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on European Economics |
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Issue of 2026–02–23
fifteen papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Bouillot, Roland (Maastricht University); Candelon, Bertrand (Université catholique de Louvain, LIDAM/LFIN, Belgium); Kool, Clemens (Maastricht University) |
| Abstract: | Accurate forecasting constitutes a central objective for policymakers. This paper examines the application of advanced machine-learning techniques to predict the 10-year sovereign bond spreads vis-à-vis the German bund, employing a novel high-dimensional dataset covering 10 European countries over the period 2007−2025. An exhaustive comparison of predictive performance, both in-sample and out-of-sample, demonstrates that XGBoost delivers the highest degree of accuracy. Building on these forecasts, we construct fragmentation matrices that capture the extent of asymmetry across Euro area sovereign bond markets. Prior to the COVID-19 crisis, results confirm the well-documented clustering between core and peripheral countries. However, since 2021 this segmentation appears to have weakened, as French and Belgian spreads exhibit a synchronous trajectory. Thesefindingscontribute totheliterature on financialintegrationand fragmentation within the Euro area, offering new insights into the evolving dynamics of sovereign bond markets. |
| Keywords: | Machine learning ; Financial fragmentation risk ; XGBoost ; Sovereign spreads |
| Date: | 2025–11–30 |
| URL: | https://d.repec.org/n?u=RePEc:ajf:louvlf:2025004 |
| By: | Alix Berthélemé; Aude Chassaing; Florian Le Gallo |
| Abstract: | After joining the European Union in 2007, Bulgaria will adopt the euro on 1 January 2026 and become the 21st member of the euro area. Bulgaria’s entry was enabled by its compliance with the convergence criteria and its accession will strengthen its economic integration with its euro area partners. However, it still has institutional and structural challenges to face if it is to accelerate its economic catch-up. <p> Après avoir rejoint l’Union européenne en 2007, la Bulgarie adoptera l’euro le 1er janvier 2026, devenant ainsi le 21e membre de la zone euro. Permise par le respect des critères de convergence, cette entrée renforcera l’intégration économique de la Bulgarie avec ses partenaires de la zone euro. Des défis institutionnels et structurels demeurent pour accélérer son rattrapage économique. |
| Date: | 2025–12–29 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:425 |
| By: | Bothner, Jonathan; Lopez-Garcia, Paloma; Momferatou, Daphne; Setzer, Ralph |
| Abstract: | This paper investigates the relationship between institutional and regulatory quality, and high-tech sector investment. Using data from 25 European Union (EU) countries from 2004 to 2019 (extended to 2023 for artificial intelligence-specific analyses), the study examines how institutional governance, labour market regulations, and business regulations influence investments in innovative, high-tech, and artificial intelligence-intensive sectors. The findings reveal that better institutional quality and less burdensome regulations are associated with higher investment shares in innovative, high-tech, and artificial intelligence industries. Raising EU countries’ institutional and regulatory quality to the level of the current EU frontier could raise the share of investment in high-technology sectors by as much as 50%, hence notably narrowing the existent EU-US investment gap. These results highlight the importance of effective governance and efficient regulations in fostering investment, innovation, and therefore long-term productivity growth. JEL Classification: C23, E02, L51, O38 |
| Keywords: | artificial intelligence, innovation, institutional quality, investment, regulatory frameworks, risky technology |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263185 |
| By: | Rodríguez-Pose, Andrés |
| Abstract: | The European Union Cohesion Policy – the flagship EU investment programme – has since its 1989 reform invested over a trillion euros to promote development across Europe. Over the decades, this policy has helped transform economies, create jobs and reduce disparities. Yet it faces a crisis of identity and legitimacy. Once promoted as a bold development investment in Europe’s future, it has increasingly been reframed in political narratives as a form of support, solidarity or even as a compensation or subsidy for the ‘losers’ of integration. This mis-selling of Cohesion Policy has eroded its public image and political support, just as new challenges – from competitiveness and trade to security – have put its future at stake in EU budget negotiations. This article delves into the narrative of EU Cohesion Policy since 1989 and examines how it shifted from ‘development investment’ to ‘losers’ compensation’. It argues that this reframing has undermined the policy’s relevance and credibility and contributed to its frail position in the current budget negotiations for the post-2027 period. A return to a development-focussed narrative to re-sell the policy is urgently needed. |
| Keywords: | cohesion policy; regional development; EU budget; economic convergence; solidarity; European integration; structural funds; regional disparaties |
| JEL: | R58 O52 H77 |
| Date: | 2026–02–02 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:137180 |
| By: | Eduardo Gutiérrez; Alari Paulus; Alex Grimaud; Daniel Enderle; Erwan Gautier; Cristina Conflitti; Ludmila Fadejeva; Valentin Jouvanceau; Jean-Oliver Menz; Pavlo Petroulas |
| Abstract: | We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010–2019, roughly a four- percentage-point increase; it then fell quickly in 2023 and more slowly in 2024, ending close to its pre-pandemic level. The decline in the frequency of price changes was faster for food and non- energy industrial goods (NEIG) than for services, where frequencies remained elevated in 2024. The overall frequency rose mainly because there were more price increases, while the magnitude of the average size of the price increases or decreases changed only marginally during the surge. Products with a larger imported-energy cost share responded more strongly, and hazard-rate evidence shows that the probability of price adjustments increases with the gap between actual and optimal prices, consistent with state-dependent pricing and a steepening of the Phillips curve. To illustrate the implications of this state dependence, a macro model suggests that peak inflation would have been almost 1 percentage point lower if the frequency had not responded to the inflation surge. |
| Keywords: | euro area, inflation surge, micro price data, price rigidities |
| JEL: | E31 E52 F33 L11 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1559 |
| By: | Camille Jehle; Florian Le Gallo |
| Abstract: | Using automated text analysis methods, we show that coverage of European issues by the French press has remained limited and stable over the past two decades, peaking mainly during European election periods. Unlike the national press, the local press is more interested in concrete EU initiatives, which are generally presented in a positive light. <p> À l’aide de méthodes d’analyse automatisée des textes, nous montrons que la couverture des questions européennes par la presse française est restée limitée et stable sur les deux dernières décennies, avec surtout des pics lors des élections européennes. Contrairement à la presse nationale, la presse locale s’intéresse davantage aux initiatives concrètes de l’UE, généralement présentées positivement. |
| Date: | 2026–01–28 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:econot:429 |
| By: | Hansen, Olle |
| Abstract: | The European Union (EU) emerged as a product and beneficiary of the Liberal International Order (LIO). Yet, as this order disintegrates, marked by multipolarity, thin multilateralism, and the return of power politics, the EU has taken unprecedented integrative steps, including joint debt issuance and development of industrial policy. Therefore, this paper asks how the shifting world order changes the logic of EU integration. Using a comparative discourse analysis of the EU's 2003 European Security Strategy, 2016 Global Strategy, and 2022 Strategic Compass, it traces how the logic of integration has shifted from being market-driven to being sovereignty-centred. The findings show that the order structure present during the EU's market-driven integration is no longer stable, prompting it to turn towards sovereignty-centred integration to respond to the disintegrating LIO. In doing so, this paper bridges mainstream integration theory with order theory, showing that not just internal dynamics but also order structure need to be accounted for to understand the logic of integration. |
| Keywords: | European integration, Liberal International Order, Sovereignty, Geopoliticization, Bellicism |
| JEL: | F5 O52 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ipewps:336779 |
| By: | Raza, Werner; Maukner, Julian |
| Abstract: | Competitiveness has returned to the fore of European economic policymaking with a vengeance. In this paper, we scrutinize the recent debate on the need for promoting European competitiveness, as prominently diagnosed by the Draghi Report. By disaggregating the overall academic and policy-oriented debate on competitiveness into three distinct conceptual strands - market share-focused competitiveness, productivity-focused competitiveness, and beyond-GDP competitiveness - we conduct a descriptive statistical analysis of competitiveness indicators for both the European Union and the United States. Though our analysis concurs with the Draghi Report by identifying an innovation gap in high-tech services and with respect to energy, by and large the state of EU competitiveness does not appear as bleak as insinuated by the recent public discourse. Based on a highly selective reading of the Draghi Report, the focus of current EU competitiveness policies on across-the-board deregulation will not only contribute little to address the identified problem areas, but risk to become self-defeating as they tend to exacerbate reliance upon an increasingly outdated export-oriented growth model of the EU, given pervasive protectionist tendencies in the global economy. We conclude that a more targeted approach to tackle both the innovation gap and energy dependencies is needed, which should be based on an expansionary public investment agenda and mission-oriented industrial polices. |
| Keywords: | competitiveness, Draghi-Report, innovation, European Union, geopolitics |
| JEL: | F6 O3 O4 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:oefsew:336801 |
| By: | Frayman, David |
| Abstract: | We examine the impact of a major lending programme of the European Investment Bank (EIB) on firm investment. Using a difference-in-differences design applied to a unique dataset of loan recipients, we find that EIB loans led to substantial additional growth in recipients’ fixed assets. This provides the first causal evidence on the additionality of large state investment bank loans made directly to firms. The findings highlight the potential for strategic public lending to advance policy agendas for sustainable economic growth. |
| Keywords: | state investment banks; European Investment Bank (EIB); financial constraints; difference-in-differences |
| JEL: | H81 G28 |
| Date: | 2026–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:130858 |
| By: | Kässi, Otto; Wang, Maria |
| Abstract: | Abstract This policy brief analyses the level and structure of business support measures related to the green transition in Finland in a European comparative perspective. Finland ranks among the EU countries with the highest level of green transition support when business subsidies are measured relative to GDP. However, a high level of support alone does not indicate the steering or incentive effects of subsidy policy. A comparison with other EU countries shows that Finland’s support system places greater emphasis on cost-compensating instruments, whereas in many large member states support is more directly targeted at investment projects and technological transformation. The available empirical evidence does not so far indicate that the main Finnish support instruments have had significant effects on firms’ investment activity, productivity growth, or long-term competitiveness, despite their substantial fiscal cost. At the same time, assessing the overall impact of the support system is complicated by the fact that subsidies are concentrated on large and financially strong firms, for which suitable comparison groups are difficult to identify. The policy brief highlights that the central challenge of green transition support policy lies in the structure of support measures and in evaluating their effectiveness, rather than in the overall level of support. |
| Keywords: | Green Transition Subsidies, State Subsidies, Environmental Policy Funding, Industrial Policy |
| JEL: | H23 H25 H81 Q58 O38 |
| Date: | 2026–02–09 |
| URL: | https://d.repec.org/n?u=RePEc:rif:briefs:174 |
| By: | Heidorn, Thomas; Klaus, Juergen; Mazzalupi, Riccardo |
| Abstract: | The relationship between Credit Default Swaps (CDS) and cash bonds plays a pivotal role in providing market participants with important information which directly affects investment and risk management strategies. Particularly relevant is the CDS-Bond basis, defined as the difference in basis points (bps) between CDS and the reference entity bond spread. Understanding the drivers behind CDS-Bond basis behavior enables more informed decisionmaking that reflects underlying credit market dynamics. This working paper analyzes the CDSBond basis in the European market, focusing on the constituents of the Markit iTraxx Europe index between March 2020 until March 2025. The analysis addresses basis behavior at the aggregate index level and across sectors. At an index level a mean reverting pattern has been identified with a negative basis average over the sample observed. In the sectorial analysis a strong heterogeneity emerges, with Autos featuring a more positive basis compared to Financials in a deeply negative basis territory affected by Credit Suisse shock. Finally, practitioner insights are integrated to contextualize these findings, emphasizing liquidity asymmetries, execution constraints, and differences in information absorption between CDS and cash bond markets offering actionable insights for credit market partecipants, and laying a solid foundation for further research. |
| Keywords: | CDS-Bond basis, Sectorial CDS basis, credit spread, iTraxx Europe basis |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:fsfmwp:336793 |
| By: | Picazo-Tadeo, Andrés, J. (Department of Applied Economics II, University of Valencia (Spain)); Melguizo, Celia (Department of Applied Economics II, University of Valencia (Spain)); Peiró-Palomino, Jesús (Department of Applied Economics II, University of Valencia (Spain)) |
| Abstract: | A key objective of the green transition is to minimise the environmental impact of human activity while ensuring sustained economic progress. Efficiently allocating policy resources requires accurately measuring this intricate relationship. Eco-efficiency indicators are useful tools for this purpose, offering valuable insights to policymakers by assessing territories’ potential to minimise environmental impact while maintaining economic performance. This research calculates eco-efficiency scores in terms of greenhouse gas emissions, a major cause of global warming, for European Union regions in 2023. The results reveal significant disparities between and within countries. Generally, the Nordic and Western regions rank among the best performers, whereas the Central and Eastern European regions are mostly among the weakest performers. In a second stage, the paper addresses the study of the determinants of regional eco-efficiency. Relevant factors fostering performance include economic development, government quality, and social capital. Conversely, large industrial sectors hinder progress towards the green transition. These results emphasise the need for place-based policy interventions that prioritise technological upgrading, industrial diversification and innovation to foster emission reductions that are compatible with sustained economic growth. Moreover, reinforcing governance quality, institutional effectiveness and social capital can enhance policy implementation and sustain long-term eco-efficiency improvements. |
| Keywords: | Eco-efficiency; European Green Deal; European Union; Greenhouse gases emissions; Green transition; regions |
| JEL: | C61 D62 Q54 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:eec:wpaper:2602 |
| By: | Cimadomo, Jacopo; Giannone, Domenico; Lenza, Michele; Monti, Francesca; Sokol, Andrej |
| Abstract: | We design a Bayesian Mixed-Frequency vector autoregression (VAR) model for fiscal monitoring, i.e., to nowcast the government deficit-to-GDP ratio in real time and provide a narrative for its dynamics. The model incorporates both monthly cash and quarterly accrual fiscal indicators, together with other high-frequency macroeconomic and financial variables, as well as real GDP and the GDP deflator. Our model produces timely monthly density nowcasts of the annual deficit ratio, while governments and official institutions generally only publish their point predictions bi-annually. Based on a database of real-time vintages of macroeconomic, financial and fiscal variables for Italy, we show that the nowcasts of the annual deficit to GDP ratio of our model are similarly or more accurate than those of the European Commission, depending on the month in which the nowcast is produced. Our scenario analysis compares the dynamics of the deficit ratio associated with a monetary and a typical recession, finding a more muted response in the latter case. JEL Classification: C11, E52, E62, E63, H68 |
| Keywords: | cash data, government deficit, mixed-frequency, monetary-fiscal interactions, monetary policy shock, nowcasting |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263186 |
| By: | Astarita, Caterina; Alcidi, Cinzia |
| Abstract: | This paper employs Phillips and Sul’s (2007, 2009) nonlinear dynamic factor model to discern patterns of EU-27 regional convergence in the standard of living as measured by GDP per capita, poverty and income inequality. It finds that the hypothesis of overall income convergence is rejected at the regional level, whereas that of club convergence is supported. The number and the composition of clubs are significantly influenced by the period considered and the length of the time series. The club convergence analysis of GDP per capita from 2000 to 2023 reveals three clubs, with the largest club comprising regions with a medium level of GDP per capita. After 2007, the clubs' transition paths show a moderate diverging trend: the clubs systematically above (below) the cross-country mean diverge upward (downward) from the mean. Capital regions and metropolitan areas are generally concentrated in the highest club, suggesting a tendency towards polarisation following the urban-rural divide. The likelihood of being part of the high-income club is positively correlated with the share of manufacturing and high-end/high-skill services. By contrast, a large share of the low-skill service sector negatively affects such a likelihood. Additionally, digital transformation, globalisation and migration are all associated with a higher probability of being in the high-income club. Similar to GDP per capita, the hypothesis of overall convergence in income poverty and inequality is rejected, whereas club convergence is confirmed. For both indicators, a higher number of clubs than for income is identified. The transition paths of the two largest clubs—which cover the majority of EU regions—remain relatively stable and close to the mean; however, smaller clubs show strong separating dynamics, either towards higher or lower levels of poverty and inequality. Better labour market and educational outcomes are associated with a greater probability of being in low-poverty and low-inequality clubs and appear better predictors of membership in low-poverty and low-inequality clubs than globalisation and migration. Overall, the paper suggests that the process of EU convergence has not stopped; however, regional dynamics are heterogeneous. |
| Keywords: | Club convergence, Dynamic factor model, EU integration, Income, NUTS 2 regions, Inequality, Poverty |
| JEL: | C21 I32 O47 R11 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:126984 |
| By: | Sultan, Samina |
| Abstract: | Die Bedeutung des globalen Dienstleistungshandels hat in den letzten Jahren stark zugenommen. So erreichte der Dienstleistungsexport gemessen an den weltweiten Gesamtexporten im Jahr 2023 einen Anteil von über 27 Prozent, in der EU gar von rund 33 Prozent. Gegenüber 2010 ist das global gesehen eine Steigerung um 6 Prozentpunkte, für die EU gar um rund 8 Prozentpunkte. In Deutschland war der Anteil des Dienstleistungsexports mit rund 24 Prozent noch etwas geringer, was auch eine Folge des starken Industriesektors hierzulande ist. Doch selbst in Deutschland ist der Anteil der Dienstleistungen am Gesamtexport seit 2010 um 7 Prozentpunkte gestiegen. Die Relevanz des Dienstleistungshandels nimmt auch deshalb zu, weil dessen Wachstumsdynamik, anders als im Warenhandel, hoch bleibt. So ist der Weltdienstleistungsexport in den letzten zehn Jahren nominal um 60 Prozent gewachsen, während der Warenexport in derselben Zeit weniger als halb so viel zugenommen hat. Vor allem in den letzten drei Jahren seit der Coronapandemie ist der globale Dienstleistungsexport weiter kräftig gewachsen, während der Warenexport nur moderat zugelegt hat oder sogar rückläufig war. In der EU hat sich der Dienstleistungsexport zwischen 2005 und 2023 fast verdreifacht, in Deutschland ist er um das Zweieinhalbfache gestiegen. Der Dienstleistungshandel dürfte auch in den kommenden Jahren weiterhin deutlich stärker zulegen als der Warenhandel. Auch weil der zunehmende Protektionismus sowie die anhaltende Schwäche der deutschen Industrie, etwa aufgrund hoher Energie- und Bürokratiekosten, den Warenhandel stärker eintrübt als den Handel mit Dienstleistungen. Bislang gibt es jedoch wenig Forschung zum Dienstleistungshandel, was lange Zeit auch am Mangel an international vergleichbaren Daten auf disaggregierter Ebene zum Dienstleistungshandel lag. Hier setzt diese Studie an, indem sie den neuen Datensatz der OECD-WTO Balanced Trade in Services Datenbank (BaTIS) für den Zeitraum 2005 bis 2023 nutzt, um den globalen und insbesondere den europäischen Dienstleistungshandel zu untersuchen, etwa auf mögliche Stärken aber auch bestehende Abgängigkeiten [...] |
| Abstract: | The significance of global trade in services has increased substantially in recent years. In 2023, exports of services accounted for over 27 percent of total global exports, and even around 33 percent within the EU. Compared to 2010, this represents a global increase of 6 percentage points and an increase of approximately 8 percentage points for the EU. In Germany, the share of service exports was somewhat lower at around 24 percent, which is partly due to the strength of its industrial sector. Nevertheless, even in Germany, the share of services in total exports has risen by 7 percentage points since 2010. The relevance of trade in services is also growing because its growth dynamics remain strong-unlike in goods trade. Over the past ten years, global service exports have grown nominally by 60 percent, while goods exports have increased by less than half that amount. Particularly in the last three years since the COVID-19 pandemic, global service exports have continued to expand robustly, whereas goods exports have grown only moderately or even declined. Within the EU, service exports have nearly tripled between 2005 and 2023, while Germany's have increased by a factor of 2.5. Service trade is expected to continue growing significantly faster than goods trade in the coming years, not least because rising protectionism and the persistent weakness of German industry-due to high energy and regulatory costs-are weighing more heavily on goods trade than on services trade. However, research on trade in services remains limited, largely due to the historical lack of internationally comparable, disaggregated data. This study addresses that gap by using the new OECD-WTO Balanced Trade in Services (BaTIS) database for the period 2005 to 2023 to examine global and, in particular, European trade in services, identifying potential strengths as well as existing vulnerabilities [...] |
| Keywords: | Dienstleistungshandel, Welt, Internationale Wirtschaftsbeziehungen, Internationaler Wettbewerb, Wirtschaftliche Abhängigkeit, EU-Staaten, Deutschland, USA, China |
| JEL: | F10 F14 F15 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwkrep:336749 |