Towards a Fragmented Neighbourhood: Policies of the EU and Russia and their consequences for the area that lies in between. CEPS Essay No. 17, 17 October 2014

In the current volatile climate, the EU needs a strategy towards Russia that goes beyond sanctions. In reviewing the European Neighbourhood Policy and the Eastern Partnership, the EU’s incoming leadership should be more sensitive towards the existing political, diplomatic, economic, energy and military ties between Russia and the countries in the common neighbourhood. After all, it is by exploiting these ties that Russia was able to turn this neighbourhood into an area of destructive competition − the primary victim of which is Ukraine. Understanding Russia’s perceptions and being sensitive to these longstanding ties does not mean justifying their use by the Kremlin. Nevertheless, factoring these ties into the EU’s policies vis-à-vis its Eastern neighbourhood is a prerequisite for more reflective, responsive and effective EU policies.

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.

Consensus, contradiction, and conciliation of interests: the geo-economics of the Energy Union. EPC Policy Brief, 8 July 2015

European Union energy policy calls for nothing less than a profound transformation of the EU's energy system: by 2050 decarbonised electricity generation with 80-95% fewer greenhouse gas emissions, increased use of renewables, more energy efficiency, a functioning energy market and increased security of supply are to be achieved. Different EU policies (e.g., EU climate and energy package for 2020) are intended to create the political and regulatory framework for this transformation. The sectorial dynamics resulting from these EU policies already affect the systems of electricity generation, transportation and storage in Europe, and the more effective the implementation of new measures the more the structure of Europe's power system will change in the years to come. Recent initiatives such as the 2030 climate/energy package and the Energy Union are supposed to keep this dynamic up. Setting new EU targets, however, is not necessarily the same as meeting them. The impact of EU energy policy is likely to have considerable geo-economic implications for individual member states: with increasing market integration come new competitors; coal and gas power plants face new renewable challengers domestically and abroad; and diversification towards new suppliers will result in new trade routes, entry points and infrastructure. Where these implications are at odds with powerful national interests, any member state may point to Article 194, 2 of the Lisbon Treaty and argue that the EU's energy policy agenda interferes with its given right to determine the conditions for exploiting its energy resources, the choice between different energy sources and the general structure of its energy supply. The implementation of new policy initiatives therefore involves intense negotiations to conciliate contradicting interests, something that traditionally has been far from easy to achieve. In areas where this process runs into difficulties, the transfer of sovereignty to the European level is usually to be found amongst the suggested solutions. Pooling sovereignty on a new level, however, does not automatically result in a consensus, i.e., conciliate contradicting interests. Rather than focussing on the right level of decision making, European policy makers need to face the (inconvenient truth of) geo-economical frictions within the Union that make it difficult to come to an arrangement. The reminder of this text explains these latter, more structural and sector-related challenges for European energy policy in more detail, and develops some concrete steps towards a political and regulatory framework necessary to overcome them.