IEP@BU Policy Briefs Series
The Trump II Administration is likely to throw a wrench in coordination across European states in nearly every forum except one: the IMF and multilateral financial institutions. A Policy Brief by Catherine De Vries, and Sienna Nordquist
European policymakers keep pushing the narrative that boosting AI development is key to European competitiveness. But stakes are much higher, because super-intelligent AI will confer enormous geopolitical leverage to those who control it.
The empirical evidence does not confirm the hypothesis that the public debt tends to be more stable in countries where the (real) interest rate is systematically lower than (real) growth. On the contrary.
A policy Brief by Lorenzo Bini Smaghi
In a more dangerous and unstable world, Europe must thus prepare for war to maintain peace and its security: as Vegetius noted, si vis pacem para bellum. However, increasing budgets is not enough if the EU does not address key strategic questions.
Lack of integration of capital markets is a major source of weakness and declining competitiveness of the European economy. While efforts to complete harmonization of capital market legislation in this domain should retain highest priority in the new Commission’s work programme, there is room to advance integration by exploiting the STS regulation introduced by the EU in 2017 as part of its broader efforts to implement the CMU.
The main finding is that at the peak of the latest tightening cycle, the ECB monetary policy stance was no more restrictive than it was at the peak of the two preceding ones; actually, probably less.
The costs and benefits of sharing national sovereignty are different across EU countries. In our framework, costs mainly depend on the relative strengths of each national state and intermediate institutions.
Building on a previous analysis of the trends of convergence and divergence between peripheral and core EA-12 countries after the euro area sovereign debt crisis (Bordignon et al., 2023), this work investigates the long-term evolution of such differences in economic, institutional, and political outcomes, testing whether a pattern of convergence was finally resumed and comparing the effects of this crisis with those induced by the Covid-19 pandemic.
Robust port infrastructure can significantly mitigate the risk of supply chain disruption, suggesting that government efforts are better targeted at improving the performance of ports and critical infrastructure more broadly, rather than implementing protectionist measures.
After a detailed presentation of the Green Deal’s main measures in each sector, we will focus on a few of them to analyze its failures or successes in greater detail.
The economic transformation required to reach global net zero goals relies on the mining and transformation of certain minerals and metals for the production of low-carbon technologies. Increasing global demand for these critical materials, combined with their uneven geographical distribution, raise potential supply issues that pose economic security and transition risks for the European Union. This report sets out the nature of the challenge, the policy responses and ways forward for the bloc.
The fight against poverty is not a new one. It has been a feature of national policies and academic research for many decades. However, the ways in which a State fights against poverty have changed over time, continuously evolving to approach new challenges through the adoption of new tools and policies.
We find that the profitability of high-risk tech companies, associated with high rates of failure, is very dependent on the cost of restructuring, which itself is driven by employment protection legislation.
As Europe begins to face the start of its own relationship with fentanyl, it is paramount that policymakers learn from the lessons of American and Australia in crafting their response. Policymakers need to bear in mind that drug users are consumers who will respond to the changing economic environment wrought by their efforts.
The mobile telecom sector is often taken as a case study of fragmentation of the single market leading to less investment and a loss of technological leadership. However, a closer examination of the data suggests that the fragmentation also implies more competition leading to lower prices for consumers in Europe.
A popular thesis in policy circles is that there is an “investment gap” that Europe needs to fill to face the great challenges of our times, such as the digital and green transitions. However, the notion of the “investment gap” used by policymakers is often vague and therefore it risks legitimate a wasteful allocation of public resources.
After revisiting the pros and cons, this paper concludes that, all in all, the rationale for introducing an ECB-sponsored digital euro for citizens, retailers, and producers, is not solidly established. Today’s highly dynamic, innovative, and efficient digital payment ecosystem does not require such an instrument, which would unavoidably duplicate existing applications and probably struggle to match private innovation.
Defense expenditure in EU members rose by 50% (net of inflation) between 2015 and 2023, with an increase in the expenditure-to-GDP ratio (Figure 2, referring to the current EU members). The increase involved all EU members, including not NATO members during the period under consideration.
The paper explores the evolution of the EU's policy on disinformation, evaluates its current strategies, and discusses future perspectives, emphasizing the importance of transparency and accountability in the digital age.
The main consequence of not achieving an integrated financial market is that Europe will not be able to finance the huge investment requirements needed for its ambitions in the fields of climate transition, energy security, digital evolution, defense, etc…
The EU is encouraging other countries to follow its lead and support the green transition. This requires massive subsidies in many different sectors. Why should the EU then complain if other countries outcompete it in terms of subsidizing the production of green goods?
The 1960s and 1970s acute industrial conflicts were at the root of the demise of large companies in the Italian economy, setting in motion a trend of reduction in company size that continued over the ensuing decades
It is often assumed that Germany’s economic relations with China are so important that Berlin tends to take a softer stance on China-EU relations than its EU partners – or at least that this used to be the case until most recently. In particular, it is feared that German industry might be more vulnerable to disruptions of the supply of Chinese inputs than other European countries. However, this impression of a greater dependency of German industry and its supply chains from China is not borne out by the data.
This essay examines the international trade policies of the two presumed Candidates for president in 2024, Joseph Biden and Donald Trump.
This paper shows that the current operational framework of monetary policy relying on excess liquidity, together with a high level of interest rates, produces a remarkable redistribution of interest payments across the national central banks of the Eurosystem, due to the rules governing the pooling of monetary income among them. This mechanism implies significant fiscal transfers across the member countries of the euro area. Our estimates for 2023 show that their size can be in the order of several billion euro.
The polls for the forthcoming European Parliament elections indicate a further surge of the radical and/or sovereigntist right. This result might destabilize again traditional partisan and inter-institutional equilibria and weaken the support to EU authority at a time when serious challenges and difficult choices loom large. Does the EU risk plunging back into an “existential crisis”, as it happened a decade ago in the aftermath of the 2014 elections?
This policy brief highlights that while the green subsidies provided by the Inflation Reduction Act of the United States are homogeneous across beneficiaries, the subsidies associated with the Green Deal industrial plan are highly fragmented across European member States. We quantify the extent of resource misallocation due to this subsidy dispersion by using the model of Hsieh and Klenow (2009), calibrated on the EU electricity-producing industry. We compare both the actual allocation of subsidies, and a policy of subsidies coordinated at the EU level, to a hypothetical frictionless benchmark with no subsidies. We find that moving to coordinated subsidies can increase productivity by more than 30% with respect to the uncoordinated scenario, substantially reduce the productivity gap with the United States, and generate gains worth up to 6% of the EU value-added in the industries considered. Policy recommendations include greater EU-level coordination to minimize misallocation and enhance productivity.
This paper, prepared on a request by the European Parliament, contributes to a reflection aimed at identifying ways to revive and upgrade the banking union, so as to enable it to cope with the major transformational challenges facing Europe as we move forward in the 21st century: Green, Digital, Geo-Strategic and Structural.
Even though European banks do have solid Basel ratios, their profitability is insufficient to make them attractive for investors. This suggests that – from the market’s perspective - the system may not be as sound and stable as regulators believe
The Council of the European Union (EU Council) agreed on a provisional set of new fiscal rules in its meeting on December 20, 2023, that introduces significant changes to the Commission’s proposals. The fiscal reform marks progress but is, at the same time, a lost opportunity.
There is no doubt that monetary policy reacted late to the rising inflationary pressures experienced in 2021-22. The major central banks subsequently caught up rapidly and hiked interest rates at an unprecedented pace. However, as inflation reached its peak at the end of 2022 and has been falling since then, central banks may once again be late in adjusting their policies.
Our starting point was the stark increase in non-energy price inflation, which is the key element for the ECB since monetary policy cannot do anything about energy prices. Could the ECB have foreseen this development? Our analysis suggests that this would have been difficult based on past experience.
ECB independence is inconsistent with the present overreach of the institution into the economic policies of the member states, a function for which the ECB is not accountable.
In the discussion on monetary policy in the presence of supply shocks, we focus on the Euro area to understand the recent wave of inflation.
La Nota di Aggiornamento del DEF (Nadef) e la bozza della Legge di Bilancio del Governo Meloni indicano obiettivi e programmi di politica economica sulla cui credibilità gravano varie ipoteche. Le difficili condizioni dell’economia internazionale e l’intrinseca debolezza della finanza pubblica italiana possono mettere in questione gli impegni dichiarati dal governo, con implicazioni per la stabilità finanziaria del paese.
To understand the feasibility of further integration, we study the extent and evolution of cultural and policy views heterogeneity in Europe leveraging international survey data. We calculate the distribution of cultural and policy views distance both across and within countries. We find that cultural heterogeneity has increased along both dimensions in the past but has decreased in the most recent wave.
