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21. A quantitative evaluation of the European Commission’s fiscal governance proposal

Author:
Zsolt Darvas, Lennard Welslau, and Jeromin Zettelmeyer
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
In the new European Union fiscal framework proposed by the European Commission in April 2023, medium-term fiscal adjustment requirements would be determined by country-by-country debt sustainability analysis (DSA), the 3 percent deficit ceiling and simple rules requiring minimum deficit and debt adjustments (‘safeguards’). These elements are controversial, with some EU countries (and ourselves) preferring a DSA-based approach, while others prefer to stick to simple rules. This paper evaluates the proposal by replicating the DSA methodology and computing fiscal adjustment implications for all EU countries with debt above 60 percent or deficits above 3 percent of GDP. We find that the proposed framework would require ambitious fiscal adjustment: on average, more than 2 percent of GDP over the medium term, in addition to the adjustment that is already planned for 2023-24. However, for most high-debt countries, these requirements are below those implied by the current framework. We also find that for most countries with debt above 60 percent of GDP, these adjustment requirements are driven by the DSA rather than the safeguards, but with significant exceptions. The main exception is France, for which the ‘debt safeguard’ – which requires debt to fall within four years – imposes much higher fiscal adjustment than the DSA. If the adjustment period were to be extended from four to seven years (as is possible under the framework for countries that submit growth-enhancing reform and investment plans), the safeguards would also be binding for several other countries. In addition, a requirement to reduce the deficit by at least half a percent per year if it exceeds 3 percent of GDP could become binding ex post, in response to output shocks, even if countries implement the fiscal adjustment required ex ante. Finally, we find that while the Commission’s DSA methodology is reasonable, it would benefit from review. This should be done by an independent expert group in consultation with the Commission, member states and other stakeholders, and endorsed by the Council. We recommend the endorsement of the Commission’s proposal after ambiguous aspects are clarified, the debt safeguard and other safeguards are removed or modified, the excessive deficit procedure is reformed to avoid procyclical adjustment, and a process for reviewing the DSA methodology is put in place.
Topic:
Governance, Regulation, Fiscal Policy, and European Commission
Political Geography:
Europe

22. Making sense of the European Commission’s fiscal governance reform plan

Author:
Lucio Pench
Publication Date:
09-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The European Commission’s April 2023 proposals for the reform of European Union fiscal governance revolve around the principles of fiscal sustainability and national ownership. While the criterion of sustainability is at the centre of the proposals, its practical implications for the assessment of compliance of national medium-term fiscal-structural plans with the new fiscal rules have been blurred by a proliferation of additional criteria or safeguards. These include a requirement for a country’s debt level at the end of the medium-term horizon to be lower than at the beginning. This Policy Brief argues that the fiscal sustainability criterion, which the legislative proposals formulate in broad qualitative terms (public debt being on “a plausibly downward path ... or … staying at prudent levels”) can be operationalised to ensure the objective of de-risking of public debt, ie the eventual removal of situations in which debt poses a high sustainability risk. Specifically, for a plan to satisfy the sustainability criterion, it should ensure that the country in question graduates out of the high-risk category or does not fall into it. It is further argued that the additional criteria or safeguards have limited value added and hamper the overall readability of the proposed reform. This proliferation of criteria should not be taken as compromising the fundamentals of the reform, however: a careful textual and contextual reading of the relevant legal provisions allows for an ‘overall assessment’ by the Commission and the Council of the medium-term plans submitted by EU countries, in which compliance with the additional safeguards could be given a subordinated role relative to the sustainability criterion. Ideally, a clarification of the methodology for assessing compliance with the debt-sustainability criterion would allow the additional safeguards to be dispensed with. Political concerns lay behind the demand for additional safeguards, but these should be addressed through institutional rather than rule-based solutions. Implementation and enforcement will be critical. This Policy Brief offers proposals to enhance institutional self-commitment to implementation, with reputational consequences for non-implementation.
Topic:
Governance, Reform, Fiscal Policy, and European Commission
Political Geography:
Europe

23. The von der Leyen European Commission at midterm: Same priorities, different reality

Author:
Corina Stratulat, Annika Hedberg, Stefan Sipka, Janis Emmanouilidis, and Johannas Greubel
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
At the halfway point of the von der Leyen Commission’s term, and amid a tumultuous context, the EPC has conducted a thorough and broad analysis of its successes and failures so far. How have the pandemic and the war affected President von der Leyen’s initial promises? What are the key imperatives ahead? How can von der Leyen make the most of the remainder of her mandate to help the EU advance in this new era (Zeitenwende)? EPC analysts from across all programmes compare and contrast the initial 6 policy priorities against their actual delivery and provide recommendations for the second half of the Commission’s term.
Topic:
Foreign Policy, Migration, European Union, Democracy, Digital Policy, Green Deal, and European Commission
Political Geography:
Europe

24. A new generation of European Citizens’ Panels – Making citizens’ voices a regular part of policymaking

Author:
Johannas Greubel
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
As a first concrete follow-up to the Conference on the Future of Europe (CoFoE), beginning as of next year, the European Commission plans to make European Citizens' Panels (ECPs) a regular form of consultation ahead of key legislative proposals. Von der Leyen’s initiative to involve citizens in policy development is a substantial and positive innovation for EU law making and democracy. It not only answers citizens’ calls expressed in the CoFoE exercise. The measure will also give a boost to EU democracy and has the potential to mitigate shortcomings in the existing institutional consultation process. Yet, to make a difference, these Panels should be integrated into the current policymaking cycle by becoming part of the Commission's better regulation toolbox. This paper makes concrete recommendations on how this could be done by answering these three questions: When in the process and to what end? First, to make a difference, the Panels need to take place as early as possible in the development of a policy. Second, they must be consulted in a way that keeps the process as streamlined and effective as possible. The ideal way to reach these goals is to establish the ECPs as an additional consultation tool that the Commission can activate in addition to the public consultation carried out. The Panels would become an integral part of the institution's stakeholder consultation toolbox. When is a proposal ‘key’? First, the proposal must be a flagship proposal that is essential for one of the central priorities anchored in the Commission’s political guidelines. Second, as the Panel is supposed to complement the existing public consultation procedure, the proposal must be a legislative initiative with an Impact Assessment – thus also involving a public consultation – in which citizens are a crucial stakeholder group, primarily and directly affected by the policy. What is the follow-up? Citizens’ recommendations should directly feed into the Commission’s Impact Assessment of the respective measure and be annexed to it so that the co-legislators can take citizens’ recommendations into account at a later stage. If lawmakers follow these, the new generation of ECPs could improve the quality of legislative proposals from the Commission. Conversely, they risk becoming a fig leaf exercise, without any impact on the legislative initiative it accompanies. In this context, the Commission should use the upcoming ECP on food waste as a pilot Panel, as a steppingstone towards embedding ECPs fully in the EU’s decision-making.
Topic:
Public Opinion, European Union, Citizenship, European Commission, and Policymaking
Political Geography:
Europe

25. What should the EU do about Hungary’s illiberal turn?

Author:
Perle Petit
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
European Policy Centre (EPC)
Abstract:
Since 2010, Hungary’s government has followed a clear and deliberate trajectory away from EU democratic principles, turning the country into the first illiberal state in the Union. Before Russia invaded Ukraine in February 2022, Hungary’s illiberal turn remained relatively self-contained at the national level. Since the start of the war, however, this illiberalism has spread to the international arena, dramatically impeding EU institutional decision-making processes. Despite the urgency of the matter, the EU’s failure to address the country’s democratic decline has been evident. The EU institutions need to address the national and international impact of Hungary's flouting of democratic norms by proposing both short- and long-term solutions. To do so, the institutions should take the following actions: The EU Commission should stand fully behind the triggering of the rule of law conditionality mechanism against Hungary and insist that the country implements all proposed remedial measures in a legislatively binding way. A periodic review system must be put in place to avoid any reversal of these measures or manipulation of independent public bodies in the coming years. The rule of law conditionality mechanism should be triggered against other infringing countries, to demonstrate a zero-tolerance approach to democratic backsliding. The suspension of EU funds should be harmonised across different funding schemes. In this way, the Commission can avoid becoming compromised by disconnected conditionality mechanisms. Increased capabilities and powers should be conferred to independent EU organisations, such as the European Anti-Fraud Office and the European Public Prosecutor’s Office. These should review the strength of democratic institutions in backsliding countries and provide recommendations for reform. The institutions should look into the regional disbursement of EU budgets, bypassing central governments to allocate funds on a regional basis. The Council should consider replacing the unanimity rule with qualified majority voting to render EU decision-making processes more effective and to prevent single member states from holding EU decisions ‘hostage’. As Hungary’s leadership shows no signs of changing course, the EU should change tactics to actively preserve and protect democracy within its borders. The EU institutions should use the full toolbox at their disposal to halt Hungary’s illiberal turn, restore the independence of democratic institutions, and take long-term steps to prevent any further backsliding within the Union.
Topic:
European Union, Rule of Law, European Commission, Illiberalism, and Viktor Orbán
Political Geography:
Europe and Hungary

26. Which mergers should the European Commission review under the Digital Markets Act?

Author:
Christophe Carugati
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Large digital platforms acquired 1149 firms in various economic sectors between 1987 and July 2022. The European Commission reviewed only 21 of these mergers as most did not meet the European Union merger control turnover threshold. This suggests under-enforcement, with some problematic mergers escaping merger review and thus posing competition risks. The EU Digital Markets Act, which entered into force in November 2022, imposes obligations on firms that are considered ‘gatekeepers’ in relation to some core platform services, such as online search engines. In particular, these firms must now inform the Commission of all their intended acquisitions. This, in combination with Commission guidance on referrals by EU national competition authorities of mergers for review, should ensure more merger reviews in the digital sector. Current European Commission guidance on referring cases for merger review is flexible but impractical as it relies on theories of harm rather than clear and objective criteria. Without clarification, there could be over-enforcement in which unproblematic mergers are reviewed, human resources are allocated inefficiently and legal uncertainty persists. The Commission should issue new guidance on which digital mergers are likely to be problematic, thus triggering referral for merger review. This is likely to be the case when the target’s user base overlaps with that of the acquirer, when the target is a leader in a future critical market and when the target is active in a core platform service.
Topic:
Economy, Innovation, European Commission, and Digital Markets Act (DMA)
Political Geography:
Europe

27. “The energy crisis shows the importance of European solidarity in the face of asymmetric shocks”

Author:
Nicolas Berghmans
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
Robert Schuman Foundation (RSF)
Abstract:
How has the current energy crisis arisen? To understand current developments, we need to go back a little: first of all, the global economic context with a fairly strong post-Covid recovery has contributed to the increase in prices of raw materials and energy. And then there has been the crisis with Russia. Even prior to the start of the invasion of Ukraine on 24 February 2022, Moscow had begun to reduce the gas storage levels held by Russian operators in EU Member States, including Gazprom, which controls significant capacity, particularly in Germany. The war in Ukraine has only made the situation worse. The availability of natural gas in Europe has fallen and the price on the markets has risen to an unprecedented level, sometimes reaching a price five times higher than previously. It should also be noted that Europe is emerging from a period of more than ten years in which the price of gas and, more generally, of energy has been relatively low, which makes the shock all the greater, and this upward trend is spreading beyond the gas to the electricity market; at certain times, the price has increased fourfold, or even fivefold, compared with the usual rate.
Topic:
Gas, Solidarity, European Commission, Energy Crisis, and Russia-Ukraine War
Political Geography:
Europe

28. 70 years on, it's time to reinvent the ECSC

Author:
Thierry Lepercq
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Robert Schuman Foundation (RSF)
Abstract:
Upset between Berlin, Brussels and La Coruña On 16 May 2022, in the Radialsystem conference centre in Berlin, a chair remained forlornly empty. The German Minister for Education and Research, Bettina Stark-Watzinger, inaugurated the conference "Green Hydrogen for a Sustainable European Future" promoted by the German government, before handing over to her Italian counterpart, Cristina Messa, and then to European Commissioner Mariya Gabriel. The empty chair was that of the French Presidency of the European Union which, despite strenuous effort on the part of the German government, did not wish to delegate a representative. In the Chancellery, the mood was one of great tension. Nearly 100 executives representing 31 gas transmission and storage operators (TSOs) from 28 European countries met with the European Commission on 7 June 2022 in Brussels. It was time to present the latest version of the European Hydrogen Backbone (EHB), an initiative launched two years ago by the German company OGE. On the agenda was the unveiling of an ambitious plan to build 28,000 km of hydrogen pipelines across the continent by 2030. One point of interest was a dotted line linking Barcelona to Livorno - to connect the Iberian Peninsula to the rest of Europe, bypassing France, whose opposition to cross-border green hydrogen infrastructure is no longer a mystery. A few months later, on 5 October 2022 in La Coruña, Pedro Sanchez, president of the Spanish government, hosted German Chancellor Olaf Scholz, together with some fifteen ministers. On the agenda of this summit: the European energy crisis and the measures that must be taken to strengthen the continent's supply security and European solidarity. One proposal stood out: to strengthen gas interconnections to allow liquefied natural gas (LNG) arriving in Spanish ports to relieve a German industry that is on the verge of suffocating - and to pave the way for the implementation of green hydrogen transport infrastructures (EHB).
Topic:
Energy Policy, Gas, Investment, Economic Crisis, European Commission, and Energy Crisis
Political Geography:
Europe, Germany, and Spain

29. Ukraine on the Way To the EU: Realities And Prospects

Author:
O. Pashkov, K. Markevych, P. Stetsiuk, S. Chekunova, Mykola Sunhurovskyi, L. Shanghina, and O. Shnyrkov
Publication Date:
06-2022
Content Type:
Journal Article
Journal:
National Security and Defence
Institution:
Razumkov Centre
Abstract:
The Ukrainian experience of European integration in the conditions of war is unique. The country resisting the large-scale armed Russian aggression, suffering huge human, financial and economic losses, acquired the status of a candidate for accession to the EU, continues European integration, deepens partnership with the EU in different sectors, implements recommendations of the European Commission and introduces provisions of the Agreement of Association into practice. The beginning of negotiations on accession to the EU, further implementation of pro-European reforms in different areas, adaptation to the European Union acquis, etc. are to follow
Topic:
European Union, Regional Integration, European Commission, Regional Politics, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

30. Risky Thinking: How Scenarios Can Help the EU Bounce Back from Strategic Shock

Author:
Roderick Parkes and Mark McQuay
Publication Date:
03-2022
Content Type:
Special Report
Institution:
German Council on Foreign Relations (DGAP)
Abstract:
Since coming to power in December, the Scholz government has blundered into a series of foreseeable crises: medical shortages; reliance on Russia for gas; Ukraine’s need for robust support. France’s President Macron anticipated all three crises, giving weight to his calls for Europeans to pursue autonomy and reduce dependence on the outside world. Policy makers are now demanding scenario exercises that illustrate the obvious dangers of interdependency to back up their policy shift.
Topic:
European Union, Crisis Management, Risk, and European Commission
Political Geography:
Europe