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1. What should be done about Google’s quasi-monopoly in search? Mandatory data sharing versus AI-driven technological competition

Author:
Bertin Martens
Publication Date:
07-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The first part of this paper focuses on competition between search engines that match user queries with webpages. User welfare, as measured by click-through rates on top-ranked pages, increases when network effects attract more users and generate economies of scale in data aggregation. However, network effects trigger welfare concerns when a search engine reaches a dominant market position. The EU Digital Markets Act (DMA) imposes asymmetric data sharing obligations on very large search engines to facilitate competition from smaller competitors. We conclude from the available empirical literature on search-engine efficiency that asymmetric data sharing may increase competition but may also reduce scale and user welfare, depending on the slope of the search-data learning curve. We propose policy recommendations to reduce tension between competition and welfare, including (a) symmetric data sharing between all search engines irrespective of size, and (b) facilitate user real-time search history and profile-data portability to competing search engines. The second part of the paper focuses on the impact of recent generative AI models, such as Large Language Models (LLMs), chatbots and answer engines, on competition in search markets. LLMs are pre-trained on very large text datasets, prior to usage. They do not depend on user-driven network effects. That avoids winner-takes-all markets. However, high fixed algorithmic learning costs and input markets bottlenecks (webpage indexes, copyright-protected data and hyperscale cloud infrastructure) make entry more difficult. LLMs produce semantic responses (rather than web pages) in response to a query. That reduces cognitive processing costs for users but may also increase ex-post uncertainty about the quality of the output. User responses to this trade-off will determine the degree of substitution or complementarity between search and chatbots. We conclude that, under certain conditions, a competitive chatbot markets could crowd out a monopolistic search engine market and may make DMA-style regulatory intervention in search engines redundant.
Topic:
Science and Technology, Governance, European Union, Digital Economy, Innovation, Artificial Intelligence, and Competition
Political Geography:
Europe

2. What would Europeans want a European defence union to look like?

Author:
Francesco Nicoli, Brian Burgoon, and David Van der Duin
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
While the Russian invasion of Ukraine has created a new momentum for EU defence integration, the political feasibility of such integration remains disputed, as it may entail both additional financial costs and a loss of sovereignty. Furthermore, design of defence integration is inherently multidimensional, differing in terms of scope and level, governance and sources of financing, among other dimensions. To determine the extent of public support for European security cooperation, we conducted the first conjoint experiment ever fielded on public support for alternative defence union designs. We carried out a pre-registered, randomised conjoint experiment on a highly representative sample of the French, German, Italian, Dutch and Spanish populations in November 2022. This multidimensional conjoint experiment allows us to determine the causal link between policy features of potential defence pacts, and public support or opposition to such policy. Our results show that policy packages receiving the most support require joint EU-level governance, joint purchases of military equipment through joint procurement, and repurposing of existing national expenditure as the preferred form of financing. All in all, our results show not only that there is considerable cross-border support for defence integration in Western Europe, but also that citizens in different Western European countries have generally aligned preferences regarding the actual design of such policy, indicating that a compromise policy is feasible and publicly supported. Furthermore, our results support ongoing research on the nature of European solidarity at times of crisis, suggesting that European citizens are willing to support the creation of joint institutions and policies to face issues of common concern, and therefore indicating that major crises open important windows of opportunity to re-shape EU-level policies and institutions.
Topic:
Defense Policy, Governance, European Union, and Regional Security
Political Geography:
Europe

3. Antitrust issues raised by answer engines

Author:
Christophe Carugati
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Rapid development of generative artificial intelligence chatbots like ChatGPT is leading search engine providers to move from search to answer engines. Unlike search engines, which provide search results in the form of blue links to content creators, answer engines generate personalised answers through a conversation with end users. This revolution impacts the internet ecosystem of content creators and the digital advertising market. This paper outlines some early antitrust issues related to answer engines, from the transition from search to answer engines (sections 2 and 3) and the response competition authorities should adopt (section 4). It finds that search and answer engines complement and compete with each other. While the answer-engine market is still at an early stage of development, it already raises some competition issues in relation to data scraping, vertical integration and unfair terms and conditions. Intervention by competition authorities is more likely than not to prevent market power in this new market. In this regard, competition authorities should act to preserve dynamic competition and minimise adverse effects on content creators. Finally, the paper concludes with several research questions for future research (section 5).
Topic:
Science and Technology, Governance, European Union, Digital Economy, Innovation, Artificial Intelligence, and Competition
Political Geography:
Europe

4. Pro- and anti-competitive provisions in the proposed European Union Data Act

Author:
Bertin Martens
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The proposed European Union Data Act gives users access and portability rights to the data generated by their use of tangible digital products and devices. This pro-competitive measure weakens the de-facto monopolistic control product manufacturers have over product data. However, the Data Act would also grant manufacturers a de-jure right to monopolistic pricing of data transfers to third-party service providers, restoring their control over data markets. Other anti-competitive provisions include restrictions on the use of data for competition purposes and a prohibition on transfering data to platforms identified as gatekeepers under the EU Digital Markets Act. Unnecessarily fuzzy definitions of products and data that fall under the Data Act would create uncertainty in implementation and incoherence with other EU data regulations. The Data Act should be simplified by dropping anti-competitive provisions and granting users and third-parties selected by users free access to all data generated by the use of a product or a service. This would increase competition in data-driven services and prevent users paying twice for their data. It would not disincentivise producers from investing in data-driven products and services. A further step could be the creation of a level playing field between producers and users in data-access rights. This can be achieved by introducing the principle of mutual exhaustion of data rights at point of sale. This would put all data co-generating parties in a position to generate economies of scale and scope in data aggregation, or data-driven externalities, to maximise innovation.
Topic:
Markets, Governance, European Union, and Digital Economy
Political Geography:
Europe

5. Rebooting the European Union’s Net Zero Industry Act

Author:
Simone Tagliapietra, Reinhilde Veugelers, and Jeromin Zettelmeyer
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In March 2023, the European Commission published a legislative proposal for an EU response to the US Inflation Reduction Act: the Net Zero Industry Act (NZIA). It is an unconvincing policy proposal, both for what is in it and for what is not in it. The proposal has five problematic aspects. First, it takes a top-down approach, in which specific technologies are selected for preferential treatment. Preferable would be a technology-neutral approach open to all current and future technologies that help tackle the net-zero challenge. Second, its blanket 40 percent self-sufficiency benchmark for EU domestic cleantech manufacturing by 2030 sends a protectionist signal, is poorly defined and does not reflect the differences in EU capacity in the cleantech sector. Third, it relies on the acceleration of permitting procedures as the main policy instrument, although this is not the main obstacle to cleantech investment in the EU. Fourth, it proposes more strategic use of public procurement. While this is an objective to be supported, the specific proposals are likely to be ineffective because of the way they are designed. Fifth and not least, the NZIA would lack a governance structure that would ensure effective implementation. In addition, the NZIA does not tackle three critical issues. It does not address investment obstacles related to failures of the single market. It does not tackle the coordination problem at the core of developing an EU green industrial policy. Finally, it does not develop an EU-level funding strategy, but rather relies on state aid, with the related risk of fragmentation. The European Parliament and EU countries in the Council of the EU should reboot the proposal and refocus its objectives, sharpening its limited instruments, improving its governance, and adding financial incentives to ensure implementation. In parallel, the EU should develop a broader green industrial policy strategy that leverages the single market in a credible manner, building a solid new governance framework and a new EU-level funding approach.
Topic:
Climate Change, Industrial Policy, Governance, European Union, Trade Policy, and Industry
Political Geography:
Europe

6. The value added of central bank digital currencies: a view from the euro area

Author:
Maria Demertzis and Catarina Martins
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Different jurisdictions have set out different reasons for creating central bank digital currencies (CBDCs). Some countries, particularly those with already-operational CBDCs for retail purposes, aim to to promote financial inclusion. But in countries where most citizens have access to financial services, central banks are interested in CBDCs as an aspect of the increasing digitalisation of finance. Central banks could also choose to use CBDCs to guarantee in full citizen’s holdings (currently, deposits in commercial bank are only partially guaranteed), but this would trigger major changes in the financial system in terms of the role of commercial banks in intermediation and the role of fiat money. So far, central banks have not opted to go this way. In the euro area, consumers have multiple payment options and a very efficient retail payments system. The currency enjoys high levels of trust and is not challenged by the emergence of private currencies, such as Bitcoin, or by the risk that cash, a monetary system’s anchor, will disappear. Therefore, creating a CBDC for retail purposes in the euro area offers little obvious value added, at least for the foreseeable future. However, there is a strong case for building a CBDC that banks could use for cross-border wholesale purposes (ie with other currencies). Wholesale CBDCs could revolutionise the way that cross-border, cross-currency payments are made for two reasons. Cross-border payments are currently slow and inefficient. Pilot projects have shown that wholesale payments with CBDCs can generate substantial time and cost savings. Any two central banks that have operational wholesale CBDCs could settle transactions between themselves. This would be very different from the current system, as most settlements today are done via the dollar (and then the euro) infrastructure and use correspondent banks. The euro area and the United States would have to consider carefully from a geopolitical perspective how wholesale CBDCs might affect their global economic standing. By developing a CBDC for wholesale purposes, the European Union would be able to contribute to developing the global standard.
Topic:
Monetary Policy, Governance, Regulation, Central Bank, Digital Currency, and Euro
Political Geography:
Europe

7. The longer-term fiscal challenges facing the European Union

Author:
Jeromin Zettelmeyer, Gregory Claeys, Zsolt Darvas, Lennard Welslau, and Stavros Zenios
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The pandemic and subsequent price shocks triggered by Russia’s invasion of Ukraine, have increased longer-term fiscal pressures in the European Union through higher debt, higher expected real interest rates and higher public investment needs. This Policy Brief makes some simple quantitative assessments of those effects and discusses policy implications, with the following results. First, long-term increases in primary fiscal balances required to offset higher debt and higher expected real interest rates are in the range of 0.5 percent to 1.5 percent of GDP for most EU countries. However, because of pre-existing differences in fiscal space, not all countries will need to undertake that adjustment, while some countries may need to adjust by substantially more. Among the 21 EU countries for which we have data to undertake this analysis, 14 will need to adjust by more than they were planning to do by 2025. Second, the required additional fiscal adjustment looks manageable, although it is substantial in some cases. To achieve medium-term debt-reducing primary balances, several EU countries will need to raise primary balances by more than 2 percent of GDP above their 2025 target, but no country will need additional fiscal adjustment of more than 3 percent of GDP. Third, market data suggests that the future path of real interest rates is very uncertain. Compared to the period immediately preceding the pandemic, longer-term expected real interest rates have increased by about 2 percentage points but remain low on average, at about 1 percent in real terms. Future developments depend on whether the structural factors that led to low interest rates in the first place persist or unwind. While interest rates might decline again, fiscal policymakers should not make plans that assume such a decline. Fourth, public spending needs for additional defence and climate spending run well above 1 percent of GDP per year. These needs do not appear to have been incorporated into current fiscal baselines, and hence will come on top of the adjustment described above. To ensure that fiscal adjustment does not defeat its purpose by slowing growth, it is essential that it is conducted gradually. In countries that require such adjustment, it should start as soon as cyclical conditions allow.
Topic:
Governance, European Union, Finance, and Fiscal Policy
Political Geography:
Europe

8. How Europe should answer the US Inflation Reduction Act

Author:
David Kleimann, Niclas Poitiers, André Sapir, Simone Tagliapietra, Nicolas Veron, Reinhilde Veugelers, and Jeromin Zettelmeyer
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The 2022 United States Inflation Reduction Act (IRA) is a significant and welcome climate law. It also includes trade-distortive subsidies, including local-content requirements prohibited under World Trade Organisation rules – the first time the US has done this and a blow to the international trading system that could trigger protectionism in other countries. The expected IRA green subsidies are of similar size to those available in the European Union, except in renewable energy production, where EU subsidies remain far larger. However, there are important qualitative differences. Some IRA subsidies discriminate against foreign producers while EU subsidies do not. IRA clean-tech subsidies are simpler and less fragmented, and they focus mainly on mass deployment of green technologies rather than innovation. The IRA will likely harm Europe through its competitiveness effect, while it will likely benefit climate transition in Europe and most of the rest of the world. However, the magnitude of both effects is very uncertain, partly because the IRA will induce substitution away from Chinese inputs. By forcing the reorganisation of supply chains, the IRA may make the EU and other economies more competitive relative to China. It may also initially slow the green transition. But in the longer run, this effect should be outweighed by the reduction in the cost of clean tech driven by the IRA. In responding to the IRA, the EU should not just seek to protect its competitiveness relative to the US but to pursue broader aims, including competitiveness in general, speedy decarbonisation and broad foreign policy and development policy goals. These aims imply that the EU should not impose local-content requirements of its own, should not loosen state-aid rules and should not mimic the IRA’s approach to manufacturing subsidies. Rather, it should focus on boosting its structural competitiveness, formulate a trade policy response that includes reform of the international subsidies regime, and develop an instrument for EU-level subsidies that focuses on early-stage development and increasing EU resilience to trade disruptions.
Topic:
Governance, European Union, Inflation, and Trade
Political Geography:
Europe

9. How have sanctions impacted Russia?

Author:
Maria Demertzis, Benjamin Hilgenstock, Ben McWilliams, Elina Ribakova, and Simone Tagliapietra
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Russia’s invasion of Ukraine has triggered a series of sanctions imposed by the European Union, the United States and others. Sanctions included restrictions on Russia’s financial industry, its central bank and its coal and oil exporters, in addition to general export controls. Meanwhile, foreign companies have withdrawn voluntarily from the Russian market as a result of a ‘self-sanctioning’ trend. We assess the impact these sanctions have had on Russia’s economy in the immediate aftermath of the invasion and more structurally. Russian fiscal revenues have not suffered from sanctions sufficiently to reduce the length of this war. Effective management by the Bank of Russia has prevented financial instability and has therefore also protected the real economy. However, this picture of economic containment is coming to an end. Russia’s fiscal revenues are now beginning to take a hit; given the breadth of sanctions, the economy will suffer in the medium to long term. The voluntary departure of a large number of western firms, eventual energy decoupling by the EU and Russia’s inability to find equal alternatives will damage the Russian economy severely. As the Russian economy closes in on itself, it will become harder to find reliable data to evaluate the extent of the hit. Still greater sanctions coordination across the globe is needed to isolate the Russian economy, limit the flow of income into Russian coffers and therefore help stop the war.
Topic:
Governance, Sanctions, Economy, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

10. Will Ukraine’s refugees go home?

Author:
Uri Dadush and Pauline Weil
Publication Date:
09-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
About 15 percent of the population has fled Ukraine since the start of the Russian aggression in February 2022. Nearly 4 million Ukrainians have already registered in European Union countries. Based in part on evidence that few refugees return voluntarily to poor countries once they settle in rich countries, even once security is re-established at home, it can be expected that large numbers of Ukrainian refugees are likely to remain in European host countries, and will likely be joined by others, including many men that remained to fight when the conflict is over. Ukraine already has a long history of emigration. Its shattered economy, the likelihood of a protracted conflict and significant uncertainty with regard to its final status reinforce the argument that most refugees will not return and many more will join them. EU nations must prepare for. There will be large short-term costs and long-term economic gains from Ukrainian immigration in Europe. The best way to help Ukraine, and to moderate the likely outflow of its people, will be to assist in the country’s reconstruction, and not to place artificial impediments to the immigration of individuals who have already suffered greatly.
Topic:
Migration, Governance, Reconstruction, Refugees, Economy, Trade, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

11. Enlarging and deepening: giving substance to the European Political Community

Author:
Franz Mayer, Jean Pisani-Ferry, Daniela Schwarzer, and Shahin Vallée
Publication Date:
09-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
France’s President Emmanuel Macron and Germany’s Chancellor Olaf Scholz have stressed the geopolitical emergency of re-designing the European Union’s relationship with its neighbourhood. Both acknowledge that EU enlargement is necessary, but also emphasise that profound EU institutional reform is required beforehand, though deepening and widening the EU are complex processes that veto players could block. The geopolitical challenges mean it is in the critical interest of the EU to bring stability to its neighbourhood by ensuring geopolitical alignment with the EU, limiting the blackmailing power of external, authoritarian states, supporting more resilient democracies and strengthening the rule of law. Meanwhile, the EU’s neighbours are seeking a political space in which challenges to collective security and stability can be addressed and concrete policies decided. Given the urgency, it is not enough to rely on lengthy EU accession processes. A ‘European Political Community’ (EPC), which will have its first summit on 6 October 2022, could act both as a bridge to an eventual larger EU and as a framework for continental-scale partnership. Leaders should use the summit to start the building of a platform that can combine political dialogue with policy delivery in a quick and flexible way, and will thus structure more impactfully the relationship between the EU and its neighbourhood. The EPC could start as a soft law agreement between states and the EU. It would work with existing institutions as far as possible, while aiming at more effective decision-making than currently in the EU. For instance it could function without vetoes and could work in geopolitically relevant areas that are not yet EU competences. An ambitious EPC would provide financial resources for deeper cooperation on energy and climate, security and defence, and economic and social convergence. The EPC would not be, and should not be, regarded as a substitute for EU accession, but should be designed in such a way that it can work as an accelerator. For countries not seeking to join the EU, it would provide an ongoing framework that sustains structured cooperation with the EU.
Topic:
Security, Politics, Governance, and European Union
Political Geography:
Europe

12. The great COVID-19 divergence: managing a sustainable and equitable recovery in the European Union

Author:
Gregory Claeys, Zsolt Darvas, Maria Demertzis, and 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, and COVID-19
Political Geography:
Europe

13. Talking about Europe: exploring 70 years of news archives

Author:
Enrico Bergamini and Emmanuel Mourlon-Druol
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper quantitatively explores news coverage on the subject of ‘Europe’ in three different countries and three newspapers: France (Le Monde), Italy (La Stampa) and Germany (Der Spiegel). We collected and organised large web-scraped datasets covering the period 1945 to 2019. After ensuring the quality of the archives, we identified articles referring to ‘European’ news while leaving aside national and other non-European news, based on a mix of keyword matching, large-scale natural language processing and topic identification on the full text of news articles. Once articles were classified and datasets labelled, we performed a time-series analysis, detecting salient events in European history, across France, Germany and Italy. We analysed these events in light of the evolution of European cooperation and integration since 1945. We found that the most important events in post-war European history are easily identifiable in the archives and that European issues have gathered substantially greater attention since the early 1990s.
Topic:
Governance, Public Opinion, European Union, Media, Populism, and Data
Political Geography:
Europe

14. Low interest rates in Europe and the US: one trend, two stories

Author:
Maria Demertzis and Nicola Viegi
Publication Date:
03-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
In both Europe and the United States, interest rates have been declining for more than fifteen years. For much of this period, real interest rates have been negative and they are expected to remain negative for at least another decade. The literature associates this decline in interest rates with a similarly protracted decline in productivity. But the decline in productivity appears paradoxical given major technological advances. The decline in the price of capital is underpinned by the factors that have caused a decline in demand for capital, as well as a relative increase in its supply. On the supply side, aging and an increase in overall macroeconomic risk since the financial crisis have both led to increased savings. On the demand side, the increase in the importance of intangible capital in production has reduced the demand for physical capital. Nevertheless, for the US, the literature has identified the increase in market concentration as the biggest factor responsible for the reduction in the overall demand for capital. Digital innovation has led to the creation of champion firms that have captured big market shares and have been able to prevent others from entering not only the US market, but markets globally. This has dampened investment. Europe is affected by US digital dominance, but other factors, including aging and increased risk, are more prominent in sustaining the downward pressure on interest rates. In particular, the lack of risk capital, in the context of capital markets, contributes to this downward pressure in the EU. As the knowledge economy relies increasingly on intangible capital, a bank-based system that requires collateral is not well suited to finance investments. A lack of suitable finance will remain an important factor in the downward pressure on interest rates. The structural factors behind the downward pressure on interest rates imply that macroeconomic policy will have a reduced role in managing aggregate demand. Monetary policy in the euro area will be more about preventing financial fragmentation and less about stimulating demand. Equally, fiscal policy will have more of a supporting rather than stimulating role. Tackling the structural decline in market dynamism and therefore in real rates will require structural policies to reduce market power globally and ensure the creation of capital markets in the EU.
Topic:
Monetary Policy, Governance, European Union, Finance, and Macroeconomics
Political Geography:
Europe, North America, and United States of America

15. Interest in European matters: a glass three-quarters full?

Author:
Francesco Papadia, Enrico Bergamini, Emmanuel Mourlon-Druol, and Giuseppe Porcaro
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
A disconnect between European Union integration and the level of interest of EU citizens in European matters is a potential weakness in the EU’s democratic foundations. The existence and possible size of this disconnect is a critical issue in assessing the potential for further integration of the EU and the risks to its stability. To move beyond qualitative assessments of this disconnect, we use three indicators to measure EU citizens’ interest in Europe: turnout in European Parliament elections relative to national elections, Eurobarometer surveys of interest in Europe, and the presence of European news in national newspapers, relative to all published news. We interpret our empirical results using three frameworks: Putnam’s social capital concept, the agenda-setting hypothesis and the no-demos hypothesis. All three indicators point to an increased interest in European matters, especially since the 1990s and the creation of the euro. However, this result does not settle the issue of whether the increased level of interest matches the actual state of integration of the EU’s member countries. Our results indicate the European construction maintains a technocratic character.
Topic:
Governance, European Union, Media, Populism, and Macroeconomics
Political Geography:
Europe

16. The productivity paradox: policy lessons from MICROPROD

Author:
Gregory Claeys and Maria Demertzis
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Productivity growth in Europe has been on a downward trend for several decades. Given that productivity growth is a crucial source of output growth, particularly in an aging society like the European Union, it is crucial to understand what is driving this slowdown and what the potential consequences are for our economic model and for citizens’ welfare. Some explanations for this trend are global in nature, but there are also significant differences in country structures in Europe that have led to different outcomes and that need to be accounted for before policy prescriptions can be made. The objective of MICROPROD, an EU-wide research project that runs until the end of 2021, is to contribute to this research strand by using data from various European countries to study the microeconomic mechanisms behind this macroeconomic phenomenon. In particular, the aim is to understand the challenges posed to Europe by the fourth industrial revolution and its impact on productivity in the context of globalisation and digitalisation, and to recommend policies to address these challenges. MICROPROD researchers have so far delivered 20 papers on four broad issues relevant for today’s policy debates: the measurement and effects of intangible capital on productivity; the impact of globalisation, international trade and the integration of global value chains (GVCs) on productivity; factor allocation and allocative efficiency; and finally the social consequences of the two structural shocks Europe has faced in the last two decades: globalisation and technological progress. This Policy Contribution reviews the main conclusions of these 20 MICROPROD papers and how they inform policy debates. However, the mid-point of the three-year MICROPROD project also coincided with the start of the COVID-19 crisis, which might have accelerated some trends or possibly reversed others. We therefore discuss how some of the messages of MICROPROD research may contribute to our understanding of the current crisis and its aftermath.
Topic:
Globalization, Governance, European Union, Macroeconomics, Productivity, and Digitalization
Political Geography:
Europe

17. Economic crisis in the Middle East and North Africa

Author:
Marek Dabrowski and 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, and Economic Crisis
Political Geography:
Europe, Middle East, and North Africa

18. The nonsense of Next Generation EU net balance calculations

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, and COVID-19
Political Geography:
Europe

19. Six years after Ukraine’s Euromaidan: reforms and challenges ahead

Author:
Marek Dabrowski, Marta Dominguez-Jimenez, and Georg Zachmann
Publication Date:
06-2020
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Since the Euromaidan protests (2013-2014), Ukraine has had two presidents and four governments. In a difficult environment of external aggression, they have initiated various reforms aimed at bringing the country closer to the European Union and boosting growth. Progress has been partial and relies on international backing, with limited domestic appetite for reform.
Topic:
Corruption, Privatization, Foreign Aid, Governance, Reform, European Union, Finance, and Macroeconomics
Political Geography:
Europe and Ukraine

20. The financial fragility of European households in the time of COVID-19

Author:
Maria Demertzis, Marta Dominguez-Jimenez, and Annamaria Lusardi
Publication Date:
07-2020
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The concept of household financial fragility emerged in the United States after the 2007-2008 financial crisis. It grew out of the need to understand whether households’ lack of capacity to face shocks could itself become a source of financial instability.
Topic:
Governance, European Union, Finance, Macroeconomics, and COVID-19
Political Geography:
Europe