EU Policy on Climate Change Mitigation since Copenhagen and the Economic Crisis. CEPS Working Document No. 380, 5 March 2013

The EU has long assumed leadership in advancing domestic and international climate change policy. While pushing its partners in international negotiations, it has led the way in implementing a host of domestic measures, including a unilateral and legally binding target, an ambitious policy on renewable energy and a strategy for low-carbon technology deployment. The centrepiece of EU policy, however, has been the EU Emissions Trading System (ETS), a cap-and-trade programme launched in 2005. The ETS has been seen as a tool to ensure least-cost abatement, drive EU decarbonisation and develop a global carbon market. After an initial review and revision of the ETS, to come into force in 2013, there was a belief that the new ETS was ‘future-proof’, meaning able to cope with the temporary lack of a global agreement on climate change and individual countries’ emission ceilings. This confidence has been shattered by the simultaneous ‘failure’ of Copenhagen to deliver a clear prospect of a global (top-down) agreement and the economic crisis. The lack of prospects for national caps at the international level has led to a situation whereby many member states hesitate to pursue ambitious climate change policies. In the midst of this, the EU is assessing its options anew. A number of promising areas for international cooperation exist, all centred on the need to ‘raise the ambition level’ of GHG emission reductions, notably in aviation and maritime, short-lived climate pollutions, deforestation, industrial competitiveness and green growth. Public policy issues in the field of technology and its transfer will require more work to identify real areas for cooperation.

Assessing Needs of Care in European Nations. ENEPRI Policy Brief No. 14, 28 December 2012

This Policy Brief presents the research questions, main results and policy implications and recommendations of the seven Work Packages that formed the basis of the ANCIEN research project, financed under the 7th EU Research Framework Programme of the European Commission. Carried out over a 44-month period and involving 20 partners from EU member states, the project principally concerns the future of long-term care (LTC) for the elderly in Europe and addresses two questions in particular: How will need, demand, supply and use of LTC develop? How do different systems of LTC perform?

Electricity without borders: a plan to make the internal market work. Bruegel Blueprint Series 20, 5 September 2013

The most straightforward European single energy market design would entail a European system operator regulated by a single European regulator. This would ensure the predictable development of rules for the entire EU, significantly reducing regulatory uncertainty for electricity sector investments. But such a first-best market design is unlikely to be politically realistic in the European context for three reasons. First, the necessary changes compared to the current situation are substantial and would produce significant redistributive effects. Second, a European solution would deprive member states of the ability to manage their energy systems nationally. And third, a single European solution might fall short of being well-tailored to consumers’ preferences, which differ substantially across the EU. To nevertheless reap significant benefits from an integrated European electricity market, we propose the following blueprint: First, we suggest adding a European system-management layer to complement national operation centres and help them to better exchange information about the status of the system, expected changes and planned modifications. The ultimate aim should be to transfer the day-to-day responsibility for the safe and economic operation of the system to the European control centre. To further increase efficiency, electricity prices should be allowed to differ between all network points between and within countries. This would enable throughput of electricity through national and international lines to be safely increased without any major investments in infrastructure. Second, to ensure the consistency of national network plans and to ensure that they contribute to providing the infrastructure for a functioning single market, the role of the European ten year network development plan (TYNDP) needs to be upgraded by obliging national regulators to only approve projects planned at European level unless they can prove that deviations are beneficial. This boosted role of the TYNDP would need to be underpinned by resolving the issues of conflicting interests and information asymmetry. Therefore, the network planning process should be opened to all affected stakeholders (generators, network owners and operators, consumers, residents and others) and enable the European Agency for the Cooperation of Energy Regulators (ACER) to act as a welfare-maximising referee. An ultimate political decision by the European Parliament on the entire plan will open a negotiation process around selecting alternatives and agreeing compensation. This ensures that all stakeholders have an interest in guaranteeing a certain degree of balance of interest in the earlier stages. In fact, transparent planning, early stakeholder involvement and democratic legitimisation are well suited for minimising as much as possible local opposition to new lines. Third, sharing the cost of network investments in Europe is a critical issue. One reason is that so far even the most sophisticated models have been unable to identify the individual long-term net benefit in an uncertain environment. A workable compromise to finance new network investments would consist of three components: (i) all easily attributable cost should be levied on the responsible party; (ii) all network users that sit at nodes that are expected to receive more imports through a line extension should be obliged to pay a share of the line extension cost through their network charges; (iii) the rest of the cost is socialised to all consumers. Such a cost-distribution scheme will involve some intra-European redistribution from the well-developed countries (infrastructure-wise) to those that are catching up. However, such a scheme would perform this redistribution in a much more efficient way than the Connecting Europe Facility’s ad-hoc disbursements to politically chosen projects, because it would provide the infrastructure that is really needed.

Memo to Merkel: Post-election Germany and Europe. Bruegel Policy Brief 2013/05, 24 September 2013

Recent economic data points to the seeds of an economic recovery in the European Union. However, significant risks remain and bold policies are still needed. There are three central risks. Competitiveness adjustment is incomplete, casting doubt on the sustainability of public debt. Banking remains unstable and fragmented along national lines, resulting in unfavorable financial conditions, which further erode growth, job creation and competitiveness. Rising unemployment, especially among the young, is inequitable, unjust and politically risky. Germany has a central role to play in addressing these risks. The new German government should work on three priorities: Domestic economic policy should be more supportive of growth and adjustment, with higher public investment, a greater role for high-value added services, and more supportive immigration policy. Germany should support a meaningful banking union with a centralised resolution mechanism requiring a transfer of sovereignty to Europe for all countries including Germany. The establishment of a private investment initiative combined with a European Youth Education Fund and labour market reforms should be promoted. Building on these priorities, a significant deepening of the euro area is needed, with a genuine transfer of sovereignty, stronger institutions and democratically legitimate decision-making structures in areas of common policy.

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.

Let’s get to Work! The Future of Labour in Europe. Vol. 1. CEPS Paperback, 8 September 2014

Work is both an essential part of our daily lives and one of the major policy concerns across Europe. Yet the public debate of labour issues is all too often driven by political rhetoric and short-term concerns. In this volume, researchers from seven European countries explain, in accessible language, the findings from various social sciences and what they mean for the future of labour in Europe. The conclusions they reach are addressed to policy-makers, the business world, journalists and fellow academics, and to anyone interested in the shape, size and character of the labour markets of tomorrow. “Many valuable synergies emerged between the various strands of NEUJOBS and the in-house analytical work of the European Commission.” László Andor, European Commissioner for Employment, Social Affairs and Inclusion.

Making the institutions work better and more effectively together: Priorities for the New Commission. CEPS Commentary, 1 October 2014

Philippe de Schoutheete takes as his point of departure in this Commentary the assumption that institutional treaty change cannot be a priority, although he does not exclude that it may become possible and desirable at a later period of economic growth and greater self-confidence in public opinion. In a best-case scenario, he foresees that such a window of opportunity might open towards the end of the present legislature. But in the meantime, he advises concentrating attention on adapting the institutions to make them work better and work more effectively together.

Fighting Deflation: Would QE work in the euro area? CEPS Commentary, 9 October 2014

With inflation in the eurozone stubbornly remaining on a downward trajectory, pressure is growing on the ECB to do “something” to prevent outright deflation. But, given the financial structure of eurozone countries, would the preferred "something" – quantitative easing – actually do the trick?

A success story for the EU and seasonal workers’ rights without reinventing the wheel. EPC Policy Brief, 28 March 2014

Despite the economic crisis with resulting high unemployment, EU economies face vacancies across the skill spectrum. At the low end there is a structural need when it comes to seasonal work. The Seasonal Workers Directive was launched at the same time as the Inter-Corporate Transferees (ICTs) Directive in 2010 – as part of the Commission’s 2005 Policy Plan on Legal Migration – and initially appeared to be more troublesome, with the stigma of ‘migrants stealing local jobs’ haunting it. However, without the provisions for intra-EU mobility that have plagued the ICTs Directive, the Seasonal Workers Directive became less problematic despite the fact that seasonal workers are more numerous than intra-corporate transferees. This Policy Brief looks at how negotiating parties ensured a focus not only on the needs of the European labour market, but also saw an opportunity to bring added value to seasonal workers’ rights, through equal treatment to EU nationals. It assesses the final outcome of three and a half years of intra-EU negotiation, looking at the rights gained for seasonal migrants, the level of harmonization achieved, and the future of migration policy with the strategic guidelines for the area of freedom, security and justice in mind.

Helping Moldova stay on the EU course. Proposals for a real 'more for more' approach. EPC Policy Brief, 11 December 2013

At the Vilnius Eastern Partnership (EaP) Summit in November, Moldova initialled its Association Agreement including a Deep and Comprehensive Free Trade Area (DCFTA) with the EU and became the first EaP country to meet all the requirements of their Visa Liberalisation Action Plan. 2014 may prove to be a make or break year for Moldova, with Chisinau facing a number of serious challenges. From the EU’s point of view, it could also prove to be a make or break year for the Eastern Partnership. The period following Vilnius should be a soul-searching time for the EU. Of the three pillars (AA, DCFTA, visa regime) of the Eastern Partnership, two are now being openly challenged by Russia. While the EU should not engage in a populist competition with Russia, it does need to adapt its actions to the realities on the ground. In this Policy Brief, Cristian Ghinea, Amanda Paul and Victor Chirila argue that the EU should work for greater visibility, better public diplomacy and deliver visible, tangible benefits to the Moldovan population as rapidly as possible. Not only will this help counter Russian activities, but it will also help shore up support for pro-EU reformers in the country.

The EU’s Enlargement Agenda – Credibility at stake? CEPS Policy Brief No. 324, 31 October 2014

Despite the proven success of the EU’s enlargement policy over the past few years, criticism within the EU member countries has grown. While the European Commission’s enlargement strategy for 2014-15 reaffirms the importance of placing fundamental reforms relating to rule of law, economic governance and public administration reform at the heart of the negotiation process, the latest Progress Reports present a rather bleak picture on the state of reforms in the candidate countries. Major efforts are required to maintain the credibility of the enlargement policy and demonstrate to an increasingly sceptical public that the transformative power of the EU continues to work. To achieve this, the EU needs to reinvigorate its strategy by adopting a more consistent and determined approach.

Defining Europe's Capital Markets Union. Bruegel Policy Contribution Issue 2014/12, 13 November 2014

The new European Commission has signalled that it will work to create a ‘capital markets union’. This is understood as an agenda to expand the non-bank part of Europe’s financial system, which is currently underdeveloped. The aim in the short term is to unlock credit provision as banks are deleveraging, and in the longer term, to favour a more diverse, competitive and resilient financial system. Direct regulation of individual non-bank market segments (such as securitisation, private placements or private equity) might be useful at the margin, but will not per se lead to significant capital markets development or the rebalancing of Europe’s financial system away from the current dominance by banks. To reach these goals, the capital markets union agenda must be broadened to address the framework conditions for the development of individual market segments. Six possible areas for policy initiative are, in increasing order of potential impact and political difficulty: regulation of securities and specific forms of intermediation; prudential regulation, especially of insurance companies and pension funds; regulation of accounting, auditing and financial transparency requirements that apply to companies that seek external finance; a supervisory framework for financial infrastructure firms, such as central counterparties, that supports market integration; partial harmonisation and improvement of insolvency and corporate restructuring frameworks;and partial harmonisation or convergence of tax policies that specifically affect financial investment.

Rethinking the external dimension of the European Energy Policy. OSW Report, January 2011

The external dimension of the EU Energy Policy, the question about the challenges regarding the effectiveness of the actions in this field and the search for innovative solutions are now one of the key-issues being raised during European energy policy discussions. The European Commission brought up the issue in the "Energy 2020 - A strategy for competitive, sustainable and secure energy" and questions about the most important directions, goals and tools of the external energy policy are the subject of public consultations announced in December 2010 by DG Energy (the final effect of the consultation and the EC’s work in this field is to be published by in 2011). The external dimension of the EU’s energy policy is also set to be one of the priorities of the Polish Presidency of the EU Council in the second half of 2011.

The Juncker Commission: A New Start for EU Justice and Home Affairs Policy? CEPS Essay No. 15, 18 September 2014

The team comprising Jean-Claude Juncker’s Commission was revealed on 10 September 2014: does it herald a new start for Justice and Home Affairs (JHA) cooperation in the EU? This essay outlines the main structural and thematic changes introduced by the new Commission, in particular those with direct or indirect relevance to EU JHA or the Area of Freedom, Security and Justice (AFSJ) policies. It also reflects on the new institutional configuration and what it means for the substantive work of the new Commission services and for their intra- and inter-institutional relations. The essay concludes with a set of proposed policy priorities for the new Commission.