Fine-tuning the use of bail-in to promote a stronger EU financial system. CEPS Special Report No. 136/April 2016

This paper discusses the application of the new European rules for burden-sharing and bail-in in the banking sector, in view of their ability to accommodate broader policy goals of aggregate financial stability. It finds that the Treaty principles and the new discipline of state aid and the restructuring of banks provide a solid framework for combating moral hazard and removing incentives that encourage excessive risk-taking by bankers. However, the application of the new rules may have become excessively attentive to the case-by-case evaluation of individual institutions, while perhaps losing sight of the aggregate policy needs of the banking system. Indeed, in this first phase of the banking union, while large segments of the EU banking sector still require a substantial restructuring and recapitalisation, the market may not be able to provide all the needed resources in the current environment of depressed profitability and low growth. Thus, a systemic market failure may be making the problem impossible to fix without resorting to temporary public support. But the risk of large write-offs of capital instruments due to burden-sharing and bail-in may represent an insurmountable obstacle to such public support as it may set in motion an investors’ flight. The paper concludes by showing that existing rules do contain the flexibility required to accommodate aggregate policy requirements in the general interest, and outlines a public support scheme for the precautionary recapitalisation of solvent banks that would be compliant with EU law.

Europe's continental regionalism. CEPS Working Document No. 375, February 2013

This paper reviews the multiple forms of European continental regionalism, which takes the overall shape of a complex set of concentric circles, with a substructure of a core group within the EU based on the euro and Schengen areas, and several rings of neighbours outside, including the European Economic Area, the regions of the EU’s neighbourhood policy and finally some pan-European organisations. While all world regions have their own unique features, the European case offers some important lessons that should be of interest to other world regions. The first is what appears to be a relatively robust model for single market integration. The second consists of the lessons currently being learned on the hazards on monetary integration without adequate fiscal and political integration. The third lesson is another warning, over the difficulties of anticipating the political dynamics of integration processes once set in motion, often described in Europe as a ‘journey to an unknown destination’. The fourth consists of the EU’s current efforts to develop a comprehensive neighbourhood policy, which is encountering difficult issues of matching ambitious objectives with incentives of adequate weight. Nevertheless, the policy sees a landscape of positive and constructive relations between the EU and its neighbours, in marked contrast to some ugly conflictual or coercive features seen in the cases of other continental hegemons – the three BRIC states of China, India and Russia, but not the fourth one, Brazil.

An Industrious European Council on Defence? Egmont Security Policy Brief No. 53, February 2014

The December 2013 Council meeting set in motion a number of important “roadmaps” for defence-industrial policy in Europe. Now the member states, the European Defence Agency and European Commission need to be aware of the potential roadblocks ahead.

Western Strategic Poverty: The Ukrainian Crisis and the New World Order. Jean Monnet/Robert Schuman Paper Series Vol. 14 Special Issue, March 2014

From Introduction. The Ukrainian crisis, which deepened in February with the invasion of the Crimean peninsula by Russia, has exposed a serious poverty of strategy and leadership from Europe and the US. Such a lack of strategic vision in responding to the Ukrainian crisis, considered by Nicholas Burns among others, as one of the greatest crises in Europe since 1991, diverges between the European Union and the US. It is undeniable that the western leadership is unable to get its act together. In the US, the perpetual fratricide between the republicans and democrats over anything is affecting the development and implementation of sound foreign policies, while in the EU, there is no clear European leadership emerging, neither from the 28 Member States nor the High Representative and Presidents of the Council and Commission. The EU is once again facing its perpetual policy of risk aversion. On the one hand, the US remains conflicted in identifying its identity in this post-liberal world order, while the EU difficulty faces the inevitable limitation of its soft power. With a West in crisis, no decent strategy and/or policy to unravel, or at least contain, the Ukrainian crisis can emerge in this axiomatic moment with the making of the new world order.