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  • Author: Ansgar Belke, Anne Oeking, Ralph Setzer
  • Publication Date: 05-2014
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: The significant gains in export market shares made in a number of vulnerable euro-area crisis countries have not been accompanied by an appropriate improvement in price competitiveness. This paper argues that, under certain conditions, firms consider export activity as a substitute for serving domestic demand. The strength of the link between domestic demand and exports is dependent on capacity constraints. Our econometric model for six euro-area countries suggests domestic demand pressure and capacity-constraint restrictions as additional variables of a properly specified export equation. As an innovation to the literature, we assess the empirical significance through the logistic and the exponential variant of the non-linear smooth transition regression model. We find that domestic demand developments are relevant for the short-run dynamics of exports in particular during more extreme stages of the business cycle. A strong substitutive relationship between domestic and foreign sales can most clearly be found for Spain, Portugal and Italy, providing evidence of the importance of sunk costs and hysteresis in international trade.
  • Topic: Economics, Human Rights, International Trade and Finance, Financial Crisis
  • Political Geography: Europe
  • Author: Paul De Grauwe, Yuemei Ji
  • Publication Date: 05-2014
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Since the announcement of the Outright Monetary Transactions (OMT) programme by Mario Draghi, President of the ECB, in 2012, the government bond spreads began a strong decline. This paper finds that most of this decline is due to the positive market sentiments that the OMT programme has triggered and is not related to underlying fundamentals, such as the debt-to-GDP ratios or the external debt position that have continued to increase in most countries. The authors even argue that the market's euphoria may have gone too far in taking into account the same market fundamentals. They conclude with some thoughts about the future governance of the OMT programme.
  • Topic: Economics, International Trade and Finance, Markets
  • Political Geography: Europe
  • Author: Ana-Maria Fuertes, Elena Kalotychou, Orkun Saka
  • Publication Date: 06-2014
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Paul De Grauwe ' s fragility hypothesis states that member countries of a monetary union such as the eurozone are highly vulnerable to a self – fulfilling mechanism by which the efforts of investors to avoid losses from default can end up triggering the very default they fear. The authors test this hypothesis by applying an eclectic methodology to a time window around Mario Draghi ' s " whatever it takes " (to keep the eurozone on firm footing) pledge on 26 July 2012 . This pledge was soon followed by the announcement of the Outright Monetary Transactions (OMT) program me (the prospective and conditional purchase by the European Central Bank of sovereign bonds of eurozone countries having difficulty issuing debt) . The principal components of eurozone credit default swap spreads validate this choice of time frame . An event study reveals significant pre – announcement contagion emanating from Spain to Italy, Belgium, France and Austria. Furthermore, time – series regression confirms frequent clusters of large shocks affecting the credit default swap spreads of the four eurozone countries but solely during the pre – announcement period. The findings of this report support the fragility hypothesis for the eurozone and endorse the Outright Monetary Transactions programme.
  • Topic: Economics, Foreign Exchange, International Trade and Finance, Financial Crisis
  • Political Geography: Europe, France, Belgium, Italy
  • Author: Michael Emerson
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper looks at the trade policy landscape of the EU and the wider Europe, with a focus on issues arising from the signature on 27 June 2014 of Deep and Comprehensive Free Trade Agreements (DCFTAs) between the EU and three East European countries (Georgia, Moldova and Ukraine), and actual or prospective issues relating to the customs union of Belarus, Russia and Kazakhstan (BRK), and the Eurasian Economic Union whose founding treaty was signed on 29 May 2014. While the contrived collision between these projects has tragically induced Russia to break all the established international security norms by waging war against Ukraine, the present paper deals essentially with trade policy issues. The huge expansion of intercontinental free trade area negotiations currently underway, in which the EU is an active participant alongside much of the Americas and Asia, stands in contrast with Russia's choice to restrict itself to the Eurasian Economic Union, which is only a marginal extension of its own economy. Alone among the major economies in the world, Russia does not seek to integrate economically with any major economic bloc, which should be a matter of serious concern for Moscow. Within the wider Europe, the EU's DCFTAs with Ukraine, Moldova and Georgia are a major new development, but Russia now threatens trade sanctions against Ukraine in particular, the economic case for which seems unfounded and whose unilateral application would also impair the customs union. The Belarus-Russia-Kazakhstan customs union itself poses several issues of compatibility with the rules of the WTO, which in turn are viewed by the EU as an impediment to discussing possible free trade scenarios with the customs union, although currently there are far more fundamental political impediments to any consideration of such ideas. Nonetheless this paper looks at various long-term scenarios, if only as a reminder that there could be much better alternatives to the present context of conflict around Ukraine.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Russia, America, Europe, Ukraine, Kazakhstan, Asia, Georgia
  • Author: Michael Emerson
  • Publication Date: 07-2014
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: This paper looks at the trade policy landscape of the EU and the wider Europe, with a focus on issues arising from the signature on 27 June 2014 of Deep and Comprehensive Free Trade Agreements (DCFTAs) between the EU and three East European countries (Georgia, Moldova and Ukraine), and actual or prospective issues relating to the customs union of Belarus, Russia and Kazakhstan (BRK), and the Eurasian Economic Union whose founding treaty was signed on 29 May 2014. While the contrived collision between these projects has tragically induced Russia to break all the established international security norms by waging war against Ukraine , the present paper deals essentially with trade policy issues . The huge expansion of intercontinental free trade area negotiation s currently underway, in which the EU is an active participant alongside much of the Americas and Asia, stands in contrast with Russia's choice to restrict itself to the Eurasian Economic Union, which is only a marginal extension of its own economy. Alone among the major economies in the world, Russia does not seek to integrate economically with any major economic bloc, which should be a matter of serious concern for Moscow. Within the wider Europe, the EU's DCFTAs with Ukraine, Moldova and Georgia are a major new development, but Russia now threatens trade sanctions against Ukraine in particular, the economic case for which seems unfounded and whose unilateral application would also impair the customs union. The Belarus-Russia-Kazakhstan customs union itself poses several issues of compatibility with the rules of the WTO, which in turn are viewed by the EU as an impediment to discussing possible free trade scenarios with the customs union, although currently there are far more fundamental political impediments to any consideration of such ideas. Nonetheless this paper looks at various long-term scenarios, if only as a reminder that there could be much better alternatives to the present context of conflict around Ukraine.
  • Topic: International Relations, Diplomacy, Economics, International Trade and Finance
  • Political Geography: Russia, Europe, Ukraine, Kazakhstan
  • Author: Ansgar Belke, Timo Baas
  • Publication Date: 09-2014
  • Content Type: Working Paper
  • Institution: Centre for European Policy Studies
  • Abstract: Member countries of the Economic and Monetary Union (EMU) initiated wide-ranging labour market reforms in the last decade. This process is ongoing as countries that are faced with serious labour market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggar-thy-neighbour policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyse the impact of labour market reforms on the transmission of macroeconomic shocks in both non-reforming and reforming countries. By analysing the impact of reforms on foreign debt, we contribute to the debate on whether labour market reforms increase or reduce current account imbalances.
  • Topic: Debt, Economics, Politics, Labor Issues, Reform
  • Author: Ilaria Maselli, Miroslav Beblavý
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: There is a general consensus that to achieve employment growth, especially for vulnerable groups, it is not enough to kick-start economic growth. It is also essential to improve the s kills among both the high-and low-skilled population.
  • Topic: Economics, Migration, Science and Technology, Labor Issues
  • Political Geography: Europe, Somalia
  • Author: Ilaria Maselli, Miroslav Beblavý
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Tackling the high and increasing unemployment rate ranks at the top of the EU policy agenda, especially with regard to young people. There is a general consensus that to achieve employment growth, especially for vulnerable groups, it is not enough to kick-start economic growth - skills among both the high-and low-skilled population also need to be improved. However, we need to move beyond simplified narratives and generic policies in order to better understand a much-debated and lamented phenomenon : the lack of graduates in subjects related to science, technology, engineering and mathematics (STEM).
  • Topic: Education, Science and Technology, Labor Issues
  • Political Geography: Europe
  • Author: Rym Ayadi, Willem Pieter De Groen
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The Arab Spring, which took root in Tunisia and Egypt in the beginning of 2011 and gradually spread to other countries in the southern Mediterranean, highlighted the importance of private-sector development, job creation, improved governance and a more equitable distribution of economic opportunities. The developments led to domestic and international demands on the governments in the region to implement the reforms needed to enhance business and investment conditions, modernise their economies and support the development of enterprises.
  • Topic: Economics, International Trade and Finance, Social Movement, Reform
  • Political Geography: Arabia, Egypt, Tunisia
  • Author: Viral V. Acharya, Sascha Steffen
  • Publication Date: 01-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The eurozone is mired in a recession. In 2013, the GDP of all 17 eurozone countries fell by 0.5% and the outlook for 2014 shows considerable risks across the region. To stabilise the common currency area and its (partly insolvent) financial system, a eurozone banking union is being established. An important part of the banking union is the Single Supervisory Mechanism (SSM), which will transfer the oversight of Europe's largest banks to the European Central Bank (ECB). Before the ECB takes over this responsibility, it plans to conduct an Asset Quality Review (AQR) in 2014, which will identify the capital shortfalls of these banks.
  • Topic: Economics, International Trade and Finance, Regional Cooperation, Monetary Policy
  • Political Geography: Europe
  • Author: Steven Blockmans, Luigi Scazzieri
  • Publication Date: 02-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: On January 20th, the International Atomic Energy Agency (IAEA) confirmed that Iran had been implementing its commitments as part of the Joint Plan of Action (JPA) agreed by the E3+3 in Geneva on November 24th of last year. In particular, the Agency confirmed that Iran had not installed new centrifuges, that it had stopped enriching uranium above 5%, that it had disabled connections between cascades being used to enrich up to 20%, and that it had begun the process of diluting half of its stockpile of 20%, while the other half is to be converted to oxide over the next six months. Over the next six months, the IAEA will continue to monitor Iranian enrichment, and activities at Arak, Fordow and Natanz. Immediately following the IAEA announcement, the US and EU suspended some of the sanctions currently imposed on Iran. Sanctions relief, quantified at $7 billion, comprises both the suspension of some sanctions and the repatriation of $4.2 billion of oil revenues in tranches.
  • Topic: Security, Economics, International Cooperation, International Organization, Treaties and Agreements, International Security, Nuclear Power
  • Political Geography: Iran
  • Author: Steven Blockmans
  • Publication Date: 03-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: Concerns about the deterioration of democracy in Turkey are not new: the trials over the 2003 „ Sledgehammer ‟ alleged coup plan (2010-12) and over the ‟ Ergenekon ‟ secret organisation (2008-13) broke the military‟s influence over politics, but were widely criticised because of their reliance on secret witnesses and disputes over evidence. Ironically, their outcome has recently been challenged by Prime Minister Erdoğan himself, who has disowned the trials now that the judiciary has the AK Party in its sights. International concern was also stirred by the violent crackdown on the countrywide protests of May/June 2013. Unrest then was triggered by the planned redevelopment of Istanbul‟s Gezi Park in May 2013, but developed into a wider movement critical of government corruption, increasing restrictions on freedom of speech and concerns about the erosion of secularism. Protests simmered on through September, winding down in autumn and winter only to reignite in March of this year.
  • Topic: Government, International Cooperation, Politics, Regional Cooperation, Reform
  • Political Geography: Europe, Turkey
  • Author: Stefano Micossi, Ginevra Bruzzone, Miriam Cassella
  • Publication Date: 05-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: In July 2013, the European Commission adopted a new Banking Communication – the seventh since the start of the financial crisis – updating its criteria for the evaluation of state aid in the banking sector in response to the evolving economic and institutional environment. Under this Communication, any credit institution in need of recapitalisation or 'impaired asset' measures will be required, prior to any further action, to submit a plan for restructuring or the orderly winding down the bank. Moreover, whenever there is a capital shortfall, the Commission will require that, prior to any injection of public funds, not only shareholders – as has been the case so far – but also junior creditors write down or convert into equity their claims on the bank, regardless of whether the bank is under resolution, in order to minimise the need for state aid.
  • Topic: Economics, International Trade and Finance, Monetary Policy
  • Political Geography: Europe
  • Author: Stefano Micossi, Fabrizia Peirce
  • Publication Date: 07-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The policy debate about how best to restore growth in the flagging eurozone economy has been plagued by demands from some highly indebted member countries that the Stability and Growth Pact (SGP) be loosened to leave greater room to support the economy with budgetary instruments. These demands have been met with an instant rebuff from the Commission and other financially solid members who argue that loosening the Pact would do little to restore sound growth. This question has also hindered the broader discussion on the need for and content of a renewed growth strategy for the eurozone and the European Union, no least by fuelling fresh mistrust among their member states.
  • Topic: Economics, International Trade and Finance, Reform
  • Political Geography: Europe
  • Author: Steven Blockmans
  • Publication Date: 07-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The downing of Malaysia Airlines flight MH17 over eastern Ukraine has unleashed a storm of grief and anger in the EU and around the world. Heads of state and government have joined the public outcry and called for tough action against those directly and indirectly responsible for this heinous crime. The EU's reaction, however, has been lame so far by comparison.
  • Topic: Foreign Policy, Territorial Disputes, Sanctions
  • Political Geography: Russia, Europe, Ukraine
  • Author: Willem Pieter De Groen
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The Comprehensive Assessment conducted by the European Central Bank (ECB) representsa considerable step forward in enhancing transparency ineuro-area banks' balance sheets. The most notable progress since the previous European stress test has been the hamonisation of the definition of non-performing loans and other concepts as well as uncovering hidden losses, which resulted in a €34 billion aggregate capital-chargenet of tax. Despite this tightening,most banks were able to meet the 5.5% common equity tier 1 (CET1) threshold applied in the test, whichsuggests that the large majority of the euro-area banks have improvedtheir financial position sufficiently to no longer constrainthem in financing the economy.Our own estimation based on the detailed results, however,provide a more nuanced picture, with a large numberof the banks still highly leveraged and in many cases unable to meet the regulatory capital requirementsthat will be introduced in the coming years underthe adverse stress test scenario.
  • Topic: Debt, Economics, International Trade and Finance, Global Recession
  • Political Geography: Europe
  • Author: Erwan Fouéré
  • Publication Date: 10-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: It is a damning reflection of our times that one of the EU's most successful foreign policy achievements has never been under so much criticism. During the recent elections for the European Parliament, populist eurosceptic parties were in the forefront of those campaigning against the EU's enlargement agenda. Their attempts at equating further enlargement with the dangers of increased immigration from Turkey, the Western Balkans and even other EU member states were bolstered by the leaders of some long-standing member states, such as the UK, openly calling for restrictions on freedom of movement — one of the fundamental pillars of the EU.
  • Topic: International Cooperation, Governance, Reform
  • Political Geography: Europe, Turkey, Balkans
  • Author: Jacques Pelkmans, Weinian Hu
  • Publication Date: 10-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: This CEPS Policy Brief is based on a larger study for the EEAS and European Commission, written by the same authors in the run-up of the Milan ASEM summit of 16-17 October 2014. The main idea of the study is to assess whether ASEM works and how, by verifying the factual evidence in detail. After all, ASEM has no institutions, no budget and no treaty, whilst dialogues and a loose improvement over time in Asia-Europe relations refer to process much more than genuine 'results'. The stocktaking covers all ASEM activities since the 2006 Helsinki summit. Summit and foreign ministers' declarations and ASEM calendar of activities (and interviews) are used to trace ASEM activities in the three ASEM pillars (political, economic, and peoples-to-peoples/cultural). All the 'regular' ASEM meetings at ministerial and other levels (many of which are only known to relatively few) have been mapped. Also the ASEM working methods, based on the 2000AECF framework and many subsequent initiatives, have been scrutinised, including whether they are actually implemented or not or partially. Such methods refer to how to work together in areas of cooperation (beyond the typical ASEM dialogue), organisation, coordination and ASEM visibility.
  • Topic: International Cooperation, Regional Cooperation, Governance
  • Political Geography: Europe, Singapore
  • Author: Michael Emerson, Denis Cenusa, Tamara Kovziridse, Veronika Movchan
  • Publication Date: 09-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: While EU and US sanctions against Russia over its aggression in Ukraine, and Russia's counter-sanctions, are much discussed due to their evident political significance, less attention has been given to Russia's punitive sanctions against the three Eastern European states – Ukraine, Moldova and Georgia – that have signed with the EU Association Agreements (AA), which include Deep and Comprehensive Free Trade Area (DCFTA) provisions. This paper therefore documents these trade policy restrictions and embargoes imposed by Russia, and provides some first indications of their impact. The immediate impact on trade flows, especially for agri-food products, has been substantial, albeit with some leakage through Belarus. The main instrument for the Russian measures has been allegations of non-conformity with Russian technical standards, although the correlation of these allegations with movements in Russia's geopolitical postures makes it obvious that the Russian technical agencies are following political guidelines dressed up as scientific evidence. These measures also push the three states into diversifying their trade marketing efforts in favour of the EU and other world markets, with Georgia already having taken significant steps in this direction, since in its case the Russian sanctions date back to 2006. In the case of Ukraine, Russia's threat to cancel CIS free trade preferences infiltrated trilateral talks between the EU, Ukraine and Russia, leading on 12 September to their proposed postponement until the end of 2015 of the 'provisional' implementation of a large part of the AA/DCFTA. This was immediately followed on 16 September by ratification of the AA/DCFTA by both the Rada in Kyiv and the European Parliament, which will lead to its full and definitive entry into force when the 28 EU member states have also ratified it. However Putin followed the day after with a letter to Poroshenko making an abusive interpretation of the 12 September understanding.
  • Topic: Economics, International Trade and Finance, Power Politics, Sanctions
  • Political Geography: Russia, Europe, Ukraine, Moldova, Georgia
  • Author: Daniel Gros
  • Publication Date: 11-2014
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The mantra in Brussels and all over Europe is that investment holds the key to recovery in the euro area. A central element of the new Commission's economic strategy is a proposed programme of investment of €300 billion.The emphasis on investment is not new, but has grown in strength as the euro area seems stuck in a never-ending recession.
  • Political Geography: Europe