Series:CEPS Policy Briefs

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№217. The European Council Summit and the Political Economics of the EMU Crisis

№217. The European Council Summit and the Political Economics of the EMU Crisis

Author(s): Cezary Wójcik,Christian Fahrholz / Language(s): English

Keywords: European Council Summit; Political Economics; EMU Crisis;

Roger Ailes, a former advisor to Ronald Reagan ,recalls in his book an intriguing practice of the ancient Romans: when they finished building a bridge or an arch, they enforced accountability by placing the engineer in charge beneath the construction when the scaffolding was removed. If the edifice did not hold, he was the first to know. We do not follow such drastic practices these days in Europe, but with some European economies shaking and the Greek sovereign debt crisis still not over, the architecture of the euro area has been certainly come under severe stress. Unfortunately, the 28-29 October2010 European Council Summit has not made this architecture much safer.

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№218. Unearthing China’s Rare Earths Strategy

№218. Unearthing China’s Rare Earths Strategy

Author(s): Roderick Kefferpütz / Language(s): English

Keywords: China; West; International relations; South China Sea; Conflict; Japanese-controlled Senkaku; rare earths;

Relations between China and the West have been difficult at best in recent months. Frustrations on both sides have increased palpably. Besides long-standing disagreements over Beijing’s policy on the renminbi, the stalled climate change negotiations and human rights, new challenges have also (re)emerged. These include, amongst others, rising concerns over China’s role in the South China Sea and the conflict over the Japanese-controlled Senkaku or Diaoyu Islands in the East China Sea. Recently, however, one issue inparticular has made the headlines: rare earths.

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№224. Europe's Electricity Supply Security: Strengthening the Chain

№224. Europe's Electricity Supply Security: Strengthening the Chain

Author(s): Michele Benini / Language(s): English

Keywords: Europe's electricity supply security; electricity transmission; SECURE project; energy efficiency;

Efficient development of electricity transmission infrastructure is crucial to achieving EU targets for a secure, competitive and sustainable electricity supply. However, many uncertainties, such as future load demand, generation supply, electricity prices and increasing time requirements for the realisation of transmission infrastructures in member states, increase the risk that these targets will not be reached.

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№225. Consumer Valuation of Energy Supply Security: An Analysis of Survey Results in Three EU Countries

№225. Consumer Valuation of Energy Supply Security: An Analysis of Survey Results in Three EU Countries

Author(s): Wan-Jung Chou,Alistair Hunt,Anil Markandya,Andrea Bigano,Roberta Pierfederici,Stephane La Branche / Language(s): English

Keywords: Consumer valuation; energy supply security; EU countries; energy markets; energy supply; electricity; natural gas; transport fuels;

This study investigates consumer valuation of the security of various types of energy supply, namely electricity, natural gas and transport fuels (oil). Research for the paper was carried out in the context of the SECURE project (Security of Energy Considering its Uncertainties, Risks and Economic Implications), funded by the European Commission under the Seventh Framework Programme. The project develops appropriate tools for evaluating the vulnerability of the EU to the different energy supply risks, and for promoting the optimisation of EU energy insecurity mitigation strategies, including investment, demand side management and dialogue with producing countries.

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№226. National Commitments, Compliance and the Future of the Kyoto Protocol

№226. National Commitments, Compliance and the Future of the Kyoto Protocol

Author(s): Noriko Fujiwara,Diarmuid Torney / Language(s): Bosnian,English

Keywords: National Commitments; Compliance; Future of the Kyoto Protocol; UN climate change;

Among the many unresolved issues on the agenda of the forthcoming UN climate change negotiations in Cancún is the issue of what will happen to the Kyoto Protocol, since at present, there will be no targets for green house (GHG) emissions from developed countries under the Protocol beyond 2012. To illuminate this aspect of the Protocol, this Policy Brief looks closer at the nature of the commitments and the compliance regime under the Kyoto Protocol. We argue that the compliance regime of the Protocol is not as robust as many of the Protocol’s supporters might think.

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№227. A Renewed Political Deal for Sustainable Growth within the Eurozone and the EU

№227. A Renewed Political Deal for Sustainable Growth within the Eurozone and the EU

Author(s): Richard E. Baldwin,Giuliano Amato,Stefano Micossi,Daniel Gros,Pier Carlo Padoan / Language(s): English

Keywords: Eurozone; EU; Structural reforms for sustained growth; internal market; international policy coordination;

Under current policies, the European Union will only be able to pull itself out of low growth and high unemployment very slowly – too slowly to exclude dangerous economic and political assaults on the Union’s continuing cohesion and viability. What is needed is a substantial increase in the EU output growth rate, which has been persistently low for too long a time. With low growth, sovereign debt sustainability in a number of member states will remain uncertain, possibly leading to renewed strains in financial markets and rising spreads that will aggravate the costs of budgetary consolidation.

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№228. The Transformational Impact of EMU and the Global Financial Crisis

№228. The Transformational Impact of EMU and the Global Financial Crisis

Author(s): Francesco Paolo Mongelli / Language(s): English

Keywords: Transformational Impact of EMU; Global financial crisis; economic governance; EMU; Economic integration;

The headwinds facing the euro area are many and substantial: there is no pretence of denial. While most attention is correctly devoted to the size of rescue packages for some countries and the terms of crisis management and resolution mechanisms, we argue that these challenges must also be met from within the euro area. We are aided by a simple framework illustrating how the benefits the euro can generate depend on the degree of openness, flexibility and income correlation among euro area countries. Sharing the euro has steadily transformed euro area economies that are now deeply interconnected. This is generating largely benign effects that represent the intrinsic value of the euro area: it is a sharedas set. Yet, such integration has provided the ground for the transmission of the sovereign crisis: through financial exposure, trade linkages and cross-country asset ownership.

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№229. The EU should not shy away from setting CO2-related targets for transport

№229. The EU should not shy away from setting CO2-related targets for transport

Author(s): Christian Egenhofer / Language(s): English

Keywords: EU; CO2; transport; GHG emissions; EU greenhouse gas emissions;

Transport is the only sector in the EU where green house gas emissions continue to rise. Unless thistrend can be reversed, the EU will have little chance of reaching its objectives in the context of global obligations on industrialised countries to reduce their emissions between 80% and 95% by 2050 compared to 1990. Many different solutions exist, including, for example, new technology such as electrification of road transport, modal shift, optimising existing technologies and policy measures and more radical measures such as binding GHG emissions targets. While there is some merit to all of these approaches, this Policy Brief argues that current EU policy thinking is not (yet) bold enough to credibly tackle the GHG emissions challenge from transport.

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№230. A less punishing, more forgiving approach to the debt crisis in the eurozone

№230. A less punishing, more forgiving approach to the debt crisis in the eurozone

Author(s): Paul De Grauwe / Language(s): English

Keywords: Debt crisis; Eurozone; Stability and Growth Pact; Governments; punishment scheme; debt ratios;

The debt crisis that hit the eurozone last year forced European leaders to develop new solutions to deal with the crisis. These solutions have been dominated by the idea that sanctions should be imposed everywhere in the system. Thus, European leaders are tightening up the Stability and Growth Pact (SGP) and are imposing stiffer sanctions on governments that do not obey the rules. Bond holders who have the temerity to buy government bonds will face sanctions in the form of haircuts when governments get into payment difficulties. The financial rescue mechanism aimed at providing liquidity to distressed governments carries punitive interest rates.

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№231. Single eComms market? No such thing…

№231. Single eComms market? No such thing…

Author(s): Andrea Renda,Jacques Pelkmans / Language(s): English

Keywords: eComms market; liberalisation of telecoms; Telecoms policy; EU; Economic research;

Not withstanding the undeniable success of telecoms liberalisation in terms of price reduction, new services and technologies as well as consumer satisfaction, EU telecoms policy is at least a half failure. This might seem hard to believe, but we show in this Policy Brief that there is no such thing as an EU telecoms (or eComms) single market. We provide ample empirical economic and regulatory evidence of profound and lingering fragmentation as well as a brief assessment of the flaws of the third eComms package of 2009, now in force. Overcoming the fragmentation cannot but yield a considerable welfare improvement for the Union, which is exactly what a single market should be expected to deliver. Doing away with the flaws in the EU system requires a better institutional design. We wonder whether the regulatory (and competition policy) approach is really suitable for the Union and whether the fundamental conflict between the EU constitutional doctrine and the building of the single market (just as much a constitutional duty!) should not be resolved in novel ways.

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№233. Debt reduction without default?

№233. Debt reduction without default?

Author(s): Thomas Mayer,Daniel Gros / Language(s): English

Keywords: Debt reduction; European Financial Stability Facility (EFSF); Financial market; market prices; GIP debt;

This paper proposes a two-step, market-based approach to debt reduction: Step 1. The European Financial Stability Facility (EFSF) would offer holders of debt of the countries with an EFSF programme (probably Greece, Ireland and Portugal = GIP) an exchange into EFSF paper at the market price prior to their entry into an EFSF-funded programme. The offer would be valid for 90 days. Banks would be forced in the context of the ongoing stress tests to write down even their banking book and thus would have an incentive to accept the offer. Step 2. Once the EFSF had acquired most of the GIP debt, it would assess debt sustainability country by country. a) If the market price discount at which it acquired the bonds is enough to ensure sustainability, the EFSF will write down the nominal value of its claims to this amount, provided the country agrees to additional adjustment efforts (and, in some cases, asset sales).b) If under a central scenario this discount is not enough to ensure sustainability, the EFSF might agree on a lower interest rate, but with GDP warrants to participate in the upside.

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№234. The Case for ‘more Single Market’

№234. The Case for ‘more Single Market’

Author(s): Jacques Pelkmans / Language(s): English

Keywords: Single Market Act; EU Treaty; economic growth and development; Financial market;

With the Commission’s consultation period on the Single Market Act (European Commission, 2010) nearing its end, it is high time for the EU to get its act together. Priority should immediately be restored to theissue of the Single Market, and EU powers to deepen and widen the internal market, where economically justifiable, ought to be utilized to the full. This CEPS Policy Brief explains why.

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№235. On the Tasks of the European Stability Mechanism

№235. On the Tasks of the European Stability Mechanism

Author(s): Fabrizia Peirce,Jacopo Carmassi,Stefano Micossi / Language(s): English

Keywords: European Stability Mechanism; Financial markets; Union financial assistance to member states; EU economic governance;

In recent weeks pressures on the euro and eurozone sovereign debtors have subsided. Buoyant growth in the global economy, increasingly benefiting also the European economy, has of course played an important role in calming financial markets. But even more important has been the perception that France and Germany are again working constructively for a strong economic Europe. More broadly, the acute turbulence in financial markets since the spring of 2010 may have finally convinced our political leaders, notably including the German political establishment, that the benefits of a stable currency far outweigh the costs that may have to be borne to make it work properly.

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№236. Spillovers from the Arab Revolts: Is Armenia next in line?

№236. Spillovers from the Arab Revolts: Is Armenia next in line?

Author(s): Hrant Kostanyan / Language(s): English

Keywords: Spillovers; Arab Revolts; Armenia; Governance;

The recent cycle of revolutions in Arab countries has caught policy-makers and experts off guard. The decades-long kleptocracy, systemic corruption, economic stagnation and censorship are merely some of named causes accounting for the shake-up of the old order in Europe’s Southern Neighbourhood. The choices that citizens were deprived of making through the ballot box have been accomplished by taking to the streets. Policy makers and analysts are contemplating the possible scenarios for the countries that have finally brought down their dictators.

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№241. The EU’s Response to the Financial Crisis: A mid-term review

№241. The EU’s Response to the Financial Crisis: A mid-term review

Author(s): Karel Lannoo / Language(s): English

Keywords: EU; Financial crisis; ‘de Larosiere institutions’; European System of Financial Supervisors (ESFS); Financial market; G-20;

Two years after the London G-20, the EU is making good progress towards delivering on the commitments it undertook to implement by the 2013 target date. Important steps have been taken on the institutional side, and regulatory changes are moving ahead. On some issues, such as remuneration, the EU has made even more pronounced headway than the US. But some sensitive matters remain, such as bank resolution and structural changes.

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№242. Lobbying the European Parliament: A necessary evil

№242. Lobbying the European Parliament: A necessary evil

Author(s): Maja Kluger Rasmussen / Language(s): English

Keywords: European Parliament; Lobbying in the EU;

Despite the growth of lobbying in the EU over thepast two decades, the EU has taken a rather laissez faire approach to regulating lobbying activity. While the European Parliament (EP) is in many ways more transparent and more accessible than many of the EU’s national parliaments, the code of conduct for lobbyists and the Parliament’s own rules of procedure are rather vague. As a result of the ‘cash for laws’s candal, the EP President, Jerzy Buzek, has established a working group to draw up a new set of rules to govern the access and behaviour of lobbyists and to formulate a code of conduct for Members of the European Parliament (MEPs).

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№243. External versus Domestic Debt in the Euro Crisis

№243. External versus Domestic Debt in the Euro Crisis

Author(s): Daniel Gros / Language(s): English

Keywords: External versus Domestic Debt; Euro crisis; EU economy; Monetary Union; IMF;

As EU leaders muddle through the eurozone crisis, the debate about its root causes continues. The debate is important if we are to understand how to prevent future crises. This Policy Brief argues that the focus on total public debt is misleading, for it is external debt that is the key to the turmoil in European economies.

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№244. EU-Russia: Divergent logics of communication

№244. EU-Russia: Divergent logics of communication

Author(s): Alexander Sergunin,Andrey S. Makarychev / Language(s): English

Keywords: EU-Russia; International relations; Political context;

This policy brief analyses the state of EU–Russian relations as seen from the vantage point of the summit held on June 9-10 in Nizhny Novgorod. We describe the political context in which the summit was embedded, the anticipations it evoked from the both sides, its outcomes and some perspectives for the nearest future.

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№245. Space Observation Systems

№245. Space Observation Systems

Author(s): Christian Egenhofer,Monica Alessi / Language(s): English

Keywords: EU and global climate change policy; GHG emissions; UNFCCC; space-based observation;

The European Union has long played a key rolein global efforts to reduce GHG emissions and, where necessary, to adapt to its impacts. It has also been an advocate of a legally binding comprehensive global climate change agreement.

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№246. The General Affairs Council

№246. The General Affairs Council

Author(s): Andrew Byrne,Piotr Maciej Kaczyński / Language(s): English

Keywords: Political Influence of Rotating Presidencies; The General Affairs Council (GAC);

In spite of the formal role laid out for the General Affairs Council (GAC) in the Treaties, it has been weakened since it was extracted from the General Affairs and External Relations Council (GAERC) and set up to function on its own. Its current uneven composition is leading to further marginalisation. Reforming the GAC can bring it to the centre of gravity of the Council proceedings and address a number of problems in the current institutional structure. For that to happen, however, countries holding the rotating Council presidency need to consider placing their head of state or government in the chair of the GAC meetings.

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