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31. Navigating Geopolitical Realities: The EU’s Strategic Positioning in the South Caucasus and Central Asia

Author:
Tengiz Pkhaladze
Publication Date:
05-2025
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This policy brief examines the strategic importance of the South Caucasus and its pivotal role in the European Union’s evolving engagement with Central Asia. The regional landscape, however, remains highly volatile. Russia’s aggression in Ukraine has had direct and indirect repercussions for the South Caucasus. Against the backdrop of the war, Moscow continues its efforts to maintain the region within its sphere of influence – through military presence, disinformation, economic leverage, and political interference. Twenty percent of Georgia’s territory remains illegally occupied by Russian forces, while the fragile post-conflict environment following the Second Karabakh War continues to shape relations between Armenia and Azerbaijan. While missions such as EUMM in Georgia and EUMA in Armenia reflect the EU’s growing political engagement, they remain limited in scope and capacity, constraining the Union’s ability to address the region’s evolving risks. The EU’s partnerships with South Caucasus countries are characterized by both strategic opportunity and persistent friction. Azerbaijan has become an important energy supplier to the EU, particularly via the Southern Gas Corridor, and is also involved in early-stage renewable initiatives such as the Black Sea Submarine Cable Project. However, the relationship remains complicated by enduring concerns related to governance, human rights, and democratic norms. Georgia, despite receiving EU candidate status in 2023, has prompted growing concern among EU institutions and member states over perceived democratic backsliding and increasing political polarization. The country remains a vital transit hub for the Middle Corridor and a central partner in EU connectivity efforts, but its internal developments have raised questions in Brussels about the sustainability of its European path. At the same time, Georgia continues to be a major target of Russia’s hybrid influence operations, which exploit internal divisions and erode trust in Euro-Atlantic institutions. Armenia, disillusioned with Russia’s security guarantees, is cautiously deepening its engagement with the West. However, the extent of this shift remains contingent on developments in Georgia – given Armenia’s geographic dependence – and on the prospects for a durable peace agreement with Azerbaijan. This policy brief assesses how the EU is managing the tensions between its strategic objectives and its normative commitments in a region increasingly shaped by Great Power rivalry. It concludes with policy recommendations aimed at strengthening the EU’s credibility and effectiveness in both the South Caucasus and Central Asia – advocating for a more coherent, proactive, and principled approach that aligns short-term geopolitical interests with long-term goals for regional stability and integration.
Topic:
European Union, Geopolitics, Strategic Interests, Regional Economy, and Regional Politics
Political Geography:
Russia, Europe, Central Asia, and South Caucasus

32. Collective Action in the Netherlands: Why It Matters for the Transposition of the Product Liability Directive

Author:
Oscar Guinea, Dyuti Pandya, and Vanika Sharma
Publication Date:
06-2025
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This policy brief explores the implications of the Netherlands’ transposition of the new EU Product Liability Directive (PLD), focusing on its interaction with the Dutch collective action system. As one of the first EU countries to implement PLD and a key hub for mass litigation, the Netherlands offers a compelling case study. Features such as low claim thresholds, opt-out mechanisms, flexible settlements, limited cost-shifting, and the ease of creating litigation-backed entities make the Netherlands particularly attractive for mass claims, reinforcing its reputation as a “litigation magnet.” The new PLD simplifies liability claims, broadens the definition of “product” to include software, digital files, and related services, lowers evidentiary thresholds, extends liability to third-party actions such as cyberattacks, and includes post-market defects. These provisions, combined with the Netherlands’ collective redress regime, are expected to drive a rise in mass litigation. This rise poses particular economic risks for the Netherlands, one of the EU’s most digitised economies. Ranked sixth in digital adoption by Eurostat’s Digital Intensity Index, Dutch firms – especially in finance, insurance, ICT, and manufacturing – may also face growing exposure to collective actions under the PLD, which extends liability across the entire value chain. These sectors account for 27 percent of the value added in the Dutch market economy and are widely recognised as key drivers of economic growth. Increased legal uncertainty may also reduce the Netherlands’ attractiveness to multinational corporations, threatening levels of foreign direct investment and employment, both essential pillars of the Dutch economy. Growing mass litigation may also hinder innovation by redirecting R&D resources toward legal risk management. This is particularly concerning for the Netherlands, one of the EU’s top R&D investors. Drawing on US evidence, large-scale litigation can significantly erode market capitalisation, and based on our estimates, the cumulative loss in value for 31 Dutch companies featured in the EU R&D Scoreboard could reach €5.5 billion under the high-growth scenario. Such declines could impact household wealth, as Dutch households save approximately 14.6 percent of their gross disposable income, of which 20 percent is invested in equity. Pension funds, which also play a central role in Dutch long-term savings, can also hold significant stakes in publicly traded Dutch companies. As a result, the effects of collective actions on the market value of Dutch companies extend beyond corporate balance sheets, posing potential negative consequences for Dutch savers, as well as current and future pensioners. This report was commissioned by the European Justice Forum, a coalition of businesses, individuals and organisations that are working to build fair, balanced, transparent and efficient civil justice laws and systems for both consumers and businesses in Europe.
Topic:
European Union, Economy, Litigation, and Liability
Political Geography:
Europe and Netherlands

33. The Impact of Increased Mass Litigation in the UK

Author:
Oscar Guinea, Dyuti Pandya, Vanika Sharma, and Renata Zilli
Publication Date:
06-2025
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Over the past decade, the United Kingdom has seen a marked rise in collective litigation, transforming what was once a niche legal, rarely employed, tool into a fast-growing business model with wide-ranging economic implications. At a time when the country seeks to boost investment, support innovation and attract global business, the proliferation of mass litigation risks undermining these ambitions. This study takes a closer look at how mass litigation is reshaping the UK’s legal, business and regulatory landscape – and asks whether the balance between justice and economic efficiency is tipping too far. The UK stands out among European countries for the ease with which mass claims can be launched. It has long provided a favourable environment for consumer representation and dispute resolution, with a strong culture of accountability. But recent years have seen the emergence of a new ecosystem: law firms specialising in group actions; litigation funders offering upfront capital in exchange for a share of awards; and Claims Management Companies (CMCs) that recruit claimants en masse and process high volumes of cases. The business model has proved highly successful, making group litigation an asset class in its own right and pushing collective actions far beyond traditional sectors such as banking and pharmaceuticals. Today, a growing portion of the UK economy is in the firing line – with potentially damaging consequences. This shift has been rapid and striking. From fewer than 10 mass litigation cases in the late 2010s, the UK saw 47 such actions in 2024 alone, more than any other European country. On a per capita basis, the UK ranks as one of the most litigious jurisdictions in Europe, well ahead of comparable economies such as France or Germany. The implications for the UK economy are far-reaching: many of the companies targeted by these actions operate in sectors that were included in the UK Government’s latest industrial strategy as critical to the country’s future economic growth. Whereas previously limited to financial and professional services, mass litigation cases are now rising in UK companies working in life sciences, advanced manufacturing and digital services. These are industries where risk-taking, long product development cycles and data-driven innovation are the norm. The threat of mass litigation introduces uncertainty and cost at exactly the moment when these businesses need regulatory clarity and investment stability. Moreover, claims against public sector entities involve a direct transfer of capital from the tax payer to hedge fund litigation funders. The financial burden is also considerable. Legal fees and returns to funders often consume a large share of total settlements, reducing the compensation that actually reaches affected individuals. In the Post Office Horizon scandal, for example, £46 million in legal fees and funders payments were deducted from a £57 million settlement, leaving a paltry sum of just over £20,000 per claimant. In the recent judgment of Merricks v. Mastercard, £100 million have been allocated to compensate consumers. Affected individuals could receive up to £70 each if only 5 percent claim, but as little as £2.5 if the full class of 44 million comes forward. These figures raise questions about who really benefits from mass litigation. The limited benefits for individual consumers stand in stark contrast to the substantial costs that mass litigation imposes on the UK economy as a whole. Our scenario modelling shows that, under a scenario where the costs of mass litigation are just 30 percent of the current costs in the US, litigation costs in the UK could reach more than half of the claim value; the cost of mass litigation for the UK economy could reach close to £18 billion, and the market capitalisation of the UK’s most innovative companies could fall by £11.2 billion, more than half the announced public investment into R&D in the 2025 Autumn Budget. These financial pressures affect the whole country. While many large companies are headquartered in Greater London, their operations, and the jobs they support, are often spread across the wider regions. This means that the impact of a legal challenge is not just a concern for a corporate boardroom in London, but it impacts local economies and communities across the UK. As the Civil Justice Council reviews the framework for litigation funding, this study provides evidence to inform the debate. It does not argue against collective actions per se but urges a careful weighing of their benefits against broader economic costs. If the UK wants to remain an attractive destination for business, investment, and innovation, it must ensure that its legal infrastructure supports rather than stifles those ambitions.
Topic:
Economics, European Union, Finance, and Litigation
Political Geography:
United Kingdom and Europe

34. Strengthening the Supply-Side Innovation in EU Telecommunications

Author:
Fredrik Erixon, Oscar Guinea, and Dyuti Pandya
Publication Date:
06-2025
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
The telecommunications sector is central to the EU’s competitiveness, not only providing the infrastructure that underpins digital connectivity but also serving as a key driver of innovation. Recent EU reports already highlight the persistent structural challenges faced by the EU telecommunication sector: market fragmentation, low investment levels, divergent spectrum policies, and an urgent need to bolster digital sovereignty. However, a critical dimension in this discussion often receives far less attention: the supply of the underlying technologies that power telecommunications infrastructure. In this domain, EU companies remain competitive. In 2023, 27 EU-headquartered firms were among the world’s top 2,000 R&D spenders in telecommunications, accounting for 16 percent of global sectoral investment. These figures underscore that, while Europe may lag in investment and infrastructure, it still holds strategic leadership in telecom innovation and technology development. Central to Europe’s success are standard development organisations (SDOs), technical standards, and Standard Essential Patents (SEPs). SDOs provide collaborative forums where companies jointly develop technical standards that ensure interoperability, reduce fragmentation and foster innovation. Complementing this, SEPs protect the innovations embedded within these standards, granting European companies vital licensing revenues that sustain their research efforts. This system is particularly important for EU firms, which tend to be smaller than their global competitors; it enables them to specialise in cutting-edge technology development and commercialise their innovations globally without needing to dominate manufacturing or end-user markets. As competitiveness in telecommunications increasingly depends on the pace and adoption of innovation, the EU faces both a challenge and an opportunity. European firms have the potential not only to supply critical technologies but to drive breakthroughs in connectivity which are linked to the development of other technologies such as artificial intelligence (AI) or quantum technologies. However, to stay competitive, the EU must reinforce its position on the supply side, where its companies still operate at the technological frontier.
Topic:
Economics, European Union, Digital Economy, Innovation, and Supply and Demand
Political Geography:
Europe

35. Are bad governments a threat to sovereign defaults? The effects of political risk on debt sustainability

Author:
Samantha Ajovalasit, Andrea Consiglio, Giovanni Pagliardi, and Stavros Zenios
Publication Date:
01-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Political risk is a significant determinant of bond yields and economic growth in both developed and emerging markets and we develop a debt sustainability analysis model with both channels using a country ratings proxy of political risk. Political risk also affects a sovereign’s willingness to pay and it can render debt unsustainable, triggered by changes in the rating level, volatility or both. Conversely, sustainability can be restored through reforms that can be as effective as large-scale quantitative easing programmes. The political effects on debt are especially large for high-debt countries during periods of high interest rates, and have an impact on debt management through the choice of optimal financing maturities.
Topic:
Governance, European Union, Macroeconomics, Sustainability, Public Debt, and Sovereign Debt
Political Geography:
Europe

36. Dilemmas for the EU in deficit-financing of defence expenditure and maintenance of fiscal discipline

Author:
Lucio Pench
Publication Date:
03-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The European Union is grappling with the challenge of increasing defence expenditure while maintaining fiscal discipline under the Stability and Growth Pact (SGP). The European Commission has proposed activating the national escape clause available under the SGP to accommodate defence spending without triggering the excessive deficit procedure (EDP). However, the scope and enforcement of this measure remain uncertain. A proposed 1.5 percent of GDP cap on extra fiscal flexibility is legally questionable and unlikely to be enforced. While low-debt countries do not require the clause due to existing flexibility, highly indebted nations may find it insufficient in the face of rising debt costs. The escape clause may also serve as a backdoor for European Central Bank interventions under the Transmission Protection Instrument, which requires compliance with EU fiscal rules. The Commission has also proposed the Security Action for Europe (SAFE) funding mechanism, a €150 billion loan programme to finance national defence investments. SAFE relies on national borrowing and follows the model of the SURE (Support to mitigate Unemployment Risks in an Emergency) facility, put in place during the COVID-19 pandemic. However, SAFE’s limited scale and dependence on national fiscal capacities mean it falls short of the collective security funding approach advocated by economists. Meanwhile, Germany’s decision to reform its constitutional debt brake marks a major departure from its traditional fiscal policies. The reform establishes a permanent ‘defence golden rule’, exempting military spending from borrowing limits, alongside a €10 trillion infrastructure fund. Although this move does not endanger Germany’s fiscal sustainability, it undermines EU-wide fiscal coordination and conflicts with the SGP. This could weaken the European Central Bank’s position in future market interventions. Given these challenges, discussions on a new EU fiscal framework are necessary to ensure fiscal flexibility while maintaining debt sustainability.
Topic:
Security, Budget, European Union, Fiscal Policy, and Defense Spending
Political Geography:
Europe

37. The quickly fading memory of why and when bank capital is important

Author:
Jesper Berg, Nicolas Boivin, and Hans Geeroms
Publication Date:
04-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Less than fifteen years after the global financial crisis of 2007-2008, banks and policymakers are calling for deregulation and lower capital requirements in the financial sector. They dispute that the Basel framework, the global standards for regulating large international banks, should be implemented fully in the European Union. One concern is that stricter capital regulation will affect the competitiveness of European banks compared to those in the United States and will restrict loan provision in the EU, despite Europe’s significant investment gap. However, deregulation should not be confused with reducing capital requirements for banks. On balance, there is only limited empirical evidence that respecting the capital requirements necessary to support financial stability hampers credit to the economy, investment or economic growth in the long term. Only well-capitalised banks can continue financing the economy during economic setbacks, and weakening the implementation of the Basel standards increases the risks of a new financial crisis. Bank lending and access to financing surveys also show there is no credit crunch in the euro area at present and that capital requirements are not the primary constraint on credit provision. A detailed look at current banking regulation does not support the conclusion that European banks are more strictly regulated overall than US banks. A direct comparison suggests rather the opposite. However, the compliance cost incurred by EU banks from current banking regulation can be reduced by simplifying EU rules.
Topic:
Markets, Financial Crisis, European Union, Regulation, Capital, and Banking
Political Geography:
Europe

38. Lessons for the European Central Bank from the 2021-2023 inflationary episode

Author:
Pablo Hernández de Cos
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Since mid-2021, the euro-area economy has gone through several shocks, leading to the highest inflation since the creation of the European Monetary Union. A forceful and persistent response from the European Central Bank, grounded in the monetary policy framework it agreed in 2021 ahead of the inflationary episode, has succeeded in bringing inflation down and delivering on the central bank’s price-stability mandate. The framework will be reviewed in 2025 and it might conclude that there is no need for a drastic change. Nevertheless, this assessment should be compatible with identifying some areas for improvement. In particular, the 2021 review was primarily focused on the effective lower bound. The recent inflationary episode, together with high ongoing uncertainty, indicate that the articulation of monetary policy strategy frameworks should be robust to very different scenarios. Likely persistence of high levels of uncertainty over the next few years will also require an emphasis on flexibility to adapt to the magnitude, origin and persistence of shocks. Unconditional forward guidance should be avoided. In addition, there might be a need to more clearly distinguish in the future, when possible, between quantitative easing for market functioning versus monetary stimulus, which could incentivise a careful assessment of the amount, duration and structure of any asset purchase programme. Communication also needs to be improved in relation to the level of uncertainty and its consequences for monetary policy making with, for instance, greater use of scenarios and sensitivity analyses as appropriate. Improving forecasting/modelling tools, in particular when dealing with large supply shocks, and understanding the roles of different measures of inflation expectations should also be priorities.
Topic:
Monetary Policy, Governance, European Union, Central Bank, and Macroeconomics
Political Geography:
Europe

39. Which companies are ahead in frontier innovation on critical technologies? Comparing China, the European Union and the United States

Author:
Alicia Garcia-Herrero, Michal Krystyanczuk, and Robin Schindowski
Publication Date:
05-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Competition in critical technologies is attracting increasing attention not only because of the foundational nature of these technologies for other types of innovation, but also because of their role in the United States national security strategy. In this paper, we look into which entities in China, the European Union and the US innovate at the technology frontier in the three most important critical technologies – artificial intelligence, quantum computing and semiconductors – based on identification of the most radical novel patents in these technologies and their subsectors. Working with these pathbreaking patents, we look into the origin of the companies that file the largest numbers of them. US innovators dominate the innovation frontier for quantum computing and, to a lesser extent, AI, with Chinese innovators doing better in semiconductors. European innovators lag in all, but perform relatively better in quantum computing, in which they rank similarly to Chinese innovators. Furthermore, the innovation ecosystem is quite different across geographies. In the US, tech companies top the rankings of critical novelties and are highly concentrated: as many as three companies are in the top rankings of all of the three critical technologies. Frontier innovators in the field in which the EU competes most equally – quantum – are mostly research centres and not companies. China lies somewhat in between in all three domains.
Topic:
Science and Technology, European Union, Innovation, Artificial Intelligence, Semiconductors, and Quantum Computing
Political Geography:
China, Europe, Asia, and United States of America

40. Implementing the EU Nature Restoration Law: exploring pathways for member states

Author:
Heather Grabbe, Bas Heerma van Voss, Camille Mehlbaum, and Sjoerd van der Zwaag
Publication Date:
06-2025
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The European Union Nature Restoration Law (NRL) entered into force in 2024. The NRL sets quantitative restoration targets aimed at improving natural habitats that are currently in poor condition, with substantial leeway for countries to choose implementation pathways that fit their priorities. This Working Paper examines three pathways: (1) evenly spreading restoration efforts across all ecosystems; (2) prioritising cost-efficiency; and (3) maximising carbon sequestration. Each approach yields vastly different outcomes. This paper provides insights into the trade-offs. For countries seeking to minimise costs in the short run, an 81 percent reduction in costs over the period 2025-2030 is possible compared to a baseline scenario of an even restoration of all ecosystems. Countries that aim to maximise carbon sequestration benefits can achieve a 54 percent increase in climate impact over the same period. However, the different pathways converge after 2040. Prioritising cost minimisation in the early years could lead to higher costs later if delays in investment in the more costly restoration projects allow habitats to continue to degrade. Maximising cost-efficient carbon sequestration is possible, allowing relatively low investment costs and high sequestration. Countries should adopt a holistic approach to pathway selection, considering the full spectrum of ecological and societal gains alongside climate mitigation. Land ownership is an important factor that shapes feasible and effective pathways. In countries such as Spain and Germany, where private entities own substantial shares of agricultural and forest lands, policies should incentivise private investment, including through norms, subsidies or pricing mechanisms. Countries with substantial public landholdings, such as the Netherlands, may find it easier to implement direct restoration projects. These structural differences will influence the cost and pace of restoration and also the design of policies and governance mechanisms to ensure compliance with NRL targets.
Topic:
Climate Change, European Union, Decarbonization, Green Deal, Energy, and Carbon Sequestration
Political Geography:
Europe