One money with several cycles? Evaluation of European business cycles using cluster analysis. ACES Cases No. 2009.3

Optimal currency area theory suggests that business cycle comovement is a sufficient condition for monetary union, particularly if there are low levels of labour mobility between potential members of the monetary union. Previous studies of co-movement of business cycle variables (mainly authored by Artis and Zhang in the late 1990s) found that there was a core of member states in the EU that could be grouped together as having similar business cycle comovements, but these studies always used Germany as the country against which to compare. In this study, the analysis of Artis and Zhang is extended and updated but correlating against both German and euro area macroeconomic aggregates and using more recent techniques in cluster analysis, namely model-based clustering techniques.

The German reaction to the Russian-Ukrainian conflict- shock and disbelief. OSW Commentary No. 132, 03.04.2014

The crisis in Ukraine and the Russian intervention have brought about a situation in which it is necessary for Germany to make decisions and take action. No one in Berlin was prepared for this nor did anyone want this to occur. The effect of this is that the government has adopted a clearly critical stance on Russia, albeit in tandem with cautious diplomatic moves; it has given its consent to limited sanctions on representatives of the Russian elite, and has disapproved of economic sanctions. On the other hand, voices have been heard in the political debate in Germany not only warning of the catastrophic consequences of a deterioration in German-Russian relations but also those in fact expressing understanding for the Russian reaction. Although it is typical above all of the business circles engaged in Russia and the authors of Germany’s Ostpolitik to downplay the Kremlin’s moves, political parties and the German public are divided over how Germany should respond to Moscow’s policy, and this dispute will worsen. Berlin will take a whole array of actions to de-escalate the conflict, since the imposition of radical political and economic sanctions on Russia would also have a strong adverse effect on Germany. As regards sanctions, Germany would not only sustain economic losses, but they would also undermine the ideological foundations for the still popular vision for Germany’s strategy towards Russia in which great emphasis is laid on a strong “respect for the EU’s most important neighbour and its interests”.

Analysing the Contribution of Business Services to European Economic Growth. Bruges European Economic Research (BEER) Papers 9/February 2007

The sector business services contributes directly and indirectly to aggregate economic growth in Europe. The direct contribution comes from the sector’s own dynamism. Though the business-services industry appears to be characterised by strong cyclical volatility, there was also a strong structural growth. Business services actually generated more than half of total net employment growth in the European Union since the second half of the 1990s. Apart from this direct growth contribution, the sector also contributed in an indirect way to economic growth by generating knowledge and productivity spill-overs for other industries. The knowledge role of business services is reflected in its employment characteristics. The business-services industry created spill-overs in three ways: original innovations, knowledge diffusion, and the reduction of human capital indivisibilities at firm level. The share of knowledge-intensive business services in the intermediate inputs of the total economy has risen sharply in the last decade. Firm-level scale diseconomies with regard to knowledge and skill inputs are reduced by external deliveries of such inputs, thereby exploiting positive external scale economies. The process goes along with an increasingly complex social division of labour between economic sectors. The European business-services industry itself is characterised by a relatively weak productivity growth. Does this contribute to growth stagnation tendencies à la the socalled “Baumol disease”? The paper argues that there is no reason to expect this as long as the productivity and growth spill-overs from business services to other sectors are large enough. Finally, the paper concludes by suggesting several policy elements that could boost the role of business services in European economic growth. This might to achieve some of the ambitious Lisbon goals with respect to employment, productivity and innovation.