Tunisia in turmoil: how should the EU react? CEPS Commentary, 4 March 2013

The assassination of the opposition leader in Tunisia exposed the underlying divisions between members of the ruling classes, between those in and outside of government, between religious groupings and secularists, and between the coastal areas and the hinterland of Tunisia. Since the revolution, tackling social inclusion has become a pressing problem: men versus women, young versus old, opponents versus supporters of the old regime and political forces inside Tunisia versus those in exile. The National Constituent Assembly (NCA)’s inability to address these fault lines and approve the second draft of the constitution has hampered the transition of the country towards the next elections, while all of the above have undermined trust in the political process. Although Tunisians are primarily responsible for the political processes in their country, argue authors Hrant Kostanyan and Elitsa Garnizova, the EU should step up its efforts to deliver on its commitments in the areas of money, market and mobility.

The Western Balkans: deadlock in the EU enlargement process. OSW Commentary No. 43, 2010-11-24

On 9 November the European Commission presented the annual reports assessing the progress of the Balkans states in their preparations for EU membership, the enlargement strategy up to autumn 2011, and the assessment of the EU membership applications submitted by Albania and Macedonia. All these documents show that the reform process in the Balkan states has slowed down in comparison to previous years. The main reason for this slowdown is the negative consequences of the global economic crisis for these countries. Nonetheless, the transformation process is continuing, despite these difficulties. Another increasingly serious challenge for integrating the Balkan states is the EU's growing reluctance to enlarge any further. Among other measures, the EU states have blocked the formal acknowledgement of the integration progress (objections have been raised to the submission of membership applications by Albania, Serbia and Montenegro, and to granting Albania candidate status), which has significantly prolonged the accession process. In fact, this illustrates the lack of political will to accept new members. The European Commission is aware that the integration process may be blocked, and so in the coming year it is planning to focus on fostering the idea of enlargement among the EU member states. It will also focus on persuading the Balkan states to move on with reforms, especially those designed to strengthen state institutions (administration, the judiciary), even if their progress will not be formally considered during the integration process. The Commission assumes that by the end of next year, the reforms implemented by the Balkan states will be comprehensive enough to persuade the EU states to step up the integration process in subsequent years. However, if the EU member states' standpoint on the enlargement process does not change, the Commission's efforts will not bring about the expected results. Considering that their prospects for EU membership are receding, the Balkan states may not have sufficient motivation to go on with long-term reform efforts. As a result, the transformation process may become impeded, and in the longer perspective, the situation in the entire region may be destabilised.

Between continuation and adaptation: The Baltic states’ security policy and armed forces. OSW COMMENTARY 190/23.11.2015

The Baltic states have responded to the annexation of Crimea and the increased Russian military activity in the Nordic and Baltic region by taking measures to strengthen their own military potential. At the same time, they have intensified efforts to have the USA and NATO step up their military presence on their respective territories. Changes concerning the security policies and the armed forces of Lithuania, Latvia and Estonia have included increases in defence spending, the number of soldiers and members of volunteer Territorial Defence Forces, speeding up modernisation programmes, and – in the case of Lithuania – the reintroduction of conscription. In the coming years the Baltic states will focus on developing those of their military capabilities directly related to the defence of the country’s territory. However, Lithuania, Latvia and Estonia will not stop participating in the foreign missions of NATO, which is the guarantor of their security. The extent to which these plans can be implemented will depend primarily on the economic and demographic situations of Lithuania, Latvia and Estonia.

Will the PRIPs' KID live up to its promise to protect investors? ECMI Commentary No. 33, 6 July 2012

Unveiled by the European Commission on July 3rd, the proposed Regulation on key information documents (KID) for packaged retail investment products (PRIPs) represents a step forward in enhancing the protection of retail investors and advancing the single market for financial services. While acknowledging in this Commentary that the KID is a commendable effort, ECMI/CEPS researcher Mirzha de Manuel Aramendía observes that pre-contractual disclosure is just one of the pieces in the jigsaw puzzle of investor protection and regrets that other pieces, such as MiFID and the IMD, are not so ambitiously constructed.

Backloading: A necessary, but not sufficient first step. CEPS Special Report No. 72, 20 November 2012

In July 2012, the European Commission issued an invitation for public consultation to review the ‘auctioning time profile’ for the EU Emissions Trading Scheme” in order to collect views from stakeholders and experts in the field of the EU carbon market on a draft for a future amendment of the Commission Regulation on the timing, administration and other aspects of auctioning of greenhouse gas emission allowances. In this submission, the CEPS Carbon Market Forum addresses the following questions and offers its views on the Commission’s proposed amendments: Is back loading a good idea? Is there a need for following up the back loading with structural measures? What should the number be? If this cannot be addressed, what are the considerations for deciding upon that number? What price expectations are linked to the number? On what basis are they construed?

The Single Supervisory Mechanism: A Sound First Step in Europe’s Banking Union? Egmont European Affairs Paper, March 2013

The financial and economic crisis has hit Europe in its core. While the crisis may not have originated in the European Union, it has laid bare structural weaknesses in the EU’s policy framework. Both public finances and the banking sector have been heavily affected. For a long time, the EU failed to take into account sufficiently the perverse link that existed between the two. Negative evolutions in one field of the crisis often dragged along the other in its downward spiral. In June 2012, in the early hours of a yet another EU Summit, the leaders of the eurozone finally decided to address the link between the banking and sovereign debt crises. Faced with soaring public borrowing costs in Spain and Italy, they decided to allow for the direct European recapitalisation of banks when the Member State itself would no longer be in a position to do so. In exchange, supervision of the banking sector would be lifted to the European level by means of a Single Supervisory Mechanism. The Single Supervisory Mechanism, or SSM in the EU jargon, is a first step in the broader revision of policies towards banks in Europe. The eventual goal is the creation of a Banking Union, which is to carry out effective surveillance and – if needed – crisis management of the banking sector. The SSM is to rely on national supervisors and the ECB, with the ECB having final authority on the matter. The involvement of the latter made it clear that the SSM would be centred on the eurozone – while it is to remain open to other Member States willing to join. Due to the ongoing problems and the link between the creation of the SSM and the recapitalisation of banks, the SSM became one of the key legislative priorities of the EU. In December 2012, Member States reached an agreement on the design of the SSM. After discussions with the European Parliament (which were still ongoing at the time of writing), the process towards making the SSM operational can be initiated. The goal is to have the SSM fully up and running in the first half of 2014. The decisions that were taken in June 2012 are likely to have had a bigger impact than the eurozone’s Heads of State and Government could have realised at the time for two important reasons. On the one hand, creating the SSM necessitates a full Banking Union and therefore shared risk. On the other hand, the decisions improved the ECB’s perception of the willingness of governments to take far-reaching measures. This undoubtedly played a significant role in the creation of the Outright Monetary Transactions programme by the ECB, which has led to a substantial easing of the crisis in the short-term. 1 These short-term gains should now be matched with a stable long-term framework for bank supervision and crisis management. The agreement on the SSM should be the first step in the direction of this goal. This paper provides an analysis of the SSM and its role in the creation of a Banking Union. The paper starts with a reminder of why the EU decided to put in place the SSM (§1) and the state of play of the ongoing negotiations on the SSM (§2). Subsequently, the supervisory responsibilities of the SSM are detailed, including its scope and the division of labour between the national supervisors and the ECB (§3). The internal functioning of the SSM (§4) and its relation to the other supervisors are discussed afterwards (§5). As mentioned earlier, the SSM is part of a wider move towards a Banking Union. Therefore, this paper sheds light on the other building blocks of this ambitious project (§6). The transition towards the Banking Union is important and will prove to be a bumpy ride. Before formulating a number of conclusions, this Working Paper therefore provides an overview of the planned road ahead (§7).

Was the ECB’s Comprehensive Assessment up to standard? CEPS Policy Brief No. 325, 10 November 2014

The Comprehensive Assessment conducted by the European Central Bank (ECB) represents a considerable step forward in enhancing transparency in euro-area banks’ balance sheets. The most notable progress since the previous European stress test has been the harmonisation of the definition of non-performing loans and other concepts as well as uncovering hidden losses, which resulted in a €34 billion aggregate capital-charge net of taxes. Despite this tightening, most banks were able to meet the 5.5% common equity tier 1 (CET1) threshold applied in the test, which suggests that the large majority of the euro-area banks have improved their financial position sufficiently that they should no longer be constrained in financing the economy. As shown in this CEPS Policy Brief by Willem Pieter de Groen, however, the detailed results provide a more nuanced picture: there remain a large number of the banks in the euro area that are still highly leveraged and in many cases unable to meet the regulatory capital requirements that will be introduced in the coming years under the adverse stress test scenario.