Approximation to EU Technical Standards with and without the Promise of Membership: the Cases of Slovakia and Ukraine. EU Diplomacy Paper 02/2013

This paper aims to identify the extent to which the non-promise of membership of the European Union (EU) precludes the motivation of Ukraine as European Neighbourhood Policy country to adopt EU policies in the field of market access, namely technical standards and regulations. Its approximation approach is compared to the fast-tracked accession of Slovakia, which was driven by a clear-cut membership promise. Furthermore, the paper elaborates whether the conclusion of an Association Agreement between the EU and Ukraine, including a Deep and Comprehensive Free Trade Agreement, provides sufficient incentives for Ukraine to continue reforming its quality infrastructure in order to gain access to the Single European Market. Finally, scenarios of possible developments of EU-Ukraine relations are deliberated in the context of the EU-Ukraine-Russia triangle. The paper argues that market access provides sufficient stimulus for third countries to adhere to EU technical standards – even in the absence of a clear and credible promise of future EU membership. Yet, in the case of Ukraine, the country’s relations with Russia appear to compete with its EU approximation process, resulting for the time being in Ukraine attempting to pursue a balanced dual cooperation with both the EU and Russia.

Strong governments, weak banks. CEPS Policy Brief No. 305, 25 November 2013

Banks in the northern eurozone have capital ratios that are, on average, less than half of the capital ratios of banks in the eurozone’s periphery. The authors explain this by the fact that northern eurozone banks profit from the financial solidity of their governments and follow business strategies aimed at issuing too much subsidised debt. In doing so, they weaken their balance sheets and become more fragile – less able to withstand future shocks. Paradoxically, financially strong governments breed fragile banks. The opposite occurs in countries with financially weak governments. In these countries banks are forced to strengthen themselves because they are unable to rely on their governments. As a result they have significantly more capital and reserves than banks in the northern eurozone. Recommendations More than in the south, the governments of northern Europe should stand up and force the banks to issue more equity. This should go much further than what is foreseen in the Basel III accord. If the experience of the southern eurozone countries is any guide, banks in the north of the eurozone should at least double the capital and the reserves as a percentage of their balance sheets. Failure to do so risks destroying the financial solidity of the northern European governments when, in the future, negative shocks force these governments to come to the rescue of their undercapitalised banks. The new responsibilities entrusted to the European Central Bank as the single supervisor in the eurozone create a unique opportunity for that institution to change the regulatory and supervisory culture in the eurozone – one that has allowed the large banks to continue living dangerously, with insufficient capital.