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  • Author: Daniel Gros, Dirk Schoenmaker
  • Publication Date: 06-2012
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The eurozone is caught in a 'diabolical loop' in which weak domestic banking systems damage sovereign fiscal positions and conversely, in which risky sovereign positions disproportionately threaten domestic banking stability. A European-level banking system could go a long way towards breaking this unfortunate loop and stabilising the eurozone. This would require a European safety net for cross-border banks.
  • Topic: Economics, Regional Cooperation, Monetary Policy, Financial Crisis
  • Political Geography: Europe
  • Author: Daniel Gros
  • Publication Date: 07-2012
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper presents a simple model that incorporates two types of sovereign default cost: first, a lump-sum cost due to the fact that the country does not service its debt fully and is recognised as being in default status, by ratings agencies, for example. Second, a cost that increases with the size of the losses (or haircut) imposed on creditors whose resistance to a haircut increases with the proportional loss inflicted upon them.
  • Topic: Debt, Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: Europe
  • Author: Andrea Renda, Fabrizio Cafaggi
  • Publication Date: 10-2012
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Private governance is currently being evoked as a viable solution to many public policy goals. However, in some circumstances it has shown to produce more harm than good, and even disastrous consequences as in the case of the financial crisis that is raging in most advanced economies. Although the current track record of private regulatory schemes is mixed, policy guidance documents around the world still require that policy-makers give priority to self-and co-regulation, with little or no additional guidance being given to policymakers to devise when, and under what circumstances, these solutions can prove viable from a public policy perspective. With an array of examples from several policy fields, this paper approaches regulation as a public-private collaborative form and attempts to identify possible policy tools to be applied by public policy-makers to efficiently and effectively approach private governance as a solution, rather than a problem. We propose a six-step theoretical framework and argue that IA techniques should: i) define an integrated framework including both the possibility that private regulation can be used as an alternative or as a complement to public legislation; ii) involve private parties in public IAs in order to define the best strategy or strategies that would ensure achievement of the regulatory objectives; and iii) contemplate the deployment of indicators related to governance and activities of the regulators and their ability to coordinate and solve disputes with other regulators.
  • Topic: Economics, International Trade and Finance, Markets, Regional Cooperation
  • Political Geography: Europe
  • Author: Jonas Teusch
  • Publication Date: 09-2012
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper analyses the interplay between shale gas and the EU internal gas market. Drawing on data presented in the 2012 International Energy Agency's report on unconventional gas and additional scenario analyses performed by the Joint Research Centre, the paper is based on the assumption that shale gas will not fundamentally change the EU's dependence on foreign gas supplies. It argues that attention should be shifted away from hyping shale gas to completing the internal gas market. Two main reasons are given for this. First, the internal gas market is needed to enable shale gas development in countries where there is political support for shale gas extraction. And second, a well-functioning internal gas market would, arguably, contribute much more to Europe's security of supply than domestic shale gas exploitation. This has important implications for the shale gas industry. As it is hard to see how subsidies or exemptions from environmental legislation could be justified, shale gas development in Europe will only go ahead if it proves to be both economically and environmentally viable. It is thus up to the energy industry to demonstrate that this is the case.
  • Topic: Security, Economics, Energy Policy, Environment, Natural Resources, Famine
  • Political Geography: Europe
  • Author: Paul De Grauwe, Yuemei Ji
  • Publication Date: 09-2012
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper analyzes two claims that have been made about the Target2 payment system. The first one is that this system has been used to support unsustainable current account deficits of Southern European countries. The second one is that the large accumulation of Target2 claims by the Bundesbank represents an unacceptable risk for Germany if the eurozone were to break up. We argue that these claims are unfounded. They also lead to unnecessary fears in Germany that make a solution of the eurozone crisis more difficult. Ultimately, this fear increases the risk of a break-up of the eurozone. Or to paraphrase Franklin Roosevelt, what Germany should fear most is simply its own fear.
  • Topic: Economics, Regional Cooperation, Monetary Policy, Financial Crisis
  • Political Geography: Europe, Germany
  • Author: Dirk Rübbelke, Stefan Vögele
  • Publication Date: 05-2011
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Climate change tends to negatively affect the power sector, inter alia, by causing cooling problems in power plants and impairing the water supply required for hydro-power generation. In future, when global warming is expected to increase, autonomous adaptation to climate change via international electricity markets inducing reallocations of power generation may not be sufficient to prevent supply disruptions. Furthermore, the consequent changes of supply patterns and electricity prices might cause an undesirable redistribution of wealth both between individual power suppliers and between suppliers and consumers. This study ascertains changes in European power supply patterns and electricity prices caused by ongoing global warming as well as related redistribution of wealth for different climate change scenarios. Our results confirm that autonomous adaptation in the power sector should be complemented by planned public adaptation in order to preserve energy security and to prevent undesired distributional effects.
  • Topic: Climate Change, Economics, Energy Policy, Markets
  • Political Geography: Europe
  • Author: David Kleimann
  • Publication Date: 04-2011
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The first 16 months of the EU's common commercial policy (CCP) in the post-Lisbon period provide indicative insights into how the European Parliament, the European Commission and the Council of Ministers interpret their respective roles under the new legal framework introduced by the Lisbon Treaty. This paper analyses the amendments, the institutional capacities to respond to the reform challenges and the evolving institutional balance applying to Lisbon-era common commercial policy. Against this backdrop, the paper gives an overview of the changing dynamics of EU trade and investment policy in a context of enhanced politicization resulting from the European Parliament's involvement in the decision-making process. Particular importance is given to the question whether enhanced EP involvement in decision-making has the potential to lead to a scenario resembling the policy process in the United States, where congressional responsibility for trade and investment policy has resulted in the capture of the policy agenda by special interest groups and snail-paced policy progress (if any) in recent years. Accordingly, the paper scrutinizes the political preferences that the European Parliament is introducing into current European trade policy debates as well as the framework legislation and trade agreements. Finally, it is argued that parliamentary involvement in making common commercial policy has the potential to narrow the gap between European public political preferences and perceptions, on the one hand, and actual EU trade policies on the other, and to place EU trade and investment policies on a foundation of renewed public political support. In the author's view, however, it is imperative that such an achievement is based on well-informed, responsible, sustainable and clearly communicated policy proposals from the MEPs, who respond to and seek to balance the multiplicity of interests of CCP stakeholders in European civil society and respect the Union's international obligations.
  • Topic: Economics, International Trade and Finance, Treaties and Agreements
  • Political Geography: Europe
  • Author: Claudio Vicarelli, Marco Fioramanti
  • Publication Date: 03-2011
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The recent economic and financial crises have shown the weakness of EU economic governance. A process of strengthening macroeconomic and fiscal surveillance started in the course of 2010; among other proposals, the European Commission suggested a new binding criterion of debt reduction: debt-to-GDP ratio is to be considered sufficiently diminishing if its distance with respect to the 60% of GDP reference value has reduced over the previous three years at a rate of the order of one-twentieth per year.
  • Topic: Debt, Economics, International Trade and Finance, Financial Crisis, Governance
  • Political Geography: Europe
  • Author: Felix Roth, Felicitas Nowak-Lehmann D., Thomas Otter
  • Publication Date: 02-2011
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The financial crisis has affected trust in national and European governmental institutions in different ways. This paper analyses the determinants of trust in the national and European institutions over the last decade and comes to the conclusion that inflation reduces citizens' trust only when the economy runs smoothly. In times of crisis, citizens do not worry about inflation but rather about jobs and the effects of a recession. Declining trust in national governments is related to an increase in unemployment in the EU-15 in all time periods, whereas trust in the European Commission and the European Parliament seems to be strongly associated with the situation in the real economy (unemployment and growth of GDP per capita) only in times of crisis. Yet in the EU-27, falling levels of trust in the national and European governmental institutions during times of crisis seem to be primarily related to an increase in government debt. In an EU-15 country sample, this negative relationship appears to be driven by countries that owe a larger share of their increase in government debt to aiding/bailing out their financial sector and the implementation of significant austerity measures.
  • Topic: Debt, Economics, Financial Crisis, Governance
  • Political Geography: Europe
  • Author: Miroslav Beblavý
  • Publication Date: 10-2011
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: In this paper, we examine two questions related to the sustainability of the major, neoliberal, economic and social reforms in the new EU member states, namely the flat income tax and private pension pillars. First, we look at the relationship between the political consensus/controversy at the time major policy reforms were passed and the future sustainability of these reforms after a change of government. Second, we explore what we call a paradox of reverse sustainability, whereby the flat income tax has been more politically resilient during the global financial and economic crisis than private pensions, even though ex ante expectations and the literature would lead us to expect the opposite.
  • Topic: Economics, Labor Issues
  • Political Geography: Europe