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21. Reinventing Europe’s Single Market: A Way Forward to Align Ideals and Action

Author:
Matthias Bauer, Dyuti Pandya, Vanika Sharma, and Elena Sisto
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
It is essential for EU institutions and Member State governments to shift their focus from the abstract concept of the “Single Market” to the concrete objective of “legal harmonisation in the EU.” This transition represents a strategic realignment towards more pragmatic policymaking. Adopting a 28th regime to address national regulation discrepancies would align with this goal and enhance the Single Market’s effectiveness in promoting economic growth and competitiveness. Given the EU’s ongoing loss of relative global economic clout, it is crucial to establish an ambitious timeline for implementing the most critical Single Market reforms. The Letta Report serves as a wake-up call to revitalise the EU’s Single Market, emphasising the need for decisive action. Its vision largely hinges on legal harmonisation within Europe, building on early efforts to liberalise markets and establish a truly integrated European market. Despite efforts, “integration fatigue” remains a significant challenge due to legal fragmentation across European economies. Previous reports, from the Cecchini Report in 1992 to the Europe 2020 Strategy, have highlighted persistent issues like regulatory divergences and declining political support for market integration. Despite numerous proposals, progress has been limited, and many challenges persist or have worsened (see Section 2). An analysis of EU reports reveals a shift in policy priorities over time. Initially, there was a strong focus on liberalisation and market opening, with less attention given to state aid and industrial policymaking. The Letta Report highlights the importance of regulatory convergence and harmonisation, reflecting a deeper understanding and recognition of the drivers of EU competitiveness. The rise of nationalism and a shift towards “Strategic Autonomy” within the EU have hindered crucial market reforms. This highlights the importance of aligning laws across Member States to strengthen and reinforce EU’s economic resilience and international competitiveness (see Section 3). EU institutions and Member State governments should set specific goals for “legal harmonisation in the EU.” This shift would address real challenges faced by businesses and citizens, and build political will for necessary reforms. Prioritising legal harmonisation would enhance internal cohesion and align national laws with Union-wide goals. An actionable roadmap – potentially with a 2028 deadline – is crucial to address the substantial gap between ambitious EU strategies and Europe’s economic realities. (see Section 4). Implementing sector-specific and horizontal policies in a new regulatory regime would improve cross-border operations and competitiveness. The Letta Report advocates for a European Code of Business Law to establish a unified regulatory framework, introducing a 28th legal regime to address national regulation discrepancies. Extending this regime to include tax and labour market policies would significantly enhance cross-border operations. The EU and Member State governments can eliminate substantial internal barriers by prioritising key horizontal policies affecting all businesses, such as fragmented tax laws, labour market policies, and social security systems. Simplifying and harmonising these policies on the basis of the facilitation of four freedoms is crucial for unlocking the Single Market’s potential for businesses and workers, boosting the EU’s global competitiveness. Allowing coalitions of willing countries to advance in certain areas of legal integration provides a viable solution to the long-standing Single Market “fatigue”. By enabling smaller groups of Member States to pursue integration in specific areas, the EU can bypass the constraints imposed by rigid voting requirements and achieve greater agility, accountability, and acceptance in EU law-making. This approach not only fosters flexibility but also upholds the fundamental principles and objectives of the EU. To ensure the integrity of the EU legal order and prevent unjustified barriers or discrimination against non-participating members, it is essential to establish safeguards and oversight mechanisms. These measures would maintain cohesion within the Union while allowing for progressive legal integration among willing Member States.
Topic:
Markets, European Union, Digital Economy, and Economic Integration
Political Geography:
Europe

22. The changing dynamics of European electricity markets and the supply-demand mismatch risk

Author:
Conall Heussaff and Georg Zachmann
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Meeting Europe’s 2030 climate targets will require massive clean-electricity investment. To facilitate these investments, state-backed de-risking schemes such as contracts for difference (CfDs) are needed. Their role in supporting renewables has been consolidated by the European Union’s recently agreed electricity market design reform. Under such state-backed schemes, the distribution of costs between the market and the state will depend on the balance of supply and demand. Lower demand will decrease spot-market prices, reducing market costs but increasing the cost to CfD-issuing states. If electrification of European energy demand does not keep pace with the electricity supply expansion, tens of billions of euros annually could be channelled through state contracts, generating costs that must ultimately be recovered from consumers. A cost-efficient, managed transition will require European coordination of electricity supply, demand and network investments. Clean electricity supply and demand should be synchronised through a combination of state interventions and market mechanisms. Undersupply of clean power will mean a failure to meet climate targets, but oversupply can be costly too. To manage the costs of renewable de-risking schemes and to accelerate energy-system decarbonisation, flexible electricity systems should be promoted, policies to encourage electrification could be implemented and cost-recovery arising from state-backed renewable support schemes should be fair.
Topic:
Climate Change, Markets, Electricity, Energy, and Supply and Demand
Political Geography:
Europe

23. Unpacking China’s industrial policy and its implications for Europe

Author:
Alicia Garcia-Herrero and Robin Schindowski
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
China is often credited with a successful application of industrial policy. One important particularity of China’s industrial policy is that it aims at levelling the playing field between the state economy and the private economy in access to finance, yet within a framework of strategic goals. This aim is not relevant for market economies, such as those of the European Union, but only for those where state enterprises are clearly privileged. Notwithstanding the difficulties in making valid comparisons, our analysis of how China conducts industrial policy in a variety of sectors points to success in some sectors but not all. More importantly, productivity growth in China has already been declining for two decades. Given the very large resources that China has put into industrial policy, with subsidies being only one part, it is surprising that success is not more evident. This relates partly to factors including cronyism and regional protectionism. While the former might be less relevant for the EU given the different institutional background, the latter certainly is relevant since the EU faces the potential consequences of member country-level industrial policy for its single market. A lesson from China seems to come from the sectoral focus, with a long-term and economic-security mindset. The EU is far from this, but it is in the process of linking economic security to industrial policy. Finally, responding to China’s industrial policy involves diverse investigations and challenges in measuring subsidies accurately. Understanding China’s very diverse and complex approach to helping companies achieve the government’s industrial policy goals is crucial for anticipating the consequences of China’s actions. These could be positive, such as cheaper imports of green technology, or negative, such as Chinese overcapacity spilling over to the EU single market.
Topic:
Industrial Policy, Markets, European Union, and Economy
Political Geography:
China, Europe, and Asia

24. Unity in power, power in unity: why the EU needs more integrated electricity markets

Author:
Georg Zachmann, Carlos Batlle, Francois Beaude, and Christoph Maurer
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The energy crisis that started in 2022 reminded European governments of the resilience provided by relatively well-integrated European electricity markets, which have been painstakingly built-up over several decades. European Union leaders thus decided to reverse a creeping energy renationalisation and to invest in completing the internal market. However, there are some indications that this momentum is being lost, with different EU capitals taking different lessons from the energy crisis, at a time of unprecedented investment needs in generation and grids across the EU. The multiple benefits of enhanced EU energy-market integration should be emphasised. ‘Techno-economic’ benefits can be secured from optimising the design and operation of several national electricity systems jointly, rather than individually. These benefits will increase massively with higher shares of renewables and include less fossil-fuel burn and less volatile short-term prices, cost savings through harnessing regional renewables advantages, reduced need for expensive back-up capacity and flexibility, and enhanced resilience to shocks. In addition, greater energy-market integration will trigger benefits of a more managerial-governance related nature, though these are harder to quantify. They include benefits in terms of competition, innovation and credibility, which are particularly useful in the electricity sector, which typically faces rather long investment times and high degrees of concentration in purely national markets. Further market integration requires substantial political investment. Governments will need to deal with significant distributional effects within and between countries. Experience has shown that domestic political constraints in this respect are often numerous and difficult to overcome. Therefore, achieving the benefits of integration will require a vision on what degree of integration is feasible and desirable, and how to properly implement and govern it. It will also require an honest acknowledgement of the implications and costs of not pursuing greater integration.
Topic:
Markets, European Union, Regional Integration, Electricity, and Energy Crisis
Political Geography:
Europe

25. The chicken-and-egg problem in the European Union Digital Markets Act

Author:
Fiona Scott Morton
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
The gatekeeper platforms regulated by the European Union’s Digital Markets Act (DMA) must comply with the law as of 6 March 2024. The DMA requires that core platform services create and make available interfaces that allow business users to access end users via the platform at lower cost and on better terms. For example, app developers will have the right to distribute on handsets through different app stores, using different payment services, directing users to purchase content on the web and charging different prices in different channels. The gatekeeper must provide the application programming interfaces, or APIs, to enable business users to take advantage of these rights. However, the DMA does not define exactly what those APIs should be. Rather, the law requires a gatekeeper’s interface to be “effective,” meaning business users can use it to enter, compete and innovate. Because such a design is not, in general, in the interest of the gatekeeper, the input of business users to both gatekeepers and the European Commission is critical for evaluating compliance with the law. Thus far there is little evidence of platforms interacting with business users or putting out interfaces for evaluation by business users, or of business users offering comments on what interfaces would be best for entry and competition. It may be that the interface must come first, and then its existence will stimulate entry of new business users or investment into new services that will use the interface. Rather like the chicken and the egg, which should come first? Business users are needed to help create useful interfaces, while useful interfaces are needed to justify investment and entry by business users.
Topic:
Markets, European Union, Investment, and Digital Markets Act (DMA)
Political Geography:
Europe

26. Tracking the Trend of Quinoa Price in Bolivia: Structural Breaks and Persistence of Shocks

Author:
Javier Aliaga Lordemann, Ignacio Garrón Vedia, and María Cecilia Lenis Abastoflor
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
Quinoa has evolved considerably in the past decades, becoming consolidated as a fundamental pillar for Andean farming communities and emerging as a prominent actor in the global superfood market. Despite this, prices of this grain have been characterized by complex dynamics, with substantial fluctuations that directly affect smallholder income. The goal of this research is to analyze Bolivian quinoa price dynamics, identifying both the main events and factors that caused structural breaks in the price trend and the persistence of shocks in time. The approach employed combines, on the one hand, an analysis of the structural breaks by means of the Bai and Perron contrast, together with estimates of long memory using the 2ELW estimator. Also evaluated was the influence of exogenous variables that affect prices, for which the world commodity activity index (Index of Global Real Economic Activity), the Oceanic Niño Index and world quinoa production were considered. The findings show multiple structural breaks in the quinoa price series, related to certain key events. Among the latter are for example changes in research and development, the production and sales boom, and the boost prompted by State initiatives and international cooperation. These breaks are also related to different degrees of persistence in the shocks under the different regimes identified. Although the exogenous variables show no significant short-term effects, it is understood that they may have a relevant influence in different periods. The present study shows the complexity of Bolivian quinoa price dynamics, characterized by several structural breaks. To take proper advantage of this market, producers and policy makers must implement flexible strategies, as well as continuous monitoring of the sector’s progress, considering the key factors that induced price trend changes over the years.
Topic:
Markets, Memory, Price, Quinoa, and Structural Breaks
Political Geography:
South America, Bolivia, and Andes

27. Current Situation and Prospects of the Quinoa Sector in Bolivia

Author:
Rubén Collao P. and Beatriz Muriel Hernández
Publication Date:
06-2024
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We analyze the quinoa sector situation and prospects in Bolivia, based on both secondary and primary information sources (i.e. surveys of producers and interviews to key actors). The quinoa sector has sustainability problems in production, market shares and price volatility. However, this grain – specifically the royal quinoa from the Southern Altiplano – has great potential to remain in the world market within niches that value organic or regenerative production, as well as to increase national consumption. In this regard, we believe that it is necessary to impulse the quinoa transformation with greater diversification, productive complementation and coordination between the various stakeholders. In this productive dynamics, small quinoa producers can insert themselves into the value chain, which requires the strengthening of their hard and soft skills, as well as greater technical assistance. Finally, the quinoa sector sustainability requires a comprehensive approach that includes good agricultural practices caring the environment, as well as more conscious consumption.
Topic:
Markets, Sustainability, Value Chains, and Quinoa
Political Geography:
South America and Bolivia

28. Designing a New Paradigm in Global Trade

Author:
Ryan Mulholland, Trevor Sutton, and Timothy Meyer
Publication Date:
05-2024
Content Type:
Special Report
Institution:
Center for American Progress - CAP
Abstract:
How a successful Global Arrangement on Sustainable Steel and Aluminum could function while delivering maximum benefits to workers and the environment.
Topic:
Climate Change, International Trade and Finance, Markets, Treaties and Agreements, Sustainability, and Metals
Political Geography:
Global Focus and United States of America

29. Concentrating Intelligence: Scaling and Market Structure in Artificial Intelligence

Author:
Anton Korinek and Jai Vipra
Publication Date:
10-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper examines the evolving structure and competition dynamics of the rapidly growing market for foundation models, focusing on large language models (LLMs). We describe the technological characteristics that shape the industry and have given rise to fierce competition among the leading players. The paper analyzes the cost structure of foundation models, emphasizing the importance of key inputs such as computational resources, data, and talent, and identifies significant economies of scale and scope that may create a tendency towards greater market concentration in the future. We explore two concerns for competition, the risk of market tipping and the implications of vertical integration, and use our analysis to inform policy remedies to maintain a competitive landscape.
Topic:
Markets, Economy, Business, Innovation, Artificial Intelligence, and Large Language Models (LLMs)
Political Geography:
Global Focus

30. Russia’s War in Ukraine Series: War and Industry

Author:
Stanislav Zhelikhovskyi
Publication Date:
07-2024
Content Type:
Policy Brief
Institution:
International Centre for Defence and Security - ICDS
Abstract:
Since the first days of Russia’s full-scale invasion, Ukraine has needed huge volumes of weapons and ammunition for a war that is inherently asymmetrical, largely relying on the capabilities that it had—Soviet and domestically produced weapons—and on donations from partner countries. However, it has become clear that the approach is inadequate, especially if there are interruptions in supplies from outside, and that the restoration of Ukraine’s own military-industrial complex is vital to ensuring its security and defence capability, independence, and victory. In the fourth brief of the series, Stanislav Zhelikhovskyi discusses how ammunition and equipment supply shortages provided the impetus for the revival of the national defence industry and for the repurposing of civilian industry to meet the wartime needs of the armed forces. He also highlights the importance of harnessing the potential of Ukraine’s vibrant high-tech innovation ecosystem, and attracting foreign investments to expand the country’s defence industrial base and integrate it with the European defence industry.
Topic:
Markets, Weapons, Defense Industry, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine