Policy Options for Improving the Functioning and Efficiency of the Digital Single Market in the Field of Copyright. CEPS Special Report No. 121, 19 November 2015

This study explores the existing policy problems and the possible options for reforming the EU copyright framework as provided by EU Directive 29/2001 on Copyright in the Information Society (InfoSoc Directive) and related legislation, with a specific focus on the need to strengthen the Internal Market for creative content. We find two main policy problems: i) the absence of a Digital Single Market for creative works; and ii) the increasing tension between the current system of exceptions and limitations and the legal treatment of emerging uses of copyrighted content in the online environment. Without prejudicing a future impact assessment that might focus on more specific and detailed policy options, our analysis suggests that ‘more Europe’ would be needed in the field of copyright, given the existing sources of productive, allocative and dynamic efficiency associated with the current system. Looking at copyright from an Internal Market perspective would, in this respect, also help to address many of the shortcomings in the current framework, which undermine legal certainty and industrial policy goals.

Do Institutional Changes Make a Difference? A veto player analysis of how institutional changes in the Council of the EU influence legislative efficiency and outputs. Brugges Political Research Paper No. 31, October 2013

A driving argument behind recent EU treaty reforms was that more qualified majority voting (QMV) was required to reduce the potential dangers of legislative paralysis caused by enlargement. Whilst existing literature on enlargement mostly focuses on the question of what changed in the legislative process after the 2004 enlargement, the question of why these changes occurred has been given far less attention. Through the use of a single veto player theoretical model, this paper seeks to test and explain whether enlargement reduces the efficiency of the legislative process and alters the type of legislation produced, and whether QMV can compensate for these effects. In doing this, it offers a theoretical explanation as to why institutional changes that alter the level of cohesion between actors in the Council have an influence over both the legislative process and its outcomes.

Asset-backed securities: The key to unlocking Europe's credit markets? Bruegel Policy Contribution 2014/07, 24 July 2014

The European market for asset-backed securities (ABS) has all but closed for business since the start of the economic and financial crisis. ABS (see Box 1) were in fact the first financial assets hit at the onset of the crisis in 2008. The subprime mortgage meltdown caused a deterioration in the quality of collateral in the ABS market in the United States, which in turn dried up overall liquidity because ABS AAA notes were popular collateral for inter-bank lending. The lack of demand for these products, together with the Great Recession in 2009, had a considerable negative impact on the European ABS market. The post-crisis regulatory environment has further undermined the market. The practice of slicing and dicing of loans into ABS packages was blamed for starting and spreading the crisis through the global financial system. Regulation in the post-crisis context has thus been relatively unfavourable to these types of instruments, with heightened capital requirements now necessary for the issuance of new ABS products. And yet policymakers have recently underlined the need to revitalise the ABS market as a tool to improve credit market conditions in the euro area and to enhance transmission of monetary policy. In particular, the European Central Bank and the Bank of England have jointly emphasised that: “a market for prudently designed ABS has the potential to improve the efficiency of resource allocation in the economy and to allow for better risk sharing... by transforming relatively illiquid assets into more liquid securities. These can then be sold to investors thereby allowing originators to obtain funding and, potentially, transfer part of the underlying risk, while investors in such securities can diversify their portfolios... . This can lead to lower costs of capital, higher economic growth and a broader distribution of risk” (ECB and Bank of England, 2014a). In addition, consideration has started to be given to the extent to which ABS products could become the target of explicit monetary policy operations, a line of action proposed by Claeys et al (2014). The ECB has officially announced the start of preparatory work related to possible outright purchases of selected ABS1. In this paper we discuss how a revamped market for corporate loans securitised via ABS products, and how use of ABS as a monetary policy instrument, can indeed play a role in revitalising Europe’s credit market. However, before using this instrument a number of issues should be addressed: First, the European ABS market has significantly contracted since the crisis. Hence it needs to be revamped through appropriate regulation if securitisation is to play a role in improving the efficiency of resource allocation in the economy. Second, even assuming that this market can expand again, the European ABS market is heterogeneous: lending criteria are different in different countries and banking institutions and the rating methodologies to assess the quality of the borrowers have to take these differences into account. One further element of differentiation is default law, which is specific to national jurisdictions in the euro area. Therefore, the pool of loans will not only be different in terms of the macro risks related to each country of origination (which is a ‘positive’ idiosyncratic risk, because it enables a portfolio manager to differentiate), but also in terms of the normative side, in case of default. The latter introduces uncertainties and inefficiencies in the ABS market that could create arbitrage opportunities. It is also unclear to what extent a direct purchase of these securities by the ECB might have an impact on the credit market. This will depend on, for example, the type of securities targeted in terms of the underlying assets that would be considered as eligible for inclusion (such as loans to small and medium-sized companies, car loans, leases, residential and commercial mortgages). The timing of a possible move by the ECB is also an issue; immediate action would take place in the context of relatively limited market volumes, while if the ECB waits, it might have access to a larger market, provided steps are taken in the next few months to revamp the market. We start by discussing the first of these issues – the size of the EU ABS market. We estimate how much this market could be worth if some specific measures are implemented. We then discuss the different options available to the ECB should they decide to intervene in the EU ABS market. We include a preliminary list of regulatory steps that could be taken to homogenise asset-backed securities in the euro area. We conclude with our recommended course of action.

The Impact of Banking Structural Reform on Household Retail Finance. ECRI Commentary No. 13, 7 October 2014

There are two main objectives behind the EC proposal on banking structural reform: the financial stability objective and the economic efficiency objective. If it is implemented, the reform should reinforce the stability and economic efficiency of household retail activities through lower contagion, better resolvability in the event of failure, more harmonised supervisory practices across the EU and more resilient household demand for retail loans. However, it could also trigger counterproductive effects that could partly undermine the expected benefits. These potential negative effects are not appropriately assessed in the impact study of the proposal published in January 2014 and will require further consideration in the coming months. In particular, the stability of household retail finance could be strengthened by placing more emphasis on bankruptcy risks of retail banks; the transfer of existing systemic activities towards less regulated and supervised markets and reputational risk. A better analysis of the borrowing costs for households (impacted by the potential decreasing diversification of the funding base of banks and scarcer liquidity) and implementation costs could help regulators to achieve the objective of efficient household activities.

Market Efficiency in the EU Emissions Trading Scheme: An outlook for the third trading period. Bruges European Economic Research (BEER) Papers 20/March 2011

Is the EU Emission Trading Scheme (ETS) ready for the challenge of cutting emissions by 20 %? This paper tries to provide an answer to this question by studying the efficiency of the scheme, both in the secondary and in the primary markets for allowances. On the one hand, this paper draws conclusions from the operation of the scheme so far. For this purpose, it studies a wide variety of market data using economic and econometric techniques. On the other hand, building on this evidence, this paper presents and evaluates some of the changes introduced in the scheme for the third trading period.