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  • Author: Gary Clyde Hufbauer
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Open Sub-navigation BackOpen Sub-navigation Publications Back Policy Briefs Working Papers Books PIIE Briefings Open Sub-navigation Commentary Back Op-Eds Testimonies Speeches and Papers Topics & Regions PIIE Charts What Is Globalization? Educational Resources Open Sub-navigation Back Senior Research Staff Research Analysts Trade Talks Open Sub-navigation Back RealTime Economic Issues Watch Trade & Investment Policy Watch China Economic Watch North Korea: Witness to Transformation 中文 Open Sub-navigation Back All Events Financial Statements Global Connections Global Economic Prospects Stavros Niarchos Foundation Lectures Trade Winds Open Sub-navigation Back News Releases Multimedia Media Center Open Sub-navigation Back Board of Directors Staff Employment Contact Annual Report Transparency Policy POLICY BRIEF VIEW SHARING OPTIONS Will industrial and agricultural subsidies ever be reformed? Gary Clyde Hufbauer (PIIE) Policy Brief21-5 March 2021 Photo Credit: REUTERS/Denis Balibouse One economic argument for government subsidies is that they are necessary to compensate firms and industries for benefits they provide to society at large but cannot capture in the prices they charge for goods or services. For example, subsidies to renewable energy are defended because renewable energy limits carbon emissions. When a major economy subsidizes extensively, however, its trading partners are drawn into the game, with losses all around. As the prisoner’s dilemma suggests, a better outcome would entail mutual restraint. But the goal of mutual restraint is no less difficult in international trade than it is in international arms control. Both the European Union and the US federal system try, in different ways, to regulate industrial subsidies. Hufbauer examines efforts to contain unjustifiable subsidies and proposes modest improvements, bearing in mind that as countries struggle to overcome the global economic downturn resulting from the COVID-19 pandemic, there is little appetite for restoring a free market economy—one in which firms compete with minimum government assistance or regulation. Selective upgrading of the rulebook may nevertheless be possible.
  • Topic: Agriculture, Government, Reform, European Union, Regulation, Manufacturing, Industry, COVID-19, Subsidies
  • Political Geography: Europe, North America, United States of America
  • Author: Monika Grzegorczyk, Mario Mariniello, Laura Nurski, Tom Schraepen
  • Publication Date: 06-2021
  • Content Type: Policy Brief
  • Institution: Bruegel
  • Abstract: The pandemic has shown that many workers can efficiently work remotely, with benefits for wellbeing and even productivity. The European Union should develop a framework to facilitate hybrid work.
  • Topic: European Union, Work Culture, Innovation, Strategic Competition, Pandemic, COVID-19
  • Political Geography: Europe, Global Focus
  • Author: Gregory Claeys, Zsolt Darvas, Maria Demertzis, Guntram B. Wolff
  • Publication Date: 05-2021
  • Content Type: Policy Brief
  • Institution: Bruegel
  • Abstract: The COVID-19 pandemic has led to the biggest global recession since the Second World War. Forecasts show the European Union underperforming economically relative to the United States and China during 2019-2023. Southern European countries have been particularly strongly affected. While the ICT sector has benefitted from the COVID-19 crisis, tourism, travel and services have suffered. Business insolvencies have, paradoxically, fallen. While total employment has almost recovered, the young and those with low-level qualifications have suffered employment losses. Inequality could rise. The pandemic may lead to medium to long-term changes in the economy, with more teleworking, possibly higher productivity growth and changed consumer behaviour. Policymakers must act to prevent lasting divergence within the EU and to prevent scarring from the fallout from the pandemic. The first priority is tackling the global health emergency. Second, we warn against premature fiscal tightening and recommend instead additional short-term support from national budgets. Over the medium term, fiscal policymakers will need to gradually move away from supporting companies through subsidies, towards tax incentives for corporate investment. A review of the European fiscal framework is needed to achieve the EU’s green goals more rapidly. The quality of public finances, how policymakers spend resources and the associated reforms are of central importance to prevent scarring. Improving the efficiency of insolvency procedures will be crucial for speedy and effective recovery. Targeted labour market policies for the young and less-qualified are needed. As teleworking becomes a more permanent feature of the EU’s labour markets, it will be crucial to adapt social security and taxation systems in the context of the single market for labour. The EU should resist protectionist calls in the wake of the pandemic. Rigorous competition policy enforcement and an integrated EU market have been beneficial for European convergence and growth. Capital markets have an important role to play in a speedy recovery.
  • Topic: Governance, European Union, Inequality, COVID-19
  • Political Geography: Europe
  • Author: Marek Dabrowski, Marta Dominguez-Jimenez
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: Bruegel
  • Abstract: In the 2010s, the economic situation in the Middle East and North Africa (MENA) deteriorated as a result of lower oil and other commodity prices, a new round of domestic political instability, continuous intra-regional conflicts, stalled economic and governance reforms and, finally, the COVID-19 pandemic. The growth of real GDP, which slowed after the global financial crisis of 2008-2009, further decelerated in the second half of the 2010s and became negative in 2020 as result of the COVID-19 shock. Fiscal balances have deteriorated, even in the oil-exporting countries, and public debt has grown rapidly. MENA countries continue to face numerous long-term socio-economic and institutional challenges including high unemployment (especially youth unemployment), low female labour-market participation rates, the poor quality of education, costly and ineffective public sectors, high military and security spending, high energy subsidies and trade protectionism. Only comprehensive long-term reform programmes can address these challenges. The European Union is MENA’s second largest trading partner after the region itself, and is one of two main sources of foreign direct investment and a major aid donor. However, given the critical importance of the MENA region to its own security and stability, the EU’s engagement in conflict resolution and in supporting economic and political transformation of the region is insufficient and should be intensified. The EU should also update and upgrade its existing association agreements with the countries of the Southern and Eastern Mediterranean, including their free trade provisions.
  • Topic: International Trade and Finance, Governance, European Union, Trade, COVID-19, Economic Crisis
  • Political Geography: Europe, Middle East, North Africa
  • Author: Zsolt Darvas
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: Bruegel
  • Abstract: The estimation of payments from the European Union’s COVID-19 economic recovery fund, Next Generation EU (NGEU), to each EU country in 2021-2026 involves uncertainties, yet the overall magnitudes can be estimated with a reasonable degree of precision. In contrast, estimating member states’ contributions to the repayment of EU debt (which will be issued to finance NGEU spending) is burdened with enormous difficulties, primarily related to the uncertainty of gross national income projections up to 2058. Some numerical scenarios can be put forward to illustrate the difficulties in estimating the amounts of such future contributions.
  • Topic: Economics, Governance, European Union, Macroeconomics, COVID-19
  • Political Geography: Europe
  • Author: Pyoung Seob Yang, Cheol-Won Lee, Suyeob Na, Taehyn Oh, Young Sun Kim, Hyung Jun Yoon, Yoo-Duk Ga
  • Publication Date: 04-2021
  • Content Type: Policy Brief
  • Institution: Korea Institute for International Economic Policy (KIEP)
  • Abstract: China’s investment in the European Union (EU) increased significantly during the European financial crisis, but has been on the decline in recent years. The surge of Chinese investment has raised concerns and demands for analysis on the negative effects it could have on the EU companies and industries. In this context, the present study aims to analyze the main characteristics of Chinese investment and M&A in Europe, major policy issues between the two sides, the EU’s policy responses, and prospects of Chinese future investment in Eu-rope, going on to draw important lessons for Korea. To summarize the main characteristics of China's investment in Europe, the study found that the EU's share of China's overseas direct investment has continued to increase until recently. Second, investment in the Central and Eastern European Countries (CEECs) is gradually increasing, although it is still insignificant compared to the top five destinations in the EU: Netherlands, Sweden, Germany, Luxembourg and France. Third, China's investment in the EU is being made in pursuit of innovation in manufacturing and to acquire high-tech technologies. When it comes to China's M&A in Europe, the study found that the proportion of indirect China's M&As (via third countries (e.g. Hong Kong) or Chinese subsidiaries already established in Europe) was relatively higher than direct ones. Empirical factor analysis of investment also shows that China's investment in the EU is strongly motivated by the pursuit of strategic assets. Other factors such as institutional-level and regulatory variables are found to have no significant impact, or have an effect contrary to expectations. This suggests that China's investment in the EU is based on the Chinese government's growth strategy, and accompanies an element of national capitalism Today, It is highly expected that the COVID-19 pandemic will have a reorganizing effect on the global value chain (GVC) and Foreign investment regulation in the high-tech sector motivated by national security is emerging as a global issue as the US and the EU are tightening their control. As Korean companies are not free from the risk of falling under such regulations, a thorough and careful response is required. And for the Korean government, it is necessary to prepare legal and institutional measures regulating foreign investment in reference to the US and the EU.
  • Topic: Foreign Direct Investment, Financial Crisis, European Union, Economy, Economic Growth, Global Value Chains, COVID-19
  • Political Geography: China, Europe, Asia, Korea, United States of America
  • Author: Danièle Hervieu-Léger
  • Publication Date: 01-2021
  • Content Type: Policy Brief
  • Institution: Robert Schuman Foundation (RSF)
  • Abstract: Crises reveal the state of a policy, reveal its ambiguities, strengths and shortcomings, and sometimes force a redefinition or clarification of its guiding principles to ensure its sustainability, if not its survival. Although at the height of the crisis, there is a reflex to completely overhaul what already exists, the constants and structuring considerations quickly tend to dampen the ardour for reform.
  • Topic: Reform, European Union, Trade, COVID-19, Adaptation
  • Political Geography: Europe
  • Author: Sachka Stefanova-Behlert, Martina Menghi
  • Publication Date: 04-2021
  • Content Type: Policy Brief
  • Institution: Robert Schuman Foundation (RSF)
  • Abstract: We live at a time of deep and radical transformations. The pandemic has accelerated many of the changes that were already underway and has brought new challenges to the surface. Among the most affected realms of our societies, we undoubtedly find work and the freedom of movement of people. In Europe, it is precisely at the intersection of these two elements that the posting of workers lays. In this field, we are also at a crucial moment because the pandemic arrived just a few months before the deadline for the implementation of the changes related to the revision of the Posting of Workers Directive. Hence, it has become even more urgent to understand how all these changes have impacted the posting of workers as well as propose solutions to facilitate workers and companies in this adaptation path. That is key if we are to safeguard an important instrument of the European single market. This is exactly the merit of this article and its two co-authors: offering a first and clear account of the characteristics of posting of workers during the pandemic, identifying the main challenges faced by Member States, EU institutions and businesses, while also identifying some potential future developments, despite the climate of great uncertainty surrounding us.
  • Topic: European Union, Crisis Management, Pandemic, COVID-19
  • Political Geography: Europe
  • Author: Alexandre Kateb
  • Publication Date: 02-2021
  • Content Type: Policy Brief
  • Institution: Robert Schuman Foundation (RSF)
  • Abstract: According to official statistics, the African continent has been relatively spared by the Covid-19 pandemic compared to Europe, America and Asia. The factors behind the low incidence of coronavirus in Africa are not fully understood. According to the WHO, the African continent has benefited from certain structural factors such as the limited international connectivity of most African countries, with the exception of some regional "hubs" such as Johannesburg, Casablanca, Addis Ababa and Nairobi. Incidentally, the most 'connected' African countries such as Morocco and South Africa have incurred the highest prevalence rates of Covid-19, which may lend credence to this explanation.
  • Topic: International Relations, European Union, Pandemic, COVID-19
  • Political Geography: Africa, Europe
  • Author: Johan Norberg
  • Publication Date: 03-2021
  • Content Type: Policy Brief
  • Institution: European Centre for International Political Economy (ECIPE)
  • Abstract: During the Covid-19 pandemic, Europe has benefitted strongly from being an open economy that can access goods and services from other parts of the world. Paradoxically, some politicians in Europe think that dependence on foreign supplies reduced the resilience of our economy – and argue that Europe now should wean itself off its dependence on other economies. In this Policy Brief, it is argued that self-sufficiency or less economic openness is a dangerous direction of policy. It would make Europe less resilient and less capable of responding to the next emergency. It is key that people, firms and governments can get supplies from other parts of the world. It is diversification, not concentration of production, that will make Europe more resilient when the next emergency hit. We don’t know where the next crisis will come from. Nature will throw nasty surprises at us, and we will make stupid mistakes, some of which will have devastating consequences. What we do know, though, is that we stand a better chance to fight the next emergency if we get richer and improve our technology. The best policy for resilience is one that encourages specialisation and innovation – and, when the emergency hit, allow for people to improvise in search for solutions. For that to happen, we need openness to goods, services and technology from abroad.
  • Topic: Health, International Political Economy, Innovation, Economic Cooperation, Pandemic, COVID-19
  • Political Geography: Europe, Global Focus