Access Barriers to Services Markets: Mapping, tracing, understanding and measuring. CEPS Special Report No. 77, June 2013

EU and national policy-makers argue that the single services market is a key to EU growth, but that many barriers to services market access remain. Grasping the scope, nature and economic meaning of these barriers, however, has proven rather difficult. This is exactly what the present CEPS Special Report helps the reader to do. We trace all market access barriers in services, as far as the data allow, and attempt to understand their nature and economic meaning (given that they are usually forms of domestic regulation) and discuss aspects of the measurement of restrictiveness. We make a sharp distinction between market access barriers restrictions in a non-EU WTO/GATS environment and intra-EU ones, and demonstrate the significant difference in ambition between the two. The paper specifies in detail the progress made by the EU's horizontal reform in services markets, documenting the removal of many cross-border obstacles to trade in services and establishment. Finally, following these conceptual and descriptive analyses, a brief assessment of access restrictiveness indices is provided for both the non-EU WTO environment and for intra-EU services access barriers.

Subsidiarity between Law and Economics. Research Papers in Law, 1/2005

From the Introduction. The present contribution is an attempt to raise awareness between the 'trenches' by juxtaposing the two approaches to subsidiarity. Subsequently, I shall set out why, in economics, subsidiarity is embraced as a key principle in the design and working of the Union and how a functional subsidiarity test can be derived from this thinking. Throughout the paper, a range of illustrations and examples is provided in an attempt to show the practical applicability of a subsidiarity test. This does not mean, of course, that the application of the test can automatically "solve" all debates on whether subsidiarity is (not) violated. What it does mean, however, is that a careful methodology can be a significant help to e.g. national parliaments and the Brussels circuit, in particular, to discourage careless politicisation as much as possible and to render assessments of subsidiarity comparable throughout the Union. The latter virtue should be of interest to national parliaments in cooperating, within just six weeks, about a common stance in the case of a suspected violation of the principle. The structure of the paper is as follows. Section 2 gives a flavour of very different approaches and appreciation of the subsidiarity principle in European law and in the economics of multi-tier government. Section 3 elaborates on the economics of multi-tier government as a special instance of cost / benefit analysis of (de)centralisation in the three public economic functions of any government system. This culminates in a five-steps subsidiarity test and a brief discussion about its proper and improper application. Section 4 applies the test in a non-technical fashion to a range of issues of the "efficiency function" (i.e. allocation and markets) of the EU. After showing that the functional logic of subsidiarity may require liberalisation to be accompanied by various degrees of centralisation, a number of fairly detailed illustrations of how to deal with subsidiarity in the EU is provided. One illustration is about how the subsidiarity logic is misused by protagonists (labour in the internal market). A slightly different but frequently encountered aspect consists in the refusal to recognize that the EU (that is, some form of centralisation) offers a better solution than 25 national ones. A third range of issues, where the functional logic of subsidiarity could be useful, emerges when the boundaries of national competences are shifting due to more intense cross-border flows and developments. Other subsections are devoted to Union public goods and to the question whether the subsidiarity test might trace instances of EU decentralisation: a partial or complete shift of a policy or regulation to Member States. The paper refrains from an analysis of the application of the subsidiarity test to the other two public functions, namely, equity and macro-economic stabilisation.2 Section 5 argues that the use of a well-developed methodology of a functional subsidiarity test would be most useful for the national parliaments and even more so for their cooperation in case of a suspected violation of subsidiarity. Section 6 concludes.

Ending uncertainty: recapitalisation under European Central Bank supervision. Bruegel Policy Contribution 2013/18, 17 December 2013

Estimates of the recapitalisation needs of the euro-area banking system vary between €50 and €600 billion. The range shows the considerable uncertainty about the quality of banks’ balance sheets and about the parameters of the forthcoming European Central Bank stress tests, including the treatment of sovereign debt and systemic risk. Uncertainty also prevails about the rules and discretion that will applyto bank recapitalisation, bank restructuring and bank resolution in 2014 and beyond. The ECB should communicate the relevant parameters of its exercise early and in detail to give time to the private sector to find solutions. The ECB should establish itself as a tough supervisor and force non-viable banks into restructuring. This could lead to short-term financial volatility, but it should be weighed against the cost of a durably weak banking system and the credibility risk to the ECB. The ECB may need to provide large amounts of liquidity to the financial system. Governments should support the ECB, accept cross-border bank mergers and substantial creditor involvement under clear bail-in rules and should be prepared to recapitalise banks. Governments should agree on the eventual creation of a single resolution mechanism with efficient and fast decision-making procedures, and which can exercise discretion where necessary. A resolution fund, even when fully built-up, needs to have a common fiscal backstop to be credible.

When and how to support renewables? Letting the data speak. Bruegel Working Paper 2014/01, February 2014

Low-carbon energy technologies are pivotal for decarbonising our economies up to 2050 while ensuring secure and affordable energy. Consequently, innovation that reduces the cost of low-carbon energy would play an important role in reducing transition costs. We assess the two most prominent innovation policy instruments (i) public research, development and demonstration (RD&D) subsidies and (ii) public deployment policies. Our results indicate that both deployment and RD&D coincide with increasing knowledge generation and the improved competitiveness of renewable energy technologies. We find that both support schemes together have a greater effect that they would individually, that RD&D support is unsurprisingly more effective in driving patents and that timing matters. Current wind deployment based on past wind RD&D spending coincides best with wind patenting. If we look into competitiveness we find a similar picture, with the greatest effect coming from deployment. Finally, we find significant cross-border effects, especially for winddeployment. Increased deployment in one country coincides with increased patenting in nearby countries. Based on our findings we argue that both deployment and RD&D support are needed to create innovation in renewable energy technologies. However, we worry that current support is unbalanced. Public spending on deployment has been two orders of magnitude larger (in 2010 about €48 billion in the five largest EU countries in 2010) than spending on RD&D support (about €315 million). Consequently, basing the policy mix more on empirical evidence could increase the efficiency of innovation policy targeted towards renewable energy technologies.

Norway and the Bear. Norwegian defence policy- lessons for the Baltic Sea region. OSW Point of View Number 38, January 2014

Norway is currently the only Western European state and ‘old’ NATO member that strongly relies on the traditional dimension of NATO's collective defence. It is also the only ally in Western Europe which perceives Russia as a threat to its military security, in the so-called High North. In order to successfully deal with the potential challenges and threats in the region, Norway has been pursuing a defence policy based on cooperation and deterrence. Cooperation means improving collaboration with Russia in cross-border relations, in the petroleum sector and in the military sphere. The deterrent measures include maintaining NATO’s credibility as a collective defence alliance; increasing military cooperation with the United States; building up Norway’s own military capabilities; and developing military cooperation across Northern Europe. The primary objective of Oslo’s defence policy is to minimise the likelihood of crises and conflicts emerging in the High North which could prove too ‘big’ for Norway but too ‘small’ for NATO.

The Economics of EU Railway Reform. Bruges European Economic Policy (BEEP) Briefing 8/2004

The EU began railway reform in earnest around the turn of the century. Two ‘railway packages’ have meanwhile been adopted amounting to a series of directives and a third package has been proposed. A range of complementary initiatives has been undertaken or is underway. This BEEP Briefing inspects the main economic aspects of EU rail reform. After highlighting the dramatic loss of market share of rail since the 1960s, the case for reform is argued to rest on three arguments: the need for greater competitiveness of rail, promoting the (market driven) diversion of road haulage to rail as a step towards sustainable mobility in Europe, and an end to the disproportional claims on public budgets of Member States. The core of the paper deals respectively with market failures in rail and in the internal market for rail services; the complex economic issues underlying vertical separation (unbundling) and pricing options; and the methods, potential and problems of introducing competition in rail freight and in passenger services. Market failures in the rail sector are several (natural monopoly, economies of density, safety and asymmetries of information), exacerbated by no less than 7 technical and legal barriers precluding the practical operation of an internal rail market. The EU choice to opt for vertical unbundling (with benefits similar in nature as in other network industries e.g. preventing opaque cross-subsidisation and greater cost revelation) risks the emergence of considerable coordination costs. The adoption of marginal cost pricing is problematic on economic grounds (drawbacks include arbitrary cost allocation rules in the presence of large economies of scope and relatively large common costs; a non-optimal incentive system, holding back the growth of freight services; possibly anti-competitive effects of two-part tariffs). Without further detailed harmonisation, it may also lead to many different systems in Member States, causing even greater distortions. Insofar as freight could develop into a competitive market, a combination of Ramsey pricing (given the incentive for service providers to keep market share) and price ceilings based on stand-alone costs might be superior in terms of competition, market growth and regulatory oversight. The incipient cooperative approach for path coordination and allocation is welcome but likely to be seriously insufficient. The arguments to introduce competition, notably in freight, are valuable and many e.g. optimal cross-border services, quality differentiation as well as general quality improvement, larger scale for cost recovery and a decrease of rent seeking. Nevertheless, it is not correct to argue for the introduction of competition in rail tout court. It depends on the size of the market and on removing a host of barriers; it requires careful PSO definition and costing; also, coordination failures ought to be pre-empted. On the other hand, reform and competition cannot and should not be assessed in a static perspective. Conduct and cost structures will change with reform. Infrastructure and investment in technology are known to generate enormous potential for cost savings, especially when coupled with the EU interoperability programme. All this dynamism may well help to induce entry and further enlarge the (net) welfare gains from EU railway reform. The paper ends with a few pointers for the way forward in EU rail reform.

Interconnector Investment for a Well-Functioning Internal Market: What EU regime of regulatory incentives? Bruges European Economic Research (BEER) Papers 18/October 2010

Sufficient cross‐border electricity transmission infrastructure is a pre‐requisite for a functioning European internal market for electricity. Also, the achievement of the EU’s energy policy objectives – sustainability, competitiveness and security of supply – critically depends on adequate investment in physical interconnections between the member states. Mainly focusing on the “regulatory path”, this paper assesses different ways to achieve a sufficient level of interconnector investment. In a first step, economic analysis identifies numerous impediments to interconnector investment adding up to an “interconnector investment failure”. Reflecting on the proper regulatory design of an EU framework able to overcome the interconnector investment failure, a number of recommendations are put forward:  All congestion rents should be channeled into interconnector building. Unused rents should be transferred to a European interconnector fund supervised by an EU agency.  Even though inherently sub‐optimal, merchant transmission investment can be used as a means to put pressure on regulated transmission system operators (TSO) that do not deliver. An EU agency should have exclusive competence on merchant interconnector exemptions.  A European TSO organization should be entrusted with supra‐national network planning, supervised by an EU agency.  The agency should decide on investment cost reallocation for interconnector projects that yield strong externalities. Payments could be settled via a European interconnector fund.  In case of non‐compliance with the supra‐national network plan, the EU agency should have the right to organize a tender – financed by the European interconnector fund – in order to get the “missing link” built. Assessing the existing EU regulatory framework, the efforts of the 2009 “third energy package” to fill the “regulatory gap” with new EU bodies – ACER and ENTSO‐E – are acknowledged. However, striking holes in regulatory framework are spotted, notably with regard to the use of congestion rents, interconnector cost allocation, and the distribution of decision making powers on new infrastructure exemptions A discussion of the TEN‐E interconnector funding scheme shows that massive funding can be an interim solution to the problem of insufficient interconnection capacities while overcoming the political deadlock on sensible regulatory topics such as interconnector cost allocation. The paper ends with policy recommendations.

Derisory Results or Reasons to be Cheerful? Evaluating the Implantation of the European Neighbourhood Policy in Ukraine, Moldova and Belarus. Natolin Research Paper 01/January 2011

This paper considers the implementation of the European Neighbourhood Policy (ENP) in Ukraine, Moldova and Belarus. The paper presents a portrait of the three neighbours in terms of their current political and socio-economic profiles, as well as the status of their relations with the European Union. Subsequently, it provides an overview of the development of ENP. A general set of conclusions are offered in relation to the key issue of good governance, where, the paper argues, ENP has delivered derisory results, with patchy effects across the region. Moreover, the paper identifies the democratic back-sliding in Ukraine and entenched authoritarianism in Belarus, which ENP has done very little to address. The EU’s willingness to provide better mobility options for ENP citizens to visit and work in the EU is a key test for the Eastern Partnership (EaP) in the coming year. This paper sees that whilst there are reasons to be cheerful here, with the EU’s recent offer of greater Visa Liberalisation for Ukraine and Moldova, there remains much to be done and in the meantime the EU remains a ‘Fortress Europe’. The paper concludes with a set of recommendations for ENP, which include the need to finally tackle corruption in the region, bring more differentiation into ENP, soften the EU’s borders through more generous Visa regimes, develop a more robust Belarus strategy and to think more creatively about the use of ENP funds for regional and cross- border activities.

A Global Analysis of of Imperfect Competition in the Banking Systems and the Latest Israeli Regulation Dealing with Market Failures. ACES Working Paper No. 3, 2007

The high concentration of the banking sector is a cross-border phenomenon that has high impact on local and global economies. This paper's main goal is to analyze the factors that impact concentration in the banking systems around the globe. The innovation of this paper is that we combined economic, "economic environment", and culture variables as explanatory variables for this analysis. We found among other things that regulation in the banking system is helpful in order to keep it competitive. We also found that when the society has more individual values rather than collective ones, its banking sector is less concentrated. In the second part of the paper we focused on the Israeli case, showing that although recent indicators of the Israeli banking system indicate a higher level of concentration and lower level of competition, it seems that the recent trend is moving toward less concentration and higher competition.

Building International CSR on Solid Foundations: Location and Network Aspects of Nonmarket Environments in Europe and Non-Europe Markets. ACES Working Papers, 2011

Multinational companies' (MNCs) corporate social responsibility (CSR) programs frequently comprise a portfolio of disconnected country-level programs or, alternatively, consist of blanket corporate policies that apply in the same way across the geographies where the company operates. Yet, the international nonmarket environment in which CSR programs operate is neither a completely fragmented nor a perfectly homogeneous one. Building on the concept of stakeholder-issue-networks, we develop a model that explicitly takes into consideration the role of geography in the characterization of a firm's nonmarket environment. This allows us to develop a taxonomy of nonmarket environments on the basis of their geographic spread and their degree of cross-border connectedness. We then explore the strategic and organizational implications that different ideal types of (cross-border) nonmarket environments have for the development of international CSR policies.

Energy Transition in Europe’s Power House. Alleingang, avant-garde or blackout? IES Policy Brief Issue 2012/03/October 2012

Summary. The transformation of Germany’s energy sector will further exacerbate current network fluctuations and intensify the need for modifications in Europe’s power system. Cross-border power transfers will have to increase in order to overcome national limitations for absorbing large volumes of intermittent renewables like wind and solar power. In order to establish such an infrastructure on a European scale, the energy transition needs to be guided by an economic approach designed to prevent further fractures in the Internal Electricity Market. Moreover, constructive negotiations with neighbouring countries on market designs and price signals will be important preconditions for a successful energy transition in Europe.

Answering the Call of the European Court of Justice in Eurofoods a Proposed Package of Due Process Rights with a View Toward the 2012 Revision of the European Insolvency Regulation. IES WORKING PAPER 3/2011

This paper anticipates the 2012 revision of the European Insolvency Regulation, which is the sole Union legislation on the subject of cross border insolvency proceedings. The paper first describes the historical background of the Regulation. The salient point of the historical discussion is that the Regulation is the product of forty years of negotiation and arises from a historical context that is no longer applicable to current economic realities, i.e. it provides for liquidation, not reorganization, it doesn’t deal with cross border groups of companies, and it lacks an effective mechanism for transparency and creditor participation. The paper then reviews the unique hybrid jurisdictional system of concurrent universal and territorial proceedings that the Regulation imposes. It looks at this scheme from a practical viewpoint, i.e. what issues arise with concurrent proceedings in two states, involving the same assets, the same creditors, and the same company. The paper then focuses on a significant issue raised by the European Court of Justice in the Eurofoods case, i.e. the need to comply with fundamental due process principles that, while not articulated in the Regulation, lie at the core of Union law. Specifically, the paper considers the ramifications of the Court’s holding that “a Member State may refuse to recognize insolvency proceedings opened in another Member State where the decision to open the proceedings was taken in flagrant breach of the fundamental right to be heard.” In response to the Court’s direction, this paper proposes a package of due process rights, consisting principally of an accessible, efficient and useful insolvency database, the infrastructure of which already exists, but the content and use of which has not yet been developed. As part of a cohesive three part due process package, the paper also proposes the formation of cross border creditors' committees and the establishment of a European Insolvency Administrator. Finally, on the institutional level, this paper proposes that the revision of the Regulation and the development of the insolvency database not only need to be coordinated, but need to be conceptualized, managed and undertaken, not as the separate efforts of diverse institutions, but as a single, unified endeavor.

EU’s quest for energy security. What role for the Energy Union? EPC Policy Brief, 3 March 2015

From the Introduction. The past year has pushed energy security high on the EU agenda, and with it, the need for stronger cooperation on a common energy policy. For years the EU member states have been driven by different reasons to – or not to – collaborate. The internal energy market's economic benefits have not have not provided a sufficient driver for cooperation. The first climate and energy targets were an achievement, but in reality action has been undermined by concerns over competitiveness. Being a global leader in setting targets has not translated in cross-border collaboration in meeting them. National interests and bilateral energy deals have weakened EU's common voice vis-à-vis supplier countries. Whether the recognition of EU's energy vulnerability will become a real driver for creating an Energy Union worth its name remains to be seen. The need for action could not be stronger.

Capital Markets Union: a vision for the long term. Bruegel Policy Contribution ISSUE 2015/05 April 2015

Capital Markets Union (CMU) is a welcome initiative. It could augment economic risk sharing, set the right conditions for more dynamic development of risk capital for high-growth firms and improve choices and returns for savers. This offers major potential for benefits in terms of jobs, growth and financial resilience. • CMU cannot be a short-term cyclical instrument to replace subdued bank lending, because financial ecosystems change slowly. Shifting financial intermediation towards capital markets and increasing cross-border integration will require action on multiple fronts, including increasing the transparency, reliability and comparability of information and addressing financial stability concerns. Some quick wins might be available but CMU’s real potential can only be achieved with a long-term structural policy agenda. • To sustain the current momentum, the EU should first commit to a limited number of key reforms, including more integrated accounting enforcement and supervision of audit firms. Second, it should set up autonomous taskforces to prepare proposals on the more complex issues: corporate credit information, financial infrastructure, insolvency, financial investment taxation and the retrospective review of recent capital markets regulation. The aim should be substantial legislative implementation by the end of the current EU parliamentary term.

Addressing fragmentation in EU mobile telecom markets. Bruegel Policy Contribution ISSUE 2015/13, July 2015

- Mobile telecommunications markets are an important part of the European Commission’s strategy for the completion of the European Union Digital Single. The use of mobile telecommunications – particularly mobile data access – is growing and becoming an increasingly important input for the economy. - The EU currently does not have a unified mobile telecommunications market. The EU compares favourably to the United States in terms of prices and connection speed, but lags behind in terms of coverage of high-speed 4G wireless connections. -Europe’s long-term goal should be to make data access easier by increasing highspeed wireless coverage while keeping prices down for users. An increase in cross-border competition could help to achieve that goal. - The Commission has two important levers to help stimulate cross-border supply:(a) ensuring competition in intra-country mobile markets in order to provide an incentive for operators to expand into other jurisdictions, and (b) reducing mobile operators’ costs of expansion into multiple EU countries. The further development of policies on international roaming and radio spectrum management will be central to this effort.