not only driven by the well-documented differences in financial market settings but also strongly shaped by different firm characteristics. The European economy is more fragmented than the U.S. economy, and thus features a different firm distribution in terms of size and collateral availability. I estimate that if all European firms had access to a financial market like the U.S. market, their aggregate bond funding share would remain significantly smaller. This counterfactual suggests a limited potential for European corporate bond markets in the short and medium term. |
| Keywords: | Corporate bond markets; bank reliance; firm size distribution; euro area. |
| Date: | 2025–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/115 |
| By: | Mr. Nathaniel G Arnold; Allan Dizioli; Alexandra Fotiou; Jan-Martin Frie; Ms. Burcu Hacibedel; Tara Iyer; Ms. Huidan Huidan Lin; Mr. Malhar S Nabar; Mr. Hui Tong; Mr. Frederik G Toscani |
| Abstract: | Focusing on a cross-border perspective, this paper identifies four key binding constraints that hinder firms’ ability to innovate and scale up within the EU single market—fragmented regulations, inefficient financial intermediation, limited labor mobility, and fragmented energy market. To address these constraints and facilitate firms’ cross border scale up, investment and innovation, the paper proposes key action areas for deepening the integration of the single market, including lowering regulatory fragmentation, advancing the capital markets union, enhancing labor mobility within the EU, and integrating the EU energy market. Through illustrative scenarios, the paper highlights that a few actionable steps along these dimensions could lead off the process of deeper integration and deliver a meaningful initial payoff by increasing the EU GDP level relative to baseline by around 3 percent over 10 years—a sizable improvement considering that the EU potential growth is projected to be just above 1 percent annually over this horizon. |
| Keywords: | single market; 28th regime; productivity; scale up; capital markets union |
| Date: | 2025–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/113 |
| By: | Boehnert, Lukas (University of Oxford); de Ferra, Sergio (University of Oxford); Mitman, Kurt (Stockholm University); Romei, Federica (University of Oxford) |
| Abstract: | We investigate how the composition of expenditure shapes the transmission of monetary policy in a currency union. European Monetary Union data reveal three facts: (1) higher inequality countries have larger service expenditure shares; (2) monetary policy has a weaker output impact in these high-service-share, high-inequality countries; and (3) monetary policy induces systematic trade flows between high- and low-service-share countries. We develop a New Keynesian model with non-homothetic preferences and heterogeneous sectoral income that rationalizes these facts. Pro-cyclical inequality, driven by wealthier households' greater income exposure to services, buffers poorer households' consumption to contractionary shocks, dampening overall policy transmission. Our findings suggest that accounting for cross-country differences in consumption and income distributions is essential for understanding common monetary policy. |
| Keywords: | currency union, monetary policy, inequality |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17950 |
| By: | Ochsner, Christian; Zuber, Christopher |
| Abstract: | Germany is undergoing a major shift in fiscal policy. In response to recent crises and long-term structural challenges, the federal government has introduced a debt-financed spending package that marks a significant departure from past fiscal orthodoxy. This paper investigates the macroeconomic implications of Germany's new fiscal consensus, focusing on how the composition of spending-investment versus consumption-affects inflation, growth, and debt sustainability. Using structural vector autoregressions, we estimate fiscal multipliers across key expenditure types and apply them in a scenario analysis. We focus on three scenarios in which policy makers focus either on consumption, constrained consumption or investment. Our results show that an investment-oriented strategy, particularly those targeting infrastructure and R&D, yields stronger and more sustained GDP growth with more favorable long-term debt outcomes than consumption-oriented approaches. These findings highlight the importance of fiscal quality over quantity. They suggest that strategic allocation of fiscal resources is essential for achieving long-term economic resilience and fiscal sustainability, offering important lessons for Germany and the broader EU as fiscal rules evolve. |
| Keywords: | fiscal package, debt, output, Germany |
| JEL: | E22 E60 E62 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:svrwwp:319647 |
| By: | Heider, Florian; Krahnen, Jan Pieter; Schlegel, Jonas; Pelizzon, Loriana |
| Abstract: | This study analyseswhy European banks, despite improved cost efficiency, continue to trade at lower valuations than their United States (US) counterparts. The gap stems from limited growth potential due to market fragmentation and underdeveloped capital markets. To close this competitiveness divide, the study calls for accelerating the Savings and Investment Union (SIU), expanding investment banking capacity, and implementing smart banking regulation and supervision that reinforces market discipline while enabling risk-taking within a stable, integrated European financial system. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee. |
| Keywords: | European Banks, Bank Competitiveness, Market Fragmentation, Price to Book Ratio |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewh:319625 |
| By: | Jonas Cekal (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic); Adam Gersl (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | This paper deals with the effectiveness of crisis management measures used by national authorities to tackle a systemic banking crisis. Quarterly panel dataset of 69 countries over the time span 1970 to 2023 was created and a total of 54 crisis periods were examined based on the identification of various sources. The estimation employs two-way fixed effects model in difference-in-differences design to examine the effect of individual policies on the economy as represented by real GDP, house prices and credit. We find a significant effect of bank nationalizations and deposit freezes on the increases of real GDP growth and nominal house prices growth. On the contrary, we were not able to draw any conclusions from the analysis of the remaining measures such as liquidity support, bank recapitalizations or asset purchases. |
| Keywords: | State financial support, Bailout, Economic growth, Financial stability, Systemic banking crisis |
| JEL: | G01 G21 G28 E65 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:fau:wpaper:wp2025_10 |
| By: | Emilio Colombo; Luca Michele Portoghese; Patrizio Tirelli |
| Abstract: | Is the roll-out of (fast)broadband connections a driver of firms' total factor productivity (TFP) growth in the European Union? Does broadband generate convergence or polarisation? In this regard, which firms benefit most from a broadband connection and is the traditional divide between rural and urban deployment areas important? To answer these questions, we estimate the effects of broadband coverage shocks on individual firms' TFP growth, exploiting broad firm-level coverage from the ORBIS dataset and a relatively long time span (2011–2022) over which broadband shocks are observed. Broadband shocks permanently raise firms' TFP, but their effect is uneven: fast-growth firms improve their relative position. They are more beneficial for the TFP of firms in non-digital sectors, supporting the view that internet connectivity is a general-purpose technology. Firms in urban areas are also better equipped to benefit from increased broadband connectivity. TFP responses to fast-broadband shocks are almost muted. |
| JEL: | L25 D24 L9 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:dis:wpaper:dis2504 |
| By: | William Chandler; Alastair Thomas; Frederic Tremblay |
| Abstract: | The value-added tax (VAT) has proved to be a highly effective tool at raising revenue in developed and developing countries alike. However, the effective operation of the VAT breaks down in the presence of exemptions. Unlike zero rates, exemptions deny input tax credits, thereby increasing production costs and resulting in VAT being embedded within the prices of goods and services. This paper develops a VAT model based on input-output table and household budget survey data for 29 European countries to examine the effects of VAT exemptions on final prices and to assess the merits of their use. Simulation results show that exemptions suffer from the same targeting problems as reduced VAT rates, but, in addition, they are non-transparent and have unpredictable and counterproductive indirect effects. These effects are in addition to the well-known distortionary impact of exemptions on production decisions, and their creation of incentives to self-supply. The paper concludes that the use of exemptions should be limited to addressing pragmatic concerns, such as the disproportionate compliance costs of small businesses and the practical difficulty in taxing margin-based financial services. |
| Date: | 2025–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11120 |
| By: | Jan Kakes; Tom Hudepohl; Casper de Haes |
| Abstract: | We estimate to what extent the Eurosystem’s Corporate Sector Purchase Programme (CSPP) impacted the price of securities that were actually bought, or their close substitutes, more than the price of other securities. For own bond purchases we do not find significant local supply effects, which is in line with the Eurosystem’s market neutrality principle of asset purchases. We do, however, find significant local supply effects caused by the purchases of substitute bonds defined by similar maturities; we estimate that these effects reduce bond yields by about 40-45 basis points. Such local supply effects are more pronounced for bonds that were eligible under the CSPP than for non-eligible bonds, for bonds that have been issued more than a year ago and for bonds with relatively low credit ratings. |
| Keywords: | monetary policy; quantitative easing; preferred habitat; |
| JEL: | C26 E43 E52 E58 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:dnb:dnbwpp:837 |
| By: | Berlemann, Michael; Hinze, Jörg |
| Abstract: | Die deutsche Wirtschaft ist im ersten Quartal dieses Jahres überraschend deutlich gewachsen, um 0, 4 %. Da einige Sondereffekte diese Entwicklung begünstigten, dürfte das zweite Quartal eher schwächer ausfallen. Inzwischen ist eine neue Regierung im Amt. Die Union hatte umfassende Wirtschaftsreformen angekündigt. Es bleibt aber abzuwarten, inwieweit in der Koalition mit der SPD angesichts teils unterschiedlicher wirtschaftspolitischer Vorstellungen die erforderlichen Maßnahmen zur Verbesserung der Standortbedingungen umgesetzt werden können. Bei klaren Reformbeschlüssen dürfte die bisherige Zurückhaltung insbesondere bei Investoren schwinden. Die neue Koalitionsregierung hat zudem schon vor Amtsantritt die Verschuldungsmöglichkeiten für die Bereiche Infrastruktur und Verteidigung stark erweitert. Dies wird künftig für Konjunkturimpulse sorgen. Kurzfristig gibt es aber auch noch dämpfende Einflüsse. Zu den geopolitischen Unsicherheiten kommt die unberechenbare Handelspolitik der neuen US-Administration hinzu; auch auf deutsche Exporte in die USA wurden Zölle erhöht bzw. eingeführt, weitere drohen. Das mindert die für den weiteren Jahresverlauf erwartete Wiederbelebung der Wirtschaft. Das HWWI rechnet für 2025 im Jahresdurchschnitt, nicht zuletzt wegen des negativen Überhangs aus dem Jahr 2024, mit einem Zuwachs des realen Bruttoinlandsprodukts um 0, 2 %. Unter der Annahme, dass die neue Regierung rasch wichtige wirtschaftliche Reformen umsetzt, zusätzliche Ausgaben in Infrastruktur und Verteidigung anlaufen sowie weiterer Lockerung der Geldpolitik ist für 2026 ein Wirtschaftswachstum von 1 ½ % möglich. Die Inflationsrate für die Verbraucherpreise hat im April und Mai mit 2, 1 % fast wieder die Stabilitätsmarke von 2 % erreicht. Die deutlich gestiegenen Arbeitskosten halten die sogenannte Kernrate - zuletzt rund 2 ¾ % - jedoch noch höher. Im weiteren Verlauf dürfte aber mit moderateren Lohnabschlüssen der Inflationsdruck weiter nachlassen und sich die Inflationsrate bei 2 % stabilisieren. Nicht nur wegen der geopolitischen Unsicherheiten und der erratischen US-Zollpolitik bleiben die Risiken für diese Prognose hoch. Die von der neuen Regierung erwartete wirtschaftspolitische Wende steht noch an und je weniger konsequent Reformen zur Verbesserung der Standortbedingungen durchgeführt werden, desto beschränkter sind die Wachstumschancen. |
| Abstract: | The German economy grew surprisingly significantly in the first quarter of this year, by 0.4%. As some one-off effects favoured this development, the second quarter is likely to be weaker. In the meantime, a new government is in office. The Union had announced comprehensive economic reforms. However, it remains to be seen to what extent the necessary measures to improve the location conditions can be implemented in the coalition with the SPD in view of partly different economic policy ideas. With clear reform decisions, the previous reluctance, especially among investors, is likely to dwindle. The new coalition government has also greatly expanded the debt possibilities for the infrastructure and defense sectors even before taking office. This will provide economic stimulus in the future. In the short term, however, there are still dampening influences. In addition to the geopolitical uncertainties, there is the unpredictable trade policy of the new US administration; tariffs have also been increased or introduced on German exports to the USA, and there is a threat of more. This reduces the economic revival expected for the rest of the year. For 2025, the HWWI expects real gross domestic product to grow by 0.2% on an annual average, not least because of the negative overhang from 2024. Assuming that the new government quickly implements important economic reforms, starts additional spending on infrastructure and defense, and further monetary easing, economic growth of 1 1/2% is possible for 2026. At 2.1%, the consumer price inflation rate almost reached the stability mark of 2% again in April and May. However, the significant increase in labour costs keeps the so-called core rate - most recently around 2 3/4% - even higher. In the further course, however, inflationary pressures are likely to ease further with more moderate wage settlements and the inflation rate should stabilise at 2%. It is not only because of the geopolitical uncertainties and the erratic US tariff policy that the risks for this forecast remain high. The economic policy turnaround expected by the new government is still pending, and the less consistently reforms are carried out to improve location conditions, the more limited the growth opportunities. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:hwwifo:319610 |
| By: | Benmir, Ghassane; Roman, Josselin; Taschini, Luca |
| Abstract: | Using a two-sector structural model, we identify abatement, energy prices, transition demand for permits, and regulatory supply shocks as the key drivers of permit prices in the third phase of the EU Emission Trading System (ETS). Through an innovative approach, we estimate unobservable abatement shocks and quantify the contribution of each factor to carbon price variability, which we find t o b e approximately eighty times greater than it would be under an optimal carbon pricing scenario aligned with the social cost of carbon. To address this, we propose the Carbon Cap Rule (CCR) – a rule-based cap adjustment mechanism that dynamically responds to deviations in emissions and abatement costs. The CCR reduces volatility by 55% compared to the current EU ETS cap, and cuts welfare losses in consumption equivalence terms by 40%. |
| Keywords: | EU ETS; contingent permit allocation; social cost of carbon; Bayesian estimation; carbon central bank |
| JEL: | Q58 G12 E32 |
| Date: | 2025–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:128515 |
| By: | Mr. Zamid Aligishiev; Mr. Robert Blotevogel |
| Abstract: | Greece has coped with large current account deficits and negative net foreign assets for a long time. Now, the country has an opportunity to address this vulnerability through the European Union’s Recovery and Resilience Facility (RRF) and its associated Recovery and Resilience Plan (RRP). The plan involves large public investments and reforms, aimed at boosting Greece’s long-term potential. The crucial question is: can this ambitious plan fix Greece's external imbalances over the long run? Using a small open-economy model, we track how the RRP may affect savings, investment, and external balances. We find that: (i) a successful RRP/RRF can correct most of Greece’s external imbalances, through a large increase in public savings; (ii) the RRP/RRF is no magic bullet, as prudent macroeconomic policies will remain necessary to lock-in the positive effects over the long run. |
| Keywords: | Greece; external position; national savings and investment; Recovery and Resilience Facility; fiscal policy; macroprudential policies |
| Date: | 2025–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/110 |
| By: | Céline Antonin (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po) |
| Abstract: | En 2024, le produit intérieur brut a reculé de 0, 2 % par rapport à l'année précédente; fin 2024, il se situait à peine au-dessus de la moyenne de 2019 (tableau 13.2.). Cette piètre performance s'explique par trois facteurs : une faible consommation privée malgré le dynamisme du revenu disponible réel ; la baisse de production de l'industrie manufacturière, notamment liée à la perte de compétitivité-prix ; la crise dans le secteur de la construction avec une perte d'un cinquième de la valeur ajoutée entre le quatrième trimestre 2019 et le quatrième trimestre 2024. [Premier paragraphe] |
| Keywords: | Allemagne, investissement public, croissance, PIB |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05088840 |