A budget for Europe's Monetary Union. Bruegel Policy Contribution 2012/22, December 2012

In a monetary union, national fiscal deficits are of limited help to counteract deep recessions; union-wide support is needed. A common euro-area budget (1) should provide a temporary but significant transfer of resources in case of large regional shocks, (2) would be an instrument to counteract severe recessions in the area as a whole, and (3) would ensure financial stability. The four main options for stabilisation of regional shocks to the euro area are: unemployment insurance, payments related to deviations of output from potential, the narrowing of large spreads, and discretionary spending. The common resource would need to be well-designed to be distributionally neutral, avoid free-riding behaviour and foster structural change while be of sufficient size to have an impact. Linking budget support to large deviations of output from potential appears to be the best option. A borrowing capacity equipped with a structural balanced budget rule could address area-wide shocks. It could serve as the fiscal backstop to the bank resolution authority. Resources amounting to 2 percent of euro-area GDP would be needed for stabilisation policy and financial stability.

Participatory approaches in the management of Natura 2000: when EU biodiversity policy gets closer to its citizens. Bruges Political Research Paper No. 26/May 2012

The Habitats Directive has created a European network of protected areas combining environmental protection with social and economic activities. Although not clearly advocated in the Directive, participatory approaches have incrementally emerged in order to ensure an adequate management of the Natura 2000 network. This paper looks at the reasons why the European Commission on one side and the national/local authorities on the other side chose to engage in participatory approaches and assesses the structure, degree and scope of these approaches in the light of input and output legitimacy. Main findings are that participation was mostly implemented as a reaction to conflicts and out of a concern over policy implementation, two elements that continue to drive the philosophy of the Natura 2000 network‘s management. The limits of participation in Brussels are contrasted with the potential for more genuine and effective participation mechanisms on the field.

Regional health governance: a comparative perspective on EU and ASEAN. EU Centre in Singapore Policy Brief No. 4, June 2012

Globalisation has led to new health challenges for the 21st Century. These challenges have transnational implications and involve a large range of actors and stakeholders. National governments no longer hold the sole responsibility for the health of their people. These changes in health trends have led to the rise of Global Health Governance as a theoretical notion for health policy-making. The Southeast Asian region is particularly prone to public health threats and it is for this reason that this brief looks at the potential of the Association of Southeast Asian Nations (ASEAN) as a regional organisation to take a lead in health cooperation. Through a comparative study between the regional mechanisms for health cooperation of the European Union (EU) and ASEAN, we look at how ASEAN could maximise its potential as a global health actor. Regional institutions and a network of civil society organisations are crucial in relaying global initiatives for health, and ensuring their effective implementation at the national level. While the EU benefits from higher degrees of integration and involvement in the sector of health policy making, ASEAN’s role as a regional body for health governance will depend both on greater horizontal and vertical regional integration through enhanced regional mechanisms and a wider matrix of cooperation.

Safeguarding the EDTIB: the Case for Supervising non-EU FDI in the Defence Sector. Security Policy Brief No. 41, December 2012

It is time for the EU member states to start collectively supervising non-EU FDI in Europe’s defence industries and infrastructures. This should be a prudent element of the nascent EDTIB and a way to maintain European security by encouraging greater coordination between the national supervisory frameworks.

From supervision to resolution: next steps on the road to European Banking Union. Bruegel Policy Contribution 2013/04, February 2012

The European Council has outlined the creation of a Single Resolution Mechanism (SRM), complementing the Single Supervisory Mechanism. The thinking on the SRM’s legal basis, design and mission is still preliminary and depends on other major initiatives, including the European Stability Mechanism’s involvement in bank recapitalisations and the Bank Recovery and Resolution (BRR) Directive. The SRM should also not be seen as the final step creating Europe’s future banking union. Both the BRR Directive and the SRM should be designed to enable the substantial financial participation of existing creditors in future bank restructurings. To be effective, the SRM should empower a central body. However, in the absence of Treaty change and of further fiscal integration, SRM decisions will need to be implemented through national resolution regimes. The central body of the SRM should be either the European Commission, or a new authority. This legislative effort should not be taken as an excuse to delay decisive action on the management and resolution of the current European banking fragility, which imposes a major drag on Europe’s growth and employment.

Electricity infrastructure: more border crossings or a borderless Europe? Bruegel Policy Contribution 2013/05, February 2013

Being able to transport electricity seamlessly across borders is essential for achieving three major European Union energy policy goals: (1) enabling competition between national energy companies, (2) cost-effective roll-out of renewables,and (3) security of supply. However, neither the market design nor the framework for infrastructure investment proposed by the European Commission is adequate for enabling free flows of electricity within the EU.

Brazilian climate policy since 2005: continuity, change and prospective. CEPS Working Document No. 373, February 2013

In the five-year period 2005-09, Brazil has dramatically reduced carbon emissions by around 25% and at the same time has kept a stable economic growth rate of 3.5% annually. This combination of economic growth and emissions reduction is unique in the world. The driver was a dramatic reduction in deforestation in the Amazonian forest and the Cerrado Savannah. This shift empowered the sustainability social forces in Brazil to the point that the national Congress passed (December 2009) a very progressive law internalising carbon constraints and promoting the transition to a low-carbon economy. The transformation in Brazil’s carbon emissions profile and climate policy has increased the potentialities of convergence between the European Union and Brazil. The first part of this paper examines the assumption on which this paper is based, mainly that the trajectory of carbon emissions and climate/energy policies of the G20 powers is much more important than the United Nations multilateral negotiations for assessing the possibility of global transition to a low-carbon economy. The second part analyses Brazil’s position in the global carbon cycle and public policies since 2005, including the progressive shift in 2009 and the contradictory dynamic in 2010-12. The final part analyses the potential for a transition to a low-carbon economy in Brazil and the impact in global climate governance.

EU Policy on Climate Change Mitigation since Copenhagen and the Economic Crisis. CEPS Working Document No. 380, 5 March 2013

The EU has long assumed leadership in advancing domestic and international climate change policy. While pushing its partners in international negotiations, it has led the way in implementing a host of domestic measures, including a unilateral and legally binding target, an ambitious policy on renewable energy and a strategy for low-carbon technology deployment. The centrepiece of EU policy, however, has been the EU Emissions Trading System (ETS), a cap-and-trade programme launched in 2005. The ETS has been seen as a tool to ensure least-cost abatement, drive EU decarbonisation and develop a global carbon market. After an initial review and revision of the ETS, to come into force in 2013, there was a belief that the new ETS was ‘future-proof’, meaning able to cope with the temporary lack of a global agreement on climate change and individual countries’ emission ceilings. This confidence has been shattered by the simultaneous ‘failure’ of Copenhagen to deliver a clear prospect of a global (top-down) agreement and the economic crisis. The lack of prospects for national caps at the international level has led to a situation whereby many member states hesitate to pursue ambitious climate change policies. In the midst of this, the EU is assessing its options anew. A number of promising areas for international cooperation exist, all centred on the need to ‘raise the ambition level’ of GHG emission reductions, notably in aviation and maritime, short-lived climate pollutions, deforestation, industrial competitiveness and green growth. Public policy issues in the field of technology and its transfer will require more work to identify real areas for cooperation.

Should non-euro area countries join the single supervisory mechanism? Bruegel Policy Contribution 2013/06, 13 March 2013

Irrespective of the euro crisis, a European banking union makes sense, including for non-euro area countries, because of the extent of European Union financial integration. The Single Supervisory Mechanism (SSM) is the first element of the banking union. From the point of view of non-euro countries, the draft SSM regulation as amended by the EU Council includes strong safeguards relating to decision-making, accountability, attention to financial stability in small countries and the applicability of national macro-prudential measures. Non-euro countries will also have the right to leave the SSM and thereby exempt themselves from a supervisory decision. The SSM by itself cannot bring the full benefits of the banking union, but would foster financial integration, improve the supervision of cross-border banks, ensure greater consistency of supervisory practices, increase the quality of supervision,avoid competitive distortions and provide ample supervisory information. While the decision to join the SSM is made difficult by the uncertainty about other elements of the banking union, including the possible burden sharing, we conclude that non-euro EU members should stand ready to join the SSM and be prepared for the negotiations of the other elements of the banking union.

Principles of a Two-Tier European Deposit (Re-)Insurance System. CEPS Policy Brief No. 287, 17 April 2013.

There is general agreement that banking supervision and resolution have to be organised at the same level. It is often argued, however, that there is no need to tackle deposit insurance because it is too politically sensitive. This note proposes to apply the principles of subsidiarity and re-insurance to deposit insurance: Existing national deposit guarantee schemes (DGSs) would continue to operate much as before (with only minimal standards set by an EU directive), but they would be required to take out re-insurance against risks that would be too large to be covered by them. A European Reinsurance Fund (EReIF) would provide this reinsurance financed by premia paid by the national DGSs, just as any reinsurance company does in the private sector. The European Fund would pay out only in case of large losses. This ‘deductible’ would provide the national authorities with the proper incentives, but the reinsurance cover would stabilize depositor confidence even in the case of large shocks. Ideally the national DGSs would be responsible also for resolution. Experience has shown banking systems are more stable if deposit insurers are also responsible for resolution. The approach proposed here could thus be also used to design the ‘Single Resolution Mechanism’ (SRM) which is being discussed as a complement to the ‘Single Supervisory Mechanism’ (SSM). It will of course take time to build up the funding for such a reinsurance fund. This approach is thus not meant to deal with legacy problems from the current crisis.

Open Season for Data Fishing on the Web: The Challenges of the US PRISM Programme for the EU. CEPS Policy Brief No. 293, 18 June 2013

The revelation of the top-secret US intelligence-led PRISM Programme has triggered wide-ranging debates across Europe. Press reports have shed new light on the electronic surveillance ‘fishing expeditions’ of the US National Security Agency and the FBI into the world’s largest electronic communications companies. This Policy Brief by a team of legal specialists and political scientists addresses the main controversies raised by the PRISM affair and the policy challenges that it poses for the EU. Two main arguments are presented: First, the leaks over the PRISM programme have undermined the trust that EU citizens have in their governments and the European institutions to safeguard and protect their privacy; and second, the PRISM affair raises questions regarding the capacity of EU institutions to draw lessons from the past and to protect the data of its citizens and residents in the context of transatlantic relations. The Policy Brief puts forward a set of policy recommendations for the EU to follow and implement a robust data protection strategy in response to the affair.

A Viable Alternative to Basel III Prudential Capital Rules. CEPS Policy Brief No. 291, May 2013

Stefano Micossi argues in this paper that the Basel framework for bank prudential requirements is deeply flawed and that the Basel III revision has failed to correct these flaws, making the system even more complicated, opaque and open to manipulation. In practice, he finds that the present system does not offer regulators and financial markets a reliable capital standard for banks and its divergent implementation in the main jurisdictions of the European Union and the United States has broken the market into special fiefdoms governed by national regulators in response to untoward special interests. The time is ripe to stop tinkering with minor adjustment and revisions in order to rescue the system, because the system cannot be rescued. In response to the current situation, Micossi calls for abandoning reference to risk-weighted assets calculated by banks with their internal risk management models for the determination of banks’ prudential capital, together with the preoccupation with the asset side of banks in correcting for risk exposure. He suggests that the alternative may be provided by a combination of a straight capital ratio and a properly designed deposit insurance system. It is a logical, complete and much less distortive alternative; it would serve better the cause of financial stability as well as the interest of the banks in clear, transparent and level playing field.

Economic Policy Coordination in the Economic and Monetary Union: From Maastricht via the SGP to the Fiscal Pact. CEPS Working Document No. 381, August 2013

This paper first takes a step backwards with an attempt to situate the recent adoption of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union in the context of discussions on the Stability and Growth Pact (SGP) and the ‘Maastricht criteria’, as fixed in the Maastricht Treaty for membership in the Economic and Monetary Union (EMU) in a longer perspective of the sharing of competences for macroeconomic policy-making within the EU. It then presents the main features of the new so-called ‘Fiscal Compact’ and its relationship to the SGP and draws some conclusions as regards the importance and relevance of this new step in the process of economic policy coordination. It concludes that the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union does not seem to offer a definitive solution to the problem of finding the appropriate budgetary-monetary policy mix in EMU, which was already well identified in the Delors report in 1989 and regularly emphasised ever since and is now seriously aggravated due to the crisis in the eurozone. Furthermore, implementation of this Treaty may under certain circumstances contribute to an increase in the uncertainties as regards the distribution of the competences between the European Parliament and national parliaments and between the former and the Commission and the Council.

Strategic planning tools for European negotiators to defend their national interests in the Council of the European Union. EIPA Working Paper 2013/W/02

Summary. Negotiating in the Council of the European Union poses some challenges that are common to most international negotiations but there are other dimensions that are a lot more specific. In order to understand better the specific nature of negotiations on a European level and to develop some practical guidelines for European negotiators, it is important to situate European negotiations in the more general context of the theory on international relations and to remember that European negotiations are governed by the general principles which characterise the negotiation theory. This working document has three objectives; after having reminded ourselves of the fundamental principles that govern European negotiations, it aims to provide a general foundation, which in turn will be useful for preparing most negotiations within the Council. A series of practical recommendations will then be made in order to contribute to the strategic thinking of the negotiator responsible for defending the interests of his or her Member State within the Council.

The neglected side of banking union: reshaping Europe’s financial system. Bruegel Policy Contribution, 14 September 2013

This Policy Contribution...discusses how Europe's financial system could and should be reshaped. It starts from two basic points: First, the banking system needs to be credibly de-linked from the sovereigns and banks should operate across borders. Europe needs fewer national champions. Second, other forms of financial intermediation need to be developed. Both steps require a significant stepping up of the policy system, including a single resolution mechanism. Together, this will render Europe’s financial system more stable, more efficient and more conducive to growth.