Ensuring Energy Security in Europe: The EU between a Market-based and a Geopolitical Approach. EU Diplomacy Paper 03/2013

The question of energy security of the European Union (EU) has come high on the European political agenda since the mid-2000s as developments in the international energy sector have increasingly been perceived as a threat by the EU institutions and by the Member State governments. The externalisation of the EU’s internal energy market has in that context been presented as a means to ensure energy security. This approach, which can be called ‘post-modern’ with reference to Robert Cooper’s division of the world into different ‘ages’,1 however, shows insufficiencies in terms of energy security as a number of EU energy partners belonging to the ‘modern’ world do not accept to play the same rules. This consequently poses the questions of the relevance of the market-based approach and of the need for alternative solutions. This paper therefore argues that the market-based approach, based on the liberalisation of the European energy market, needs to be complemented by a geopolitical approach to ensure the security of the EU’s energy supplies. Such a geopolitical approach, however, still faces important challenges.

Compositional effects on productivity, labour cost and export adjustments. Bruegel Policy Contribution 2012/11, June 2012

Sectoral shifts, such as shrinkage of low labour productivity and the low-wage construction sector, can lead to apparent increased aggregate average labour productivity and average wages, especially when capital intensity differs across sectors. For 11 main sectors and 13 manufacturing sub-sectors, we quantify the compositional effects on productivity, wages and unit labour costs (ULCs) based and real effective exchange rates (REER), for 24 EU countries. Compositional effects are greatest in Ireland, where the pharmaceutical sector drives the growth of output and productivity, but other sectors have suffered greatly and have not yet recovered. Our new ULC-REER measurements, which are free from compositional effects, correlate well with export performance. Among the countries facing the most severe external adjustment challenges, Lithuania, Portugal and Ireland have been the most successful based on five indicators, and Latvia, Estonia and Greece the least successful. There is evidence of downward wage flexibility in some countries, but wage cuts have corrected just a small fraction of pre-crisis wage rises and came with massive reductions in employment even in the business sector excluding construction and real estate, highlighting the difficulty of adjusting wages downward.