Fine-tuning the use of bail-in to promote a stronger EU financial system. CEPS Special Report No. 136/April 2016

This paper discusses the application of the new European rules for burden-sharing and bail-in in the banking sector, in view of their ability to accommodate broader policy goals of aggregate financial stability. It finds that the Treaty principles and the new discipline of state aid and the restructuring of banks provide a solid framework for combating moral hazard and removing incentives that encourage excessive risk-taking by bankers. However, the application of the new rules may have become excessively attentive to the case-by-case evaluation of individual institutions, while perhaps losing sight of the aggregate policy needs of the banking system. Indeed, in this first phase of the banking union, while large segments of the EU banking sector still require a substantial restructuring and recapitalisation, the market may not be able to provide all the needed resources in the current environment of depressed profitability and low growth. Thus, a systemic market failure may be making the problem impossible to fix without resorting to temporary public support. But the risk of large write-offs of capital instruments due to burden-sharing and bail-in may represent an insurmountable obstacle to such public support as it may set in motion an investors’ flight. The paper concludes by showing that existing rules do contain the flexibility required to accommodate aggregate policy requirements in the general interest, and outlines a public support scheme for the precautionary recapitalisation of solvent banks that would be compliant with EU law.

The distribution of debt across euro area countries : The role of individual characteristics, institutions and credit conditions. National Bank of Belgium Working Paper No. 252, December 2013

The aim of this paper is twofold. First, we present an up-to-date assessment of the differences across euro area countries in the distributions of various measures of debt conditional on household characteristics. We consider three different outcomes: the probability of holding debt, the amount of debt held and, in the case of secured debt, the interest rate paid on the main mortgage. Second, we examine the role of legal and economic institutions in accounting for these differences. We use data from the first wave of a new survey of household finances, the Household Finance and Consumption Survey, to achieve these aims. We find that the patterns of secured and unsecured debt outcomes vary markedly across countries. Among all the institutions considered, the length of asset repossession periods best accounts for the features of the distribution of secured debt. In countries with longer repossession periods, the fraction of people who borrow is smaller, the youngest group of households borrow lower amounts (conditional on borrowing), and the mortgage interest rates paid by low-income households are higher. Regulatory loan-to-value ratios, the taxation of mortgages and the prevalence of interest-only or fixed-rate mortgages deliver less robust results.

Differentiated Europe needs strong institutions. CHALLENGE EUROPE Issue 22 - Challenges and new beginnings: Priorities for the EU's new leadership, September 2014.

Differentiated Europe can be analysed in terms of the three meta-challenges outlined in this publication – stagnation, fragmentation and legitimacy. My argument is simple: stagnation or the prospect of it has been a catalyst for differentiation, fragmentation poses a risk of differentiation gone too far and legitimacy of differentiation is embedded on institutional cohesion and good results.

Can Policy Make Us Happier? Individual characteristics socioeconomic factors, and life satisfaction in Central and Eastern Europe. Bruges European Economic Research (BEER) Papers 22/November 2011

In the last decade, Central and Eastern European (CEE) countries have witnessed a rapid economic convergence vis-à-vis Western Europe. However, this rapid growth has not been matched by a similarly rapid increase in life satisfaction, which has remained low in the European context. This paper sets out to address this conundrum, by looking at the individual and macro-level determinants of individual life satisfaction in ten CEE countries. The results highlight that while Central and Eastern Europeans share the same individual determinants of happiness as people in the West (despite some significant cross-country variation), macroeconomic and institutional differences are the key factors behind the lack of convergence in life satisfaction. On the macroeconomic side, GDP growth is still a source of increasing well-being, but the happiness bonus associated with it is becoming smaller. The different levels of individual happiness in CEE are therefore mostly determined by institutional factors such as corruption, government spending and decentralisation, making policies aimed at enhancing institutional quality capable of bringing about substantial improvements in the overall life satisfaction of the people in the region.

Social Capital and Individual Happiness in Europe. Bruges European Economic Research (BEER) Papers 25/December 2012

This paper explores the relationship between social capital and happiness both in Europe as a whole, as well as in its four main geographical macro-regions – North, South, East and West – separately. We test the hypothesis of whether social capital, in its three-fold definition established by Coleman (1988) – trust, social interaction, and norms and sanctions – influences individual happiness across European countries and regions. The concept of social capital is further enriched by incorporating Putnam- (1993) and Olson- (1982) type variables on associational activity. Using ordinal logistic regression analysis on data for 48,583 individuals from 25 European countries, we reach three main findings. First, social capital matters for happiness across the three dimensions considered. Second, the main drivers of the effects of social capital on happiness appear to be informal social interaction and general social, as well as institutional trust. And third, there are significant differences in how social capital interacts with happiness across different areas of Europe, with the connection being at is weakest in the Nordic countries.

Continuous Off-the-Job Training in East Germany After Unification: Preliminary Results of an Evaluation of the Effects for Individual Workers, CES Germany & Europe Working Papers, No. 05.9, 19 July, 1995

Retraining the labor force to match the demands of a modem economy is seen as an important task during the transition process from a centrally-planned to a market economy. This need was particularly pressing in East Germany, because the transition process has proceeded much faster than in the rest of Eastern Europe. Therefore, substantial resources have been devoted to this purpose. This paper analyzes the impact of continuous off-the-job training in East Germany from the point of view of individuals who were part of the labor force before German unification in 1990. It tries to answer questions about the average gains from participating in a specific type of training. Typical outcomes considered to measure those gains are income, employment status, job security, and expected future changes in job position. The methodology used for the evaluation is the potential outcome approach to causality. This approach has received considerable attention in the statistical literature over the last fifteen years and it has recently been rediscovered by the econometric literature as well. It is adapted to allow for important permanent and transitory shocks, such as unemployment, which influence the decision to participate in the training as well as future labor market outcomes. The empirical part is based on the first four waves of the Socio-Economic Panel (GSOEP)-East (1990-1993). This panel data set has the advantage that the fourth wave contains a special survey on continuous training and that it allows keeping track of individual behavior on a monthly, respectively yearly, basis. The econometric analysis focuses on off-the-job training courses that began after unification and were completed not later than in early 1993. Although it is obviously too early to evaluate the long-term implications, the results suggest that there are no positive effects in the short run.

Institutions and Structural Unemployment: Do Capital-Market Imperfections Matter? CES Germany & Europe Working Papers, No. 00.8, December 2000

This paper analyzes whether differences in institutional structures on capital markets contribute to explaining why some DECO-countries, in particular the Anglo-Saxon countries, have been much more successful over the last two decades in producing employment growth and in reducing unem­ployment than most continental-European DECO-countries. It is argued that the often-blamed labor market rigidities alone, while important, do not provide a satisfactory explanation for these differ­ences across countries and over time. Financial constraints are potentially important obstacles against creating new firms and jobs and thus against coping well with structural change and against moving successfully toward the "new economy". Highly developed venture capital markets should help to alleviate such financial constraints. This view that labor-market institutions should be sup­plemented by capital market imperfections for explaining differences in employment performances is supported by our panel data analysis, in which venture capital turns out to be a significant insti­tutional variable.

How European Integration Impacts on National Legislatures: The Europeanization of The German Bundestag. CES Germany and Europe Working Papers, No. 06.2, 2006

In looking at the Europeanization of the German Bundestag, the paper brings together two different debates: the well-established debate on the democratic legitimacy of the European Union sees national Parliaments as guarantor of one branch of a "dual" legitimacy. The more recent debate on "Europeanization" addresses the impacts that European integration has had on its Member States. Analyzing the Europeanization of the German Bundestag, the paper identifies and analyzes three dimensions: legislative Europeanization – the extent to which legislative decision making by the German Bundestag has been influenced by European stipulations over the last twenty years; institutional Europeanization – how the Bundestag as an institution reacted to this loss of function by establishing institutional and procedural provisions for influencing the government's Euro-politics; and strategic Europeanization – the ways in which individual MPs started more recently to develop euro-political strategies that go beyond controlling the national government. The paper shows that the Bundestag only hesitantly reacted to the increasing loss of functions through legislative Europeanization by establishing effective institutional and procedural provisions for controlling the government's Euro-political activities. What is more, the establishment of institutions does not guarantee their effective use. All in all, Euro- politics continues to remain the activity of few MPs. These few, however, have more recently started to europeanize their strategies. The empirical findings support the claim that the traditional concept of chains of legitimacy is inadequate, both in conceptual and in empirical terms. With regard to the democ- ratic legitimacy of EU governance, this indicates that, apart from major reform projects, especially with regard to everyday legislation, not too great a burden should be placed on national Parliaments.

Institutions and Growth in Europe. CEPS Working Document No. 421, April 2016

This paper provides empirical evidence in support of the view that the quality of institutions is an important determinant of long-term growth of European countries. When also taking into account the initial level of GDP per capita and government debt, cross-country institutional differences can explain to a great extent the relative long-term GDP performance of European countries. It also shows that an initial government debt level above a threshold (e.g. 60-70%) coupled with institutional quality below the EU average tends to be associated with particularly poor long-term real growth performance. Interestingly, the detrimental effect of high debt levels on long-term growth seems cushioned by the presence of very sound institutions. This might be because good institutions help to alleviate the debt problem in various ways, e.g. by ensuring sufficient fiscal consolidation in the longer-run, allowing for better use of government expenditures and promoting sustainable growth, social fairness and more efficient tax administration. The quality of national institutions seems to enhance the long-term GDP performance across a large sample of countries, also including OECD countries outside Europe. The paper offers some evidence that, in the presence of good institutions, conditions for catching-up seem generally good also for euro-area and fixed exchange rate countries. Looking at sub-groupings, it seems that sound institutions may be particularly important for long-term growth in the countries where the exchange rate tool is no longer available (and where also sovereign debt is high), and less so in the countries with flexible exchange rate regimes. However, this result is preliminary and requires further research. The empirical findings on the importance of institutions are robust to various measures of output growth, different measures of institutional indicators, different sample sizes, different country groupings and to the inclusion of additional control variables. Overall, the results tend to support the call for structural reforms in general and reforms enhancing the efficiency of public administration and regulation, the rule of law and the fight against rent-seeking and corruption in particular.

Women's Labour Market Performance in Europe: Trends and Shaping Factors. CEPS Special Report, September 2012

We investigate the changes in women’s employment patterns across EU countries over the last 20 years both in terms of labour market participation and type of jobs using individual data from ECHP and EUSILC databases. Using a logistic multilevel model, we then pin down the role played by institutional and policy changes in explaining women’s employment. The key results indicate that women’s employment trends are related to the institutional and policy changes that have been introduced in almost all European countries since the end of the 1990s. Such changes had an important impact on the labour market opportunities’ of women by affecting the quality of potential jobs available, the chances to (re-)enter the labour market and the opportunity costs of employment (vs. non-employment).

Performance of long-term care systems in Europe. ENEPRI Policy Brief No. 13, December 2012

The evaluation of long-term care (LTC) systems carried out in Work Package 7 of the ANCIEN project shows which performance criteria are important and – based on the available information – how European countries score on those criteria. This paper summarises the results and discusses the policy implications. An overall evaluation was carried out for four representative countries: Germany, the Netherlands, Spain and Poland. Of the four countries, the Dutch system has the highest scores on quality of life of LTC users, quality of care and equity of the LTC system, and it performs the secondbest after Poland in terms of the total burden of care (consisting of the financial burden and the burden of informal caregiving). The German system has somewhat lower scores than the Dutch on all four dimensions. The Polish system excels in having a low total burden of care, but it scores the lowest on quality of care and equity. The Spanish system has few extreme scores. Some important lessons are the following. The performance of a LTC system is a complex concept where many dimensions have to be included. Specifically, the impact of informal caregiving on the caregivers and on society should not be forgotten. The role of the state in funding and organising LTC versus individual responsibilities is one of the most important differences among countries. Choices concerning private funding and the role of informal care have a large effect not only on the public expenditures but also on the fairness of the system. International research into the relative preferences for the different performance criteria could produce a sound basis for the weights used in the overall evaluation.

The Franco-German Alliance: Can it continue to serve as a motor for Europe? CEPS Commentary, 22 January 2013

On the occasion of the 50th anniversary of the Elysée Treaty between Germany and France, CEPS Director Daniel Gros acknowledges the fundamental contribution made by the Franco-German motor but also takes the two countries to task for their refusal abandon the pretence that they still perform individually an independent role at the global level. France and Germany should allow European institutions to formulate and implement common external policies.

Ensuring Energy Security in Europe: The EU between a Market-based and a Geopolitical Approach. EU Diplomacy Paper 03/2013

The question of energy security of the European Union (EU) has come high on the European political agenda since the mid-2000s as developments in the international energy sector have increasingly been perceived as a threat by the EU institutions and by the Member State governments. The externalisation of the EU’s internal energy market has in that context been presented as a means to ensure energy security. This approach, which can be called ‘post-modern’ with reference to Robert Cooper’s division of the world into different ‘ages’,1 however, shows insufficiencies in terms of energy security as a number of EU energy partners belonging to the ‘modern’ world do not accept to play the same rules. This consequently poses the questions of the relevance of the market-based approach and of the need for alternative solutions. This paper therefore argues that the market-based approach, based on the liberalisation of the European energy market, needs to be complemented by a geopolitical approach to ensure the security of the EU’s energy supplies. Such a geopolitical approach, however, still faces important challenges.