The fiscal implications of a banking union. Bruegel Policy Brief 2012/02 [3?], September 2012

Systemic banking crises are a threat to all countries whatever their development level. They can entail major fiscal costs that can undermine the sustainability of public finances. More than anywhere else, however, a number of euro-area countries have been affected by a lethal negative feedback loop between banking and sovereign risk, followed by disintegration of the financial system, real economic fragmentation and the exposure of the European Central Bank. Recognising the systemic dimension of the problem, the Euro-Area Summit of June 2012 called for the creation of a banking union with common supervision and the possibility for the European Stability Mechanism to recapitalise banks directly.

Europe's social problem and its implications for economic growth. Bruegel Policy Brief 2014/03, 1 April 2014

The European Union faces major social problems. More than six million jobs were lost from 2008-13 and poverty has increased. Fiscal consolidation has generally attempted to spare social protection from spending cuts, but the distribution of adjustment costs between the young and old has been uneven; a growing generational divide is evident, disadvantaging the young. The efficiency of the social security systems of EU countries varies widely. Countries with greater inequality tended to have higher household borrowing prior to the crisis resulting in more subdued consumption growth during the crisis. The resulting high private debt, high unemployment, poverty and more limited access to education undermine long-term growth and social and political stability. Policymakers face three main challenges. First, addressing unemployment and poverty should remain a high priority not only for its own sake, but because these problems undermine public debt sustainability and growth. Second, bold policies in various areas are required. Most labour, social and fiscal policies are the responsibility of member states, requiring national reforms. But better coordination of demand management at European level is also necessary in order to create jobs. Third, tax/benefit systems should be reviewed for improved efficiency, inter- generational equity and fair burden sharing between the wealthy and poor.

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.

The Economics of Subsidies for R&D: The Intrinsic Difficulty of Determining Optimum Subsidies and Implications for Reform of EU State Aid Rules on R&D. Bruges European Economic Research (BEER) Papers 26/February 2013

The European Commission is reforming state aid rules. An important element of the reform is to prevent the granting of excessive subsidies. This paper shows that the determination of the optimum subsidy for research is difficult. What appears to be the socially optimum level of research effort depends on the benchmark of comparison and whether this benchmark is the situation before subsidies or the situation after subsidies. In the presence of asymmetric information, policy makers should induce firms to reveal their true costs and should grant subsidies to the relatively more efficient firms by allocating subsidies not on a first-come-first- serve basis but through a competitive process. However, competitive selection of subsidy recipients is not a panacea as it may not be possible to be effectively used in all cases and for all research programmes. This is because in principle public subsidies should support those programmes with the largest value for society, rather than with the lowest costs. Although this paper focuses on R&D, its findings are relevant to any subsidy whose aim is to remedy market failure caused by positive externalities.

Costs and Benefits of RES in Europe up to 2030. DIA-Core Policy Brief, 24 June 2014

Introduction. This Policy Brief follows-up on the DIA-CORE Policy Brief on “Assessing costs and benefits of deploying renewables”, dated 26 September 2014, which highlighted the complexities in making a comprehensive and appropriate assessment of costs and benefits resulting from an increased use of renewable energy sources (RES). It distinguished the different types of effects into system-related effects, distributional effects and macro-economic effects, and looked at the related data requirements, which need to be comprehensive and standardised. This DIA-CORE Policy Brief uses the tools proposed in the previous Policy Brief to estimate the effects on Member States of reaching the EU-wide RES target of 27% of the EU’s energy consumption by 2030. This allows to draw some conclusions on the differentiated impacts across Member States, and the potential implications for an effort sharing approach. It also assesses whether a higher ambition level could be beneficial. The paper also takes into account the implications of national policy frameworks and highlights the importance of reforms to reduce the costs of RES adoption.

How returns from tertiary education differ by field of study. Implications for policy-makers and students. CEPS Working Document No. 411/July 2015

With the huge growth in enrolment in higher education, the key question facing young people today is not so much “what to study” as “whether to study”. Taking a methodologically innovative approach, this paper measures the net present value of university education and compares returns from studying a range of different subjects. We use data from 5 European countries (France, Italy, Hungary, Poland and Slovenia) and include (opportunity) costs in the computation. Results suggest that enrolling in science, technology, engineering and mathematics (STEM) courses is often not the best investment for students, especially female students. In choosing what to study, therefore, students are taking decisions that are consistent with their own private returns. This suggests that policymakers should consider changing the incentives offered if they wish to change students’ behaviour.

System Costs of Variable Renewable Energy in the European Union. Bruges European Economic Policy (BEEP) Briefings 37/2015

To shift to a low-carbon economy, the EU has been encouraging the deployment of variable renewable energy sources (VRE). However, VRE lack of competitiveness and their technical specificities have substantially raised the cost of the transition. Economic evaluations show that VRE life-cycle costs of electricity generation are still today higher than those of conventional thermal power plants. Member States have consequently adopted dedicated policies to support them. In addition, Ueckerdt et al. (2013) show that when integrated to the power system, VRE induce supplementary not-accounted-for costs. This paper first exposes the rationale of EU renewables goals, the EU targets and current deployment. It then explains why the LCOE metric is not appropriate to compute VRE costs by describing integration costs, their magnitude and their implications. Finally, it analyses the consequences for the power system and policy options. The paper shows that the EU has greatly underestimated VRE direct and indirect costs and that policymakers have failed to take into account the burden caused by renewable energy and the return of State support policies. Indeed, induced market distortions have been shattering the whole power system and have undermined competition in the Internal Energy Market. EU policymakers can nonetheless take full account of this negative trend and reverse it by relying on competition rules, setting-up a framework to collect robust EU-wide data, redesigning the architecture of the electricity system and relying on EU regulators.