Turning the page? EU fiscal consolidation in the wake of the crisis

The fiscal cost of the financial and economic crisis in Europe is huge. The paper provides provisional estimates of this cost and looks at its implications for the sustainability of public finances, taking into account also the impact of aging populations. The historical experience suggests that economic growth is persistently lowered in the aftermath of financial crisis, making fiscal consolidation more difficult yet all the more essential. Meanwhile the timing of the exit from fiscal stimulus and subsequent fiscal consolidation must reconcile sustainability and stabilisation goals—a delicate balancing act. The paper will argue in favour of structural reform to boost the economic growth potential alongside fiscal consolidation. The fiscal coordination framework in the EU, together with the Europe 2020 strategy, is seen to underpin this approach.     

Is the EU ETS a Just Climate Policy?

The European Union Emissions Trading System (EU ETS) is in dire straits. Prone to design problems and suffering from the effects of the economic crises the scheme is criticised for its poor achievements. In this paper we will analyse some of the features of this situation from an ethical perspective. The major part is dedicated to the complications within each phase of the EU ETS and to the recent developments it has undergone. We will briefly discuss the remedies suggested by prominent commentators. Furthermore, any policy tool to tackle climate change should be evaluated in view of the profound equity issues that are inherent to the climate problem. We will evaluate the EU ETS according to two justice-based criteria, related to effectiveness and the distribution of the duties involved in climate change, respectively. We will conclude that the EU ETS, in its current form, clearly lacks fairness on both criteria. However, the biggest problem is the unwillingness of EU leaders to mend, what could be, a commendable climate policy tool. To that extent, we argue, those leaders are acting unjustly.     

Do food standards affect the quality of EU imports?

This paper investigates the relationship between the diffusion of EU standards and product quality upgrading using highly disaggregated import data to the EU in the food industry. Results show that, on average, the diffusion of EU voluntary standards boosts the rate of quality upgrading. However, the results are heterogeneous when moving from primary to processed foods, and from ISO to non-ISO standards.     

Does the Law of One Price Hold within the EU? A Panel Analysis

This paper empirically tests the law of one price by applying unit root tests to three panels consisting of data on 90 consumer price indices for the EU-25, the EU-15 and the 10 new EU member countries that joined the EU in 2004. The four major findings of this paper are: (1) panel unit root tests find evidence of price convergence for about 70% of all product groups, (2) the results are sensitive to the choice of the numeraire country implying that any conclusions must be based on all bilateral combinations, (3) the average half life across all product groups is 2.0 years, (4) the overall evidence for the law of one price is weaker in the 10 new EU member countries than in the EU-15.

Is R&D always growth-enhancing? Empirical evidence from the EU countries

This study provides empirical evidence regarding the effects of R&D on economic growth in a panel of 28 European Union (EU) countries over the period 1997–2014. In particular, we investigate whether the impact of business and government R&D stocks on economic growth depends on the country’s distance to the world technology frontier. The main findings are that in the EU (i) there is positive, statistically significant business R&D stock–economic growth nexus in countries that are relatively close to the frontier and (ii) no statistically significant relationship was found to exist between government R&D stock and economic growth. From the policy perspective, the results suggest that designing proper national policies that allow switching from investment-based to innovation-based strategies at appropriate moments may be far more important than a simple call for increase in R&D expenditures and setting common numerical targets for all EU-member states.     

A European Geopolitical Subject in the Making? EU,Russia and the Kaliningrad Question

This article engages the recent studies that have treated the European Union (EU) in geopolitical terms, as an empire engaged with enlargement. The article introduces the meta-concept of geopolitical subjectivity. This meta-concept enables us to situate such imperial interpretations of the EU into a theoretically informed, comparative setting. The meta-concept is defined as goal-oriented ordering of territories and political spaces, extending from one's own sphere of sovereign rule to broader regional contexts. It is used to study the EU-Russian interaction in creating order to the Kaliningrad region that is set to become a Russian enclave/exclave within the enlarged EU. The article concludes by arguing that in this case, the EU's geopolitical subjectivity is constituted more strongly by Russia's recognition of this status than by the EU's own identity and interest projects.     

Is productivity diverging in the EU? Evidence from 11 Member States

An argument that received a lot of attention in the political and economic discussion surrounding the recent crisis in the EU is that diverging trends in productivity across member countries will undermine the viability of the common currency. This article examines the issue of convergence in multifactor productivity using sector-level data from 11 EU Member States. A state-space model is developed, and formal Bayesian model comparisons are performed to infer whether productivity is diverging, both at the aggregate level and at a sector-by-sector basis. The data point toward diverging productivity at the aggregate level, but suggest the opposite for many individual sectors.     

Is growth corrupted or bureaucratic? Panel evidence from the enlarged EU

This article aims at analysing the issue of conditional convergence in the new enlarged European Union (EU) over the period 1995–2012 by means of panel data techniques. We examined the issue of conditional convergence in the enlarged EU giving particular attention to the effects of corruption and bureaucracy on growth controlling for a widely used set of explanatory variables such as investment (domestic and foreign), human capital formation, inflation, general government final consumption and trade openness. Furthermore, we examine if growth responds differently to corruption and bureaucracy in the new EU members by means of two group-specific interaction variables to capture possible different responses to corruption and bureaucracy. The analysis reveals evidence of conditional convergence in the enlarged EU, with investment share, foreign direct investment, human capital, and country openness appearing as robust growth drivers. In contrast, inflation and government consumption rather hamper growth. Furthermore, the effects of corruption and bureaucracy on growth seem to differ across old and new EU members.     

Unreformed or Hybrid? Accounting for Pension Arrangements Diversity in the EU

EU27 pension systems are diverse and different from textbook ideal-type. They are hybrids because they combine public and private pension features. Over a century, public and private pensions have been designed and reformed simultaneously. We examine how the history of those reforms can explain the emergence of existing hybrid pension arrangements.     

Resisting Protectionism after the Crisis: Strategic Economic Discourse and the EU–Korea Free Trade Agreement

In 2006 the European Commission announced its Global Europe strategy, which proposed pursuing a series of ambitious Free Trade Agreements (FTAs) premised on exchanging the EU's remaining ‘pockets of protection’ for market access. The first of these agreements was signed with South Korea in October 2010. This article asks how the Commission's Directorate-General (DG) for Trade could successfully conclude this agreement in the aftermath of the Financial Crisis. Given a strong mobilisation of protectionists with access to policy-makers, this liberal policy outcome cannot be explained purely in terms of institutional insulation, as in much of the literature on EU trade policy, nor be simply ‘read off’ from the material interests of societal actors. This article, therefore, develops a constructivist framework which broadens our understanding of the power of strategically invoked economic discourses. By developing a novel analytical strategy to determine the intentional invocation of such discourses, it is able to show how DG Trade constructed an ideational imperative for liberalisation in Global Europe, enabling it to overcome opposition to the EU–Korea FTA. Beyond its contribution to constructivist scholarship, this article draws attention to the neglected dimension of ideas in trade policy and highlights the continued purchase of neoliberalism after the crisis.     

Female employment and occupational changes in the 1990s: How is the EU performing relative to the US?

This paper provides a comparison of the incidence and composition of female employment both in the EU and in the US. Despite a significant increase in female labour market participation in the EU, about 50% of the difference between the employment rates in the US and the EU can still be attributed to differences in the educational attainments and the employment rates of women aged 25–54. We highlight the main features of female employment in both areas, paying particular attention to the differences across age cohorts and educational levels. Our main findings are as follows: (i) the educational level of the EU female population is slowly converging to that of the US across age cohorts, (ii) the employment rates of less educated women are much lower in the EU than in the US (with the exceptions of the Scandinavian countries) even for women aged 25–34, and (iii) occupational segregation is lower for the younger highly educated women who seem to be entering more typically male occupations and less typically female occupations, although at a higher rate in the US than in the EU.     

Market Shares and Concentration in the EU Auditing Industry: the Effects of Andersen’s Demise

This paper describes and analyses changes at the concentration level of the audit services markets in 15-EU member-countries. The sample consists of 2,862 clients of auditing firms for the period 1998 to 2004. The findings of the research show that concentration in the aggregate sample increased over time. Concentration in the audit markets of the EU-15 member-countries exhibits substantial variation across countries while average concentration, before and after Arthur Andersen’s dissolution, has increased in 12 and declined in three countries. Results segmented by economic sectors indicate that the concentration increased in all sectors except Energy, which is the sector with the highest concentration. Overall, the empirical results suggest that there are complexities in our understanding of auditing services markets for competition purposes.

Addressing leakage in the EU ETS: Border adjustment or output-based allocation?

The EU ETS has been criticised for threatening the competitiveness of European industry and generating carbon leakage, i.e. increasing foreign greenhouse gas emissions. Two main options have been put forward to tackle these concerns: border adjustments and output-based allocation, i.e. allocation of free allowances in proportion to current production. We compare various configurations of these two options, as well as a scenario with full auctioning and no border adjustment. Against this background, we develop a model of the main sectors covered by the EU ETS: electricity, steel, cement and aluminium. We conclude that the most efficient way to tackle leakage is auctioning with border adjustment, which generally induces a negative leakage (a spillover). This holds even if the border adjustment does not include indirect emissions, if it is based on EU (rather than foreign) specific emissions, or (for some values of the parameters) if it covers only imports. Another relatively efficient policy is to combine auctioning in the electricity sector and output-based allocation in exposed industries, especially if free allowances are given both for direct and indirect emissions, i.e. those generated by the generation of the electricity consumed. Although output-based allocation is generally less effective than border adjustment to tackle leakage, it is more effective to mitigate production losses in the sectors affected by the ETS, which may ease climate policy adoption.     

Is Russian Energy Policy towards the EU Only about Geopolitics? The Case of the Third Liberalisation Package

Russian external energy policy is frequently described as geopolitical (as opposed to EU energy policy, which is often characterised as market-based). This article reviews geopolitical and market approaches in existing studies and identifies paradigmatic and instrumental levels in each of them. It then proceeds to demonstrate that although the geopolitical paradigm dominates in Russia, Russia has also reacted to the EU’s third liberalisation package, using legal and technocratic instruments, which are parts of the market approach. Each set of instruments has its institutional basis in Russia: the President, the Ministry of Foreign Affairs (MFA) and Gazprom work in geopolitical ways but with frequent recourse to legal instruments, the Ministry of Economic Development (MED) promotes legal instruments and the Ministry of Energy (ME) is the centre of the technocratic activities, which Gazprom also frequently applies at present. This study therefore provides a more complex picture of Russian external energy policy. Moreover, it reveals a potential opening for a degree of policy convergence between the EU and Russia. In this context it is regrettable that legal and technocratic instruments were compromised as a result of the 2014 worsening in EU-Russian relations.     

Unravelling the Puzzle of Social Standards’ Design in EU and US Trade Agreements

The European Union (EU) and the United States (US) are signing preferential trade agreements (PTAs) increasingly used as vehicles for exporting social regulation, such as labour and environmental standards. Despite the similarity in terms of the inclusion of such provisions, their design varies greatly between US and EU agreements. The US exports its domestic standards, relying on coercive enforcement, while the EU emphasises international rules and soft measures. Why do US PTAs have stricter social standards than those signed by the EU? Using the principal–agent approach to explain the domestic politics of social provisions in EU and US PTAs, I argue that greater insulation of trade executives from interest groups and legislators results in their ability to set the agreement agenda independently, in accordance with their normative preferences. The argument is supported by case studies and original interview data.     

Does integration and economic policy coordination promote business cycle synchronization in the EU?

Previous studies have discounted important factors and indirect channels that might contribute to business cycle synchronization (BCS) in the EU. We estimate the effects of market integration and economic policy coordination on bilateral business cycle correlations over the period 1995–2012 using a simultaneous equations model that takes into accounts both the endogenous relationships and unveils direct and indirect effects. The results suggest that (1) trade and FDI have a pronounced positive effect on BCS, particularly between incumbent and new EU members. (2) Rising specialization does not decouple business cycles. (3) The decline of income disparities in EU27 contributes to BCS, as converging countries develop stronger trade and FDI linkages. (4) There is strong evidence that poor fiscal discipline of EU members is a major impediment of business cycle synchronization. (5) The same argument holds true for exchange rate fluctuations that hinder BCS, particularly in EU15. Since BCS is a fundamental prerequisite and objective in an effective monetary union, the EU has to promote market integration and strengthen the common setting of economic policies.     

Real capital market integration in the EU: How far has it gone? What will the effect of the euro be?

Much effort has been devoted to the study of financial market integration in Europe. Little is known, however, about real capital market integration – the degree to which plants and equipment move to take advantage of locally high returns. This paper looks at the evidence. An analysis of flows of foreign direct investment in Europe shows that integration was quite limited in the early 1980s, but has increased considerably since then. Another analysis looks at rates of return of a large number of firms. It reveals that country-specific factors play a significant role in explaining corporate returns, even after taking risk into account. This finding is incompatible with the CAPM definition of market integration. The view that integration is limited in Europe is further strengthened when the same approach is carried out for the USA and Canada. Part of the national specificity appears to be related to labour and goods market regulations, which harm firms profitability. If, by introducing more transparency and eliminating currency risk, EMU strengthens competition on the real capital market, one obvious economic benefit will be a more rational and efficient use of capital, but the most important potential consequences are political. Special-interest regulations of an exclusively national nature will not survive. They will either fall in a wave of internationalist liberalization, or become embedded in 'harmonized' regulations at the federal level. A reduction in excessive regulatory burdens, notably in the labour market, could lead to substantial and shared productivity gains.