European Economics http://lists.repec.org/mailman/listinfo/nep-eec European Economics 2026-05-18 Trade imbalances, domestic demand and export composition in peripheral and core Eurozone countries, before and after the sovereign debt crisis: An input-output approach https://d.repec.org/n?u=RePEc:ise:remwps:wp04162026&r=&r=eec The great recession of 2008/2009 and the subsequent sovereign debt crisis highlighted the existence of deep structural imbalances in the Eurozone: large differences of competitiveness and growth potential between its northern (core) and southern (peripheral) countries. In this paper, an input-output approach is used to study two important facets of this phenomenon, namely the nexus between current account (trade) imbalances and domestic (final) demand levels, as well as the sectoral specialization of tradable goods and services production. In the uncompetitive (current account deficit) economies of southern euro area, domestic final demand levels before the crisis were excessive and the opposite occurred in the strong, competitive economies of the north. These external imbalances were closely associated with a pattern of specialization favourable to the northern euro area countries (sectors with higher value added and more intensive technological activities). The empirical results of the paper for the period before the crisis, are based on input-output tables for several years: 1995, 2000, 2005 and 2011, available in the World Input Output Database. The northern euro area group is formed by Germany, Netherlands Finland and Ireland. The southern one is the so-called GIPS group (Greece, Italy, Portugal and Spain). After the (Troika) adjustment programs of 2011/2014, the external imbalances were overcome, by a strong demand compression initially and an export led orientation thereafter. This correction is shown for the Portuguese case, using 2013 and 2017 inputoutput tables for this country and a comparison is made with Germany, the reference country of the core Eurozone group. João Carlos Lopes Trade imbalances; Domestic demand; Export composition; Input-output linkages; Eurozone; Portugal. 2026-05 Gas market shocks: tracing the effect on euro area inflation expectations https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263227&r=&r=eec This paper examines the impact of natural gas market shocks on gas market dynamics, inflation expectations and realized inflation in the Euro Area using a BVAR model. Our contribution lies in a novel identification strategy that distinguishes between various types of shocks of unprecedented detail, leverages weekly rather than monthly data, and extends the analysis to both market-based headline and core inflation expectations. We find that, although conceptually distinct, pipeline and liquefied natural gas (LNG) supply shocks have comparable effects on realized variables such as gas prices and actual inflation. By contrast, LNG supply shocks play a more limited role in shaping inflation expectations. Precautionary demand and industrial demand shocks also emerge as important drivers of inflation dynamics. This reflects both the forward-looking nature of precautionary shocks, which capture changes in investor sentiment, and the broader macroeconomic relevance of industrial demand shocks, whose effects extend beyond the gas market. JEL Classification: C50, C54, E44, Q43 Adolfsen, Jakob Feveile Lappe, Marie-Sophie Manu, Ana-Simona Rößler, Denise Schupp, Fabian Stalla-Bourdillon, Arthur demand shocks, gas price, inflation-linked swaps, local projections, supply shocks 2026-05 Advancing AI adoption in EU public administrations: Future directions and opportunities under the Apply AI Strategy https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc143539&r=&r=eec This report examines future pathways for advancing the adoption of artificial intelligence (AI) in public administrations, building on the policy direction outlined in the European Commission’s Apply AI strategy (COM(2025) 723), adopted on 8 October 2025, with the aim of accelerating AI adoption across Europe. Public administrations play, and will continue to play, a strategic role in the European Union’s efforts to foster AI adoption across the EU. The Apply AI strategy recognises the public sector as a key domain for the effective adoption of AI. In this context, public administrations are encouraged to introduce AI strategically into their operations, while carefully assessing its benefits and associated risks. The report contextualises and offers advice on implementing the directives set out in the Apply AI strategy, presenting an AI adoption framework structured around three core activities: anchoring AI adoption in EU policies, regulations and principles; adapting the capabilities of public administrations; and applying AI in high-impact domains where it creates public value, supported by a prior assessment of real-world needs and continuous monitoring of impact and risks. Furthermore, the report provides insights and recommendations for EU Member States and public administrations, outlining a structured and forward-looking approach to leveraging AI for efficient, trustworthy and people-centric public administration. Tangi Luca Rodriguez Müller Paula Schade Sven André Antoine-alexandre Combetto Marco Daoud Melhem 2026-04 Sectoral interconnectedness in the euro area economies: insights from network analysis https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263223&r=&r=eec Using who-to-whom data for the last quarter of 2024, I build networks of financial interconnections in the euro area countries. After representing them in chord diagrams, I consider centrality metrics and find that banks dominate, with four exceptions: Cyprus, Ireland, Luxembourg and Malta. In these countries, other financial institutions and investment funds are at the core, with limited links to domestic sectors and strong ones with the rest of the world. A comparison across countries reveals substantial homogeneity between networks in the sixteen euro area countries and large differences with Cyprus, Ireland, Luxembourg and Malta. For each country, two communities are identified, one focused on the real economy and including banks, and the second comprising other financial intermediaries and the rest of the world. The consistent mapping of sectoral linkages and the accompanying descriptive analysis can be useful for policymakers and may also serve as platform for further analytical work. JEL Classification: D85, G10, G20, G51 Sánchez Serrano, Antonio centrality, contagion, financial interlinkages, flow of funds 2026-05 Disciplining digital risk: evidence from cyber stress tests https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263222&r=&r=eec Investment in cybersecurity in an interconnected banking system has public-good proper- ties: positive externalities can generate systemic underinvestment. Using confidential supervi- sory data from the European Central Bank, we first identify “laggard” European banks that underinvest relative to their cyber-risk profiles, and then examine how supervisory scrutiny af- fects their incentives to invest. We exploit the 2024 ECB Cyber Resilience Stress Test (CyRST) as a quasi-natural experiment. In a difference-in-differences design, we find that following the CyRST announcement, laggard banks increased cybersecurity investment by about 80% rel- ative to their peers. The response is stronger among laggards subject to high-intensity su- pervisory oversight, consistent with scrutiny exerting a disciplining effect. Overall, the results suggest that targeted supervisory scrutiny may help mitigate underinvestment incentives and strengthen banks’ operational risk management. JEL Classification: G21, G28, G32, L86, K23 Abidi, Nordine Gambacorta, Leonardo Kok, Christoffer Miquel-Flores, Ixart Madio, Leonardo Partida, Alberto bank supervision, cyber risk, IT investment, stress test 2026-05 After the Inflation Shock. Taking Stock of Price and Cost Competitiveness in the EU https://d.repec.org/n?u=RePEc:euf:dispap:240&r=&r=eec This paper aims to assess price and cost competitiveness positions of EU Member States in the wake of the recent inflation shocks. It builds on a Commission note and publication of early 2023, around the time when inflation rates in EU were close to their peaks. As inflation differentials have markedly narrowed since then, this paper takes stock of changes in cost and price competitiveness positions to assess the potential risks. It does so by estimating real exchange rates misalignments. The paper also explores how various drivers of inflation, namely imported inflation, domestic wages and profits, contributed to the heterogenous price dynamics. The paper primarily examines Member States that have recently faced very high inflation, while also considering low-inflation countries, as they have impacted price and cost competitiveness in other countries. To account for high volatility in the past six years, year 2019 is set as a benchmark for all comparisons in this analysis. The main finding is that the strong appreciation of costs and prices in some Member States, particularly in Central and Eastern Europe, has not been matched by productivity growth leading to the deterioration of their competitiveness positions Milan Výškrabka Adrian Bodea 2026-01 The increasing role of services in the EU’s integration into global value chains (GVC) https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc145722&r=&r=eec Over the past decade, the European Union (EU) has deepened its participation in global value chains (GVCs), particularly through services in both backward and forward integration. Intra-EU trade has grown significantly, accounting for 42% of the total backward services index contribution and 64% of the forward services index (a 12.6% increase since 2010), while the US contribution to EU GVCs has declined. The EU-27 now holds a dominant position in the US services export market, contributing 54% of the US forward share, raising concerns about potential trade impacts under new EU-US tariff agreements. Within the EU, Ireland, the Netherlands, and Luxembourg lead backward services integration, while Germany and France dominate forward linkages. Germany, in particular, serves as the most reliable intra-trade partner for other EU member states. Strengthening the EU’s single market is crucial to mitigating global trade instability and sustaining economic resilience Catalan Piera Alba Rueda Cantuche Jose Manuel 2026-04 Virtual Worlds, Real Impact https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc146046&r=&r=eec Virtual worlds are reshaping the boundaries of human interaction and reality and impacting production process and business models. This report provides a comprehensive analysis of the global and European Union (EU) virtual worlds ecosystem, mapping over 88, 000 activities across business, innovation, and research domains led by 68, 000 players, including firms, research institutions, and government organisations. The EU is the global leader in virtual world related research publications. The EU’s strengths in foundational research paired with strategies to accelerate innovation-to-market pipelines could foster cross-sector collaboration and address regional fragmentation. Globally, venture capital funding into virtual worlds reveals stark disparities. The US predictably dominates the landscape with over 9 billion invested in virtual worlds. China ranks second worldwide with more than 5.8 billion invested. While the EU accounts for 16% of the global share of virtual worlds deals, ahead of China (9%) and second to only the US (40%), it comes in fourth behind the UK in terms of the total amount invested. Public funding and cross-border ownership patterns highlight the EU’s growing role as both an investor and recipient of foreign capital. The report identifies significant concentrations of virtual world activities across industrial ecosystems, with Creative Cultural Industries, Tourism, and Retail leading adoption both in the EU and worldwide. However, critical industries like Healthcare, Aerospace & Defence, and Energy-Intensive Industries remain underutilised with opportunities for EU expansion, despite research on their potential impact across these industries. The report also presents the matrix of key enabling technologies like Extended Reality (XR), AI and IoT that comprise global activity in virtual worlds. By leveraging its research capabilities and fostering strategic alliances, the EU can strengthen its global competitiveness to shape the next generation of virtual worlds. Abendroth Dias Kulani Soguero Escuer Jorge De Prato Giuditta 2026-04 The macroeconomic impact of the 28th Regime corporate legal framework https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc146400&r=&r=eec The 28th Regime introduces a harmonised EU-wide corporate legal framework to reduce regulatory fragmentation across Member States, in particular for startups and scaleups in the Single Market. The macroeconomic impact of the policy has been assessed using RHOMOLO, a spatial dynamic computable general equilibrium model covering 235 NUTS 2 regions of the EU. In the higher investment scenario, EU GDP is projected to increase by €712 million cumulatively over the first 10 years following adoption, rising to €2.1 billion by year 20, with cumulative multipliers of 1.6 and 4.8 respectively. These results are conservative, as they capture only burden reductions from procedural simplifications and do not account for wider effects such as enhanced access to finance, improved firm performance, or increased market entry. Casas Pablo Christou Tryfonas Garcia Rodriguez Abian Lazarou Nicholas Joseph Peralta Catarina Salotti Simone 2026-04 The European approach to artificial intelligence policymaking https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc146313&r=&r=eec Today, the EU's approach has reached a consolidated status, characterised by a comprehensive governance framework and a set of concrete instruments covering regulation, capability-building and AI adoption. This brief traces the path that led here, and the balance between fostering excellence and ensuring trust that has shaped it throughout. Through a chronological lens, it identifies three main phases – exploration, transition, and maturation - that together explain the EU's approach to AI policy and the EU responses to emerging and disruptive innovations. Rodriguez Müller Paula André Antoine-alexandre Tangi Luca Jugel Laura Schade Sven Sanchez Ignacio De Longueville Bertrand Gomez Emilia Fernandez Llorca David 2026-04 The Impact of EU Grants for Research and Innovation on Firms’ Performance https://d.repec.org/n?u=RePEc:euf:dispap:238&r=&r=eec The paper evaluates the impact of the European Commission’s Seventh Framework Pro-gramme (FP7) grants on profit-oriented firms’ post-treatment performance. Using a robust quasi-experimental design and a dataset covering applicants from 46 countries, we find that FP7 grants increase firms’ sales and labour productivity by about 18%. However, there is no significant impact on employment levels, pointing to potential growth barriers that prevent firms from scaling production despite improved productivity. The effectiveness of these grants varies significantly based on factors such as financial constraints, project risk profiles, market structure, and the innovation environment. Smaller, less productive firms with tighter financial constraints in technology-intensive sectors operating in concentrated markets and favourable innovation environments, particularly those undertaking longer and riskier projects, tend to benefit more. Gábor Kátay Pálma Mosberger Francesco Tucci 2025-12 The Recovery and Resilience Facility in Austria – Direct Impact and Spillover Effects https://d.repec.org/n?u=RePEc:euf:dispap:242&r=&r=eec The Recovery and Resilience Facility (RRF) is estimated to increase Austria’s GDP by EUR 9.3 billion, more than double the size of its national funding allocation. This means that almost 60% of the RRF’s added value to Austria is generated by investments made in other Member States, through so-called spillover effects. These amounts only factor in the impact of RRF investments. The impact of RRF reforms – more difficult to assess at this point - comes on top. This paper conducts an in-depth analysis of the economic impact of the RRF in Austria. It also includes a case study that shows how RRF-supported reforms and investments contribute to the advancement of EU and national decarbonisation objectives. To assess the economic impact of the RRF, it distinguishes between direct impacts that arise from increased domestic spending and spillover effects that are generated by RRF investments abroad. This paper finds that thanks to its deep integration in the single market and strong innovation performance, Austria is among the main beneficiaries of RRF spillovers in the EU. In particular, Austria’s manufacturing and wholesale trade sectors receive a significant boost from the increased spending of other Member States. These findings further underline the added value of a coordinated, EU-wide investment programme and show that the impact of the RRF is far greater than the sum of all national investment plans. Marlies Humpelstetter Fanny Dellinger Jozef Vasak Charlotte Raab Susanna Ulinski, Miriam Franzelin Luis Pedauga Valeria Ferreira Jose Manuel Rueda Cantuche 2026-04 Cross-regional venture capital flows in Europe: The role of entrepreneurial ecosystems and proximity https://d.repec.org/n?u=RePEc:ipt:wpaper:202601&r=&r=eec This paper examines whether, and under which conditions, regional entrepreneurial ecosystems mitigate spatial frictions in cross-regional venture capital (VC) investments. Using a dyadic panel of VC flows across 267 European NUTS-2 regions over 2008-2022, we estimate gravity-style regressions with high-dimensional fixed effects, distinguishing investments by stage and investor origin. Our results show that spatial frictions, particularly geographic and economic distance, remain important determinants of VC allocation. At the same time, regions with stronger entrepreneurial ecosystems attract higher VC inflows and exhibit lower sensitivity to institutional and structural differences. Differences across investor origins suggest that ecosystem legibility is most valuable when institutional uncertainty is high, such as for cross-border investors. Compano Ramon Johanyak Csaba Testa Giuseppina Zhen Ni Testa Giuseppina Tuebke Alexander 2026-04 Societal wellbeing: US vs EU https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc146569&r=&r=eec ‣ GDP (or household income) alone is insufficient to measure wellbeing. Adopting new, distribution- and sustainability-sensitive welfare metrics, fully in line with the provisions of the EU Treaty, could help to shape more inclusive and balanced economic and social policies that also respect planetary boundaries. ‣ A broader look on societal wellbeing can modify the EU-US comparison substantially and yield very different conclusions on the relative performances over time. From 2010 2023, GDP per capita rose 25% in the United States (vs 17% in the EU). Yet the EU’s overall current wellbeing index increased by 9.5 percentage points while the US moved up by only 1.2 points. ‣ In terms of sustainable and inclusive wellbeing, the EU index improved by 4.0 percentage points in 2010-2023, while the US index declined by 0.5, highlighting the importance of factors like resources for the future, societal resilience, nature, inequalities, and institutional quality. ‣ The resources for the future index, however, is much higher in the US than in the EU, helped by the higher economic growth of the US. ‣ When GDP is adjusted for health and inequality, the EU comes out ahead: using an ‘equivalent income’ metric that incorporates life expectancy and income inequality, the EU surpassed the US by 2022 Benczur Peter Cariboni Jessica Da Costa Shaun Mark Giovannini Enrico 2026-04 Innovation funding and startup growth: the kick-off of EU direct investment. https://d.repec.org/n?u=RePEc:eug:wpaper:ki-01-26-025-en-n&r=&r=eec In this paper, we have conducted an econometric analysis of the impacts of the Accelerator scheme of the European Innovation Council (EIC), with a particular focus on the EU Blended Finance providing for the first time grant and direct equity - quasi-equity investment, by means of a difference-in-difference framework combined with propensity score matching and using firms who obtained a Seal of Excellence as control group. Our analysis highlights a number of significant impacts of the EIC Accelerator on firm performance measures like sales, capital stock, wage bill, average wage, employment and value of deals. The analysis also highlights the payment of the EIC direct equity investment as a key root of heterogeneous impacts on firm production factors and output and the lack of a differential impact for projects related to health. Giordano MION Aminata SISSOKO company growth, direct investment, EU investment, EIC fund, innovation, research and development, start-up 2026-03 GVC participation and inflation in the European Union https://d.repec.org/n?u=RePEc:eec:wpaper:2609&r=&r=eec This paper examines how participation in global value chains (GVCs) shapes in- flation in the European Union over 1995–2023. Using local projections, we trace the dynamic response of inflation to total, backward and forward GVC shocks, at the aggregate level and across core, peripheral and CEEC economies. GVC integra- tion is, on average, disinflationary, supporting the discipline-on-prices hypothesis. The aggregate result, however, masks substantial heterogeneity: backward sourcing dampens prices in core and CEEC countries, forward linkages generate demand-pull in core suppliers and competitive discipline in CEECs, while peripheral economies behave as price-takers. Results are robust to first-differencing. Mariam Camarero Antonia López-Villavicencio Cecilio Tamarit Global value chains; inflation; Phillips curve; local projections; European Union. 2026-05 Migration, Mobility and the EU Labour Market Recent Developments https://d.repec.org/n?u=RePEc:euf:dispap:241&r=&r=eec While the share of people born in an EU Member State and living in another continued to increase modestly throughout the last decade (from about 4% in 2014 to about 4.4% in the EU’s working age population in 2024), the share of EU working age population born outside the EU increased more dynamically, from about 8% in 2014 to more than 12% in 2024. This increase became even more dynamic since 2022, a development that is only partly explained by the arrival of people fleeing Russia’s war of aggression against Ukraine. Recent net migration flows broadly confirm established geographical patterns, with the largest flows moving from East to West and being directed to relatively large EU Member States with stronger economic outcomes and lower unemployment rates. Gravity equations estimating the determinants of mobility flows suggest that the ability of intra-EU relocation flows to serve as a channel of economic adjustment in the EU has continued to increase in the last decade. Immigration has significantly contributed to recent employment growth in the EU. Meanwhile, the broad-based rise in employment rates for all groups suggests that increased employment of people born outside the EU did not crowd out the employment prospects of native-born workers. It has rather permitted to ease labour supply bottlenecks in a context of decelerating working-age population growth and sustained demand for labour. Áron Kiss Joana Maldonado Alessandro Turrini Kristine Van Herck 2026-01 Is Europe losing its startups? https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc146239&r=&r=eec ‣ Relocation of European startups raises concerns about weakening the EU’s innovation ecosystem. A new JRC report provides new evidence on the magnitude and type of startups relocation among European venture capital (VC) backed firms. ‣ The relocation rate of European VC-backed startups is in the order of 3.3% - 4.3%. This number drops down to 0.3% - 0.5% for comparable non-VC backed startups. ‣ Relocation patterns i) differ among startups’ home countries, ii) are higher for asset-light than for manufacturing firms, and iii) happen often in the first years of a startup’s life. ‣ The United States is the dominant destination for relocating startups, in particular the more developed entrepreneurial ecosystems such as San Francisco, Boston, and New York. ‣ Most migrations are not ‘complete’ relocations: 97% of the VC-backed companies that relocate are doing it only partially, i.e., they keep operations in the home country. Only about three-quarters of the CEOs move physically to the new destination when startups relocate. ‣ Startup relocation can be beneficial or detrimental for the country of origin, depending on the context of the firm and its ecosystem. For instance, a ‘virtual’ relocation to tap into VC markets abroad might be positive for firm growth, while losing all activities would be detrimental. Polices ought to accompany startups in their drive to expand to foreign markets, while aiming to retain high-value activities (e.g., R&D) in Europe. These foreign ties will enable positive spillovers to the ecosystem of origin. ‣ To reduce the probability of losing high-value activities framework conditions need to improve. Examples include facilitating access to adequate finance, the supply of skilled human resources, decreasing regulatory complexity, and completing the EU Single Market. Domnick Clemens Compano Ramon Ponferrada Víctor Bodgan Tofan Colombo Massimo Quas Anita 2026-04