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on European Economics |
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Issue of 2025–04–21
twenty-six papers chosen by Simon Sosvilla-Rivero, Instituto Complutense de Análisis Económico |
| By: | Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This paper provides a critical assessment of the new EU fiscal framework, with a focus on its implications for public expenditure on the twin green and digital transition. According to the reformed rules, member states may commit to a package of investment and reform to extend the fiscal adjustment path from four years to a maximum of seven years, provided the European Commission agrees that the package meets predefined criteria, including the contribution to EU priorities (in particular, the European Green Deal and the EU digital strategy). However, the reformed framework does not provide any broad-based exemption for public investment in the twin transition, although the necessary large expansion in public assets is rather unlikely, given the requirement to reduce public liabilities relative to output over the medium term. This implies that, if member countries want to increase green and digital public spending, they will have to make room for it either by restraining other spending items (e.g. social protection, health or education) or by increasing taxes. A major fiscal consolidation will be required in a number of (big) euro area countries from 2025 onwards to comply with the reformed EU fiscal rules. However, the temporary exemption for additional defence spending will make the overall fiscal stance in EU countries more expansionary than it would otherwise have been. There is now a political focus in the EU on industrialisation through rearmament. The pressure to go for additional deficit-financed defence spending will, however, eventually raise the share of government interest payments in total tax revenue, and the political aversion to higher fiscal deficits must be expected to exert downward pressure on public spending on the green and digital transition. Against that background, this paper discusses three options for how to boost the fiscal space for the required additional public spending on the twin transition implementing changes to key assumptions in the technical substructure of the new fiscal framework when it comes to assessing country-specific debt sustainability; expanding national co-financing of EU programmes; and introducing an EU investment fund for climate and digitalisation. |
| Keywords: | Green transition, digital transition, EU fiscal rules, public investment, fiscal policy, austerity |
| JEL: | H41 H54 H60 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:94 |
| By: | Sigmund, Michael; Agati, Alessandra |
| Abstract: | We analyze the impact of negative reference rates on the interest rate behavior of more than 500 Austrian banks from 2009Q1 to 2021Q4. Using panel vector error correction analysis with the Engle-Granger procedure in two steps, we establish a cointegration vector that links bank-specific lending rates, deposit rates, the 3-month Euribor, and the ECB Deposit Facility Rate. We propose two hypotheses to evaluate the effects of negative 3-month Euribor on this vector. Firstly, we explore how an Austrian Supreme Court decision enforcing a zerolower bound on household deposits could decrease the lending-deposit rate spread. Secondly, we examine the emergence of two “true prices” for loans and deposits due to the negative 3-month Euribor. This is linked to an Austrian Supreme Court decision mandating the transmission of negative reference rates to bank-specific lending rates, potentially affecting cointegration with the 3-month Euribor. Our findings show a significant spread reduction after the introduction of negative reference rates, primarily driven by changes in the cointegration relationship between bank-specific lending rates and the 3-month Euribor. Additionally, by including the ECB Deposit Facility in our cointegration model, we capture the direct impact of the Targeted Long-Term Refinancing Operations on the lending rate. JEL Classification: C33, G21, E58, E43 |
| Keywords: | interest rate setting, negative interest rate environment, panel cointegration |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253039 |
| By: | Georgarakos, Dimitris; Kenny, Geoff; Laeven, Luc; Meyer, Justus |
| Abstract: | We field a series of experiments in a population-representative survey of European consumers to examine their attitudes towards the possible introduction of a digital euro. First, we show that a short video explaining the key features of the digital euro is effective in changing consumers’ beliefs about such a new form of payment and increases the likelihood of adoption by 12pp relative to a control group that is not shown the video. Second, we find that on aggregate consumers would allocate a relatively small fraction from a positive wealth shock to digital euros and their allocation to other liquid assets would be little affected. Third, holding limits in the range of €1, 000 to €10, 000 have insignificant differential effects on the composition of liquid asset holdings. We also show that a non-trivial fraction of consumers report that they will not adopt the digital euro due to strong preferences for existing forms of payment. JEL Classification: E41, E58, D12, D14, G51 |
| Keywords: | Central Bank Digital Currencies (CBDC), consumer expectations survey, household expectations, household finance, money, payments, Randomized Control Trial (RCT) |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253035 |
| By: | Hempell, Hannah S.; Rancoita, Elena; Coi, Claudio Corte; Dadoukis, Aristeidis |
| Abstract: | Targeted longer-term refinancing operations (TLTROs)helped supporting bank lending to firms and to households in the course of the COVID-19 pandemic. The use of TLTRO funding for mortgage loans to households had explicitly not been included into the targeted loan categories of these schemes, thereby, limiting potential unintended side effects on residential real estate markets. This paper, by means of an empirical analysis, assesses the impact of the relaxation of TLTRO III conditions at the beginning of the COVID-19 pandemic on euro area banks' loan portfolio composition. Our findings suggest that the targeted funding instrument under the relaxed pandemic conditions might, to some extent, have contributed to further fuelling residential real estate vulnerabilities, especially for banks in already vulnerable countries. Our results also contribute to the discussion on policy design and the preservation of the targeted nature of such support measures going forward and their interaction with financial stability. JEL Classification: E52, E58, G01, G21, G28 |
| Keywords: | COVID-19 pandemic, residential real estate, TLTRO, unconventional monetary policy |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253040 |
| By: | BENCZUR Peter (European Commission - JRC); BOSKOVIC Ana (European Commission - JRC); CARIBONI Jessica (European Commission - JRC); GIOVANNINI Enrico; PAGANO Andrea (European Commission - JRC); SANDOR Alina-Mihaela (European Commission - JRC) |
| Abstract: | The key drivers of wellbeing are not solely economic factors. Other factors, such as social relationships, environmental conditions, and access to social and healthcare systems, also play a significant role. Wellbeing in the EU has increased over the past decade, but it varies across Member States, with some countries having a good situation in certain areas while struggling in others. Northern and Western EU Member States record the best overall sustainable and inclusive wellbeing, while Eastern and Southern Member States show a weaker situation. The framework Developed by the JRC and other Commission services highlights the need to balance prosperity with environmental sustainability, as well as today’s and tomorrow’s wellbeing to ensure intergenerational fairnes. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc141068 |
| By: | Eoin T. Flaherty (Geary Institute for Public Policy, University College Dublin and Department of Finance, Ireland); Sean O'Boyle (National Treasure Management Agency, Ireland); Giselle Myles (Central Statistics Office, Ireland) |
| Abstract: | This paper adds to our understanding of the sectoral interlinkages in the Irish economy and how it relates to the wider EU economy. While the Irish economy is highly concentrated on a GVA basis, it is much less concentrated on the basis of employment and input-output interdependencies. Except for GVA, this level of concentration has not changed much over time. The MNE and domestic sectors each account for close to half of economic output. Their activity is very different but there is still a sizeable interlinkage between them. We also examine the interlinkages of the EU economy. Increasing European strategic autonomy would require greater manufacturing output. Our model suggest that central and eastern member states would benefit most from doing so, relative to their size. Ireland would benefit seventh least. Splitting the Irish economy in two, we find the MNE sector would benefit more than the EU average while the domestic sector is amongst those to benefit least. |
| Keywords: | network analysis, IO tables, macroeconomic measurement, multinational firms, macroeconomic aspects of international trade, globalisation |
| JEL: | C45 E01 D57 E01 F23 F4 F62 |
| Date: | 2025–01–04 |
| URL: | https://d.repec.org/n?u=RePEc:ucd:wpaper:202503 |
| By: | Ireri Hernandez Carballo; Gian Maria Mallarino; Marco Percoco |
| Keywords: | EU ETS, Carbon policies, CO2 Emissions, Regional Economics, Economic Geography |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bcu:greewp:greenwp27 |
| By: | Lausberg, Philipp; Rubio, Eulalia |
| Abstract: | Given an increasingly volatile geopolitical landscape and growing climate-related risks, this paper argues for strengthening the EU’s fiscal capacity for crisis prevention, preparedness and response, focusing on two fields: security and defence on one hand and natural catastrophes on the other. The analysis highlights lessons from responses to COVID-19, including not only the benefits of joint financial instruments (e.g. NextGenerationEU and SURE) but also their shortcomings, such as their temporary nature, weak alignment with long-term resilience, and inadequate parliamentary oversight. The current EU budget framework remains rigid, prioritising mid-term investment while offering limited flexibility for emergency responses. To address these shortcomings, the paper advocates for systematically integrating crisis preparedness and readiness considerations into EU budget and scaling up investments in defence and security, as well as in natural disaster prevention and response. Defence funding remains inadequate and fragmented, with insufficient EU-level contributions despite escalating security threats. Apart from repurposing cohesion funding towards security goals and better leveraging the spending power of national promotional banks, the paper proposes a permanent off-budget solution for defence financing to build a new European Security Funding Facility (ESeFF). Similarly, EU disaster relief funding is under-resourced. The EU Solidarity Fund and Civil Protection Mechanism require significant expansion, along with stronger incentives for climate adaptation. The introduction of a public-private climate catastrophe reinsurance scheme could help mitigate financial risks. |
| Date: | 2025–03–25 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:e5zyf_v1 |
| By: | Monica Barahona-Varon; Toker Doganoglu (University of Wuerzburg); Lukasz Grzybowski (University of Warsaw, Faculty of Economic Sciences) |
| Abstract: | This paper examines Eurobarometer survey data from 27, 438 individuals across 28 EU Member States in 2019 to evaluate the awareness and impact of EU Energy Labels. Specifically, we analyze the role of socioeconomic characteristics such as age, gender, education, financial stability, and political engagement. Our results suggest that individual characteristics have a greater effect on the influence of labels on purchase decisions than on label awareness. However, significant heterogeneity across countries persists even after controlling for individual characteristics. Using our model, we conduct three exercises in which we assume a policymaker can either increase label awareness among all unaware individuals or target those with specific characteristics, and we demonstrate the resulting impact on the share of people whose purchases are influenced by the label. The findings reveal that even when label awareness is at its highest level, it does not necessarily translate into substantially higher influence on purchasing decisions in some countries. Additionally, at the country level, certain socioeconomic and political variables are positively correlated with label awareness. |
| Keywords: | European Green Deal, Ecodesign Directive, Energy-efficiency |
| JEL: | D12 Q41 Q48 C83 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:war:wpaper:2024-25 |
| By: | Petroulakis, Filippos; Saidi, Farzad |
| Abstract: | • This study analyzes capital market reactions to Germany's recent announcement of loosening fiscal restrictions for defense and state-level spending, while establishing a €500 billion infrastructure investment fund. In particular, we examine whether surging Bund yields reflect growth expectations or fiscal risk concerns. • Clear evidence of growth expectations: The steepening German yield curve, rising stock prices, euro appreciation, and stable credit default swap prices collectively indicate that markets interpret Germany's fiscal expansion as growth-enhancing rather than a reckless fiscal bet. • The contrast with the UK's Truss-Kwarteng episode is stark: Unlike the 2022 UK "mini budget" aftermath, which triggered a selloff across all UK asset classes, Germany's announcement has seen positive market reception across different asset classes, suggesting confidence in Germany's fiscal credibility. • While the policy shift introduces some uncertainty, evidenced by modest increases in the European VSTOXX volatility index, this reaction appears calibrated and partially attributable to concurrent global market events, reinforcing the interpretation that markets view Germany's fiscal expansion as responsible. |
| Abstract: | • Diese Studie analysiert die Reaktionen der Kapitalmärkte auf Deutschlands jüngste Ankündigung, fiskalische Beschränkungen für Verteidigung und Ausgaben auf Länderebene zu lockern - und gleichzeitig ein 500-Milliarden-Euro-Investitionsfonds für Infrastruktur einzurichten. Insbesondere fragen wir, ob die steigenden Bund-Renditen Wachstumserwartungen oder Risikobedenken widerspiegeln. • Klare Evidenz für Wachstumserwartungen: Die steilere deutsche Zinsstrukturkurve, steigende Aktienkurse, die Aufwertung des Euro und stabile Credit-Default-Swap-Preise deuten darauf hin, dass die Märkte Deutschlands fiskalische Expansion eher als wachstumsfördernd denn als fiskalisch bedenklich interpretieren. • Der Kontrast zum Truss-Kwarteng-Haushalt im Vereinigten Königreich ist stark: Im Gegensatz zu den Turbulenzen nach dem britischen "Mini-Haushalt" 2022, die einen Ausverkauf über alle UK-Anlageklassen hinweg auslösten, wurde das deutsche Fiskal-Paket von den Märkten über verschiedene Anlageklassen hinweg positiv aufgenommen, was auf Vertrauen in die fiskalische Glaubwürdigkeit Deutschlands hindeutet. |
| Keywords: | Fiscal Policy, Sovereign Debt, Yield Curve, Market Expectations, Debt Brake, Germany, Fiskalpolitik, Staatsverschuldung, Zinsstrukturkurve, Markterwartungen, Schuldenbremse, Deutschland |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:313633 |
| By: | Markus Behn; Stijn Claessens; Leonardo Gambacorta; Alessio Reghezza |
| Abstract: | We investigate the interaction between monetary and macroprudential policy in affecting banks' lending and risk-taking behaviour using rich euro area credit registry data and exploiting a unique setting that combined a sharp and unexpected monetary tightening with a wave of macroprudential tightening initiated before. While, for the average bank, required capital buffer increases did not significantly reduce lending additionally during the monetary tightening, for those banks that became capital-constrained lending fell by about 1.3-1.8 percentage points more for existing credit relationships and new bank-firm relationships were 2.5-4.4 percentage points less likely to be established, both relative to better-capitalized banks. In addition, such banks were more reluctant to pass higher policy interest rates on to their borrowers and took fewer risks, with a greater reduction in the LTV ratio for newly originated loans, and less reliance on risky assets, such as commercial real estate, as collateral. Our analysis shows that when calibrating monetary and macroprudential policies, it is crucial to account for the effects of policy interactions and the role of bank heterogeneity. |
| Keywords: | bank lending, risk-taking, macroprudential policy, monetary policy |
| JEL: | E5 E51 G18 G21 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1257 |
| By: | Coleman, Winnie; Nautz, Dieter |
| Abstract: | This paper investigates the determinants of inflation target credibility (ITC) using a unique survey we designed to measure the credibility of the ECB's inflation target. Containing over 200, 000 responses from German consumers collected between January 2019 and November 2024, our dataset enables us to estimate the effect of both positive and negative deviations of inflation from the 2% target on ITC. In contrast to the symmetry of the ECB's inflation target, we find that ITC is asymmetric, i.e. consumers respond significantly and plausibly signed to target deviations only when inflation is above target. When inflation is below target, however, the credibility of the inflation target cannot be improved by raising the inflation rate to close the gap. |
| Keywords: | Credibility of Inflation Targets, Consumer Inflation Expectations, Expectation Formation |
| JEL: | D84 E31 E52 E58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cfswop:315475 |
| By: | Matteo Ferrazzi; Francesca Guadagno (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Jochen Schanz; Tomáš Slačík; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | The Draghi Report recommended actions to secure the long-term EU competitive position but did not discuss the challenges related to specific countries or regional groups, including those of Central and Eastern European (CEE) countries. While CEE economies remain focused on manufacturing, especially the automotive industry, they are gradually shifting from being the EU's manufacturing hub to developing higher value-added activities. However, income convergence has slowed, suggesting the need to rethink their growth model. Our research highlights growth opportunities and suggests ways to reduce barriers to innovation. Policy should focus on three areas strengthening human capital, fostering innovation, and addressing energy intensity and its relatively high costs. Key actions include increasing labour market participation, ensuring access to start-up finance and risk capital, and reducing the region’s reliance on brown energy, particularly through grid and generation investment and the development of greener businesses. |
| Keywords: | Competitiveness, trade, innovation, Central Eastern Europe |
| JEL: | F14 F15 O11 O47 O52 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:93 |
| By: | Petroulakis, Filippos; Saidi, Farzad |
| Abstract: | • Diese Studie analysiert die Reaktionen der Kapitalmärkte auf Deutschlands jüngste Ankündigung, fiskalische Beschränkungen für Verteidigung und Ausgaben auf Länderebene zu lockern - und gleichzeitig ein 500-Milliarden-Euro-Investitionsfonds für Infrastruktur einzurichten. Insbesondere fragen wir, ob die steigenden Bund-Renditen Wachstumserwartungen oder Risikobedenken widerspiegeln. • Klare Evidenz für Wachstumserwartungen: Die steilere deutsche Zinsstrukturkurve, steigende Aktienkurse, die Aufwertung des Euro und stabile Credit-Default-Swap-Preise deuten darauf hin, dass die Märkte Deutschlands fiskalische Expansion eher als wachstumsfördernd denn als fiskalisch bedenklich interpretieren. • Der Kontrast zum Truss-Kwarteng-Haushalt im Vereinigten Königreich ist stark: Im Gegensatz zu den Turbulenzen nach dem britischen "Mini-Haushalt" 2022, die einen Ausverkauf über alle UK-Anlageklassen hinweg auslösten, wurde das deutsche Fiskal-Paket von den Märkten über verschiedene Anlageklassen hinweg positiv aufgenommen, was auf Vertrauen in die fiskalische Glaubwürdigkeit Deutschlands hindeutet. |
| Abstract: | • This study analyzes capital market reactions to Germany's recent announcement of loosening fiscal restrictions for defense and state-level spending, while establishing a €500 billion infrastructure investment fund. In particular, we examine whether surging Bund yields reflect growth expectations or fiscal risk concerns. • Clear evidence of growth expectations: The steepening German yield curve, rising stock prices, euro appreciation, and stable credit default swap prices collectively indicate that markets interpret Germany's fiscal expansion as growth-enhancing rather than a reckless fiscal bet. • The contrast with the UK's Truss-Kwarteng episode is stark: Unlike the 2022 UK "mini budget" aftermath, which triggered a selloff across all UK asset classes, Germany's announcement has seen positive market reception across different asset classes, suggesting confidence in Germany's fiscal credibility. • While the policy shift introduces some uncertainty, evidenced by modest increases in the European VSTOXX volatility index, this reaction appears calibrated and partially attributable to concurrent global market events, reinforcing the interpretation that markets view Germany's fiscal expansion as responsible. |
| Keywords: | Fiskalpolitik, Staatsverschuldung, Zinsstrukturkurve, Markterwartungen, Schuldenbremse, Deutschland, Fiscal Policy, Sovereign Debt, Yield Curve, Market Expectations, Debt Brake, Germany |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:313632 |
| By: | Irto, Giuseppe; Kharitonov, Ivan; Nishikawa, Taro; Trebesch, Christoph |
| Abstract: | We study how Europe could replace US support for Ukraine both (i) financially, in terms of the fiscal effort required, and (ii) militarily, in terms of weapon production. Financial effort: The financial challenge of replacing US aid is limited. Currently, European governments are spending just 0.1% of their annual GDP on bilateral aid for Ukraine - a minor effort To replace US aid flows and keep total support at the same level: Europe needs to double its yearly support to an average level of 0.21% of GDP. This is less than half of what Denmark and the Baltics are already doing and on a level of what Poland and the Netherlands do. In short: Europe as a whole would need to follow Scandinavia's or Poland's example. In absolute terms (billions of Euro), the biggest European countries and the EU Institutions will be decisive. To replace US aid and get to 0.21% of GDP, Europe as a whole needs to increase its yearly aid flow from currently €44 bn per year to €82 bn per year. The biggest donors for that effort will be the EU institutions (Commission and EIB), who will need to increase their annual support from currently €16 bn to €36 bn per year. Next comes Germany (from currently €6 billion to at least €9 billion per year), then Great Britain (from €5 to € 6.5 bn per year), then France (from currently just €1.5 bn to €6 bn per year), Italy (from currently just €0.8 bn to €4.5 bn) and Spain (from just €0.5 bn to €3 bn per year). All remaining European donors would need to move from €14 bn to €16.5 bn per year. To avoid freeriding, we recommend offering financial incentives to those countries giving aid to Ukraine. Big Ukrainian donors (in % of GDP) could get priority access to any new EU-level defense financing scheme. Large Ukraine aid could also be exempt from EU fiscal rules, or deducted from each nations' contributions to the EU budget. (...) |
| Keywords: | Military aid, Foreign aid, War, Ukraine, Europe, Russia, Arms Trade, United States, US, Geoeconomics, Militärhilfe, Auslandshilfe, Krieg, Ukraine, Europa, Russland, Waffenhandel, Vereinigte Staaten, USA, Geo-Ökonomie |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:313634 |
| By: | Tesseltje de Lange; Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Maryna Tverdostup (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | This policy brief draws on the findings of Tverdostup et al. (2025) to examine Austrian firms’ responses to labour shortages through automation and migration. Like many European nations, Austria has been grappling with labour shortages over the past decade. These shortages have been influenced by demographic shifts, economic cycles and evolving industry demands. Understanding these trends is crucial for formulating effective policy responses, particularly in the realms of migration, education and automation, three policy domains central to our Horizon Europe project formulating a Global Strategy for Skills, Migration and Development (GS4S). The referenced empirical evidence indicates that automation largely complements human labour, notably benefiting low-educated migrants who are not from the European Economic Area (EEA), but posing challenges for highly educated migrant workers. Policy recommendations include improving EU migration policies, streamlining the recognition of qualifications, developing targeted training initiatives, and incentivising responsible automation practices to foster inclusive labour market growth and resilience. |
| Keywords: | automation, labour migration, skills, labour shortages, substitution, EU |
| JEL: | F22 O15 K37 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:wii:pnotes:pn:95 |
| By: | Pietro Calice; Dimitri G Demekas |
| Keywords: | Macroeconomics and Economic Growth-Fiscal & Monetary Policy Macroeconomics and Economic Growth-Fiscal Adjustment |
| Date: | 2023–07 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:40067 |
| By: | Marzian, Johannes; Trebesch, Christoph |
| Abstract: | Europe must rapidly increase its military spending, but how? We collect 150 years of data to study what governments in similar situations have done. How were past military buildups financed? What was the relative importance of debt financing, budget cuts, and taxes? Our main finding is that budget cuts, e.g. on social or foreign affairs, were rarely used to finance military buildups. Instead, governments typically relied on a mix of deficit financing and higher tax revenues. The larger the buildup, the more dominant debt financing has been. In line with history and theory, Germany and Europe should again rely on debt financing to quickly increase its defense spending and military capabilities. To deal with the added debt burden in the medium run, governments could increase taxes, reduce subsidies and tax avoidance, and freeze the growth of social spending. Fiscal rules must not stand in the way of the defence of Europe. A warning example is the case of the UK in the 1930s, which refrained from significantly ramping up military expenditure and instead pursued a policy of balanced budgets and appeasement. Consequently, the UK was ill-prepared when Nazi Germany launched its attack. Germany should not repeat the errors made by Britain in the 1930s and should invest heavily in defense so as to deter Russia. To achieve this, defense spending should be excluded from fiscal rules both in Germany and Europe. A less clear-cut alternative would be the creation of new debt funds, such as a European financing mechanism or another "Sondervermögen" in Germany. |
| Abstract: | Europa muss seine Militärausgaben deutlich erhöhen, aber wie? Diese Frage beantworten wir mit einem Blick in die Geschichte. Wie haben Regierungen in der Vergangenheit in ähnlichen Situationen reagiert? Wie wurden Aufrüstung und Kriege typischerweise finanziert - durch Schulden, Steuern oder Haushaltskürzungen? Hierzu sammeln und analysieren wir neue detaillierte Daten zu Staatsausgaben in 22 Ländern über einen Zeitraum von 150 Jahren. Unsere wichtigste Erkenntnis ist, dass Haushaltskürzungen, z.B. in Auswärtigen Angelegenheiten oder im sozialen Bereich, keine große Rolle spielten. Fast alle Aufrüstungen wurden kurzfristig über Defizite und höhere Steuereinnahmen finanziert. Je größer die Aufrüstung, desto stärker die Schuldenfinanzierung. Im Einklang mit ökonomischer Theorie sollten Deutschland und Europa die erhöhten Verteidigungsausgaben kurzfristig über Schulden finanzieren. Um die zusätzliche Schuldenlast zu bewältigen, könnten mittelfristig die Steuern erhöht, Subventionen und Steuervermeidung reduziert, und das Wachstum der Sozialausgaben begrenzt werden. Fiskalregeln dürfen der Verteidigung Europas nicht entgegenstehen. Ein warnendes Beispiel ist Großbritannien in den 1930ern, das auf Appeasement und eine "schwarze Null" setzte, statt die Militärausgaben zu erhöhen. Dies führte dazu, dass Großbritannien unzureichend vorbereitet war, als Nazi-Deutschland angriff. Wir sollten den schwerwiegenden Fehler Großbritanniens der 1930er vermeiden und heute ausreichend in Verteidigung investieren, um Russland abzuschrecken. Verteidigungsausgaben sollten daher von den Fiskalregeln ausgenommen werden, sowohl in Deutschland als auch in Europa. Eine weniger klare Alternative wären neue Schuldenfonds, etwa ein europäischer Finanzierungsmechanismus oder ein weiteres deutsches Sondervermögen. |
| Keywords: | Military expenditures, Fiscal multipliers, Innovation, Growth, Short- and long-run consequences of rearmament, USA, Europe, Militärausgaben, Steuermultiplikatoren, Innovation, Wachstum, kurz- und langfristige Folgen der Aufrüstung, USA, Europa |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:ifwkpb:313631 |
| By: | BAZZANI Elisa (European Commission - JRC); COOPER Andrew; PALAZUELOS MARTINEZ Manuel (European Commission - JRC); VELIKONJA Petra |
| Abstract: | Re-open EU was a web platform and mobile app providing updated, official information on travel and health measures adopted in EU and Schengen Associated countries in response to COVID-19. When the pandemic broke out, EU countries imposed lockdowns and exceptional restrictive measures, including on travel into and within the EU, to contain the spread of the virus. As the epidemiological situation improved and travel bans were gradually lifted, it became necessary to provide a trustworthy source of updated, official information on the different travel requirements implemented in EU countries, allowing citizens to move safely and upholding free movement in the Schengen area. Re-open EU was launched to this end on 15 June 2020, as part of the EU’s response to the COVID-19 pandemic to address this need. In December of the same year, the platform also became available as a mobile app on both iOS and Android. With almost 4M downloads in total, Re-open EU is the most downloaded EU app in its history. This publication describes how the platform was continuously evolving to cater for the emerging needs throughout the different phases of the pandemic, and provides an overview of the main challenges, solutions and lessons learnt gathered in this process. As such, this publication provides useful, practical guidance for the European Commission or any EU body that would require deploying a user-friendly tool with timely information, in coordination amongst several EU services and countries, under critical circumstances. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc136472 |
| By: | Brutti, Zelda (European Commission - JRC); Freo, Marzia (European Commission - JRC); Serlenga, Laura (University of Bari) |
| Abstract: | The Common Agricultural Policy (CAP) is a cornerstone policy of the European Union, increasingly focused on promoting environmentally sustainable practices. In 2014, the CAP introduced Greening payments and a crop diversification requirement to enhance soil resilience and mitigate ecosystem degradation. Despite its economic significance, the policy's effectiveness across the EU remains largely limited. This study evaluates the impact of the Greening crop diversification requirement on crop diversity itself and on a set of subsequent outcomes, including agricultural land allocation, the economic performance of farms and indirect environmental outcomes. Using farm-level data from the Farm Accountancy Data Network (2012-2017), causal relationships are identified, through a design that combines propensity score matching and difference-in-differences, by comparing farms needing to adapt to the new requirements to those who were already compliant. Additionally, a regression discontinuity design estimates local average treatment effects for 2017, thereby exploiting the diversification requirementâs threshold-based design. Both strategies corroborate the conclusion that Greening measures have significantly increased crop diversity across the EU; moreover, results for the remaining farm-level outcomes are consistent with adaptation responses to the new environmental requirements. Overall, the results highlight the policyâs effectiveness in promoting sustainable agriculture throughout the EU. |
| Keywords: | Crop diversification, Greening payments, Common Agricultural Policy, FADN |
| JEL: | Q18 Q51 Q12 Q57 Q58 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:jrs:wpaper:202503 |
| By: | Fontana, Adele; Jarmulska, Barbara; Schwarz, Claudia; Scheid, Benedikt; Scheins, Christopher |
| Abstract: | Physical climate risks can have a large regional impact, which can influence mortgage loans’ credit risk and should be priced by the lenders. Motivated by the relevance of climate change for financial intermediaries, our paper aims at analysing if physical climate risks are being reflected in residential real estate loan rates of banks. We show that on average banks seem to demand a physical climate risk premium from mortgage borrowers and the premium has increased over recent years. However, there is significant heterogeneity in bank practices. Banks that were identified as “adequately” considering climate risk in the credit risk management by the ECB Banking Supervision charge higher risk premia which have been increasing particularly after the publication of supervisory expectations. In contrast, the lack of risk premia of certain banks shows that ECB diagnostics in the Thematic Review on Climate were accurate in identifying the banks that need stronger supervisory focus. JEL Classification: G12, G21, Q51, Q54, R32 |
| Keywords: | asset pricing, bank lending standards, climate change, residential mortgage backed securities, residential real estate |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253036 |
| By: | World Bank |
| Keywords: | Macroeconomics and Economic Growth-Economic Growth Macroeconomics and Economic Growth-Inflation |
| Date: | 2023–07 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wboper:40026 |
| By: | Hirschbuehl, Dominik (European Commission - JRC); Neuville, Aude (European Commission - JRC); Petracco Giudici, Marco (European Commission - JRC); Sanchez Arjona, Irene (European Commission - JRC) |
| Abstract: | While the importance of nature for economic production is undisputed, natureâs contribution is still underrepresented in economic modelling. Following previous studies, this work produces a âhigh-levelâ estimate of the dependencies of all EU economic sectors on ecosystem services by applying the ENCORE (Exploring Natural Capital Opportunities, Risks and Exposure) framework to an input-output model. Depending on the version of ENCORE used and on some other assumptions, between 19% and 36% of the EU economyâs gross value added (GVA) is found to be highly dependent on ecosystem services. International extensions of the analysis show that the economies of EU and China appear to be more dependent on nature than that of the United States. The analysis also reveals that the entire economy is vulnerable to nature degradation, as all sectors are interlinked through supply and customer connections, potentially leading to cascading effects along value chains. |
| Keywords: | Natural capital, nature degradation |
| JEL: | C67 Q5 Q57 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:jrs:wpaper:202504 |
| By: | Nicolás Ajzenman; Cevat Giray Aksoy; Sergei Guriev |
| Abstract: | Does exposure to mass migration affect the attitudes and economic behavior of natives in transit countries? In order to answer this question, we use a unique locality-level panel from the 2010 and 2016 rounds of the Life in Transition Survey and data on the main land routes taken by migrants in 18 European countries during the refugee crisis in 2015. To capture the exogenous variation in natives’ exposure to transit migration, we construct an instrument that is based on each locality’s distance to the optimal routes that minimize traveling time between refugees’ main origins and destinations. We find that the entrepreneurial activity of native population falls considerably in localities that are more exposed to mass transit migration, compared to those located farther away. We explore potential mechanisms and find that exposure to mass transit migration results in lower confidence in government, higher perceived political instability, and less willingness to take risks. We also document an increase n anti-migrant sentiment while attitudes towards other minorities remain unchanged |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:udt:wpgobi:20250319 |
| By: | Kaitila, Ville; Kuusi, Tero; Pajarinen, Mika; Wang, Maria |
| Abstract: | Abstract This study examines the impacts of the European Union’s Carbon Border Adjustment Mechanism (CBAM) on corporate costs, adaptation strategies, and international trade. CBAM aims to supplement the EU’s emissions trading system and mitigate the risk of carbon leakage. The report evaluates the effects of CBAM’s initial phase and anticipates its future significance for Finnish enterprises. Through the use of gravity modeling, the study distinguishes the effects of CBAM from other trade-influencing factors. Furthermore, companies were surveyed regarding the administrative expenses incurred by CBAM and its influence on value chains. Findings indicate that CBAM decreases imports of covered products from non-EU countries and promotes intra-EU procurement. The system’s complexity and associated costs are deemed particularly burdensome for small businesses. |
| Keywords: | Carbon leakage, Carbon border adjustment mechanism, Gravity model, Survey, Administrative cost |
| JEL: | Q38 |
| Date: | 2025–04–15 |
| URL: | https://d.repec.org/n?u=RePEc:rif:report:162 |
| By: | Hendrik Mahlkow (WIFO); Sonali Chowdhry (German Institute for Economic Research); Julian Hinz (Kiel Institute for the World Economy) |
| Abstract: | Die neue Zollpolitik der USA konfrontiert die EU mit wachsender handelspolitischer Unsicherheit. Vor diesem Hintergrund analysiert dieser Research Brief drei Szenarien, mit denen die EU auf protektionistische Tendenzen reagieren kann: 1. ein sektorales Handelsabkommen mit den USA, 2. die Vertiefung bestehender Freihandelsabkommen und 3. der Abschluss neuer Freihandelsabkommen mit Partnern wie Indien, Australien oder dem Mercosur. Basierend auf Simulationen mit dem KITE-Modell zeigt sich: Während ein auf die USA beschränktes Abkommen kaum makroökonomische Effekte hat, führen sowohl Szenario 2 als auch Szenario 3 zu einem robusten BIP- und Exportwachstum – insbesondere in wissensintensiven Sektoren. Die stärksten Effekte ergeben sich jedoch aus einer Kombination beider Strategien, wobei der Effekt für Österreich etwas geringer ausfallen würde, da Österreichs Wirtschaftsstruktur stärker auf bestehende EU-Handelspartner und traditionelle Absatzmärkte ausgerichtet ist. Handelsdiversifizierung ist somit kein technisches Detail, sondern ein zentrales Instrument europäischer Resilienzpolitik. |
| Keywords: | Trump, Zölle, Freihandelsabkommen, KITE-Modell |
| Date: | 2025–04–09 |
| URL: | https://d.repec.org/n?u=RePEc:wfo:rbrief:y:2025:i:5 |