Addressing weak inflation: The European Central Bank's shopping list. Bruegel Policy Contribution 2014/05, May 2014

There are clear benefits to price stability. High inflation can distort corporate investment decisions and the consumption behaviour of households. Changes to inflation redistribute real wealth and income between different segments of society, such as savers and borrowers, or young and old. Price stability is therefore a fundamental public good and it became a fundamental principle of European Economic and Monetary Union. But the European Treaties do not define price stability. It was left to the Governing Council of the European Central Bank (ECB) to quantify it: "Price stability is defined as a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%"[1]. The Governing Council has also clarified that it aims to maintain inflation below, but close to, two percent over the medium term, though it has not quantified what 'closeness' means, nor has it given a precise definition of the 'medium term'[2]. The clarification has been widely interpreted to mean that the actual target of the ECB is close to, but below, two percent inflation in the medium term.

Financial Engineering Instruments and their Assessment Under EU State Aid Rules. Bruges European Economic Policy (BEEP) Briefing 26/2013

Financial engineering instruments such as guarantees, loans and equity are increasingly used in public funding of enterprises. These instruments have three attractive features: they are repayable, they “leverage” private involvement, and they have a multiplier effect because they generate new income. At the same time, however, they are technically complex and they are subject to state aid rules. Their assessment under EU state aid rules creates two additional problems. First, under certain conditions financial instruments may not contain state aid. This is when public authorities act as “private investors”. This means that state aid cannot be presumed to exist in all financial instruments. It must first be established through market analysis. Second, when state aid is found to be present it is not always possible to quantify it. For this reason the state aid rules that apply to financial instruments differ significantly from other rules. This paper reviews how financial instruments have been assessed by the European Commission and under which conditions the state aid they may contain can be considered to be compatible with the internal market. The paper finds that by and large Member States have succeeded to design measures that have all been approved by the Commission.

Bringing South Caucasus Closer to Europe: Achievements and Challenges in ENP Implantation. Natolin Research Paper 03/March 2011

While the initial Commission Communication on Wider Europe (March 2003) did not include Armenia, Georgia and Azerbaijan in the forthcoming policy for the EU’s new neighbourhood, the Southern Caucasus region has now gained considerable attention in the framework of the ENP and beyond, not least because of security considerations. The ENP undoubtedly represents a step forward in the EU’s policy towards Armenia, Azerbaijan and Georgia, yet its implementation highlights major differences between the three countries and important weaknesses in all three of them. The Eastern Partnership addresses some of these weaknesses and it also significantly strengthens the EU’s offer to South Caucasus countries, which is now fully in line with the perspectives proposed to the Western NIS. The paper highlights five main conclusions and recommendations: • Political, economic, social and diplomatic developments in the South Caucasus in the 2000's highlight both diverging trends and the persistence of tensions between the three countries. They also have different aspirations vis-à-vis the EU and different records in ENP implementation. The EU should therefore mainly rely upon an individual approach towards each country. • While bilateral relations should form the basis of the EU's approach, most of the challenges faced by Georgia, Armenia and Azerbaijan are not confined to national borders and require regional solutions. This applies primarily, but not exclusively, to the unresolved conflicts. The EU should promote targeted regional cooperation including, inter alia, confidence-building measures to address indirectly the protracted conflicts and measures supporting drivers of change, which play a critical role in the confidence-building process; • Under the ENP, especially since the opening of negotiations for association agreements and with the perspective of DCFTA, trade-related issues, market and regulatory reform have become prominent in the EU's relations with all three Caucasus countries. At the same time, the priorities identified when the ENP was launched, i.e. good governance and the rule of law, still correspond to major challenges in the South Caucasus. The EU should more clearly prioritise good governance and the rule of law as the basis of both the ENP and successful reforms; • In all partner countries (but even more so in the South Caucasus), ENP implementation has been adversely affected by poor administrative capacities and weak institutional coordination. The EU should increasingly focus on institutional reform/capacity building in its support to partner countries and ensure that the link between the ENP and domestic reform processes is strengthened; • In the South Caucasus the EU has recently concentrated on a few assistance tools such as budget support, Twinning and TAIEX. While these instruments undoubtedly bring an added value, they should be better combined with tools allowing for greater flexibility and targeting non-governmental actors, e.g. EIDHR/NSA.

Energy efficiency: the ever neglected priority of the European energy strategy. Egmont Paper No. 66, June 2014

Summary. Energy saving has been a stated policy objective of the EU since the 1970s. Presently, the 2020 target is a 20% reduction of EU energy consumption in comparison with current projections for 2020. This is one of the headline targets of the European Energy Strategy 2020 but efforts to achieve it remain slow and insufficient. The aim of this paper is to understand why this is happening. Firstly, this paper examines the reasons why public measures promoting energy efficiency are needed and what form these measures should optimally take (§ 1). Fortunately, over the last 20 years, much research has been done into the famous ‘energy efficiency gap’ (or ‘the energy efficiency paradox’), even if more remains to be done. Multiple explanations have been given: market failures, modelling flaws and behavioural obstacles. Each encompasses many complex aspects. Several types of instruments can be adopted to encourage energy efficiency: measures guaranteeing the correct pricing of energy are preferred, followed by taxes or tradable white certificates which in turn are preferred to standards or subsidies. Information programmes are also necessary. Secondly, the paper analyzes the evolution of the different programmes from 2000 onwards (§ 2). This reveals the extreme complexity of the subject. It deals with quite diverse topics: buildings, appliances, public sector, industry and transport. The market for energy efficiency is as diffuse as energy consumption patterns themselves. It is composed of many market actors who demand more efficient provision of energy services, and that suppliers of the necessary goods and know-how deliver this greater efficiency. Consumers in this market include individuals, businesses and governments, and market activities cover all energy-consuming sectors of the economy. Additionally, energy efficiency is the perfect example of a shared competence between the EU and the Member States. Lastly, the legal framework has steadily increased in complexity, and despite the successive energy efficiency programmes used to build this framework, it has become clear that the gap between the target and the results remains. The paper then examines whether the 2012/27/EU Directive adopted to improve the situation could bring better results. It briefly describes the content of this framework Directive, which accompanies and implements the latest energy efficiency programme (§ 3). Although the Directive is technically complex and maintains nonbinding energy efficiency targets, it certainly represents an improvement in several aspects. However, it is also saddled with a multiplicity of exemption clauses and interpretative documents (with no binding value) which weaken its provisions. Furthermore, alone, it will allow the achievement of only about 17.7% of final energy savings by 2020. The implementation process, which is essential, also remains fairly weak. The paper also gives a glimpse of the various EU instruments for financing energy efficiency projects (§ 4). Though useful, they do not indicate a strong priority. Fourthly, the paper tries to analyze the EU’s limited progress so far and gather a few suggestions for improvement. One thing seems to remain useful: targets which can be defined in various ways (§ 5). Basically, all this indicates that the EU energy efficiency strategy has so far failed to reach its targets, lacks coherence and remains ambiguous. In the new Commission’s proposals of 22 January 2014 – intended to define a new climate/energy package in the period from 2020 to 2030 – the approach to energy efficiency remains unclear. This is regrettable. Energy efficiency is the only instrument which allows the EU to reach simultaneously its three targets: sustainability, competitiveness and security. The final conclusion appears thus paradoxical. On the one hand, all existing studies indicate that the decarbonization of the EU economy will be absolutely impossible without some very serious improvements in energy efficiency. On the other hand, in reality energy efficiency has always been treated as a second zone priority. It is imperative to eliminate this contradiction.