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11. Three Options for the EU: Assessing the EU's powers in a true economic and political union

Author:
Teija Tiilikainen
Publication Date:
09-2013
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Safeguarding the EU's unity in the long-term development of the EMU is currently one of the major challenges for the Union. The de facto adjustments made to the EU's economic and fiscal powers due to the economic and financial crisis, including the completion of the Banking Union, create pressures to address the treaty-based division of powers and to strengthen the democratic control of the powers executed by the Union. The need to back the EU's macroeconomic goals with fiscal instruments has been made evident by the economic crisis; the position of these instruments outside the common budget might become increasingly controversial. A further increase in economic solidarity (jointly guaranteed debt, taxation power) might jeopardize the EU's stability and democratic legitimacy if carried out in the current political and institutional framework. A system of constitutional and fiscal federalism would produce a more stable outcome, but would require major changes in the EU's democratic system and system of policy implementation, in its external policies and the way its constitutional powers are arranged.
Topic:
Debt, Economics, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe

12. Towards a Deeper EMU: An assessment of political divisions within the EU

Author:
Juha Jokela
Publication Date:
10-2013
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Policymakers, observers and the media have referred to a vast number of divisions in crisis-torn Europe. The EU is divided between north and south or creditors and debtors. Some have emphasised the emerged division between anti-EU and pro- EU forces. Significantly, these divisions are also manifested within the eurozone, in the form of the current differences between the French and German views, and the increasing role of the populist movements in many euro countries. Yet others have highlighted the boundary between the eurozone and the rest of the EU, and suggested that the euro countries now form the core of the Union. Relatedly, some of the non-euro members are distancing themselves from the EU – most notably the UK – while many others aim to secure their influence in the Union, even if euro membership may have been put on the back burner.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
United Kingdom, Europe, and Germany

13. Bringing Stability to Europe: Why Europe needs a banking union

Author:
Erik Jones
Publication Date:
11-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
The European sovereign debt crisis is the result of capital flows across the single market. The danger that such capital flows could unleash market speculation was known from the start; indeed, the single currency was created to remove the threat of exchange rate instability. The problem is that the architects of the single currency did not consider the impact of capital market integration on the banking sector or on the relationship between banks and national governments. Once markets lost confidence in the security of their cross-border investments, investors began to pull back their capital and the internal market for financial services started to disintegrate. The creation of a banking union is part of the solution. However, the euro area also needs a common 'risk-free' asset to use as a safe haven in times of crisis.
Topic:
Debt, Economics, Markets, and Financial Crisis
Political Geography:
Europe

14. Constructing a German Europe? Germany's Europe Debate Revisited

Author:
Timo Behr and Niklas Helwig
Publication Date:
02-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Germany's ambiguous role during the eurozone crisis has stoked fears that a more self-confident and dynamic Germany is threatening the political independence and economic well-being of its neighbours and will lead to a “German Europe”. German weakness, not power, is the main challenge to EU integration. In order to build a supranational EU and a “European Germany”, Germans will have to overhaul their Cold War institutions and traditions that have become a brake on EU integration. Germany's political elite continues to favour a federalist vision for the EU, but faces a somewhat more sceptical public as well as strong domestic veto players, such as the Federal Constitutional Court, which limit their pro-integrationist tendency. While Germany continues to support the use of the “Community method”, Angela Merkel has increasingly resorted to the “Union method” that places function over form and prioritizes pragmatic problem-solving to address the current crisis. Germany's uncompromising attitude towards the eurozone crisis and its sometimes erratic foreign policy are the product of its deeply embedded stability culture and instinctive pacifism, rather than a sign of growing global ambitions. European partners will have to help Germany in its indispensable leadership role by jointly formulating a vision for the European integration project and by assisting Germany in adapting its political institutions and culture.
Topic:
Cold War, Economics, Regional Cooperation, and Financial Crisis
Political Geography:
Europe and Germany

15. Fighting climate change: A structural shift towards renewable energies requires concerted policy action

Author:
Patrick Matschoss
Publication Date:
03-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Renewable energies will be the major contributor to any future low carbon energy system and the share may be as high as nearly 80% of the world's energy supply by 2050. Renewable energies have vast potential but require a set of coherent policies to reach necessary deployment rates, because the market place neither accounts sufficiently for their climate change-related and wider benefits nor for the benefits of technological learning, making them appear less competitive than they really are. Renewable energies can be integrated in all supply systems and end-use sectors but at some point they will require investment and change. In electricity, an enhanced Pan-European network infrastructure (smart grid) would smooth variability and the remaining non-renewable generation capacity would be highly flexible. Energy security would be enhanced by greater efficiency and a broader and less import-dependent energy portfolio with less vulnerability to energy price volatility. Network stability needs to be addressed but some renewable energies are fully dispatchable and part of the solution. The transition to renewable energies is possible and beneficial, not only due to climate change but also because it serves energy security concerns and necessary infrastructure improvements. The EU's proposed long-term strategy concerning emission reductions and competitiveness, as well as the related legislation, is moving in the right direction and it is up to the member states to pick this up and push it forward.
Topic:
Climate Change, Economics, Energy Policy, and Treaties and Agreements
Political Geography:
Europe

16. An alienated partnership: German-Russian relations after Putin's return

Author:
Stefan Meister
Publication Date:
05-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
The return of Vladimir Putin as Russia's president and the probable end of Dmitri Medvedev's modernization project will increase the alienation within German-Russian relations. Germany's modernization partnership with Russia has produced limited results because the two sides have different views on the cooperation. While the German side wants to develop common projects of good practice which will modernize the Russian economy and politics, the Russian side is interested in technology transfer. The interest in and knowledge of Russia among German decision-makers is decreasing. Germany lacks vision and concepts on how to influence developments in Russia. This is also due to the resistance of the current Russian elite towards implementing political reforms. As a result, Russia is losing its most important advocate in the EU (also regarding energy policy). This will have a negative impact on EU-Russia relations because the EU lacks leadership on Russia. Ongoing changes in Russian society, which challenge the Putin system, will present an opportunity to find new allies in Russia for cooperation and modernization, which may increase Germany's interest in its large neighbour. But this will call for a more balanced approach between the Russian elites and society in Germany's Russia policy.
Topic:
Democratization, Economics, Social Stratification, and Bilateral Relations
Political Geography:
Russia, Europe, and Germany

17. On the road to a true Economic and Monetary Union? The challenges of fiscal federalism and democratic legitimacy

Author:
Teija Tiilikainen
Publication Date:
05-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
Lessons learned from the current economic and financial crisis pose great challenges for the EU concerning the future development of the EMU. Through the recent changes the limits of a mere coordination of economic policies have been reached and a debate about turning the system into a true Economic and Monetary Union must be launched. A further strengthening of the EU's power in economic and fiscal policies would require a clearer move in the direction of fiscal federalism, that is, a more balanced relationship between the Union's budget and those of the member states. It would also require the finalization of the Union's democratic system along the lines of a federal political order. The divided character of the currency union presents significant difficulties for its further deepening and democratization.
Topic:
Economics, Political Economy, Regional Cooperation, Monetary Policy, and Financial Crisis
Political Geography:
Europe

18. The corporate benefits of the euro: Finnish companies cannot live without a common currency

Author:
Timo korkeamäki
Publication Date:
04-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
The costs of euro membership have been a topic of lively political debate in recent years, and they have received ample media attention. In contrast, numerical estimates on the benefits of the euro have been practically non-existent. While the corporate benefits of the euro have been widely documented in the academic literature, the practical value of those publications has suffered from their technical complexity. Several experts have linked the fast growth of corporate bond markets in Europe since 1999 to the introduction of the euro. With growing arm's length credit markets in Europe, companies' access to financing has improved significantly. Companies from countries with small and unstable legacy currencies, such as Finland, have benefited comparably more from the widened financial markets. The cost savings due to the lowered cost of debt are non-trivial. For a set of large Finnish companies alone, the narrowing spread between their interest expenses and those of their German counterparties has resulted in after-tax cost savings of over €400 million each year. Sweden, Norway, and Denmark may have received some free-rider benefits while staying outside the currency union. However, it is difficult to estimate whether such benefits would have been obtainable had Finland chosen to keep its own currency. Reductions in the cost of financing should increase companies' ability to invest, and thus these savings are likely to have multiplicative effects on the economy for years to come.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Europe

19. Watching a dragon's egg hatch: The makings of a Sinocentric world?

Author:
Jyrki Kallio
Publication Date:
04-2012
Content Type:
Working Paper
Institution:
Finnish Institute of International Affairs
Abstract:
As China's hard power is growing, the Party-state is keen to construct a new narrative which legitimizes China's position as a world leader also from the soft power perspective. It has even been suggested that a Chinese international relations theory or model will inevitably emerge as a consequence of China's growing role on the world stage on the one hand and the rise of traditional values in China on the other.
Topic:
Foreign Policy, Development, Economics, International Trade and Finance, Power Politics, and Culture
Political Geography:
China and Israel

20. A rocky road towards Europe: The prospects for the EU's Eastern Partnership Association Agreements

Author:
Kristi Raik
Publication Date:
06-2012
Content Type:
Policy Brief
Institution:
Finnish Institute of International Affairs
Abstract:
The EU has a strategic goal to build political association and economic integration with the six countries included in its Eastern Partnership policy. To reach this goal, it has invented a new model of association agreement that includes deep and comprehensive free trade. At best, three out of six Eastern partners are likely to sign the agreements within the next couple of years.
Topic:
Democratization, Economics, and Regional Cooperation
Political Geography:
Europe