Economic Implications of Enlargement. Bruges European Economic Policy (BEEP) Briefing 1/2002

The Eastern enlargement is about to be decided by the European Council. As expected, the “end game “ of the negotiations and assessments is heavily biased by a narrow perspective on net transfers, on income compensations to Central European farmers and on the psychological politics of a single “big bang “. None of these three so-called key items of the end game are of much relevance to appreciate the significance of enlargement. Net transfers have little to do with the costs and benefits of club membership for countries which pay, and can lead to addiction and lethargy rather than extra growth if market integration, macro-economic stability and domestic reforms are not taken serious (as the case of Greece before 1997 has demonstrated). Income compensations for Eastern farmers are crucial for this pressure group, and symbolically of some importance in domestic politics because of the perversity that rich farmers get more, but their absence is likely to serve the public interest in candidate countries far better. And being part of the big bang, as against getting in one or three years later, has assumed a dramatic meaning during this end game, far beyond its true proportions. This hectic European theatre tends to obscure what enlargement is mainly about, now that the stability and values have been secured for the peoples from Central Europe. In a guaranteed setting of peace, freedom and security, enlargement is about greater prosperity.

Mutual recognition in goods and services: an economic perspective. Bruges European Economic Policy (BEEP) Briefing 2/2002

Mutual recognition is a remarkable innovation facilitating economic intercourse across borders. In the EU's internal goods market it has been helpful in tackling or avoiding the remaining obstacles, namely, regulatory barriers between Member States. However, there is a curious paradox. Despite the almost universal acclaim of the great merits of mutual recognition the principle has, in and by itself, contributed only modestly to the actual realisation of free movement in the single market. It is also surprising that economists have not or hardly underpinned their widespread appreciation for the principle by providing rigorous analysis which could substantiate the case for mutual recognition for policy makers. Business in Europe has shown a sense of disenc hantment with the principle because of the many costs and uncertainties in its application in actual practice. The purpose of the present paper is to provide the economic and strategic arguments for employing mutual recognition much more systematically in the single market for goods and services. The strategic and the "welfare" gains are analysed and adetailed exposition of the fairly high information , transaction and compliance costs is provided. The information costs derive from the fact that mutual recognition remains a distant abstraction for day-to-day business life. Understandably, verifying the "equivalence" of objectives of health and safety between Member States is perceived as difficult and uncertain. This sentiment is exacerbated by the complications of interpreting the equivalence of "effects". In actual practice, these abstractions are expected to override clear and specific national product or services rules, which local inspectors or traders may find problematic without guidance. The paper enumerates several other costs including, inter alia, the absence of sectoral rule books and the next-to-prohibitive costs of monitoring of the application of the principle. The basic problems in applying mutual recognition in the entire array of services are inspected, showing why the principle can only be used in a limited number of services markets and even there it may contribute only modestly to genuine free movement and competitive exposure. A special section is devoted to a range of practical illustrations of the difficulties business experiences when relying on mutual recognition. Finally, the corollary of mutual recognition - regulatory competition - is discussed in terms of a cost/benefits analysis compared to what is often said to be the alternative , that is "harmonisation" , in EU parlance the "new approach" to approximation. The conclusion is that the manifold benefits of mutual recognition for Europe are too great to allow the present ambiguities to continue. The Union needs much more pro-active approaches to reduce the costs of mutual recognition as well as permanent monitoring structures for its application to services (analogous to those already successfully functioning in goods markets). Above all, what is required is a "mutual recognition culture" so that the EU can better enjoy the fruits of its own regulatory ingenuity.

Mutual recognition, unemployment and the welfare state. Bruges European Economic Policy (BEEP) Briefing 3/2003

No abstract.

EU Enlargement: external economic implications. Bruges European Economic Policy (BEEP) Briefing 4/2003

Unlike some previous EU enlargements (e.g. with the UK and with Spain/Portugal) the present EU enlargement to Central Europe has not prompted much, let alone a fierce, debate about the external dimension. This BEEP briefing discusses the main economic aspects of the external dimension, in particular whether there is a threat of (how much) trade diversion. Attention is paid to the three main topics of interest for third countries: industrial trade effects, impact on FDI and agricultural trade effects. Agriculture is arguably the most sensitive of the three, given the very high CAP border protection, and although large-scale trade diversion may eventually occur under certain scenarios (such as an unreformed CAP), these fears are greatly exaggerated in the short to medium term (5-7 years): the time frame considered is therefore all-important. This conclusion becomes less surprising if one takes a closer look at the current sorry state of agriculture in the CEECs. Separate sections treat the somewhat sensitive subject of U.S.-CEEC Bilateral Investment Treaties, as well as the longterm development perspective, which addresses the prospects for catch-up growth by the accession countries. In the end, non-European stakeholders in the accession process will greatly benefit from sustained catch-up growth by the CEECs, which are locking-in deep reforms due to EU accession.

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.

Can Europe deliver growth? The SAPIR report and beyond. Bruges European Economic Policy (BEEP) Briefing 6/2004

In this critical appraisal of the SAPIR report of July 2003, we choose not to focus on the economic analysis provided in the Sapir Report - where we largely agree - or the analysis of governance questions and design at the EU level. Rather, we concentrate on the assignment, orientation and policy recommendations of the Report with the following question in mind: to what extent does the Report help to revitalize the growth debate in Europe? Unfortunately, the focus of the Report’s recommendations is entirely on the EU level of policy and governance, whereas the motor of growth is very clearly being hindered at the Member State level. The present authors suggest that a number of coordination processes at the EU level are best regarded as ‘dangerous liaisons’which are not really goal-oriented but instead ingeniously seem to serve to protect the actors’ autonomously-decided positions. The Union is trapped in a low-growth equilibrium due to this deceptive construction and because in many policy areas relevant for growth, the EU cannot act without the explicit consent of the Member States, or it simply cannot act at all. Indeed, given the single market and EMU, Europe can only deliver growth at the Member States' level. We exemplify this point in a number of concrete policy areas.

The Economics of EU Railway Reform. Bruges European Economic Policy (BEEP) Briefing 8/2004

The EU began railway reform in earnest around the turn of the century. Two ‘railway packages’ have meanwhile been adopted amounting to a series of directives and a third package has been proposed. A range of complementary initiatives has been undertaken or is underway. This BEEP Briefing inspects the main economic aspects of EU rail reform. After highlighting the dramatic loss of market share of rail since the 1960s, the case for reform is argued to rest on three arguments: the need for greater competitiveness of rail, promoting the (market driven) diversion of road haulage to rail as a step towards sustainable mobility in Europe, and an end to the disproportional claims on public budgets of Member States. The core of the paper deals respectively with market failures in rail and in the internal market for rail services; the complex economic issues underlying vertical separation (unbundling) and pricing options; and the methods, potential and problems of introducing competition in rail freight and in passenger services. Market failures in the rail sector are several (natural monopoly, economies of density, safety and asymmetries of information), exacerbated by no less than 7 technical and legal barriers precluding the practical operation of an internal rail market. The EU choice to opt for vertical unbundling (with benefits similar in nature as in other network industries e.g. preventing opaque cross-subsidisation and greater cost revelation) risks the emergence of considerable coordination costs. The adoption of marginal cost pricing is problematic on economic grounds (drawbacks include arbitrary cost allocation rules in the presence of large economies of scope and relatively large common costs; a non-optimal incentive system, holding back the growth of freight services; possibly anti-competitive effects of two-part tariffs). Without further detailed harmonisation, it may also lead to many different systems in Member States, causing even greater distortions. Insofar as freight could develop into a competitive market, a combination of Ramsey pricing (given the incentive for service providers to keep market share) and price ceilings based on stand-alone costs might be superior in terms of competition, market growth and regulatory oversight. The incipient cooperative approach for path coordination and allocation is welcome but likely to be seriously insufficient. The arguments to introduce competition, notably in freight, are valuable and many e.g. optimal cross-border services, quality differentiation as well as general quality improvement, larger scale for cost recovery and a decrease of rent seeking. Nevertheless, it is not correct to argue for the introduction of competition in rail tout court. It depends on the size of the market and on removing a host of barriers; it requires careful PSO definition and costing; also, coordination failures ought to be pre-empted. On the other hand, reform and competition cannot and should not be assessed in a static perspective. Conduct and cost structures will change with reform. Infrastructure and investment in technology are known to generate enormous potential for cost savings, especially when coupled with the EU interoperability programme. All this dynamism may well help to induce entry and further enlarge the (net) welfare gains from EU railway reform. The paper ends with a few pointers for the way forward in EU rail reform.

A "Triple-I" Strategy for the Future of Europe. Bruges European Economic Policy (BEEP) Briefing 10/2005

The paper lays down a strategy consisting of Innovation, Internalisation of Externalities, and Integration – called Triple I. ‘Innovation’ is seen along value chain management in a systems perspective, driven by competition and participation of stakeholders. ‘Internalisation’ refers to endogenous efforts by industry to assess externalities and to foster knowledge generation that leads to benefits for both business and society. ‘Integration’ highlights the role business and its various forms of cooperation might play in policy integration within Europe and beyond. Looking forward towards measures to be taken, the paper explores some frontiers for a partnership between public and private sector: i) Increasing resource productivity, lowering material cost, ii) Energy integration with Southeast Europe and Northern Africa, iii) Urban mobility services and public transport, iv) Tradable emission permits beyond Europe. Finally, some conclusions from the perspective of the College of Europe are drawn.

Does the European Union create the foundations of an information society for all? Bruges European Economic Policy (BEEP) Briefing 11/2005

In order to increase the use of information and communication technologies (ICT) in the European Union Member States, the European Commission, on the initiative of Commissioner E. Liikannen, launched in December 1999 a bold programme called “eEurope”. Soon after its creation, the eEurope programme was integrated into the so- called Lisbon agenda for Europe to become the “most advanced knowledge based economy” in the world. We try to assess if the programme is successful in achieving its stated objective of promoting a knowledge based economy through the development of an “information society for all”. First, we conclude that eEurope, due to its origins and its procedures, has intrinsic limits both as regards its scope and effectiveness. Second, we show how Member States have adopted different trajectories towards the “knowledge based society”. To identify these heterogeneous paths of growth, we have selected a set of variables that, combined together, represent the institutional arrangements specific to a country or a group of countries. We found sharp differences between two advanced models that we label, respectively, as Scandinavian and Anglo-Saxon. Without asserting the superiority of a model, we propose policy orientations to help Europe overcome those gaps hindering the move towards knowledge economies where information society technologies are widely diffused.

La gestion de la transition vers la monnaie unique et l'etablissement de la crédibilité de l'euro. = Managing the transition to the single currency and the establishment of the credibility of the euro. Bruges European Economic Policy (BEEP) Briefing 12/2005

No abstract.

Testing for Subsidiarity. Bruges European Economic Policy (BEEP) Briefing 13/2006

In the EU circuit (especially the European Parliament, the Council and Coreper) as well as in national parliaments of the EU Member States, one observes a powerful tendency to regard 'subsidiarity' as a 'political' issue. Moreover, subsidiarity is frequently seen as a one-way street : powers going 'back to' Member States. Both interpretations are at least partly flawed and less than helpful when looking for practical ways to deal with subsidiarity at both EU and Member states' levels. The present paper shows that subsidiarity as a principle is profoundly 'functional' in nature and, hence, is and must be a two-way principle. A functional subsidiarity test is developed and its application is illustrated for a range of policy issues in the internal market in its widest sense, for equity and for macro-economic stabilisation questions in European integration. Misapplications of 'subsidiarity' are also demonstrated. For a good understanding, subsidiarity being a functional, two-way principle neither means that elected politicians should not have the final (political!) say (for which they are accountable), nor that subsidiarity tests, even if properly conducted, cannot and will not be politicised once the results enter the policy debate. Such politicisation forms a natural run-up to the decision-making by those elected for it. But the quality and reasoning of the test as well as structuring the information in a logical sequence ( in accordance with the current protocol and with the one in the constitutional treaty) is likely to be directly helpful for decisionmakers, confronted with complicated and often specialised proposals. EU debates and decision-making is therefore best served by separating the functional subsidiarity test (prepared by independent professionals) from the final political decision itself. If the test were accepted Union-wide, it would also assist national parliaments in conducting comparable tests in a relatively short period, as the basis for possible joint action (as suggested by the constitutional treaty). The core of the paper explains how the test is formulated and applied. A functional approach to subsidiarity in the framework of European representative democracy seeks to find the optimal assignment of regulatory or policy competences to the various tiers of government. In the final analysis, this is about structures facilitating the highest possible welfare in the Union, in the fundamental sense that preferences and needs are best satisfied. What is required for such an analysis is no less than a systematic cost/benefit framework to assess the (de)merits of (de)centralisation in the EU.

European Industrial Policy. Bruges European Economic Policy (BEEP) Briefing 15/2006

This survey of European industrial policy aims to set out and explain the great significance of European integration in determining (changes in) structure and performance of industry in the EU. This influence is explored from the policy side by analysing the transformation of the framework within which both EU and Member States' industrial policy can be pursued. Empirical economic analysis is not included because this BEEP Briefing was originally written for a handbook3 in which other authors were assigned a range of industrial economics subjects. In the last 25 years or so, the transformation is such that the nature and scope of industrial policy at both levels of government has profoundly changed as well. Indeed, the toolkit of measures has shrunk considerably, disciplines have been tightened and the economic policy views behind industrial policy have altered everywhere. The pro-competitive logic of deeper market integration itself is rarely questioned nowadays and industrial policy at the two levels takes on different forms. The survey discusses at some length the division of powers between, and the complementarity of, the Member States' and EU levels of government when it comes to industrial policy, based on a fairly detailed classification of industrial policy instruments. The three building blocks of the wide concept of industrial policy as defined in this BEEP Briefing consist of the EU framework of market integration, EU horizontal industrial policy and its EU sectoral or specific counterpart. Each one is surveyed at the EU level. Preceding these three sections is a discussion of three cross-cutting issues, namely, the indiscriminate use of the 'competitiveness' label in the EU circuit of business and policy makers, the relation between services and EU industrial policy and, finally, that of European infrastructure. One major conclusion is that, today, the incentive structure for industry and industrial markets is dominated by the stringency of the overall EU framework and to some moderate degree by the horizontal approach.

Services in European Policies. Bruges European Economic Policy (BEEP) Briefing 16/2007

This paper’s objective is twofold. Firstly, it presents the case for services-related policies in the current European Union (EU). The services economy is frequently misunderstood, due to old and new myths that stem from the classic economic tradition. These myths obscure the role of the services economy in economic development. Nonetheless, the European services economy faces specific problems, such as lack of market integration, which amplifies arguments that justify policy actions toward services within a framework where market and systemic failures do apply. Secondly, this paper focuses on existing services-policies at the EU level, paying special attention to the internal market for services policies and to the complementary role of primarily non-regulatory policies. Within a comprehensive policy framework, each individual policy will have a higher impact, improved implementation and easier acceptance. Synergies among services-related policies should be promoted; the internal market policies, enterprise and industrial policies, competition policies and regional policies may take the lead in such a framework. Since the Lisbon Strategy, services have begun to gain recognition in EU policy agendas. This paper attempts to increase their visibility and to highlight their crucial role in European integration and in economic growth and social welfare.

The Sustainability Impact of the EU Emissions Trading System on the European Industry. Bruges European Economic Policy (BEEP) Briefing 17/2007

This BEEP explains the mechanism of the EU Emissions Trading System (ETS) for the greenhouse gas carbon dioxide and explore into its likely sustainability impact on European industry. In doing so, it focuses on energy-intensive industries like cement, steel and aluminium production as well as on the emerging hydrogen economy. The BEEP concludes that at the moment it is still very inconsistently implemented and has a fairly narrow scope regarding greenhouse gases and involved sectors. It may also give an incentive to relocate for energy-intensive industries. In its current format, the EU ETS does not yet properly facilitate long term innovation dynamics such as the transition to a hydrogen economy. Nevertheless, the EU ETS is foremost a working system that – with some improvements – has the potential to become a pillar for effective and efficient climate change policy that also gives incentives for investment into climate friendly policies.

How Social is European Integration? Bruges European Economic Policy (BEEP) Briefing 18/2007

The social dimension of the internal market or of the EU more generally has recently been under quite fundamental attack. Calls for 'Europe' to be 'more social' have been heard repeatedly. Witness the polarized debates about the services directive, the anxieties concerning several ECJ cases about what limitations of the free movement of workers (posted or not) are justified or the assertion of a 'neo-liberal agenda' in Brussels disregarding or eroding the social dimension. This BEEP Briefing paper takes an analytical approach to these issues and to the possible 'framing' involved. Such an analysis reveals a very different picture than the negative framing in such debates has it: there is nothing particular 'a-social' about the internal market or the EU at large. This overall conclusion is reached following five steps. First, several 'preliminaries' of the social dimension have to be kept in mind (including the two-tier regulatory & expenditure structure of what is too loosely called 'social Europe' ) and this is only too rarely done or at best in partial, hence misleading, ways. Second, the social acquis at EU and Member States' levels is spelled out, broken down into four aspects (social spending; labour market regulation; industrial relations; free movements & establishment). Assessing the EU acquis in the light of the two levels of powers shows clearly that it is the combination of the two levels which matters. Member States and e.g. labour unions do not want the EU level to become deeply involved ( with some exceptions) and the actual impact of free movement and establishment is throttled by far-reaching host-country control and the requirement of a 'high level of social protection' in the treaty. Third, six anxieties about the social dimension of the internal market are discussed and few arguments are found which are attributable to the EU or its weakening social dimension. Fourth, another six anxieties are discussed emerging from the socio-economic context of the social dimension of the EU at large. The analysis demonstrates that, even if these anxieties ought to be taken serious, the EU is hardly or not the culprit. Fifth, all this is complemented by a number of other facts or arguments strengthening the case that the EU social dimension is fine.