Flashlight Europe No° 1 – January 2015. Tsipras Will Have to Put His Cards on the Table

Alexis Tsipras, the new Greek prime minister, has announced that he intends to terminate the policy of austerity and that “subservience is over.” How will this affect policymaking in the euro-zone? Is the troika going to reconsider its positions? Will the other crisis-ridden states join in the rebellion? And what has all this got to do with the European Central Bank and “quantitative easing?” Henrik Enderlein, who is Professor of Political Economy at the Hertie School of Governance and Director of Jacques Delors Institut – Berlin, provides some answers to these questions.

Will this time be different for Greece? How to assess its ability to deliver on the reform agenda. CEPS Commentary, 13 March 2015

Taking its inspiration from the ongoing debate on whether this time will be different for Greece and whether Syriza will deliver on its reform promises to the European partners, this Commentary expresses bemusement that the public debate on such an important issue as well as internal discussions among senior policy-makers frequently resort to ‘gut feelings’ or simple stereotypes. To counteract this tendency, the author presents a simple analytical framework that can be used to assess the likelihood that a government will deliver on its reform agenda. Its purpose is not to allow for a precise probabilistic calculation, but to enable better structuring of the knowledge we have. It emphasises that the change depends NOT only on the capacity of the state to design and deliver policies, but even more crucially on state autonomy from both illegitimate and legitimate interests and cognitive models used by policy-makers to make sense of the world.

How EU Fiscal Norms Will Become a Safety Net for the Failure of National Golden Rules. European Policy Brief No. 6, January 2012

If introduced successfully, national Golden Rules will completely overturn fiscal governance in the eurozone. Golden Rules would almost always be more stringent than EU-level fiscal norms. EU fiscal norms will hence evolve into a safety net in case a Golden Rule fails. The possibility of such a failure is, indeed, not to be dismissed. Because of the severity of the Golden Rules, eurozone leaders should reflect on their design. There is a real risk that they will undercut public investment, which would be at the cost of the EU’s other long-term challenges.

The Emission Trading Scheme reform: will the Commission's proposal save the system? EPC Policy Brief, 29 May 2015

The European Union’s Emission Trading Scheme (ETS), proposed by the Commission in 2001, entered into force in 2005. It was the flagship instrument of an ambitious policy aiming to reduce the emission of greenhouse gasses in the EU by making emission allowances a freely tradable ‘financial commodity’. However, in recent years, the cracks in the system have begun to show as the price of these CO2 emission allowances has dropped. In this Policy Brief, Jørgen Knud Henningsen argues that the envisaged ETS reform may not be enough to address the system’s shortcomings, and that there should be a more open discussion about its potential if it is to contribute to the EU’s goal of a largely de-carbonised economy by 2050.

Low-cost batteries will not disrupt (all) energy utilities. CEPS Commentary, 5 October 2015

With the launch last April of an affordable lithium-ion home battery – the Powerwall – Tesla’s CEO Elon Musk is betting that batteries are going to become a mass market. This may very well become reality, but this commentary argues that one should not jump to the conclusion that this is the end of energy utilities. Similar to solar panels, batteries have high upfront costs. The massive deployment of solar was driven by dedicated policy support, in many cases without any kind of cost or volume control. There is no such thing for batteries. In the absence of financing programmes, the author finds that high upfront costs provide an unfavourable starting point for a disruptive development. But he notes that the fact that self-consumption of stored solar energy will soon pay for consumers represents a paradigm shift in the power industry, which should be seen as an opportunity, at least for first-movers.

Will Cameron get what he wants? Anticipating reactions to Britain’s EU reform proposals. CEPS Commentary, 29 October 2015

After months of speculation about the British Prime Minister’s specific demands in terms of the “renegotiation” of the UK’s relationship with the EU, David Cameron has bowed to pressure from the heads of state or government of the other EU member states and committed himself to setting out the UK’s specific “concerns” in writing by early November. While we cannot be certain of the contents of David Cameron’s missive to the EU, his recent pronouncements before Parliament set out an agenda whose contours have become quite clear. In this Commentary the authors consider how far the other EU member states might be willing to accommodate Cameron’s demands and provide him with the political capital he seeks to lead the ‘in’ campaign. They distinguish four different attitudes among EU countries, and advocate a constructive approach that sets the scene for a Convention after 2017 – one that opens the treaty for a revision that could accommodate both the British demands for an ‘opt-out’ from ever closer union and gives leeway to those who wish to integrate further. Putting emphasis on strengthening the single market in the more immediate term would allow the Prime Minister to show his home audience that he is a leading reformer and that the EU gives oxygen to the British economy.This is an obvious area where he might be able to seal deals during the UK’s Presidency of the Council of the EU in the second half of 2017. The authors also consider what the European Council Conclusions on the UK’s wish list for EU reform might look like, given that any treaty revision before the time set for the UK referendum is unattainable. They present the results of a two-day simulation exercise involving a cross-section of national experts and present mock European Council Conclusions on the areas of ever closer union; the role of national parliaments; competitiveness; economic and monetary integration; and the free movement of labour.

The EU’s Enlargement Strategy 2015: Will the ‘new elements’ make a difference? CEPS Commentary, 26 November 2015

After an unprecedented delay, the European Commission adopted its 2015 Enlargement Package on November 10th, together with the annual reports on each of the candidate and prospective candidate countries. In this Commentary, Erwan Fouéré offers his assessment of what Enlargement Commissioner Johannes Hahn called the “new elements” in the package, including an “overarching strategy for the next 4 years” (coinciding with the remainder of the Commission’s mandate), “much clearer guidance to the countries on what they have to focus on in the year ahead”, as well as on the “longer-term results that are needed to meet EU expectations”.

Will the Single Resolution Fund be a ‘baby tiger’ during the transition? CEPS Commentary, 17 December 2015

The short answer to this question is no! According to the authors’ calculations, even during its early years, the Single Resolution Fund (SRF) should be sufficient to deal with almost any crisis scenario imaginable. They caution, however, that its funding will be built up only gradually over the coming decade and there is thus a legitimate concern that the SRF will not be sufficient to deal with a major crisis.

The Challenges of the EU Banking Union - will it succeed in dealing with the next financial crisis? Bruges European Economic Policy Briefings 36/2015

The EU Banking Union combines micro- and macro-prudential regulation. It aims at breaking the “doom loop” between banks and sovereign debt, promoting financial stability and mitigating the next financial shock to the real EU economy, at the lowest possible cost to the financial institutions and to the taxpayers. Success, or failure, is determined by how the banking union copes with the challenges to its two main pillars, the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). Under the SSM, in its new supervisory role, the ECB may be subject to conflicts between the objectives of price and financial stability, and the single-supervisor role may be sub-optimal. Two regulators might have been preferable and more focus on ECB accountability will now be required. The shock-absorbing Single Resolution Fund (SRF), which is part of the SRM, may not have the capacity to deal with a crisis of the size of the one of 2008. Especially as the nature and severity of a future financial crisis cannot be forecasted. The design of the banking union is not the result of theoretical studies, but a political compromise to deal with an acute crisis. The theoretical studies that are included in this paper are not supportive of the banking union in its current form. Nevertheless, there is a good chance that the EU Banking Union may succeed, as ECB supervision of the 123 systemically important banks should contain potential demands on the SRM. In the event of a crisis that is too severe for the banking union to absorb with its current capability, the crucial assumption is that there is political will to rapidly provide new resources. The same applies, if a major financial crisis develops before the banking union is fully operational.

The Challenges of the EU Banking Union - will it succeed in dealing with the next financial crisis? Bruges European Economic Policy (BEEP) Briefings 36/2015

The EU Banking Union combines micro- and macro-prudential regulation. It aims at breaking the “doom loop” between banks and sovereign debt, promoting financial stability and mitigating the next financial shock to the real EU economy, at the lowest possible cost to the financial institutions and to the taxpayers. Success, or failure, is determined by how the banking union copes with the challenges to its two main pillars, the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). Under the SSM, in its new supervisory role, the ECB may be subject to conflicts between the objectives of price and financial stability, and the single-supervisor role may be sub-optimal. Two regulators might have been preferable and more focus on ECB accountability will now be required. The shock-absorbing Single Resolution Fund (SRF), which is part of the SRM, may not have the capacity to deal with a crisis of the size of the one of 2008. Especially as the nature and severity of a future financial crisis cannot be forecasted. The design of the banking union is not the result of theoretical studies, but a political compromise to deal with an acute crisis. The theoretical studies that are included in this paper are not supportive of the banking union in its current form. Nevertheless, there is a good chance that the EU Banking Union may succeed, as ECB supervision of the 123 systemically important banks should contain potential demands on the SRM. In the event of a crisis that is too severe for the banking union to absorb with its current capability, the crucial assumption is that there is political will to rapidly provide new resources. The same applies, if a major financial crisis develops before the banking union is fully operational.