Benefits and drawbacks of European Unemployment Insurance. Bruegel Policy Brief 2014/06, September 2014

The issue: Unemployment in Europe has increased to high levels and economic growth has remained subdued. A debate on additional policy instruments to address the situation is therefore warranted. Fiscal stabilisation mechanisms have not provided adequate fiscal stabilisation during the crisis in some countries nor in the euro area as a whole. Different preferences and historical developments mean that national labour markets are differently organised, which sometimes hinders the efficient working of the monetary union. European Unemployment Insurance (EUI) has been proposed as a measure to contribute to fiscal policy management and improve labour markets. | Read more at Bruegel http://www.bruegel.org/publications/publication-detail/publication/847-benefits-and-drawbacks-of-european-unemployment-insurance/

So far apart and yet so close: Should the ECB care about inflation differentials? Bruegel Policy Contribution, Issue 2014/10 September 2014

Inflation rates can differ across regions of monetary unions. We show that in the euro area, the US, Canada, Japan and Australia, inflation rates have been substantially and persistently different in different regions. Differences were particularly substantial in the euro area. Inflation differences can reflect normal adjustment processes such as price convergence or the Balassa-Samuelson effect, or can reflect the different cyclical position of regions. But they can also be the result of economic distortions resulting from segmented markets or unsustainable demand and credit developments fueled by low real interest rates. In normal times, the European Central Bank cannot influence such developments with its single interest rate instrument. However, unconventional policy measures can have different effects on different countries depending on the chosen instrument, and should be used to reduce fragmentation and ensure the proper transmission of monetary policy. The new macro prudential policy tools are unlikely to be practical in addressing inflation divergences. It is crucial to keep the average inflation rate close to two percent so that inflation differentials are possible without deflation in some parts of the euro area, which in turn might endanger area-wide financial stability and price stability.

Eurosystem collateral policy and framework: Was it unduly changed? Bruegel Policy Contribution 2014/14, 17 November 2014

All Eurosystem credit operations, including the important open market operations, need to be based on adequate collateral. Liquidity is provided to banks against collateral at market prices subject to a haircut. The Eurosystem adapted its collateral framework during the crisis to accept lower-rated assets as collateral. Higher haircuts are applied to insure against liquidity risk as well as the greater volatility of prices of lower-rated assets. The adaptation of the collateral framework was necessary to provide sufficient liquidity to banks in the euro area periphery in particular. In crisis countries, special emergency liquidity assistance was provided. More than 80 percent of the European Central Bank’s liquidity (Main Refinancing Operations and Long Term Refinancing Operations) is provided to banks in five countries (Greece, Ireland, Italy, Portugal and Spain). The changes in the collateral framework were necessary for the ECB to fulfil its treaty-based mandate of providing liquidity to solvent banks and safeguarding financial stability. The ECB did not take on board excessive risks.

Euro-area governance: what to reform and how to do it. Bruegel Policy Brief 2015/01 February 2015

The Issue Reform of the governance of the euro area is being held back by disagreement on what is at the root of the euro area’s woes. Pre-crisis, the euro area suffered from the built-up of financial imbalances, price and wage divergence and an insufficient focus on debt sustainability. During the crisis, the main problems were slow resolution of banking problems, an inadequate fiscal policy stance in 2011-13 for the area as a whole, insufficient domestic demand in surplus countries and slow progress with structural reforms to overcome past divergences. Policy Challenge Euro-area governance needs to move beyond the improvements brought about by banking union and should establish institutions to prevent divergences of wages from productivity. We propose the creation of a European Competitiveness Council composed of national competitiveness councils, and the creation of a Eurosystem of Fiscal Policy (EFP) with two goals: fiscal debt sustainability and an adequate area-wide fiscal position. The EFP should have the right in exceptional circumstances to declare national deficits unlawful and to be able to force parliaments to borrow more so that the euro-area fiscal stance is appropriate. A euro-area chamber of the European Parliament would have to approve such decisions. No additional risk-sharing would be introduced. In the short term, domestic demand needs to be increased in surplus countries, while in deficit countries, structural reform needs to reduce past divergences.

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.

The Vulnerability of Europe's Small and Medium-Sized Banks. Bruegel Working Paper 2015/07, 16 July 2015

We study the vulnerability of 130 banks directly supervised by the European Central Bank’s Single Supervisory Mechanism. Illustrative stress tests using banks’ balance sheet data reveal that significant stress prevails in the euro area’s smaller and medium-sized banks, many of them located in southern Europe. The banks we identify as stressed also have performed substantially worse on the stock market. The vulnerable banks are typically hobbled by non-performing loans to European businesses. Strengthening the banking system, therefore, is important to achieve sustainable recovery because it will revitalise credit to the healthier segments of the economy. But instead of emphasising bank recapitalisation, as in past years, we believe the task is to shrink the banking sector to a healthier core.

European climate finance: securing the best return. Bruegel Policy Brief ISSUE 2015/03, 11 September 2015

Combating climate change is perhaps the most formidable public policy challenge of our times. Unmitigated climate change will be irreversible. It will place significant costs on future generations, and expose them to unexplored risks. To mitigate climate change, global coordination is indispensable. European Union citizens consider climate change a central problem. The EU and its member states have therefore put in place signficant and costly climate mitigation policies.

The growing intergenerational divide in Europe. Bruegel Policy Contribution Issue 2015/17, November 2015

During the economic and financial crisis, the divide between young and old in the European Union increased in terms of economic well-being and allocation of resources by governments. As youth unemployment and youth poverty rates increased, government spending shifted away from education, families and children towards pensioners. To address the sustainability of pension systems, some countries implemented pension reforms. We analysed changes to benefit ratios, meaning the ratio of the income of pensioners to the income of the active working population, and found that reforms often favoured current over future pensioners, increasing the intergenerational divide. We recommend reforms in three areas to address the intergenerational divide: improving European macroeconomic management, restoring fairness in government spending so the young are not disadvantaged, and pension reforms that share the burden fairly between generations.

One market, two monies: the European Union and the United Kingdom. Bruegel Policy Brief Issue 2016/01 January 2016

Access to the single market is one of the core benefits of the United Kingdom’s membership of the European Union. A vote to leave the EU would trigger difficult negotiations on continued access to that market. However, the single market is not static. One of the drivers of change is the necessary reforms to strengthen the euro. Such reforms would not only affect the euro’s fiscal and political governance. They would also have an impact on the single market, in particular in the areas of banking, capital markets and labour markets. This is bound to affect the UK, whether it remains in the EU or not.

Which fiscal union for the euro area? Bruegel Policy Contribution ISSUE 2016/05, February 2016

At the current level of political and societal integration, a large federal budget is unrealistic in the euro area. The authors make three recommendations that would lead national fiscal policies to be more stabilising with respect to the economic cycle, while achieving long-term sustainability. They also recommend a move towards a European unemployment insurance scheme targeted at ‘large’ shocks, and a minimum set of labour-market harmonisation criteria.

The effectiveness of the European Central Bank’s Asset Purchase Programme. Bruegel Policy Contribution issue 2016 10 June 2016

Since the end of 2014, inflation has been at or very close to zero. With very little ability to move the actual interest rate further into negative territory, the ECB has resorted to unconventional measures. The latest of these includes a programme to purchase corporate bonds, which started on 8 June 2016.

Unistructed BIAT faking when ego depleted or in normal state: Differential effect on brain and behavior

Background: Deception can distort psychological tests on socially sensitive topics. Understanding the cerebral processes that are involved in such faking can be useful in detection and prevention of deception. Previous research shows that faking a brief implicit association test (BIAT) evokes a characteristic ERP response. It is not yet known whether temporarily available self-control resources moderate this response. We randomly assigned 22 participants (15 females, 24.23 ± 2.91 years old) to a counterbalanced repeated-measurements design. Participants first completed a Brief-IAT (BIAT) on doping attitudes as a baseline measure and were then instructed to fake a negative doping attitude both when self-control resources were depleted and non-depleted. Cerebral activity during BIAT performance was assessed using high-density EEG. Results: Compared to the baseline BIAT, event-related potentials showed a first interaction at the parietal P1, while significant post hoc differences were found only at the later occurring late positive potential. Here, significantly decreased amplitudes were recorded for ‘normal’ faking, but not in the depletion condition. In source space, enhanced activity was found for ‘normal’ faking in the bilateral temporoparietal junction. Behaviorally, participants were successful in faking the BIAT successfully in both conditions. Conclusions: Results indicate that temporarily available self-control resources do not affect overt faking success on a BIAT. However, differences were found on an electrophysiological level. This indicates that while on a phenotypical level self-control resources play a negligible role in deliberate test faking the underlying cerebral processes are markedly different. Electronic supplementary material: The online version of this article (doi:10.1186/s12868-016-0249-8) contains supplementary material, which is available to authorized users.

Comment on “Low time resolution analysis of polar ice cores cannot detect impulsive nitrate events” by D.F. Smart et al.

Smart et al. (2014) suggested that the detection of nitrate spikes in polar ice cores from solar energetic particle (SEP) events could be achieved if an analytical system with sufficiently high resolution was used. Here we show that the spikes they associate with SEP events are not reliably recorded in cores from the same location, even when the resolution is clearly adequate. We explain the processes that limit the effective resolution of ice cores. Liquid conductivity data suggest that the observed spikes are associated with sodium or another nonacidic cation, making it likely that they result from deposition of sea salt or similar aerosol that has scavenged nitrate, rather than from a primary input of nitrate in the troposphere. We consider that there is no evidence at present to support the identification of any spikes in nitrate as representing SEP events. Although such events undoubtedly create nitrate in the atmosphere, we see no plausible route to using nitrate spikes to document the statistics of such events.