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2821. Bridging the divide: new evidence about firms and digitalisation

Author:
Reinhilde De Veugelers
Publication Date:
12-2019
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Using new evidence on the digitalisation activities of firms in the European Union and the United States, we document a trend towards digital polarisation based on firms’ use of the latest digital technologies and their plans for future investment in digitalisation. A substantial share of firms are not implementing any state-of-the-art digital technologies and do not have plans to invest in digitalisation. However, there is also a substantial share of firms that are already partially or even fully implementing state-of-the-art digital technologies in their businesses and that plan to further increase their digitalisation investments. Small Manufacturing firms and old small firms in services are significantly more likely to be and remain non-active in terms of digitalisation. Our results do not provide any evidence that EU firms are more likely than their US counterparts to be stuck on the wrong side of the digitalisation divide. Taking into account firm size and firm age, there are no significant differences between the EU and the US in terms of having more or fewer persistently non-digital firms. As persistently digitally-inactive firms are also less likely to be innovative, to add employees or to command higher mark-ups, it is important for policymaking to remove barriers that trap these firms in persistent digital inactivity. Lack of access to finance is a major barrier for EU firms compared to their US counterparts, particularly for the EU’s persistently non-digital firms, and especially for older, smaller companies in services. Improving their access to finance might therefore go a long way towards addressing the corporate digitalisation divide in the EU.
Topic:
Science and Technology, Innovation, Strategic Competition, and Digital Revolution
Political Geography:
Europe, North America, and United States of America

2822. The European Union-Russia-China energy triangle

Author:
Georg Zachmann
Publication Date:
12-2019
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
We argue that energy relations between the EU and Russia and between China and Russia influence each other. We analyse their interactions in terms of four areas: oil and gas trading, electricity exchanges, energy technology exports and energy investments. We discuss five key hypotheses that describe the likely developments in these four areas in the next decade and their potential impact on Europe: 1. There is no direct competition between the EU and China for Russian oil and gas 2. China and the EU both have an interest in curbing excessive Russian energy rents 3. The EU, Russia and China compete on the global energy technology market, but specialise in different technologies 4. Intercontinental electricity exchange is unlikely 5. Russia seems more worried about Chinese energy investments with strategic/political goals, than about EU investments We find no evidence of a negative spillover for the EU from the developing Russia-China energy relationship. But, eventually, if these risks – and in particular the risk of structural financial disintermediation – do materialise, central banks would have various instruments to counter them.
Topic:
Climate Change, Energy Policy, Oil, and Europe Union
Political Geography:
Russia, China, and Europe

2823. The next generation of digital currencies: in search of stability

Author:
Gregory Claeys and Maria Demertzis
Publication Date:
12-2019
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Four major developments have challenged the status quo and reopened the debate on the forms that money will take in the future: 1) use of cash as a medium of exchange has declined; 2) distributed ledger technology (DLT) has led to the emergence of thousands of digital cryptocurrencies; 3) some global tech giants are planning to provide private digital currencies to their billions of users in the form of stablecoins; and 4) in turn, public authorities are thinking about providing their own digital currencies to the general public. These developments raise questions about the implications for financial stability, the transmission of monetary policy and financial intermediation. This Policy Contribution focuses on the consequences stablecoins and central bank digital currencies could have. Stablecoins, such as Facebook’s Libra, differ from earlier generations of cryptocurrencies in three fundamental ways. First, they would start with large networks of users and global accessibility, two pivotal features for the critical uptake of a new currency. Second, given the current limitations of DLT, including in terms of energy efficiency, new stablecoins would rely on (more) centralised systems to validate transactions. Third, stablecoins would focus particularly on reducing the volatility in the value of the new currency. These new features of stablecoins attempt to correct some of the critical deficiencies identified in first-generation cryptocurrencies, which meant they did not acquire the main functions of money. However, new stablecoins raise other questions and potentially create new problems. One issue could arise from the more centralised (permissioned) validation system, which could lead to collusion problems. Another issue could arise from the reserve system that is supposed to ensure the stability of stablecoins, such as Libra, which could be incompatible with the profit maximisation behaviour of a private issuer. Facebook’s Libra plan has been a wake-up call to central banks and governments which, afraid of losing their monetary sovereignty, have renewed their interest in central bank digital currencies (CBDCs) as a potential solution. CBDCs could make private digital currencies less attractive and slow down their adoption. But there are other reasons to give the general public access to central bank liabilities. One important reason to provide CBDCs to citizens is that if cash disappears, citizens will lose direct access to sovereign money. Another benefit of the introduction of CBDCs is that monetary policy could be strengthened by transmitting it directly to the general public. However, the introduction of CBDCs could also be disruptive and create risks. In particular, CBDCs could have major consequences for financial intermediation. These risks would have to be evaluated by policymakers before any decisions are taken. If CBDCs are introduced, central banks would have to carefully calibrate their properties to minimise these risks. But, eventually, if these risks – and in particular the risk of structural financial disintermediation – do materialise, central banks would have various instruments to counter them.
Topic:
Science and Technology, Central Bank, Currency, Cryptocurrencies, and European Parliament
Political Geography:
Europe

2824. The state of China-European Union economic relations

Author:
Uri Dadush, Marta Dominguez-Jimenez, and Tianlang Gao
Publication Date:
11-2019
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
China and the European Union have an extensive and growing economic relationship. The relationship is problematic because of the distortions caused by China’s state capitalist system and the diversity of interests within the EU’s incomplete federation. More can be done to capture the untapped trade and investment opportunities that exist between the parties. China’s size and dynamism, and its recent shift from an export-led to a domestic demand-led growth model, mean that these opportunities are likely to grow with time. As the Chinese economy matures, provided appropriate policy steps are taken, it is likely to become a less disruptive force in world markets than during its extraordinary breakout period.
Topic:
Economics, Governance, European Union, Investment, and Trade
Political Geography:
China, Europe, and Asia

2825. Crisis management for euro-area banks in central Europe

Author:
Alexander Lehmann
Publication Date:
11-2019
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The deep involvement of a number of euro-area banking groups in central and southeastern Europe has benefitted the host countries and has strengthened the resilience of those banking groups. But this integration has become less close because of post-financial crisis national rules that require banks to hold more capital at home, or other ring-fencing measures. There is a risk integration might be undermined further by bank resolution planning, which is now gathering pace. Regulators and banks will need to decide between two distinct models for crisis resolution, and this choice will redefine banking networks. Most efficient in terms of preserving capital and the close integration of subsidiary operations would be if the Single Resolution Board – the banking union’s central resolution authority – takes the lead for the entire banking group. However, this will require parent banks to hold the subordinated debts of their subsidiaries. Persistent barriers to intra-group capital mobility – or the option for home or host authorities to impose such restrictions – will ultimately render such schemes unworkable. The second model would involve independent local intervention schemes, which European Union countries outside the banking union are likely to call for. This will require building capacity in local debt markets, and clarifying creditor hierarchies. Exposure to banking risks will ultimately need to be borne by host-country investors. Bail-in capital issued by subsidiaries to their parents cannot be a substitute because it would expose the home country to financial contagion from the host. To sustain cross-border linkages, banking groups and their supervisors will need to make bank recovery plans more credible, and to strengthen cooperation in resolution colleges (platforms that bring together all relevant parties in resolution planning and execution). Within the banking union there is no justification for the various ring-fencing measures that have impeded the flow of capital and liquidity within banking groups.
Topic:
Governance, European Union, Regulation, Banks, and Macroeconomics
Political Geography:
Europe

2826. How does China fare on the Russian market? Implications for the European Union

Author:
Alicia Garcia-Herrero and Jianwei Xu
Publication Date:
11-2019
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
China’s economic ties with Russia are deepening. Meanwhile, Europe remains Russia’s largest trading partner, lender and investor. An analysis of China’s ties with Russia, indicate that China seems to have become more of a competitor to the European Union on Russia’s market. Competition over investment and lending is more limited, but the situation could change rapidly with China and Russia giving clear signs of a stronger than ever strategic partnership.
Topic:
Economics, Markets, Bilateral Relations, Governance, Investment, and Exports
Political Geography:
Russia, China, Europe, Eurasia, and Asia

2827. A Regional Approach to Media Development in West Africa

Author:
Gilbert Tietaah and Sulemana Braimah
Publication Date:
03-2019
Content Type:
Working Paper
Institution:
National Endowment for Democracy
Abstract:
West Africa sits at a critical juncture that will determine whether the coming years are spent defending against reversals in media freedom and pluralism, or moving forward toward new and lasting progress. In this context, the Media Foundation for West Africa consulted stakeholders from all 16 countries of the West Africa region on the question of how cross-border coalitions can help to promote a robust and independent press. This report puts forward a vision for such a region-wide strategy, and how it can coordinate the efforts of civil society organizations, media actors, government allies, and the Economic Community of West African States (ECOWAS). Specifically, the report highlights four concrete actions that could be taken as the foundation for such a coordinated, regional strategy.
Topic:
Media, Journalism, The Press, and Freedom of Press
Political Geography:
Africa and West Africa

2828. Strengthening the United Nations’ Role in Media Development

Author:
Bill Orme
Publication Date:
09-2019
Content Type:
Working Paper
Institution:
National Endowment for Democracy
Abstract:
The United Nations made a promise in Article 19 of the Universal Declaration of Human Rights to promote free and independent media around the world. Citizens cannot “seek, receive and impart information and ideas, through any medium, regardless of frontiers” without access to a vibrant media sphere, including a free and open internet. But how does the UN interpret and act upon this obligation? How is that changing? And how can the UN help create a more effective response to the profound challenges confronting independent media? This report examines the myriad ways that the agencies and bodies of the United Nations support the development of healthy media systems. Author Bill Orme highlights the role of four UN organizations in particular—UNESCO, UNDP, UNICEF, and DPO—and makes recommendations targeted to these agencies, as well as to UN member states and donors.
Topic:
Development, United Nations, Journalism, The Press, and Freedom of Press
Political Geography:
Global

2829. Mapping Digital Disinformation around Elections: A Case Study of Pakistan’s 2018 General Elections

Author:
Talal Raza
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
National Endowment for Democracy
Abstract:
The 2018 general election represented one of the first times digital disinformation occurred on a massive scale in Pakistan. This report examines different forms of disinformation that circulated online in the lead up to the 2018 elections and its impact on the country’s political discourse, and considers methods to counter disinformation in Pakistan and elsewhere. Ultimately, combating this growing problem will require a variety of stakeholders to work toward a multi-pronged, collaborative response.
Topic:
Mass Media, Elections, Digitization, and Election Interference
Political Geography:
Pakistan and Middle East

2830. The Road to Digital Unfreedom: President Xi’s Surveillance State

Author:
Xiao Qiang
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
Journal of Democracy
Institution:
National Endowment for Democracy
Abstract:
Since President Xi Jinping came to power in 2012, China has significantly increased controls over its already censored cyberspace—with a ruling that will allow jail terms for spreading “rumors” online, a cybersecurity law that will facilitate state control and data access, crackdowns on unauthorized VPN connections, and emphasis on the concept of “internet sovereignty.” At the same time, technological innovations in such areas as big-data analytics, artificial intelligence, and the Internet of Things are increasingly being harnessed to monitor the lives and activities of China’s 1.4 billion people. The new arsenal of the Chinese surveillance state includes mass video-surveillance projects incorporating facial-recognition technology; voice-recognition software that can identify speakers on phone calls; and a sweeping and intrusive program of DNA collection. In addition, officials are at work on a nationwide Social Credit System (SCS) intended to assess the conduct of every Chinese citizen.
Topic:
Science and Technology, Authoritarianism, Social Media, Surveillance, and digital culture
Political Geography:
China and Asia