Time to Set Banking Regulation Right. CEPS Paperbacks. March 2012

Excessive leverage and risk-taking by large international banks were the main causes of the 2008-09 financial crisis and the ensuing sharp drop in economic activity and employment. World leaders and central bankers promised that it would not happen again and, to this end, undertook to overhaul banking regulation, first and foremost by rectifying Basel prudential rules. This study argues that the new Basel III Accord and the ensuing EU Capital Requirements Directive IV fail to correct the two main shortcomings of international prudential rules: 1) reliance on banks’ risk management models for the calculation of capital requirements and 2) the lack of accountability by supervisors. Accordingly, the authors propose the calculation of capital requirements without risk adjustment and creation of a system of mandated action by supervisors modelled on the US framework of Prompt Corrective Action (PCA). They also recommend that banks should be required to issue large amounts of debentures that are convertible into equity in order to strengthen market discipline on management and shareholders.

The Composition and Drivers of Energy Prices and Costs in Energy-Intensive Industries: The Case of Ceramics, Glass and Chemicals. CEPS Special Report No. 85, 27 March 2014

In May 2013, the European Commission received a mandate from the European Council to “to present an analysis of the composition and drivers of energy prices and costs in Member States, with a particular focus on the impact on households, SMEs and energy intensive industries, and looking more widely at the EU's competitiveness vis-à-vis its global economic counterparts”. Following such mandate and in view of the preparation by the Commission of a Communication and a Staff Working Document, DG Enterprise and Industry commissioned CEPS to carry out a set of studies aimed at providing well-grounded evidence about the evolution and composition of energy prices and costs at plant level within individual industry sectors. A team of CEPS researchers conducted the research, led by Christian Egenhofer and Lorna Schrefler. Vasileios Rizos served as Project Coordinator. Other CEPS researchers contributing to the project included: Fabio Genoese, Andrea Renda, Andrei Marcu, Julian Wieczorkiewicz, Susanna Roth, Federico Infelise, Giacomo Luchetta, Lorenzo Colantoni, Wijnand Stoefs, Jacopo Timini and Felice Simonelli. In addition to an introductory report entitled “About the Study and Cross-Sectoral Analysis”, CEPS prepared five sectoral case studies: two on ceramics (wall and floor tiles and bricks and roof tiles), two on chemicals (ammonia and chlorine) and one on flat glass. Each of these six studies has been consolidated in this single volume for free downloading on the CEPS website. The specific objective was to complement information already available at macro level with a bottom-up perspective on the operating conditions that industry stakeholders need to deal with, in terms of energy prices and costs. The approach chosen was based on case studies for a selected set (sub-)sectors amongst energy-intensive industries. A standard questionnaire was circulated and respondents were sampled according to specified criteria. Data and information collected were finally presented in a structured format in order to guarantee comparability of results between the different (sub-)sectors analysed. The complete set of files can also be downloaded from the European Commission’s website: http://ec.europa.eu/enterprise/newsroom/cf/itemdetail.cfm?item_id=7238&lang=en&title=Study-on-composition-and-drivers-of-energy-prices-and-costs-in-energy-intnsive-industries The results of the studies were presented at a CEPS Conference held on February 26th along with additional evidence from other similar studies. The presentations can be downloaded at: http://www.ceps.eu/event/level-and-drivers-eu-energy-prices-energy-inten...

The Political and Judicial Life of Metadata: Digital Rights Ireland and the Trail of the Data Retention Directive. CEPS Paper in Liberty and Security No. 65, May 2014

This paper examines the challenges facing the EU regarding data retention, particularly in the aftermath of the judgment Digital Rights Ireland by the Court of Justice of the European Union (CJEU) of April 2014, which found the Data Retention Directive 2002/58 to be invalid. It first offers a brief historical account of the Data Retention Directive and then moves to a detailed assessment of what the judgment means for determining the lawfulness of data retention from the perspective of the EU Charter of Fundamental Rights: what is wrong with the Data Retention Directive and how would it need to be changed to comply with the right to respect for privacy? The paper also looks at the responses to the judgment from the European institutions and elsewhere, and presents a set of policy suggestions to the European institutions on the way forward. It is argued here that one of the main issues underlying the Digital Rights Ireland judgment has been the role of fundamental rights in the EU legal order, and in particular the extent to which the retention of metadata for law enforcement purposes is consistent with EU citizens’ right to respect for privacy and to data protection. The paper offers three main recommendations to EU policy-makers: first, to give priority to a full and independent evaluation of the value of the data retention directive; second, to assess the judgment’s implications for other large EU information systems and proposals that provide for the mass collection of metadata from innocent persons, in the EU; and third, to adopt without delay the proposal for Directive COM(2012)10 dealing with data protection in the fields of police and judicial cooperation in criminal matters.

Efficient taxation of multi-national enterprises in the European Union. Bruges European Economic Policy (BEEP) Briefing 5/2003

Current arrangements for multi-national company taxation in EU are plagued by severe conceptual and administrative problems, leading to high compliance costs, considerable uncertainty and ample room for abuse. Integration is amplifying these difficulties. There are two possible approaches in designing an efficient trans-border corporate tax system for the European Union. The first is to consolidate the EU-wide operations of MNEs, using an agreed common base as the reference variable, and then to apportion this total tax base using some presumptive indicators of activity in each tax jurisdiction – hence, implicitly, of the likely benefits stemming from each location. The apportionment formula should respect requisites of neutrality between productive factors and forms of corporate financing. A radically different approach is also available that offers considerable advantages in terms of efficiency, simplicity and decentralisation, including full administrative autonomy of national tax authorities. It entails abandoning corporate income as the relevant tax base and taxing at a moderate rate some agreed measure of business activity such as company value added, sales or employment. These are the variables usually considered in formula apportionment, but they would apply directly without having first to go through the complications of EU-wide consolidation based on a common-base definition. Reference to a broad base, with no exemptions or deductions, would allow to set low statutory rates.

Living (dangerously) without a fiscal union. Bruegel Working Paper 2015/03

The euro area’s political contract requires member nations to rely principally on their own resources when confronted with severe economic distress. Since monetary policy is the same for all, national fiscal austerity is the default response to counter national fiscal stress. Moreover, the monetary policy was itself stodgy in countering the crisis, and banking-sector problems were allowed to fester. And it was considered inappropriate to impose losses on private sector creditors. Thus, the nature of the incomplete monetary union and the self-imposed taboos led deep and persistent fiscal austerity to become the norm. As a consequence, growth was hurt, which undermined the primary objective of lowering the debt burden. To prevent a meltdown, distressed nations were given official loans to repay private creditors. But the stress and instability continued and soon it became necessary to ease the repayment terms on official loans. When even that proved insufficient, the German-inspired fiscal austerity was combined with the deep pockets of the European Central Bank. The ECB’s safety net for insolvent or near-insolvent banks and sovereigns, in effect, substituted for the absent fiscal union and drew the central bank into the political process.

No Move without Free Movement: The EU-Swiss controversy over quotas for free movement of persons. CEPS Policy Brief No. 331, 23 April 2015

The focus of this Policy Brief is the Swiss referendum of 2014 against ‘mass immigration’ in Switzerland. It identifies the challenges that a quota on EU citizens’ free movement rights to Switzerland would pose to EU-Swiss relations, considering: i) the value of freedom of movement in the EU and its indivisibility from the internal market and other economic freedoms; ii) the specificity of the EU legal system following the Lisbon Treaty that established democratic and judicial accountability mechanisms; iii) the lack of supranational judicial oversight of the EU-Switzerland agreements framework; and iv) the existence of the so-called guillotine mechanism, according to which the termination of the Free Movement Agreement would entail the automatic termination of the other agreements with the EU. The authors set out a number of options and consider their implications for EU-Swiss relations.

Light and shadows in Europe’s new Action Plan for Capital Markets Union. ECMI Commentary No. 40/5 October 2015

The European Commission’s Action Plan consists, in a nutshell, of a short list of technical proposals and a longer one of (rather general) potential actions. Overall, the plan indeed proposes to achieve some short-term objectives, such as a reduction of listing costs for SMEs, but it lacks long-term vision. The plan bundles actions under rather generic objectives of long-term finance or cross-border investing. Improving the informational infrastructure (e.g. accounting standards, company data) and cross-border enforcement of rules is left to vaguely defined future actions, but these constitute the core of the capital markets infrastructure. Without a well-defined set of measurable objectives, the whole plan may lose political momentum and become an opportunity for interested parties to cherry pick their pet provisions. Building a single market, i.e. removing cross-border obstacles to capital circulation, is too challenging a task to simply appear as one of many items on a long list of general objectives, which incidentally do not include institutional reform. The ultimate risk is that the Commission may just miss a unique opportunity to revamp and improve the financial integration process in Europe after almost a decade of harmful financial retrenchment.

Safe Harbour or into the storm? EU-US data transfers after the Schrems judgment. Liberty and security in Europe No. 85/November 2015

In its recent Schrems judgment the Luxembourg Court annulled Commission Decision 2000/520 according to which US data protection rules are sufficient to satisfy EU privacy rules regarding EU-US transfers of personal data, otherwise known as the ‘Safe Harbour’ framework. What does this judgment mean and what are its main implications for EU-US data transfers? In this paper the authors find that this landmark judgment sends a strong message to EU and US policy-makers about the need to ensure clear rules governing data transfers, so that people whose personal data is transferred to third countries have sufficient legal guarantees. Without such rules there is legal uncertainty and mistrust. Any future arrangement for the transatlantic transfer of data will therefore need to be firmly anchored in a framework of protection commensurate to the EU Charter of Fundamental Rights and the EU data protection architecture.