Contractual arrangements: the overlooked step towards a fiscal union. European Policy Brief No. 18, December 2013

‘Contractual arrangements’ were proposed as an initial step towards a fiscal union that would consolidate the EMU. At this stage, the debate should be centred on the cornerstone of these contracts: the solidarity mechanism. The form of the financial support should not be limited to loans, and include the possibility for grants. Only the countries with the greatest adjustment needs should benefit from the financial support of other countries. This solidarity could be justified in principle by the intensity of the ‘shocks’ they experienced. In this way, contractual arrangement would facilitate the completion of the necessary adjustment in the current crisis – thanks both to more structural reforms and more mutual support within the eurozone.

Smart electricity grids: A very slow deployment in the EU. Egmont Paper No. 74, February 2015

Summary. The European electricity sector will have to deal with a huge challenge in the decades to come. On the one hand, electrical power is increasingly substituted for other forms of energy. It has been forecast that electricity demand will increase in the future (notably because of new needs in transport and heat sectors), although it is currently stagnant, mainly because of the economic crisis. Unless a major alternative energy source is discovered, electricity will become the central energy pillar in the long term. On the other hand, electricity production remains uncertain and will depend on numerous factors: the growth of renewable energy and decentralized energy, the renewal of old power generation capacities, increased external dependency, CO2 charges, etc. This increases the demand for electricity networks that are more reliable, more efficient, and more flexible. Europe’s current electricity networks are ageing, and, as already indicated by the International Energy Agency, many of them will need to be modernized or replaced in the decades to come. Finally, the growing impact of energy trading also needs to be taken into account. These considerations explain the need to modernize the electric grid through various ICT means. This modernization alone may allow the grid to become more flexible and interactive, to provide real time feedback, more adaptation to a fluctuating demand, and finally to reduce the global electricity costs. The paper begins with a description of the EU definition of the term ‘smart grid’ (§ 1) and of the body in charge of advising the Commission (§ 2). The EU legal framework applicable to smart grids is also detailed (§ 3). It is a rather complex domain, connected to various regulations. The paper then examines three critical factors in the development of smart grids (and smart meters as a precondition). Standardization is quite complex, but absolutely essential (§ 4). Innovation is not easily put into action (§ 5). Finally, as digital insecurity has worsened dramatically in recent years, the security of electricity networks, and especially their multiplied electronic components, will become increasingly important (§ 6). Lastly, the paper provides a concise overview of the progress of smart grids in the EU in recent years (§ 7). In a nutshell, the conclusion is that progress is quite slow, many obstacles remain, and, given the appearance of many new regulatory problems, it would be useful to organize a review of the present EU strategy.

Paris 2015: What’s in it for the EU? CEPS Commentary, 8 May 2015

The European Union, together with all countries, is making a second effort to reach a comprehensive global climate change agreement at the United Nations Climate Change Conference (COP21 or CMP11) in Paris in December 2015, after the unsuccessful attempt to do so in Copenhagen in 2009. At a time when the EU is still preoccupied with recovery from the economic crisis, and is facing geopolitical challenges and a number of conflicts, why should it see the importance of continuing to offer leadership in the field of climate change? And why would such an agreement be important for the EU? In short: “What’s in it for the EU?” This commentary reviews the wider context of the negotiations, looking not only at the geopolitical shifts that have taken place on the road to Paris, but also at the interests of the EU both as far as its domestic climate policy is concerned, as well as its role as a diplomatic ‘soft power’.

Keeping health high on the EU agenda: role for economic governance? EPC Policy Brief, 7 May 2015

In an attempt to get Europe out of the economic crisis and establish right conditions for growth, the EU coordinates and monitors member states’ economic and budgetary policies via a system called the European Semester. As member states’ spending on the health sector accounts for 10% of GDP and is expected to grow, it is no wonder that an increasing emphasis has been paid to sustainability of health systems – an area that is traditionally considered as a national competence. In this Policy Brief, Annika Hedberg and Martina Morosi reflect on the strengths and weaknesses of the European Semester and country-specific recommendations in promoting more sustainable and efficient health systems in Europe, and why the EU must continue to play a role in encouraging member states to value health and improve their spending on health.

Russia marks the 70th anniversary of the victory over Nazism: What significance does it have in an epoch of global confrontation? OSW Commentary No. 171, 20 May 2015

The Victory Day celebrations held in Russia on 9 May 2015 were special for marking the seventieth anniversary of the end of World War II but the particular international and domestic context they were set in was of yet greater importance. The element which set the celebrations in 2015 apart from those in the preceding years was how the military and moral aspects of Soviet victory over Nazi Germany was made part of the current geopolitical confrontation with the West concerning the Ukrainian crisis. The escalation of the aggressive rhetoric on Europe and the USA and accusations that the West is destabilising the international situation and striving for conflict was accompanied by a display of the increasing military power of the Russian Federation; the display itself was stronger than has been seen in preceding years. This was a clear sign that Moscow is ready to protect its national interests in the area of foreign policy by any means. At the same time, the creation of an atmosphere of threat and stoking patriotic feelings was intended to mobilise the Russian public around the political leadership while the country’s economic problems are deteriorating further.

The Common Security and Defence Policy: National Perspectives. Egmont Paper No. 79, May 2015

FOREWORD. When one looks at the present state of the CSDP, one cannot help but look on with disenchantment at the energy that appears to have abandoned both institutions and Member States. Commentators increasingly take for granted that nothing much should be expected from this field of EU policy. The reasons for this state of mind are well known: the recent economic and financial strains, which have impacted all EU action since 2008, means that most of the Member States will struggle to keep their defence budgets at their present level in the future, and we may even see reductions. Furthermore, and to put it mildly, most of the recent CSDP operations have also experienced a lack of enthusiasm. Adding to this overall trend, the EU is far from presenting a common vision of what security and defence should really mean. Many of the Member States do not want to be involved in all of today’s international turmoils, and they rarely share the strategic culture which inspires those Member States who see themselves as having special responsibilities in dealing with these crises. In the end it may be that Member States diverge fundamentally on the simple question of whether it is relevant for the EU to engage in most of the ‘hot’ crises Europe faces; many prefer to see Europe as a soft power, mostly dedicated to intervening on less dramatic fronts and more inclined to mend than to fight. For whatever reason given, it remains that if there is a lack of common understanding on what CSDP should really be about, it should not come as a surprise if this policy is presently in stalemate. As an additional blow, the Ukrainian crisis, which dragged on for the whole of last year, could only add to the downward spiral the EU has been experiencing, with a new Russia aggressively confronting Europe in a manner not too distant from the Cold War days. This attitude has triggered the natural reaction among EU Member States to seek reassurances from NATO about their own national security. Coupled with the return of France a few years ago into the integrated military command, NATO’s renewed relevance has sent a strong message to Europe about the military organisation’s credibility with regard to collective defence. Surprisingly, this overall trend was gathering momentum at the same time as other more positive developments. The European Council of December 2013 dedicated its main session to CSDP: it underlined Europe’s role as a ‘security provider’ while adopting a very ambitious road map for Europe in all possible dimensions of the security sector. Hence the impression of a genuine boost to all EU institutions, which have been invited to join efforts and give CSDP a reinvigorated efficiency. In the same way, the increasing instability in Europe’s neighbourhood has also called for more EU operations: most recently in Iraq, Libya, Northern Nigeria or South Sudan. Pressure for further EU engagement has been one of the most constant features of the discussions taking place around these crises. Moreover, a growing number of EU partners in Asia, Latin America or Eastern Europe have shown a renewed eagerness to join CSDP missions in what sounds like a vote of confidence for EU capacities. What kind of conclusion should be drawn from this contradictory situation? Probably that the EU has much more potential than it can sometimes figure out itself, if only it would be ready to adapt to the new global realities. But, more than anything else, an enhanced CSDP needs from all Member States strong political will and a clear vision of what they want this policy to be. Without this indispensable ingredient CSDP may continue to run its course, as it does today. It may even grow in efficiency but it will keep lacking the one resource that would definitely help it overcome all the present shortcomings that have prevented Europe from finding its true role and mission through the CSDP. Member States remain central to EU security and defence policy. This is why this collection of essays is so valuable for assessing in no uncertain way the long road that lies ahead for any progress to be made. Pierre VIMONT Senior Associate at Carnegie Europe Former Executive Secretary-General of the European External Action Service

Post-Summit Commentary – Greece on the brink. EPC Commentary, 29 June 2015

The developments of recent days have been dramatic – the saga of the Greek crisis has probably opened its decisive chapter. Negotiations between Athens and its creditors failed after the Greek government decided to leave the negotiating table and hold a referendum on 5 July. The future of the country in the common currency and the potential consequences for the EU and the euro are uncertain. There are clear signs of fatigue, everywhere. But there is still time to avert the worst, if there is the political will on all sides to work on a new perspective for Greece and for the future of the Economic and Monetary Union (EMU).

Ukraine on the financial front – the problem of Ukraine’s foreign public debt. OSW COMMENTARY NUMBER 178|05.08.2015

One of the key challenges that Ukraine is facing is the scale of its foreign debt (both public and private). As of 1st April it stood at US$ 126 billion, which is 109.8% of the country’s GDP. Approximately 45% of these financial obligations are short-term, meaning that they must be paid off within a year. Although the value of the debt has fallen by nearly US$ 10 billion since the end of 2014 (due to the private sector paying a part of the liabilities), the debt to GDP ratio has increased due to the recession and the depreciation of the hryvnia. The value of Ukraine’s foreign public debt is also on the rise (including state guarantees); since the beginning of 2015 it has risen from US$ 37.6 billion to US$ 43.6 billion. Ukraine does not currently have the resources to pay off its debt. In this situation a debt restructuring is necessary and this is one of the top priorities for the Ukrainian government as well as for the International Monetary Fund (IMF) and its assistance programme. Without this it will be much more difficult for Ukraine to overcome the economic crisis.

The grand divergence: global and European current account surpluses. Bruegel Working Paper 2015/08, 13 August 2015

Global current account imbalances widened before the 2007/2008 crisis and have narrowed since. While the post-crisis adjustment of European current account deficits was in line with global developments (though more forceful), European current account surpluses defied global trends and increased. We use panel econometric models to analyse the determinants of medium-term current account balances. Our results confirm that higher fiscal balances, higher GDP per capita, more rapidly aging populations, larger net foreign assets, larger oil rents and better legal systems increase the medium-term current account balance, while a larger growth differential and a higher old-age dependency ratio reduce it. European current account surpluses became excessive during the past twelve years according to our estimates, while they were in line with model predictions in the preceding three decades. Generally, the gap between the actual current account and its fitted value in the model has a strong predictive power for future current account changes. Excess deficits adjust more forcefully than excess surpluses. However, in the 2004-07 period, excess imbalances were amplified, which was followed by a forceful correction in 2008-15, with the exception of European surpluses.

Eurozone Crisis and Social Models: What We Can Learn from Italy and Spain. CES Papers - Open Forum #20, 2013-2014

This paper considers the role of social model features in the economic performance of Italy and Spain during the run-up to the Eurozone crisis, as well as the consequences of that crisis, in turn, for the two countries social models. It takes issue with the prevailing view - what I refer to as the “competitiveness thesis” - which attributes the debtor status of the two countries to a lack of competitive capacity rooted in social model features. This competitiveness thesis has been key in justifying the “liberalization plus austerity” measures that European institutions have demanded in return for financial support for Italy and Spain at critical points during the crisis. The paper challenges this prevailing wisdom. First, it reviews the characteristics of the Italian and Spanish social models and their evolution in the period prior to the crisis, revealing a far more complex, dynamic and differentiated picture than is given in the political economy literature. Second, the paper considers various ways in which social model characteristics are said to have contributed to the Eurozone crisis, finding such explanations wanting. Italy and Spain ́s debtor status was primarily the result of much broader dynamics in the Euro- zone, including capital flows from richer to poorer countries that affected economic demand, with social model features playing, at most, an ancillary role. More aggressive reforms responding to EU demands in Spain may have increased the long term social and economic costs of the crisis, whereas the political stalemate that slowed such reforms in Italy may have paradoxically mitigated these costs. The comparison of the two countries thus suggests that, in the absence of broader macro-institutional reform of the Eurozone, compliance with EU dictates may have had perverse effects.

Financial regulation in the European Union: A research agenda. CES Papers - Open Forum #10, 2012

Over the past two decades, the European Union (EU) has become a central actor in financial regulation and developed complex institutions to fulfill its roles. Pre-financial crisis scholarship has provided key insights into the functioning of this institutional cobweb and its evolution over time. However, the financial crisis has highlighted four facets of EU financial regulation (EUFR) that deserve more scholarly attention than they have received so far: (1) the permissive pre-crisis consensus on the merits of financial liberalization and integration, (2) the embeddedness of financial regulation in the political economy of EU integration at large, (3) preference formation of public and private stakeholders in EUFR, and (4) the global economic and regulatory context of EUFR. This paper presents the key scholarly challenges across these four areas. Addressing them promises not only academic insights but also promotes the relevance of EUFR research for real-world policy dilemmas.

Paper Tiger or Game-Changer? Challenges of and Opportunities for EU Engagement with the Eurasian Economic Union. Bruges Regional Integration & Global Governance Papers (BRIGG) 1/2015.

The Eurasian Economic Union (EEU) started work on 1 January 2015. Considered as Russia’s response to the EU’s Eastern Partnership (EaP), it has been almost ignored in Brussels. However, with the Ukraine crisis and the deteriorating relations with Moscow, some European leaders have begun to reconsider Putin’s proposal for a region-to-region engagement. This paper tries to analyse under which conditions this could represent a long-term solution for a new European order. First, it is argued that the EEU is still far from being a credible international interlocutor. Second, Russia’s commitment to international trade rules and liberalization is questioned, whereas its geopolitical objectives seem predominant. EU engagement with the EEU in Ukraine would mean, in the short term, legitimizing Russia’s vision of a ‘bipolar Europe’ divided in spheres of influence. In the long run, prospects for inter-regional cooperation remain open, but the way to go is long and full of obstacles.

Unfinished business: the governance of the Economic and Monetary Union. Compendium of EPC publications on the future of the Euro

Europe is once again engulfed in crisis. The sheer scale of refugees coming daily is not only a major challenge for the transit and destination countries, it is also exposing distrust between member states (and vis-à-vis the EU institutions). It has also shown that there is an unwillingness to cooperate and compromise within the EU system, in part a collateral damage of the eurocrisis. With a continuing sluggish economy and high unemployment, external challenges such as the conflict in Ukraine and internal ones like the referendum on EU membership in the UK, the EMU crisis looks less urgent at this point, with an agreement with Greece preventing the disastrous consequences of a Grexit, at least for now.

No need for walls to equitably distribute the refugees. CEPS Commentary, 25 September 2015

While acknowledging that the recently implemented EU Temporary Relocation System might not be the panacea for addressing the refugee crisis in Europe today, Sergio Carrera and Daniel Gros find in this commentary that it nevertheless constitutes a movement towards the urgent need to go beyond the current EU Dublin regime and ensure more equitable sharing of legal responsibility across all member states.

The October 2015 European Council and migration: no news, good news? EPC Commentary, 19 October 2015

The October European Council meeting took place after an unprecedented sequence of actions, with the Luxembourgish Presidency, the European Commission and the Council adopting and proposing a series of legislative and operational measures (including inter alia relocation decisions, the establishment of “hotspots”, increasing funds, the modification of the Dublin rules and the adoption of safe country of origins lists) to address the refugee crisis. Some of these measures were on the European Council agenda, such as the future of the Dublin system, the role of “hotspots” and the strengthening of the external borders. However, the meeting did not go as planned, with some items being dropped off the agenda and replaced by other ones.