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81. The EU’s Financial Architecture for External Investment: Progress, Challenges, and Options

Author:
Hannah Timmis and Mikaela Gavas
Publication Date:
01-2019
Content Type:
Working Paper
Institution:
Center for Global Development (CGD)
Abstract:
In 2017, the EU launched an ambitious programme of investment mobilisation in Africa and the Neighbourhood: the External Investment Plan (EIP). The EIP aims to increase the scale, impact, and coherence of EU-supported external investment by introducing various innovations to the European financial architecture, including a new guarantee mechanism and a unique “three-pillar” approach to investment support. The European Commission is proposing a significant expansion of the EIP under the EU’s new long-term budget, the Multiannual Financial Framework 2021–27, replacing the current plethora of investment tools and modalities with a single framework. This paper provides a comprehensive overview of the evolution of the EU’s complex external investment architecture. Based on interviews with stakeholders, it documents lessons learned during the EIP’s first year of implementation and proposes a series of options for the design and operationalisation of the new investment framework. To increase the additionality, development effectiveness, and efficiency of EU-supported external investment, it recommends that the European Commission improve the current architecture by providing greater policy steer to investors; increasing competition among institutions for investment support; clarifying linkages between the three pillars; setting clear guidance, fee structures, and standardised contractual terms; and strengthening management of investment tools.
Topic:
Regional Cooperation, European Union, Finance, and Investment
Political Geography:
Europe

82. Financing social investment for an economy of well-being: Moving from good practices to a paradigm shift

Author:
Claire Dhéret and Marta Pilati
Publication Date:
07-2019
Content Type:
Policy Brief
Institution:
European Policy Centre (EPC)
Abstract:
Growing socio-economic disparities in the EU, both within and between member states, pose a serious threat to the Union’s social model, political viability, and its economic strength. In the absence of adequate levels of public investment, and with the added pressures of an ageing population and societal changes, Claire Dhéret and Marta Pilati make the case for a paradigm shift in the financing of social investment. The latter is based on the idea that investing in human and social capital enhances individuals’ capabilities and enables them to successfully participate in society and the economy, resulting in a more skilled, resilient and healthy workforce. But where will the money come from? In this Policy Brief, Dhéret and Pilati investigate the unlocked potential of EU financial instruments in fostering social investment, and the unique opportunity provided by the next Multiannual Financial Framework (2021-2027) and the InvestEU programme. Although the Commission’s efforts have been commendable so far, they argue for additional EU measures to ensure the creation of a genuine market for the social economy, which will not only help re-invigorate Europe’s social model but also make it a global champion for an ‘economy of well-being’. The EU can do this by: (1) ensuring that financial regulation is not an obstacle to social investment; (2) supporting social innovation throughout the entire social policy production chain; and (3) integrating national social investment strategies into the larger European policy framework.
Topic:
European Union, Finance, Economy, Investment, and Innovation
Political Geography:
Europe

83. Finland’s 2019 presidency of the Council of the European Union: European and domestic determinants

Author:
Tuomas Iso-Markku and Juha Jokela
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
The Finnish presidency of the Council of the EU faces a sensitive political climate, marked by divisions between the member states. However, some of the EU’s recent crises have also given the Union a renewed sense of purpose: striking the right balance between ambition and realism will therefore be a key challenge for Finland. During its presidency, Finland will have little legislative work, but can help in setting the EU’s priorities for the next five years, advancing the negotiations on the Multiannual Financial Framework and managing the Brexit process. The rise of the Eurosceptic Finns Party in the late 2000s had a crucial impact on Finland’s EU policy. This was reflected in harder and, at times, obstructive positions on EU issues. However, recently a new consensus on EU affairs seems to have emerged among the other parties. Antti Rinne’s new government is striving for a stronger EU with a presidency programme that resonates with the strategic agenda of the European Council, but also corresponds with the more limited role of post-Lisbon Treaty presidencies.
Topic:
Regional Cooperation, European Union, Finance, and Brexit
Political Geography:
Europe and Finland

84. Lessons Learned and Evolving Practices of the TIBER Framework for Resilience Testing in the Netherlands

Author:
Petra Hielkema and Raymond Kleijmeer
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
Financial institutions face an evolving threat landscape with a wide range of hostile actors targeting them. Regulators and consumers reasonably expect the institutions to make themselves more secure. The question then emerges as to whether financial institutions are complying with the different standards, rules, and regulations regarding their security. International standard-setting bodies have recognized the need to raise the bar higher for the resilience of financial institutions. The publication of the Committee on Payments and Market Infrastructures-International Organization of Securities Commissions (CPMI-IOSCO) guidance on cyber resilience in June 2016 has been pivotal in emphasizing the need to have an integrated approach for financial market infrastructures, with the institution’s board being ultimately responsible and accountable for cyber resilience.1 Increasingly, authorities and financial institutions alike recognize that, in addition to assessing the overall resilience posture of a financial institution against sophisticated attacks, it will be important to actually test this posture. The CPMI-IOSCO guidance includes a chapter dedicated to testing, containing several examples of activities to that end. Recently, frameworks for testing the resilience posture of institutions in practice have been developed internationally.
Topic:
Markets, Science and Technology, Finance, and Resilience
Political Geography:
Europe, Netherlands, and Global Focus

85. Global E-Commerce Talks Stumble on Data Issues, Privacy, and More

Author:
Gary Clyde Hufbauer and Zhiyaou (Lucy) Lu
Publication Date:
10-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
In early 2019, several important members of the World Trade Organization (WTO) submitted noteworthy proposals in a realm of international commerce that has evolved faster than rules to govern it: e-commerce or digital trade. While countries agree on less controversial subjects like banning unsolicited commercial electronic messages, the three leading WTO members—China, the European Union, and the United States—have big differences in their approaches to more challenging issues: data flows, data localization, privacy invasions by data collectors, transfer of source code, imposition of customs duties and internet taxes, and internet censorship. Their differing viewpoints lead Hufbauer and Lu to conclude that the prospect of reaching a high-level WTO e-commerce agreement is not promising. To reach an agreement, either most of the contentious issues must be dropped or the number of participating countries must be sharply reduced. A WTO accord, even of low ambition, would have value if only to establish basic digital norms on matters such as banning unsolicited commercial messages and protecting online consumers from fraudulent practices. A more ambitious accord covering the controversial issues should be negotiated in bilateral and/or plurilateral/regional pacts rather than in the WTO.
Topic:
Economics, World Trade Organization, Finance, Privacy, and Data
Political Geography:
China, Europe, Asia, North America, United States of America, and European Union

86. Dynamic Interactions Between Financial and Macroeconomic Imbalances: A Panel VAR Analysis

Author:
Amat Adarov
Publication Date:
02-2019
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
We use Bayesian and GMM panel VAR frameworks to study interactions between financial cycles and macroeconomic imbalances based on a global sample of 24 countries spanning the period 1998‑2012. We find that financial cycles play an important role in shaping macroeconomic imbalances with expansions inducing economic overheating and a downward pressure on public debt-to-GDP ratios, and vice versa. Bank-based economies exhibit a deeper and faster response of business cycles to financial misalignments, while the impact in market-based economies is milder, but more persistent, as well as more significant for current account and public debt dynamics. Financial cycles invoke a particularly strong reaction of current account balances and especially public debt ratios in the euro area.
Topic:
Finance, Business, Economic Growth, and Macroeconomics
Political Geography:
Europe

87. Financial Cycles in Europe: Dynamics, Synchronicity and Implications for Business Cycles and Macroeconomic Imbalances

Author:
Amat Adarov
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Using dynamic factor models and state-space techniques we quantify financial cycles for twenty European countries over the period 1960Q1–2015Q4 capturing imbalances across credit, housing, bond and equity markets. The paper documents the existence of slow-moving and persistent financial cycles for all countries in the sample, many of which also exhibit high cross-country synchronicity. Spillover analysis points at the significant role the global financial cycle and a common latent region-specific factor, the European financial cycle, play in shaping national financial market dynamics. Estimations using Bayesian panel VAR models to assess interactions between external and internal macroeconomic imbalances suggest that financial cycles are an important driver of business cycles and public debt dynamics, with much stronger shock transmission observed in the euro area and systemic European economies.
Topic:
European Union, Finance, Business, Economic Growth, Macroeconomics, and Financial Stability
Political Geography:
Europe

88. Infrastructure for Growth: How to Finance, Develop, and Protect It

Author:
Carlo Secchi and Stefano Riela
Publication Date:
04-2019
Content Type:
Special Report
Institution:
Italian Institute for International Political Studies (ISPI)
Abstract:
This study is an initiative of the ISPI’s Centre on Infrastructure, promoted with the knowledge partnership of McKinsey & Company. It analyses the importance of economic infrastructure and how to finance and develop it. Economic infrastructure is the backbone that, in many cases, crosses the borders of political geo- graphy and defines the space supporting the movement of goods, services, people and their ideas. The eight articles of this study are structured into four main sections: 1) The economic impact of infra- structure, with a focus on the transportation network of the EU; 2) The geopolitical role of infrastructure; 3) The infrastructure gap at the global level and how to ease its financing; 4) The efficient development of infrastructure.
Topic:
Development, Infrastructure, Finance, and Economic Growth
Political Geography:
Europe and Global Focus

89. Strong Firms, Weak Banks: The Financial Consequences of Germany’s Export-Led Growth Model

Author:
Benjamin Braun and Richard Deeg
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
The financial foundation of Germany’s manufacturing success, according to the comparative capitalism literature, is an ample supply of long-term capital, provided to firms by a three-pillar banking system and “patient” domestic shareholders. This premise also informs the recent literature on growth models, which documents a shift towards a purely exportled growth model in Germany since the 1990s. We challenge this common assumption of continuity in the German financial system. Export-led growth, characterized by aggregate wage suppression and high corporate profits, has allowed non-financial corporations to increasingly finance investment out of retained earnings, thus lowering their dependence on external finance. This paper documents this trend and shows that business lending by banks has increasingly been constrained on the demand side, reducing the power – and relevance – of banks vis-à-vis German industry. The case study suggests a need for students of growth models to pay greater attention to the dynamic interaction between institutional sectors in general, and between the financial and the non-financial sectors in particular.
Topic:
Finance, Business, Banks, Institutions, and Corporations
Political Geography:
Europe and Germany

90. The Missing Pillar of the Banking Union: German Scepticism and the European Deposits Insurance Scheme

Author:
Sebastian Płóciennik
Publication Date:
10-2018
Content Type:
Special Report
Institution:
The Polish Institute of International Affairs
Abstract:
Negotiations on the creation of common bank deposit insurance for the EU have been underway for more than three years. The deadlock is mainly due to Germany’s reluctance, afraid of the creation of a new financial transfer mechanism at the expense of its own economy. An opportunity for compromise is the December Euro Summit. If an agreement is reached, it would mean the finalisation of the banking union—a key area for the future of the eurozone.
Topic:
Finance, Economy, Regional Integration, and Banks
Political Geography:
Europe, Germany, and European Union