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.

Why Is Sovereign Debt Restructuring a Challenge? The Case of Greece. Bruges European Economic Policy (BEEP) Briefing 24/2012

The reduction of Greek sovereign debt by €106 billion, agreed in the second bailout package of February 2012, is the largest in history. Nevertheless, immediately after publishing the key terms of the package, doubts arose whether it would achieve its goals: to reduce the debt-to-GDP ratio to 120.5% in 2020 and to ensure the return of Greece to market financing by 2015. This Briefing gives a timely input to the debate as it develops an analytical framework through which the expected failure of the Greek debt reduction can be assessed. It surveys the economic literature to identify three groups of factors reducing the effectiveness of sovereign debt restructuring: (1) sovereign’s fundamentals, (2) inefficiencies inherent in the restructuring process and (3) costs of restructuring; and applies them to the case of Greece. Based on this analysis, three policy implications are formulated, with relevance to Greece and the wider eurozone. Firstly, the importance of increased policy effort by Greece to enact current structural and growth-enhancing reforms is underlined. Secondly, the introduction of uniform CACs is proposed that will reduce the market participants’ uncertainty, discipline the runs on government debt and address the holdout inefficiency. Finally, sovereign debt restructuring is not recommended as a universal solution for over- indebtedness in the EU, given the direct and reputation costs of sovereign debt restructuring and the self-fulfilling nature of sovereign debt crises.

A New Euro-Mediterranean Energy Roadmap for a Sustainable Energy Transition in the Region. MEDPRO Policy Paper No. 3, February 2013

This paper addresses the urgent need for a sustainable energy transition in the southern and eastern Mediterranean region. It analyses the unsustainable burden of universal energy subsidies and calls for new development paths unlocking the huge potential for low-cost energy efficiency and demand-side management as well as for renewable energy. It argues that a new structure of regional and interconnected energy markets is needed. It then proposes some original approaches regarding the financing of this sustainable energy transition and finally calls for an ambitious, Euro-Mediterranean Energy Roadmap, which should contribute not only to the economic and environmental development of the region, but also to its social and political stability.

The European Union Multiannual Financial Framework 2014-2020: How to do more for less? IES Policy Brief Issue 2013/05 • May 2013

The European Council meeting on 7 and 8 February 2013 attracted an unusual level of attention from media and citizens. For a couple of days, Europe played a more important role in national politics and news. Sensation-frenzied media and excited politicians spouted notions of ‘a battle’, ‘winners’, ‘losers’ or ‘striking deals’, as if Europe had gone back to the time when its military powers still conflicted. After more than 24 hours of intense negotiations, the respective Member States leaders left Brussels with ‘good news’ for their citizens. However, those with more Euro-federalist feelings were left with a sense of non-accomplishment and missed opportunities, not only because the EU budget for the first time in history was set for a net decrease, but also because the European Council’s conclusions did not contain any ground-breaking changes to this system. Nevertheless, the European Parliament (EP) immediately reminded Europe about its role and outlined its conditions for further negotiations. Thus, the supporters of a modern and stronger EU budget still see a chance in the consent procedure and hope to shift the focus of the debate from the juste retour spirit to the consideration of the European common good. Is there still a chance for such a shift? What issues are at stake?

European Central Bank quantitative easing: the detailed manual. Bruegel Policy Contribution Issue 2015/02, March 2015

• The European quantitative easing programme, the Public Sector Purchase Programme (PSPP), started on 9 March 2015 and will last at least until September 2016. Purchases will be composed of sovereign bonds and securities from European institutions and national agencies. • The European Central Bank Governing Council imposed limits to ensure that the Eurosystem will not breach the prohibition on monetary financing. However, these limits will constrain the size and duration of the programme, especially if it is sustained after September 2016. The possibility for national central banks to also buy national agency securities could alleviate this, but the small number of eligible agencies could limit their role as a back-up purchase. • The Eurosystem should find other eligible agencies, especially in countries in which public debt is small, or waive the limits for countries respecting the investment grade eligibility criteria. The same issue arises with European institutions: their number and outstanding debt securities are limited. The waiver of the limits proposed for sovereigns should be applied to institutions with high ratings. • The PSPP profits that will ultimately be repatriated to national treasuries will be small. This was to be expected, given current very low yields. Profits will also come from the major increase in reserves resulting from the implementation of QE, combined with the negative deposit rates on excess reserves at the ECB.

What if the Next Financial Crisis Hits the Banking Union? A Call for an “If All Else Fails” Clause. European Policy Brief No. 16, September 2013

This Policy Brief argues that the envisaged design of the Banking Union risks not being sufficient to deal with the next large-scale financial crisis. Therefore, an “if all else fails” clause should be approved, stating that the Banking Union members can provide joint last resort financing to deal with a future crisis. An agreement on the clause should be feasible because it is beneficial to all Member States.

The harsh reality of Ukraine's fiscal arithmetic. Bruegel Policy Contribution ISSUE 2015/07, June 2015

Ukraine is struggling with both external aggression and the dramatically poor shape of its economy. The pace of political and institutional change has so far been too slow to prevent the deepening of the fiscal and balance-of-payments crises, while business confidence continues to be undermined. • Unfortunately, the 2015 International Monetary Fund Extended Fund Facility programme repeats many weaknesses of the 2014 IMF Stand-by Arrangement: slow pace of fiscal adjustment especially in the two key areas of energy prices and pension entitlements, lack of a comprehensive structural and institutional reform vision, and insufficient external financing to close the expected balance-of-payments gap and allow Ukraine to return to debt sustainability in the long term. • The reform process in Ukraine must be accelerated and better managed. A frontloaded fiscal adjustment is necessary to stabilise public finances and the balance-of-payments, and to bring inflation down. The international community, especially the European Union, should offer sufficient financial aid backed by strong conditionality, technical assistance and support to Ukraine’s independence and territorial integrity.

Designing a New EU-Turkey Strategic Gas Partnership. Bruegel Policy Contribution Issue 2015/10 July 2015

Highlights. • The European Commission’s February 2015 Energy Union Communication calls for intensified work on the Southern Gas Corridor (SGC) and the establishment of a new strategic energy partnership with Turkey. The presence of the European Union and Turkey in the region is complementary in a number of ways. Building on this could unlock the region’s gas export potential and make gas supplies to the EU and Turkey more secure. • The EU should establish dedicated energy diplomacy taskforces with Turkey and each potential supplier in the region (Azerbaijan, Turkmenistan, Iran, Kurdistan Region of Iraq). This would allow the EU and Turkey to make use of their complementary diplomatic leverages to overcome barriers to regional gas trade. • In parallel, the EU should establish with Turkey a dedicated financing mechanism to facilitate gas infrastructure investments, with a primary focus on the upgrade of the Turkish gas grid. The European Investment Bank might play a role in attracting private and institutional investors through its financing tools. • The four ‘EU-Turkey Energy Diplomacy Taskforces’ and the ‘EU-Turkey Gas Infrastructure Financing Initiative’ would be initiatives of the recently started EU-Turkey Strategic High Level Energy Dialogue. Simone Tagliapietra (simone.tagliapietra@bruegel.org) is Visiting Fellow at Bruegel. Georg Zachmann (georg.zachmann@bruegel.org) is Research Fellow at Bruegel. The authors thank Agata Łoskot-Strachota for comments that helped to improve the paper significantly,

Effective Regional Energy Policy Cooperation in South East Europe: A Proposal. CEPS Background Briefing Paper, 2 July 2015

Key Points. The implementation of regional energy policy cooperation initiatives is a priority of both the Energy Union and the so-called 2030 Energy and Climate Framework. The Energy Union proposal has singled out south east Europe as one area in which to act. This report identifies the seven key elements that need to be addressed to bring existing and planned regional energy policy cooperation initiatives in south east Europe to life: i) a sound geographical definition, ii) a governance structure, iii) voluntary participation, iv) exchange of information and best practice, v) the development of an external dimension, vi) regional infrastructure planning and development and vii) streamlining the financing instruments across the region. The study finds that significant progress has been made in many areas, and makes concrete proposals to unlock the full potential of coordination in those areas where there is limited progress. These proposals have been tested in discussions in the region.

Completing the Banking Union: Deposit Insurance. CEPS Policy Brief No. 335, 3 December 2015

It is generally agreed that a Banking Union should have common or ‘single’ institutions responsible for carrying out three basic functions: supervision, resolution and deposit insurance. So far, however, agreement has been reached in the EU on only the first two of these functions. The Commission has now presented its proposal on how to complete the Banking Union with a European Deposit Insurance Scheme (EDIS). It is an innovative and courageous proposal. It is courageous because it will clearly be very controversial in a number of member states (especially Germany) and it is innovative because it proposes a three-stage process, starting with re-insurance, then switching to co-insurance and finally to full direct insurance of deposits via a ‘single’ Deposit Insurance Fund (DIF). This final stage should be reached in 2024, which is also the date at which the Single Resolution Fund (SRF) will become the only source of financing for bank resolution. The Commission’s proposal calls for integrating the decision-making for EDIS into the decision-making entity for the SRF, namely the existing Single Resolution Board (SRB). This makes sense if one views resolution and deposit insurance as two highly interlinked dimensions of dealing with banks in trouble. In this view the two dimensions should be bundled into one institution – and one suspects that over time the two funds (the SRF and the DIF) could be merged into one. This Policy Brief argues that re-insurance should not be considered as a transitory phase, but could also provide a solution for the long run. ‘Experience rating’ could be used to ensure a proper pricing of risk and to protect the interests of the depositors in countries with safer banking systems. Moreover, EDIS should have a decision-making structure separate from and independent of the SRM, since it has mainly a macroeconomic function.