Is Independence Possible in an Interdependent World? Scotland vs. the UK's Participation in the European Economy. Bruges European Economic Policy (BEEP) Briefing 30/2013

Many commentators have criticised the strategy used to finance regional governments such as the Scottish Parliament – both the block grant system and the limited amount of fiscal autonomy devised in the Scotland Act of 2012. This lecture sets out to identify what level of autonomy or independence would best suit a regional economy in a currency union, and also the institutional changes needed to sustain those arrangements. Our argument is developed along three lines. First, we set out the advantages of a fiscal federalism framework and the institutions needed to support it, but which the Euro-zone currently lacks. The second is to elaborate a model of fiscal federalism where comprehensive powers of taxation and spending are devolved (an independent Scotland and the UK remain constituent members of the EU and European economy). Third, we evaluate the main arguments for the breakup of nations or economic unions with Scotland and the UK as leading examples. We note that greater autonomy may not result in increases in long run economic growth rate, but it does imply that enhancing the fiscal competence and responsibility of regional governments would result in productivity gains and hence higher levels of GDP per head. That means the population is permanently richer than before, even if ultimately their incomes continue to grow at the same rate. It turns out that these improvements can be achieved through devolved tax powers, but not through devolved spending powers or shared taxes.

Economic Approaches of the Internal Market. Bruges European Economic Research (BEER) Papers 13/April 2008

What is ‘the’ EU internal market, as economists see it? The present BEER paper attempts to survey and help readers understand various ‘economic’ approaches to the internal market idea. The paper starts with a conceptual discussion of what ‘the’ internal market is (in an economic perspective). Six different economic meanings of the internal market are presented, with the sixth one being the economic benchmark in an ideal setting. Subsequently, the question is asked what the internal market (i.e. its proper functioning) is good for. Put differently, the internal market in the EU Treaty is a means, but a means to what? Beyond the typical economic growth objectives of the Rome Treaty (still valid today, with some qualifications), other Treaty objectives have emerged. Economists typically think in means-end relationships and the instrumental role of the internal market for Treaty objectives is far from clear. The ‘new’ Commission internal market strategy of 2007 proposes a more goal-oriented internal market policy. Such a vision is more selective in picking intermediate objectives to which ‘the’ internal market should be instrumental, but it risks to ignore the major deficits in today’s internal market: services and labour! The means-end relationships get even more problematic once one begins to scrutinise all the socio-economic objectives of the current (Amsterdam/Nice) Treaty or still other intermediate objectives. The internal market (explicitly including the relevant common regulation) then becomes a ‘jack of all trades’ for the environment, a high level of social protection, innovation or ‘Social Europe’. These means/ends relationships often are ill-specified. The final section considers the future of the internal market, by distinguishing three strategies: incremental strategies (including the new internal market strategy of November 2007); the internal market as the core of the Economic Union serving the ‘proper functioning of the monetary union’; and deepening and widening of the internal market as justified by the functional subsidiarity test. Even though the latter two would seem to be preferable from an economic point of view, they currently lack political legitimacy and are therefore unlikely to be pursued in the near future.

Does All Fit One Size? An evaluation of the ECB policy response to changing economic conditions in the Euro area member states. ACES Cases No. 2008.1

This paper empirically investigates the extent to which the European Central Bank has responded to evolving economic conditions in its member states as opposed to the euro area as a whole. Based on a forward-looking Taylor rule-type policy reaction function, we conduct counterfactual exercises that compare the monetary policy behavior of the ECB with two alternative hypothetical scenarios: (1) were the euro member states to make individual policy decisions, and (2) were the ECB to respond to the economic conditions of individual members. The results reflect the extent of heterogeneity among the national economies in the monetary union and indicate that the ECB's monetary policy rates have been particularly close to the "counterfactual" interest rates of its largest euro members, as well as of countries with similar economic conditions, which includes Germany, Austria, Belgium and France.

The Balkan Summer of 2011. ACES Working Papers, 2011

“Turning point” has become somewhat of a cliché as a description of where a country or a region stands at a point in time. The ancient Greek philosopher Heraclitus said “you cannot step twice into the same stream” and, to be sure, life is the story of constant change and turns. Nonetheless, individuals and countries are occasionally confronted with choices so important that the course taken will likely determine subsequent events for years, even decades. Several of the countries of the Western Balkans face these kinds of decision in the summer of 2011, as does the European Union, and to some extent, the United States.

The long road towards the European single market. Bruegel Working Paper 2015/01, March 2015

The single market is often perceived as the panacea for Europe’s economic troubles. It is believed that completing the single market would boost welfare, stimulate growth and increase European competitiveness. • However, identifying and quantifying the channels through which market integration is expected to engender growth is methodologically complex. Although the overwhelming prediction from the literature is for single market integration to generate positive and significant aggregate effects, we conclude that the impact so far has fallen short of initial expectations, because: (1) Barriers continue to prevail in the EU, preventing the exploitation of the potential benefits of full market integration (2) ‘Complementary policies’ to support the single market were not, or were insufficiently, put in place (3) The single market project has not sufficiently been framed as a key part of the process of creative destruction that Europe needs to embrace to successfully modernise its economy. • That single market integration generates positive and significant aggregate effects does not imply that its effects are positive and significant for every sector. There is therefore an important role for European Union and national distributional policies to ensure that losers are sufficiently compensated by the winners, and to overcome political resistance to completing the single market.

Unified European Front: The Road towards a European Unitary Patent. EU Centre Singapore Working Paper No. 21, March 2014

For over forty years, European countries have held numerous conferences and signed multiple international agreements aimed at either creating a unitary patent which will be valid in all European countries upon issuance or establishing a specialized European court with jurisdiction over patents. This paper first outlines the need for a unitary patent in the European Union and then chronicles the measures taken to support and milestones toward the creation of a European-wide unitary patent system. The paper then discusses the few problems and pitfalls that have prevented European countries from coming to an agreement on such a patent system. Finally, the paper considers the closely related agreements of ‘Unitary Patent Package’, the challenges facing these agreements and examines if it would finally result in an EU Unitary patent system that benefits one and all.

The European Parliament: it has to do with you. European Policy Brief No. 25, March 2014

In the City, the citizen is king. At least theoretically. In the European City currently being built around twenty eight national democracies, the citizen will soon be called upon, in May, to democratically elect his or her representative in the European Parliament for the next five years. Since the very first election of Members of the European Parliament by direct universal suffrage in 1979, spectacular progress has been made by the “European Economic Community” that we now all know as the European Union. And the powers vested in citizen representatives are equally impressive. But there is a real possibility that European citizens will turn their backs on the upcoming European elections like never before. Why?

Twenty-eight national elections for a Parliament in constant evolution. European Policy Brief No. 26, March 2014

In the City, the citizen is king. At least theoretically. In the European City currently being built around twenty-eight national democracies, the citizen will soon be called upon, in May, to democratically elect his or her representative in the European Parliament for the next five years. Since the very first election of Members of the European Parliament by direct universal suffrage in 1979, spectacular progress has been made by the “European Economic Community” that we now all know as the European Union. And the powers vested in citizen representatives are equally impressive. But there is a real possibility that European citizens will turn their backs on the upcoming European elections like never before. Why?

The Business Cycle on Both Sides of the Atlantic. Jean Monnet/Robert Schuman Paper Series Vol. 14 No. 16, August 2014

The recent economic recession, that began in the US in late 2007 and lasted eighteen months with a heavy toll on society’s wellbeing, has demonstrated the need and urgency of properly understanding the business cycle. This is important because this paper shows that the US business cycle is a leading indicator for the European Union and the Eurozone. Therefore, it can advise governments in the European continent that a change of economic tendency is taking place, which due to globalization will sooner or later affect economies and societies. Thus, understanding the business cycle will give European governments an opportunity to adjust economic and monetary policies to help soften the negative effects on European society.

The Central European Predicament. Jean Monnet/Robert Schuman Paper Series Vol. 14 No. 9, May 2014

From Introduction. Central and Eastern Europe (CEE) has experienced a very deep economic and political transformation since the beginning of the nineties. The early years of transition were characterized by big hopes for a quick and successful development. The international community, including the EU and the USA showed interest in the transformation of the region for a number of reasons. From a geopolitical perspective, the transformation was of tremendous importance as it confirmed the end of the cold war and the bipolar global system was replaced first by a unipolar superpower system and later gave way to a multipolar or a new bipolar system. This also signaled the weakness of the Soviet Union (and later Russia), as it was not able to prevent this transformation and was soon mired in a serious and long lasting economic and political crisis that undermined its international position. After the dissolution of the Soviet Union during the nineties Russia remained very weak, both economically and politically. The power vacuum and the transformation in Central Europe made the establishment of a new international economic and security structure possible. The new economic and political pattern that started to develop within the region was based on the liberal market economy model, with the objective of opening up markets and integrating the region into the world economy and the North Atlantic security structure.

Alone in virtue. The "New Turkish" ideology in Turkey's foreign policy. OSW Point of View Number 49, April 2015

Once the West’s ally, Turkey has been an ever more problematic partner in recent years. The Turkish leadership no longer views the alliance with the European Union and membership in NATO as based on shared values; rather, it is now merely a cherry-picked and shaky community of interests. Turkey is also increasingly alienated politically in the Middle East. In the aftermath of the Arab Spring and the regional developments which followed, Ankara has lost much of the influence it had built in region in previous years. Turkey’s growing international isolation is a consequence of the country ever more fully subordinating its foreign policy to the ideology of the ruling AKP. The world vision offered by that ideology does not square with the diagnoses of Turkey’s partners. The objectives it sets for Turkish foreign policy are incompatible with its partners’ expectations. Moreover, a foreign policy rooted in ideology is less flexible and less capable of adjusting to current international dynamics.

Designing a New EU-Turkey Strategic Gas Partnership. Bruegel Policy Contribution Issue 2015/10 July 2015

Highlights. • The European Commission’s February 2015 Energy Union Communication calls for intensified work on the Southern Gas Corridor (SGC) and the establishment of a new strategic energy partnership with Turkey. The presence of the European Union and Turkey in the region is complementary in a number of ways. Building on this could unlock the region’s gas export potential and make gas supplies to the EU and Turkey more secure. • The EU should establish dedicated energy diplomacy taskforces with Turkey and each potential supplier in the region (Azerbaijan, Turkmenistan, Iran, Kurdistan Region of Iraq). This would allow the EU and Turkey to make use of their complementary diplomatic leverages to overcome barriers to regional gas trade. • In parallel, the EU should establish with Turkey a dedicated financing mechanism to facilitate gas infrastructure investments, with a primary focus on the upgrade of the Turkish gas grid. The European Investment Bank might play a role in attracting private and institutional investors through its financing tools. • The four ‘EU-Turkey Energy Diplomacy Taskforces’ and the ‘EU-Turkey Gas Infrastructure Financing Initiative’ would be initiatives of the recently started EU-Turkey Strategic High Level Energy Dialogue. Simone Tagliapietra (simone.tagliapietra@bruegel.org) is Visiting Fellow at Bruegel. Georg Zachmann (georg.zachmann@bruegel.org) is Research Fellow at Bruegel. The authors thank Agata Łoskot-Strachota for comments that helped to improve the paper significantly,

Effective Regional Energy Policy Cooperation in South East Europe: A Proposal. CEPS Background Briefing Paper, 2 July 2015

Key Points. The implementation of regional energy policy cooperation initiatives is a priority of both the Energy Union and the so-called 2030 Energy and Climate Framework. The Energy Union proposal has singled out south east Europe as one area in which to act. This report identifies the seven key elements that need to be addressed to bring existing and planned regional energy policy cooperation initiatives in south east Europe to life: i) a sound geographical definition, ii) a governance structure, iii) voluntary participation, iv) exchange of information and best practice, v) the development of an external dimension, vi) regional infrastructure planning and development and vii) streamlining the financing instruments across the region. The study finds that significant progress has been made in many areas, and makes concrete proposals to unlock the full potential of coordination in those areas where there is limited progress. These proposals have been tested in discussions in the region.

The systemic roots of Russia’s recession. Bruegel Policy Contribution ISSUE 2015/15, OCTOBER 2015

The Russian economy grew rapidly between 2000 and 2007, but growth decelerated after the 2008-09 global financial crisis, and since mid-2014 Russia has moved into recession. A number of short-term factors have caused recession: lower oil prices, the conflict with Ukraine, European Union and United States sanctions against Russia and Russian counter-sanctions. However Russia's negative output trends have deeper structural and institutional roots. They can be tracked back about a decade to when previous market-reform policies started to be reversed in favour of dirigisme, leading to further deterioration of the business and investment climate. • Russia must address its short-term problems, but in the medium-to-long term it must deal with its fundamental structural and institutional disadvantages: oil and commodity dependence and an unfriendly business and investment climate underpinned by poor governance. Compared to many other commodity producers, Russia is better placed to diversify its economy, mostly due to its excellent human capital. Ruble depreciation makes this task easier

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.