The New Deal with the United Kingdom: the Downside of Flexibility. Bruges European Economic Policy (BEEP) Briefings 38/2016

This paper examines the proposals listed by the President of the European Council, Donald Tusk, in response to the letter sent by the British Prime Minister, David Cameron, asking for a fresh settlement concerning the United Kingdom’s relationship with the European Union. The paper reviews the nature and possible consequences of the “substantial changes” that were demanded in the areas of economic governance, competitiveness, sovereignty, and immigration.

Flexibility versus Stability: A difficult trade-off in the eurozone. CEPS Working Document No. 422, 29 April 2016

Optimal currency area (OCA) theory has been influential in pushing eurozone countries towards structural reforms to make product and labour markets more flexible. The underlying assumption of the OCA prescription for structural reform is that asymmetric shocks are permanent. However, when shocks are temporary it does not follow that more flexibility is the answer. When shocks are the result of business-cycle movements, the way to deal with them is by stabilisation efforts. This paper provides empirical evidence that suggests that the biggest shocks in the eurozone were the result of business-cycle movements. These were relatively well synchronised, except for their amplitude. We argue that efforts to stabilise business cycles should be strengthened relative to the efforts that have been made to impose structural reforms, with consideration given to the implications for the governance of the eurozone.