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61. Exchange Rate Pass-Around

Author:
Matthieu Crozet, Julian Hinz, and Federico Trionfetti
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In January 2015, The Swiss Franc (CHF) appreciated unexpectedly against the Euro by approximately 15%. We document a new fact: French firms that exported to both the Swiss market and the Eurozone also exhibited a sudden change in their export prices to the Eurozone. We coin this the “exchange rate pass-around” effect. We rationalise this fact with a simple model based on the endogenous decision of some firms to give up pricing-to-market and opt for single-pricing to all markets. An important implication of this finding is that single-pricing may be one of the causes of the incomplete pass-through. This mechanism has so far remained unexplored in the literature, which may have led to overestimating the importance of other factors. Based on monthly French export data, our empirical analysis confirms the existence of the pass-around. Firms directly affected by the CHF exchange rate shock increased their prices in neighboring markets by 0.8% compared to other exporters. The effect was stronger for firms with lower ex-ante price heterogeneity across markets and for firms with smaller trade costs to Switzerland. However, the effect was short-lived. As time passed, exporters tended to decouple the prices they set on the Swiss market from those for the Eurozone, and the pass-around effect faded.
Topic:
International Trade and Finance, Markets, Monetary Policy, European Union, and Exchange Rate Policy
Political Geography:
Europe

62. Blowback: The Effect of Sanctions on Democratic Elections

Author:
Matthieu Crozet and Julian Hinz
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Sanctions are meant to coerce political adversaries through economic measures. However, evidence for their effectiveness is scarce. In this paper we assess the impact of sanctions on a democracy — France — by studying the electoral consequences of the sanctions and countersanctions imposed between Russia and Western countries. Contrary to most of the existing literature we find clear evidence for exposure to the sanctions to cause an increase in the vote share for pro-Russian (and far-right) candidates during the French 2017 presidential election. Locally, the impact on voting is substantial. Back-of-the-envelope calculations indicate that about 16,300 votes for the main far-right candidate can be directly attributed to the sanctions’ impact. This is the total number of votes cast in a medium-sized French city. It is however not nearly enough to have affected the outcome of the election at the national level.
Topic:
Globalization, International Trade and Finance, Sanctions, and Elections
Political Geography:
Russia, Europe, and France

63. Who is to suffer? Quantifying the impact of sanctions on German firms

Author:
Holger Görg, Anna Jacobs, and Saskia Meuchelbock
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In this paper, we use a novel firm level dataset for Germany to investigate the effect of sanctions on export behaviour and performance of German firms. More specifically, we study the sanctions imposed by the EU against Russia in 2014 in response to the annexation of Crimea and Russia's countermeasures. We find a substantial negative effect on both the extensive and intensive margin of German exports. While the negative effects are strongest for firms exporting products subject to trade restrictions, we provide further evidence on the indirect effects of sanctions. Analysing the impact on broader measures of firm performance, we document that the cost of sanctions is heterogeneous across firms but overall modest. Our results reveal that the negative impact of the shock was concentrated primarily among a small number of firms that were highly dependent on Russia as an export market and those directly affected by the sanctions.
Topic:
Foreign Policy, Globalization, International Trade and Finance, Sanctions, Russia-Ukraine War, and Firm Dynamics
Political Geography:
Russia, Europe, and Germany

64. Potential efficiency gains from the introduction of an emissions trading system for the buildings and road transport sectors in the European Union

Author:
Wilfried Rickels, Christian Rischer, Felix Schenuit, and Sonja Peterson
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In the European Union (EU), a second emissions trading system (EU ETS2) covering buildings, road transport and small energy and industrial installations is expected to be introduced from 2027. Until 2030, however, EU ETS2 will not be a separate pillar of EU climate policy, but will support Member States in meeting their national targets under the Effort Sharing Regulation (ESR). If there are net regional shifts in emission reductions within the EU ETS2, for example, if companies in one member state buy in aggregated terms net allowances, this must be compensated for at the national level. We study the EU ETS2 for the year 2030 using the general equilibrium model DART. In our analysis, the introduction of an EU ETS2 generates about a quarter of the efficiency gains of a comprehensive emissions trading system, assuming that nation states use the flexibility mechanisms of the ESR and compensate for regional abatement leakage through interstate emissions trading. However, this is only true if there is no extensive price stabilization in the EU ETS2. Our analysis suggests an EU ETS2 allowance price of around EUR 300/tCO2. Stabilizing the EU ETS2 price at the envisaged intervention price of 45 EUR/tCO2 would require about 415 million additional allowances and thus imply additional emissions of the same amount in 2030 alone.
Topic:
Climate Change, European Union, Economy, and Carbon Emissions
Political Geography:
Europe

65. The path of economics research production: Insights into the seesaw between theory and empirics

Author:
João Ricardo Faria, Rajeev K. Goel, and Neela D. Manage
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper provides insights into the apparent seesaw between the generation of theoretical versus empirical economics research over time. A dynamic model considers the incentives of researchers to focus on empirical versus theoretical papers. It yields the main characteristics of the path-changing of economics research, from theoretical-intensive to empirical-focused. The model has two equilibria, one with a higher proportion of theoretical papers and another with a higher proportion of empirical papers. Curiously, the equilibrium with greater theoretical papers is stable, while the one with more empirical papers is a saddle point. This suggests that the current trend of increasing empirical research is unlikely to last.
Topic:
Economics, Research, and Innovation
Political Geography:
Europe, North America, and United States of America

66. Technology will save the climate! Attitudes towards Norway’s climate policy in four social groups

Author:
Åsta Dyrnes Nordø
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The risk of opposition from the population increasingly plays a role in choosing the climate policy measures to achieve the objective to substantially reduce greenhouse gas emissions. In Norway, there is a long-standing cross-party consensus that the development of new technologies will be crucial for solving climate challenges. Comparing public opinion surveys, Norwegians are significantly more convinced that new technology will solve problems induced by climate change, compared people in other European countries. A concrete example of such a technology is carbon capture and storage (CCS). Despite discussions about the costs of establishing the technology, there is a cross-party consensus in Norway that CCS is a good and suitable measure for reaching climate policy goals. In this article, we review the historical background that has led to this broad support in Nor-way. Furthermore, we look at how this has been expressed in the political parties’ attitudes towards CCS. There has been a long standing consensus among all major parties that CCS should be developed and deployed. We argue that this lay the foundation for the societal support for CCS. We analyze data from the Norwegian Coordinated Online panels for research on DEMocracy and governance (KODEM) to examine the attitudes toward CCS among citizens and three functional elites, namely elected representatives, bureaucrats, and journalists. We find that CCS receives strong support in all four groups, but that citizens and elected representative are more skeptical compared to bureaucrats and journalists. However, when looking at the factors that influence the perception of CCS, the pattern is the same for all four groups. The more technology optimistic a person is, the more positively they tend to perceive CCS as a method to fight climate change. We also find that those who think the political efforts to reduce greenhouse gases are too great are less positive about CCS com-pared to those who think the efforts are appropriate or too small. Overall, the analysis indicates that all four societal groups are technology optimistic and characterized by the same attitudes toward climate change. We discuss the role of technology optimism in Norway’s climate policy and the reasons for the high degree of political consensus across groups with different societal functions.
Topic:
Climate Change, Science and Technology, Carbon Emissions, Elites, and Attitudes
Political Geography:
Europe and Norway

67. The Ukraine Support Tracker: Which countries help Ukraine and how?

Author:
Christoph Trebesch, Ariana Antezza, Katelyn Bushnell, Andre Frank, and Pascal Frank
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper presents the Ukraine Support Tracker, which lists and quantifies military, financial and humanitarian aid to Ukraine in the context of the Russia-Ukraine war. Since the third update we track support by 41 countries, specifically the EU member states, other members of the G7, as well as Australia, South Korea, Turkey, Norway, New Zealand, Switzerland, China, Taiwan, India and Iceland. The database is intended to support a facts-based discussion about support by other countries to Ukraine. Private donations and aid through non-governmental organizations are not included due to a lack of systematic data. To value in-kind support like military equipment or weapons, we rely on government statements as well as own calculations using market prices. We find significant differences in the scale of support across countries, both in absolute terms and as percent of donor country GDP.
Topic:
Economics, War, Foreign Aid, Military Aid, Geoeconomics, and Russia-Ukraine War
Political Geography:
Russia, Europe, Ukraine, Germany, and United States of America

68. Exposure to War and Its Labor Market Consequences over the Life Cycle

Author:
Sebastian T. Braun and Jan Stuhler
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
With 70 million dead, World War II remains the most devastating conflict in history. Of the survivors, millions were displaced, returned maimed from the battlefield, or spent years in captivity. We examine the impact of such wartime experiences on labor market careers and show that they often become apparent only at certain life stages. While war injuries reduced employment in old age, former prisoners of war postponed their retirement. Many displaced workers, particularly women, never returned to employment. These responses are in line with standard life‐cycle theory and thus likely extend to other conflicts.
Topic:
History, Displacement, World War II, Welfare, Prisoners of War, and Labor Market
Political Geography:
Europe and Germany

69. NATO in the North: The emerging division of labour in Northern European security

Author:
Matti Pesu
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
Finnish Institute of International Affairs
Abstract:
The Russian war of aggression has rendered Northern Europe an increasingly significant region for Euro-Atlantic security. A stable and secure Northern Europe is a critical precondition for a safe and stable Euro-Atlantic region. The alliance should treat Northern Europe as a strategic whole although the different subareas of Northern Europe have their distinctive security dynamics and concerns. NATO is currently improving its deterrence and defence posture. It is simultaneously shifting its military strategy from a model of deterrence by reinforcement to one of deterrence by denial. NATO’s evolving posture and strategy in Northern Europe should be underpinned by a more explicit division of labour. The regional allies and stakeholders can be divided into four categories in terms of their role in regional security: frontline nations, hubs, security providers and the ultimate security guarantor. The regional frontline nations include the Baltic states, Finland and Poland, which can also play a role as hubs and even security providers along with the United Kingdom and Germany. Denmark, Sweden and Norway are first and foremost hubs. The United States remains the ultimate security guarantor of the area.
Topic:
Security, Defense Policy, NATO, and Deterrence
Political Geography:
Europe, Nordic Nations, Arctic, and Baltic Sea

70. Made in Europe: An EU Green Industrial Plan to respond to the challenge of US and Chinese protectionism

Author:
Alekos Kritikos and George Pagoulatos
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
The EU needs to urgently formulate a response to US and Chinese protectionism. US decarbonization legislation poses a threat of deindustrialization for Europe. Europe needs a plan to support EU green, industrial and technological competitiveness, while protecting European cohesion and the single market, and promoting European strategic autonomy. Relaxing EU state aid rules must be an inevitable first component of Europe’s response. But this would overwhelmingly benefit the stronger economies of Germany and France, undermining EU cohesion and the integrity of the single market. Thus, the second component of EU response must be a European Sovereignty Fund, of a size commensurate to the magnitude of the challenge. The new Fund must support value chain categories that include as many EU member states as possible. SURE, extended to encompass the energy crisis and green transition, should be an integral part of the mix, and so should promoting technological skills and reskilling for the “Clean Tech Economy”. Investment funding should seek to contribute to vertical integration, including as many stages in the supply chain as possible. It should contribute to the return of specific supply chains and production units from third countries to the EU and seek to include the EU’s weakest economies. Subsidies should rise if the investment is cross-border in nature and carry a bonus if made in an EU region with a low GDP per capita compared to the EU average. Funding could also promote European strategic autonomy by including cross-border partnerships of EU member states in the defence technology industry. It should involve new funding rather than simply recycling money from existing programmes, and certainly avoid deploying undisbursed resources from the Recovery & Resilience Fund.
Topic:
European Union, Investment, Industry, Protectionism, and Strategic Autonomy
Political Geography:
China, Europe, and United States of America

71. Hydrodiplomacy and the Food, Water and Energy Nexus: A holistic approach for transboundary cooperation and peace

Author:
Fadi Comair
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
The rapid social and economic development in the world is leading to increased levels of water stress that point to potential water crises. As the most vital and strategic of natural resources, water can serve as an instrument of domination or of cooperation. Given the presence of key geopolitical concerns in the Near East, regional hydro-diplomatic cooperation is necessary to ensure fair sharing of the resource and to avoid additional tensions and conflict. Nine of the seventeen EMME countries are below the absolute water scarcity threshold of 500 m3/year per capita, including all six countries in the Gulf region, Jordan and Palestine. Those countries that share major transboundary basins in the EMME region such as the Nile, Jordan and Tigris-Euphrates basins are subject to multiple challenges which include unilateral water resources management, water scarcity, and environmental degradation leading to food insecurity. Hydrodiplomacy is a tool for applying integrated water resource management at a national and transboundary level in accordance with a cooperative model seeking peace among riparian countries. Multiple UN agencies contribute to bringing riparian countries together with a view to fostering dialogue and the sharing of information on water management and transboundary cooperation.
Topic:
Development, Diplomacy, International Cooperation, Water, Food, Geopolitics, and Energy
Political Geography:
Europe and Middle East

72. The Greek Defence Sector: Turning the Page?

Author:
Antonis Kamaras
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
From the 1980s to the 2000s, Greece’s defence industry was mismanaged and failed to utilize Greece’s high defence expenditures to become innovative. The impact of Greece’s fiscal crisis and the subsequent expansion of the Turkish threat mean that both economics and geopolitics now favour an invigorated Greek defence sector. The first major weapons procurement programme since the end of Greece’s fiscal crisis has not meaningfully involved the Greek defence sector. Yet the sector’s future prospects have improved, assured by the need for the sector to be financially viable and internationally competitive and by the broader awareness of the defence sector as a building block in national defence. The EU’s growing role in Europe’s collective defence, driven by continent-wide geopolitical developments and industrial imperatives, will also boost the prospects of the Greek defence sector. Mutually reinforcing obstacles still hamper the Greek defence sector’s progress: (a) a polity which privileges distribution over capital investments in its fiscal choices, and (b) an officer corps which lacks the degree of autonomy to co-create novel defence solutions together with the Greek defence sector. Despite these obstacles, the ongoing Turkish threat engenders national insecurity within Greece to such an extent that it can drive the sustainable growth of the Greek defence sector.
Topic:
Defense Policy, Geopolitics, Innovation, and Defense Industry
Political Geography:
Europe, Turkey, and Greece

73. Domestic implementation of European Court of Human Rights’ judgments related to immigration in Greece

Author:
Dia Anagnostou
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
In recent decades, the European Court of Human Rights has evolved into a leading judicial body which examines and identifies violations committed by states in the management of migration and asylum. Greece is one of the countries that has been condemned in a large number of judgements relating to administrative detention, reception and accommodation conditions, the treatment of migrants by the police and border authorities, the asylum system, the treatment of unaccompanied minors, and human trafficking. This paper examines the Greek authorities’ compliance with the ECtHR judgements in this area. It focuses on general measures which relate to broader changes in the legislation and case law, as well as on administrative practice in Greece. It analyses the obstacles and difficulties present in this area, and it makes policy recommendations. It argues that a new approach is needed to Greece’s compliance with regard to the human rights of migrants and refugees. This approach should be focused on structural reforms and it should have the express commitment of the country’s political leadership. It would require systematic efforts to instil a new mindset within the public administration that is supportive of human rights protection as a priority and democratic responsibility, rather than as an externally imposed, necessary evil.
Topic:
Migration, Refugees, Judiciary, Asylum, and European Court of Human Rights (ECHR)
Political Geography:
Europe and Greece

74. Drafting Greece’s “Internal Security Strategy” – Challenges and Prospects

Author:
Panayotis Tsakonas and Triandafyllos Karatrantos
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
The radical change in the structure of the international system caused a scientific and political revolution in the definition and concept of security. Issues such as the climate crisis, forced displacements and extreme nationalism have led the interest and especially the debate on achieving security from external to internal threats. The focus is now on the main “object of reference” of security which is not the state or some sub-state groups, but “the individual”/”the citizen”. In the modern globalized environment, all the risks that threaten the daily life of citizens require dealing with the concept of security in a “holistic” and, at the same time, more “human-centered” way. Greece lacks an institutional document for the internal security strategy. There are structural reasons that make a comprehensive reform of the internal security sector necessary. In addition to the established weaknesses and inadequacies of specific agencies and/or services of the internal security system, the overall organic interconnection between crisis management services is still required. The first lesson from the effects of the pandemic is the need for the evolution of Greece into a “Modern National Security State”. Greece, due to its geographical position on the external borders of the EU, as well as the crises it has experienced in recent years, faces a series of internal security threats and challenges. Security and respect for fundamental rights are not mutually conflicting but coherent and complementary objectives. The Strategy will help build an internal security governance system and a central coordination process.
Topic:
Security, Governance, and European Union
Political Geography:
Europe and Greece

75. The EU’s approach to climate mobility: Which way forward?

Author:
Helena Hahn and Melanie Fessler
Publication Date:
10-2023
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
Climate mobility as a global issue needs strategic thinking about how people adapt, and the role mobility can play in alleviating the adverse effects of climate change. This Discussion Paper analyses what the EU is doing to deal with climate mobility. It addresses the complicated relationship between climate change, mobilities, and related challenges in modelling and projecting future scenarios. It also shows the multilateral policy developments relating to climate and migration and the EU’s actions on climate mobility, with a focus on two interrelated challenges: 1. Policy (in)coherence and counterproductive narratives. 2. Weak institutional coordination. The EU’s funding landscape is also addressed, focusing on the challenges of mainstreaming and monitoring when assessing the funds dedicated to this cause. It concludes with recommendations on impacts, multilateral engagement, policy, and funding, which outline practical steps to be taken in the short and long-term.
Topic:
Climate Change, European Union, and Mobility
Political Geography:
Europe

76. Towards common accord? The European Union contemplates treaty change

Author:
Andrew Duff
Publication Date:
10-2023
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
Numerous events have conspired to tempt the European Union to reform the way it is governed. Present constitutional arrangements were laid down in the Treaty of Lisbon in 2007 and are long overdue for revision. In recent months, parallel efforts have been made by the European Parliament and European Commission to articulate a prospectus for treaty amendment. The Council remains fearful and inarticulate, divided over the content and timing of any such reform. Andrew Duff returns to the current debate with a Discussion Paper analysing the EU treaty change. He previews emerging proposals from the European Parliament and European Commission, referring to the recent report of the Franco-German experts as well as other relevant contributions.
Topic:
Treaties and Agreements, European Union, Regional Integration, European Parliament, and European Commission
Political Geography:
Europe

77. Ending the HIV epidemic in Europe: Moving toward the 2030 sustainable development goals

Author:
Elizabeth Kuiper and Danielle Brady
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
Despite significant progress, the human immunodeficiency virus (HIV) epidemic continues to pose a public health threat in Europe. The COVID-19 pandemic has exacerbated challenges by disrupting healthcare services and diverting attention and resources away from HIV prevention and treatment. Stigma and discrimination against those affected by HIV persist and are additional obstacles, slowing down progress to end the HIV epidemic. This Discussion Paper explores the current HIV prevalence in Europe, identifies barriers and challenges, and offers policy recommendations to overcome these obstacles and meet the sustainable development goals targets in Europe. The Paper emphasises the need for renewed political commitment and cooperation among the EU and its member states to prioritise HIV as well as for strong partnership and collaboration between authorities and stakeholders concerned, ultimately striving for success in ending the epidemic.
Topic:
HIV/AIDS, European Union, Public Health, and COVID-19
Political Geography:
Europe

78. Violence against women: A public health crisis

Author:
Victoria Pedjasaar
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
In the EU, a third of women over the age of 15 have experienced physical or sexual violence and over half have been sexually harassed. Although often overlooked, the majority of (workplace) violence takes place in the healthcare sector as healthcare professionals are 16 times more at risk of violence in comparison to other occupations. Violence does not only manifest in abusive behaviour toward workers on duty but can also be perpetrated on women as receivers of healthcare. High rates of violence in healthcare, brought on and exacerbated by gender stereotypes and inequality, point to dysfunctional health systems. This Discussion Paper provides policy recommendations on the way forward for the EU member states, taking a closer look at: Gender-based violence against healthcare workers. Obstetric and gynaecological violence against women. Gender-based violence as a story of gender inequality. Legislation and policies that protect women.
Topic:
European Union, Women, Inequality, Gender Based Violence, and Legislation
Political Geography:
Europe

79. Digitalisation: An enabler for the clean energy transition

Author:
Simon Dekeyrel and Melanie Fessler
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
Russia’s invasion of Ukraine and the resulting energy crisis are a painful reminder that Europe must reduce its dependence on fossil fuels. To build a sustainable, secure and affordable energy future, the coming years will require a massive scale-up of renewable energy across the EU and a tremendous effort by European businesses and households to cut their energy consumption. To wrap up the "Digitalisation for a Clean Energy Transition" project undertaken by the EPC and the Vodafone Institute for Society and Communications, this Discussion Paper examines how digitalisation can act as a catalyst for the clean energy transition in Europe. The study considers the regulatory framework necessary to coordinate and promote synergies between energy and digital policies and support the twin green and digital transformation of the European energy system. To fully unlock the potential of digitalisation in the transition towards smart and sustainable energy systems, the EU and its member states need to: Accelerate work on a common European energy data space, characterised by interoperable data standards, adequate incentives for data sharing, data protection and privacy safeguards for consumers. Ensure that citizens possess the necessary digital skills and information to reap the full benefits of the twin transition in terms of consumer empowerment and access to affordable and clean energy. Put in place the necessary safeguards regarding the cybersecurity of energy networks to ensure that the digital transformation does not jeopardise the resilience of EU energy systems. Use financial tools to accelerate the deployment of digital solutions in the energy sector and equip existing networks with the necessary digital infrastructure. For digitalisation to deliver, it needs to be steered in the right direction. For this, we need an adequate policy and financing framework to make sure that the twin transition not only empowers people and businesses to play an active role in accelerating the transition to clean energy sources but also contributes to greening the digital and ICT sector.
Topic:
Cybersecurity, Fossil Fuels, Digitalization, Energy, Russia-Ukraine War, and Energy Transition
Political Geography:
Europe

80. Resetting the EU’s business model after the watershed

Author:
Marco Buti and Marcello Messori
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
The EU’s response to the COVID-19 pandemic raised hopes of an acceleration towards deeper economic and political integration. Most optimists saw Next Generation EU as a paradigm shift that would result in the establishment of a permanent central fiscal capacity. Such hopes were reinforced by the Russian aggression against Ukraine; if not now, when? While the EU displayed remarkable unity in sanctioning Russia, the hopes for another leap forward in integration have not yet materialised. This Discussion Paper argues that the current crisis is more existential than the pandemic, as it questions Europe’s business model: an energy-intensive, mercantilist production setup is not sustainable going forward, for domestic and global reasons. It also argues that the EU’s reaction to the US Inflation Reduction Act may be a break: preserving the single market prohibits a go-it-alone policy constituted of exclusively national reactions. Going forward, the authors believe there needs to be an effective centralised strategy based on three overarching considerations: (i) The EU needs a new industrial policy to reinforce value chains, close technology gaps with the US and China, and improve its economic model's competitive advantages; (ii) The implementation of this policy requires the EU's member states to be less risk averse and more open to common solutions; (iii) A necessary, though not sufficient, condition for a cooperative game is an effective implementation of the national Recovery and Resilience Plans that give access to the Recovery and Resilience Facility’s funds. Achieving those goals is key to rebuilding political trust, reviving the ‘Next Generation EU spirit’, and mitigating the impact of the war in Ukraine on the European economy.
Topic:
Industrial Policy, European Union, Business, Regional Integration, and Value Chains
Political Geography:
Europe