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21. Labour Market Reforms and Current Account Imbalances: Beggar-thy-neighbour policies in a currency union?

Author:
Ansgar Belke and Timo Baas
Publication Date:
09-2014
Content Type:
Working Paper
Institution:
Centre for European Policy Studies
Abstract:
Member countries of the Economic and Monetary Union (EMU) initiated wide-ranging labour market reforms in the last decade. This process is ongoing as countries that are faced with serious labour market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbour policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyse the impact of labour market reforms on the transmission of macroeconomic shocks in both non-reforming and reforming countries. By analysing the impact of reforms on foreign debt, we contribute to the debate on whether labour market reforms increase or reduce current account imbalances.
Topic:
Debt, Economics, Politics, Labor Issues, and Reform

22. Was the ECB's Comprehensive Assessment up to standard?

Author:
Willem Pieter De Groen
Publication Date:
11-2014
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The Comprehensive Assessment conducted by the European Central Bank (ECB) representsa considerable step forward in enhancing transparency ineuro-area banks' balance sheets. The most notable progress since the previous European stress test has been the hamonisation of the definition of non-performing loans and other concepts as well as uncovering hidden losses, which resulted in a €34 billion aggregate capital-chargenet of tax. Despite this tightening,most banks were able to meet the 5.5% common equity tier 1 (CET1) threshold applied in the test, whichsuggests that the large majority of the euro-area banks have improvedtheir financial position sufficiently to no longer constrainthem in financing the economy.Our own estimation based on the detailed results, however,provide a more nuanced picture, with a large numberof the banks still highly leveraged and in many cases unable to meet the regulatory capital requirementsthat will be introduced in the coming years underthe adverse stress test scenario.
Topic:
Debt, Economics, International Trade and Finance, and Global Recession
Political Geography:
Europe

23. Russia's Punitive Trade Policy Measures towards Ukraine, Moldova and Georgia

Author:
Michael Emerson, Denis Cenusa, Tamara Kovziridse, and Veronika Movchan
Publication Date:
09-2014
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
While EU and US sanctions against Russia over its aggression in Ukraine, and Russia's counter-sanctions, are much discussed due to their evident political significance, less attention has been given to Russia's punitive sanctions against the three Eastern European states – Ukraine, Moldova and Georgia – that have signed with the EU Association Agreements (AA), which include Deep and Comprehensive Free Trade Area (DCFTA) provisions. This paper therefore documents these trade policy restrictions and embargoes imposed by Russia, and provides some first indications of their impact. The immediate impact on trade flows, especially for agri-food products, has been substantial, albeit with some leakage through Belarus. The main instrument for the Russian measures has been allegations of non-conformity with Russian technical standards, although the correlation of these allegations with movements in Russia's geopolitical postures makes it obvious that the Russian technical agencies are following political guidelines dressed up as scientific evidence. These measures also push the three states into diversifying their trade marketing efforts in favour of the EU and other world markets, with Georgia already having taken significant steps in this direction, since in its case the Russian sanctions date back to 2006. In the case of Ukraine, Russia's threat to cancel CIS free trade preferences infiltrated trilateral talks between the EU, Ukraine and Russia, leading on 12 September to their proposed postponement until the end of 2015 of the 'provisional' implementation of a large part of the AA/DCFTA. This was immediately followed on 16 September by ratification of the AA/DCFTA by both the Rada in Kyiv and the European Parliament, which will lead to its full and definitive entry into force when the 28 EU member states have also ratified it. However Putin followed the day after with a letter to Poroshenko making an abusive interpretation of the 12 September understanding.
Topic:
Economics, International Trade and Finance, Power Politics, and Sanctions
Political Geography:
Russia, Europe, Ukraine, Moldova, and Georgia

24. The Asset Quality Review and Capital Needs: Why re-capitalise banks with public money?

Author:
Daniel Gros
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
There are three aggregate numbers that describe the problem the Single Supervisory Mechanism (SSM) is inheriting: the 130 banks under its direct supervision hold assets worth 250% of the euro area's GDP, their capital is equivalent to only 4% of their assets' value and they have made zero profits, in the aggregate, over the last four years.
Topic:
Debt, Economics, Markets, Financial Crisis, and Reform
Political Geography:
Europe

25. Net Neutrality and Mandatory Network-Sharing: How to disconnect the continent

Author:
Andrea Renda
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
A lively debate emerged on the proposed "Connected Continent" legislative package presented by the European Commission in September 2013. The package contains a proposed rule on the 'open Internet', which was heavily discussed in European Parliament hearings in early December. This commentary argues that while the proposed rule is in principle balanced and appealing, it is utterly impractical due to the enormous uncertainty that its application would entail. At the same time, the rule is very far from what neutrality proponents have argued for almost a decade: rather than the place for internet freedom, it would transform the Web into a place requiring constant micro-management and tutoring of user behavior. Both arguments lead to the conclusion that the current proposal should be at once reformed and analysed under a more holistic lens. On the one hand, Europe should launch an ambitious project for the future, converged infrastructure by mobilising resources and reforming rules to encourage investment into ubiquitous, converged, 'always on' connectivity. On the other hand, enhanced legal certainty for broadband investment could justify a more neutrality-oriented approach to traffic management practices on the Internet. The author proposes a new approach to Internet regulation which, altogether, will lead to a more balanced and sustainable model for the future, without jeopardising user freedom.
Topic:
Debt, Economics, Monetary Policy, Infrastructure, and Financial Crisis
Political Geography:
Europe

26. Policy Lessons for Macroeconomic and Financial Crisis Management in the Southern and Eastern Mediterranean

Author:
Rym Ayadi and Willem Pieter De Groen
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The 2007-09 global financial crisis led to a virtual collapse in economic activity and increased financial volatility worldwide. For the developing countries, the main channel of transmission has been a drop in external transactions, such as trade, financial and capital flows, and remittances. The southern and eastern Mediterranean countries (SEMC) have also faced declining economic activity, although there seems to be considerable variation in the relative magnitudes and timing of the decline. Most of the economies in the Mediterranean basin have had delayed but longer-lasting consequences as a result of the crisis, driven mostly by their endemic trade and investment ties with the EU and the Gulf Cooperation Council (GCC) countries.
Topic:
Debt, Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
Europe

27. REACH: A killer whale for SMEs?

Author:
Jacques Pelkmans, Ineke Gubbels-van Hal, and Lorna Schrefler
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Right from the start of the REACH debate, following the Commission proposal of October 2003, one of the more serious concerns was whether and how SMEs could cope with REACH. Indeed, there were doubts whether one of the main objectives of REACH – competitiveness of chemical and downstream companies – is consistent with the design and detailed implementation of REACH. Already in 2005, the European Parliament adopted a resolution on this aspect, insisting e.g. on lower fees for SMEs as one remedy to reduce the expected regulatory burden for smaller companies. The fear of REACH being unduly heavy and costly for SMEs has never gone away (see e.g. Gubbels Pelkmans, 2009) but merely receded in the background when the Commission and the European Chemical Agency (ECHA) were in the process of building and elaborating the REACH machinery in operational terms. This year, the problem is rearing its head again in a magnified fashion and it will not go away so easily this time.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Europe

28. Unblocking the Lifeline of Talent

Author:
Matthias Busse and Christal Morehouse
Publication Date:
12-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
Against the background of demographic decline and growing economic competitiveness from emerging economies, this Policy Brief looks into the potential benefits of increased intra-EU labour mobility. On the basis of an examination of the 'German case' on EU labour mobility. It proposes ideas on how to better foster a European fair deal on talent, one that would benefit the EU as a whole. It concludes with a proposal on how to increase the potential benefits of the freedom of movement.
Topic:
Demographics, Economics, Migration, and Labor Issues
Political Geography:
Europe

29. Strong Governments, Weak Banks

Author:
Paul De Grauwe and Yuemei Ji
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
One of the more troublesome features of banks is that they still hold so little equity. In 2013 the capital and reserves of EU banks amounted to only 7.6% of total balance sheets. Well-run businesses outside the banking sector typically hold equity shares of 20%, 30% or more of their balances sheets. For good reasons; these well-run firms know that shocks can occur that could wipe out large parts of their balance sheets. Good business strategy thus leads these firms to hold sufficiently large buffers to avoid bankruptcy.
Topic:
Debt, Economics, and Monetary Policy
Political Geography:
Europe

30. The New European Framework for Managing Bank Crises

Author:
Stefano Micossi, Jacopo Carmassi, and Ginevra Bruzzone
Publication Date:
11-2013
Content Type:
Policy Brief
Institution:
Centre for European Policy Studies
Abstract:
The European Commission proposal for a Regulation establishing a European Single Resolution Mechanism (SRM) for banks is now under consideration before the European Parliament and the Council. The main principles and tools applicable for resolving a failing bank are contained in the June 2012 Commission proposal for a Directive on bank recovery and resolution (BRR), aimed at harmonising crisis management and resolution tools in EU member states, which is also under consideration by the European legislators. Any discussion of the new system must therefore be based on both proposals.
Topic:
Debt, Economics, International Trade and Finance, Markets, Monetary Policy, and Reform
Political Geography:
Europe