Will the Transatlantic Trade and Investment Partnership be a game-changer? EU Centre Singapore Policy Brief No. 5, April 2013

In February 2013, US President Barrack Obama, European Council President Herman Van Rompuy and President of the European Commission José Manuel Barroso announced the decision to go for an ambitious and comprehensive trade and investment agreement between the US and the EU. To be called the Transatlantic Trade and Investment Partnership (TTIP), this agreement would lead to a new stage in the transatlantic relationship and be a much needed boost to the lacklustre economic recovery so far. Some analysts have even argued that TTIP would be a “game changer” – besides the economic gains, it would serve a bigger strategic purpose of promoting EU-US common objective to set higher standards of trade liberalisation, and thereby level the playing field in China and other key emerging markets. This policy brief examines the reasons behind the current push towards TTIP and the possible contents of such an agreement. It also discusses the possible obstacles to the realisation of TTIP, and at the same time, looks into what a successful conclusion of TTIP would mean for Asia and beyond.

The Judicial Dimension of the European Neighbourhood Policy. EU Diplomacy Paper 08/2013, November 2013

In this paper, the expression “neighbourhood policy” of the European Union (EU) is understood in a broad way which includes the members of the European Free Trade Association (EFTA) contracting parties to the European Economic Area (EEA), the EFTA State Switzerland, candidate states, the countries of the European Neighbour-hood Policy (ENP), and Russia. The European Court of Justice (ECJ) is the centre of gravity in the judicial dimension of this policy. The innermost circle of integration after the EU itself comprises the EFTA States who are party to the European Economic Area. With the EFTA Court, they have their own common court. The existence of two courts – the ECJ and the EFTA Court – raises the question of homogeneity of the case law. The EEA homogeneity rules resemble the ones of the Lugano Convention. The EFTA Court is basically obliged to follow or take into account relevant ECJ case law. But even if the ECJ has gone first, there may be constellations where the EFTA Court comes to the conclusion that it must go its own way. Such constellations may be given if there is new scientific evidence, if the ECJ has left certain questions open, where there is relevant case law of the European Court of Human Rights or where, in light of the specific circumstances of the case, there is room for “creative homogeneity”. However, in the majority of its cases the EFTA Court is faced with novel legal questions. In such cases, the ECJ, its Advocates General and the Court of First Instance make reference to the EFTA Court’s case law. The question may be posed whether the EEA could serve as a model for other regional associations. For the ENP states, candidate States and Russia this is hard to imagine. Their courts will to varying degrees look to the ECJ when giving interpretation to the relevant agreements. The Swiss Government is – at least for the time being – unwilling to make a second attempt to join the EEA. The European Commission has therefore proposed to the Swiss to dock their sectoral agreements with the EU to the institutions of the EFTA pillar, the EFTA Surveillance Authority (ESA) and the EFTA Court. Switzerland would then negotiate the right to nominate a member of the ESA College and of the EFTA Court. The Swiss Government has, however, opted for another model. Swiss courts would continue to look to the ECJ, as they did in the past, and conflicts should also in the future be resolved by diplomatic means. But the ECJ would play a decisive role in dispute settlement. It would, upon unilateral request of one side, give an “authoritative” interpretation of EU law as incorporated into the relevant bilateral agreement. In a “Non-Paper” which was drafted by the chief negotiators, the interpretations of the ECJ are even characterised as binding. The decision-making power would, however, remain with the Joint Committees where Switzerland could say no. The Swiss Government assumes that after a negative decision by the ECJ it would be able to negotiate a compromise solution with the Commission without the ECJ being able to express itself on the outcome. The Government has therefore not tried to emphasise that the ECJ would not be a foreign court. Whether the ECJ would accept its intended role, is an open question. And if it would, the Swiss Government would have to explain to its voters that Switzerland retains the freedom to disregard such a binding decision and that for this reason the ECJ is not only no foreign court, but no adjudicating court at all.

Commitments or prohibition? The EU antitrust dilemma. Bruegel Policy Brief 2014/01, 31 January 2014

The issue: Excluding cartels, most investigations into suspected infringements of European Union competition law are resolved with ‘commitment decisions’. The European Commission drops the case in exchange for a commitment from the company under investigation to implement measures to stop the presumed anti-competitive behaviour. Commitment decisions are considered speedier than formal sanctions (prohibition decisions) in restoring normal competitive market conditions. They have a cost, however: commitments are voluntary and are unlikely to be subject to judicial review. This reduces the European Commission’s incentive to build a robust case. Because commitment decisions do not establish any legal precedent, they provide for little guidance on the interpretation of the law. Policy challenge: The European Commission relies increasingly on commitment decisions. More transparency on the substance of allegations, and the establishment of a higher number of legal precedents, are however necessary. This applies in particular to cases that tackle antitrust issues in new areas, such as markets for digital goods, in which companies might find it difficult to assess if a certain behaviour constitutes a violation of competition rules. To ensure greater transparency and mitigate some of the drawbacks of commitment decisions, while retaining their main benefits, the full detail of the objections addressed by the European Commission to defendants should be published.

National Visions of EU Defence Policy - Common Denominators and Misunderstandings. CEPS Paperbacks. December 2013

The premise of this study is simple: before discussing what defence strategy the EU should adopt at Brussels-level, member states should clarify what they expect individually from the EU Common Security and Defence Policy (CSDP). Inspired by the confusion about EU defence policy in most European capitals, this authoritative study inverts the usual analytical approach applied to the debate on European strategy. Rather than initiating the enquiry from the perspective of common interests guiding CSDP, it analyses how seven prominent member states see CSDP as a tool to pursue their strictly national interests. Five researchers immersed themselves in the foreign policy worlds of Paris, London, Berlin, Rome, Warsaw, Stockholm and Madrid, looking at CSDP through national lenses and away from the potentially distorting influence of ‘Brussels’ rhetoric.

The Europe 2020 Strategy: Can it maintain the EU’s competitiveness in the world? CEPS Paperbacks. September 2012

Launched in March 2010 by the European Commission, the Europe 2020 strategy aims at achieving “smart, sustainable and inclusive” growth. This growth is intended to be driven by three sets of engines: knowledge and innovation, a greener and more efficient use of resources and higher employment combined with social and territorial cohesion. This CEPS report takes an in-depth look at the Europe 2020 strategy and the goals it sets for the EU, with the aim of shedding light on the question of whether the strategy will succeed in fostering the global competitiveness of the European Union. While finding that the Europe 2020 strategy identifies the right key indicators for its targets, the authors advise that it should be revised in several important respects and conclude with relevant policy steps to foster the future capability of European economies and their prosperity.

An Arab Springboard for EU Foreign Policy? CEPS Paperbacks. January 2012

The EU has not been perceived as reacting very rapidly or effectively to the so-called Arab Spring. Events do appear to validate the idea underpinning the European Security Strategy (ESS) and the European Neighbourhood Policy (ENP): only where governments guarantee to their citizens security, prosperity, freedom and equality, can peace and stability last – otherwise, people will revolt. But in practice, in its southern neighbourhood the EU has acted in precisely the opposite manner, so the Arab Spring is occurring in spite of rather than thanks to EU policy. The ENP stands at a crossroads therefore: Can a new start be made? Which instruments and, in times of austerity, which means can the EU apply to consolidate democratization? And, finally, can the EU continue to wage an ENP without addressing the hard security dimension, especially as the US seem to be withdrawing from crisis management in the region – or shall it continue to leave that to others?

In sickness and in health: protecting and supporting public investment in Europe. Bruegel Policy Contribution 2014/02, February 2014

The long-term decline in gross public investment in European Union countries mirrors the trend in other advanced economies, but recent developments have been different: public investment has increased elsewhere, but in the EU it has declined and even collapsed in the most vulnerable countries, exaggerating the output fall. The provisions in the EU fiscal framework to support public investment are very weak.The recently inserted ‘investment clause’ is almost no help. In the short term, exclusion of national co-funding of EU-supported investments from the fiscal indicators considered in the Stability and Growth Pact would be sensible. In the medium term, the EU fiscal framework should be extended with an asymmetric ‘golden rule’ to further protect public investment in bad times, while limiting adverse incentives in good times. During a downturn, a European investment programme is needed and the European Semester should encourage greater investment by member states with healthy public finances and low public investment rates. Reform and harmonisation of budgeting, accounting, transparency and project assessment is also needed to improve the quality of public investment.

The long haul: managing exit from financial assistance. Bruegel Policy Contribution Issue 2014/03, 20 February 2014

Countries can make a clean exit from financial assistance, or enter a new programme or a precautionary programme, depending on the sustainability of their public debt and their vulnerability to shocks. Ireland made a clean exit in December 2013, supported by significant budgetary and current-account adjustment and signs of economic recovery. But Irish debt sustainability is not guaranteed and prudence will be needed to avoid future difficulties. A clean exit for Portugal is not recommended when its programme ends in May 2014, because compared to Ireland it faces higher interest rates, has poorer growth prospects and has probably less ability to generate a consistently high primary surplus. A precautionary arrangement would be advisable. In case debt sustainability proves difficult to achieve later, some form of debt restructuring may prove necessary. It is unlikely that Greece will be able to exit its programme in December 2014. A third programme should be put in place to take Greece out of the market until 2030, accompanied by enhanced budgetary and structural reform commitments by Greece, a European boost to economic growth in the euro-area periphery and willingness on the part of lenders to reduce loan charges below their borrowing costs, should public debt levels prove unsustainable despite Greece meeting the loan conditions. Even assuming all goes well, the three countries will be subject to enhanced post-pro-gramme surveillance for decades. Managing such long-term relationships will be a key challenge.

Collateral and Credit Rationing. The role of collateral in explaining and remediating the limited flow of credit to households and SMEs. ECRI Policy Brief No. 7, February 2014

European-wide data concerning both companies and households indicate that the credit rationing phenomenon, which has been predicted by theory, does in fact occur to a significant degree in the European credit market. Among SMEs, micro companies are most vulnerable and the current economic crisis has only made these concerns more pressing. Top-down use of the monetary transmission mechanism alone is insufficient to counter the problem. The other solution consists of a bottom-up, microeconomic stimulation of lending transactions, by focusing on collateral and guarantees. The data confirm the high importance that lenders – especially individual households and micro companies – attach to collateral and guarantees when making their lending decisions. As a consequence, we would argue that those parts of the law governing security interests and guarantees should be one of the primary targets for government policy aimed at improving credit flows, especially in avoiding a conflict between consumer protection measures and laws on surety and guarantees. This policy brief firstly aims to give an overview of the problem of credit rationing and to show that low-income households and SMEs are most concerned by the phenomenon. Focusing solely on loans as a way of financing and on the issues related to access to finance by micro and small companies as well households, it then sketches possible solutions focused on guarantees. This paper brings together data from the Eurosystem Household Finance and Consumption survey (HFCS), Eurostat, and both the latest wave of the extended biennial EC/ECB Survey on the access to finance of SMEs (EC/ECB SAFE 2013) and the latest wave of the smaller semi-annual ECB SAFE Survey, covering the period between October 2012 and March 2013.

Abolishing Oil Indexation in Gas Contracts: Is it the cure-all? CEPS Commentaries, 3 March 2014

Recently, the EU energy debate has been dominated by the discussion on energy prices and the competitiveness of the European industry. According to the latest estimates of the International Energy Agency, gas prices in the US are one-quarter of those in Europe. Moreover, prices of imported gas vary across the EU member states. Some EU policy-makers hope that the completion of the internal energy market and the transition to hub-based pricing will solve these discrepancies. Julian Wieczorkiewicz asks in this Commentary whether the abolition of oil-indexation will constitute a cure-all for the above-mentioned problems.

Next steps toward a final deal with Iran. CEPS Policy Brief No. 316, 14 February 2014

On January 20th, the International Atomic Energy Agency confirmed that Iran had been implementing its commitments as part of the Joint Plan of Action (JPA) agreed with the so-called ‘E3+3’ in Geneva (also known as P5+1) on 24 November 2013. The forging of this interim deal, the successful start to its implementation and the temporary sanctions relief represent resounding success for international diplomacy but they should not be allowed to conceal the underlying issues. Reaching agreement on the JPA was achieved at the cost of clarity over what is to follow and it was decided to eschew a structured agreement in favour of a two-step process. The stated aim of the negotiating parties remains that of starting the implementation of a comprehensive solution by November 2014. If agreement is not reached on a comprehensive solution by the expiry of the JPA by July 20th, the action plan can be renewed by mutual consent. The latter might well be the likeliest outcome of the forthcoming negotiations. Apart from the large gap between the E3+3 and Iranian positions on the substance of a final deal, several domestic policy constraints will likely define the parameters of what is achievable in the future. This CEPS Policy Brief argues that the best hope for success lies in continued engagement and consistent incremental progress in the negotiations, with structured concessions on both sides. This should occur, however, not in a two- but a three-step framework based on lengthening Iran’s ‘breakout’ period while re-engaging with the country both politically and economically. The EU is in a unique position to lead this process. Having greater flexibility than either the US or Iran, its main tasks will be that of maintaining the negotiating momentum and broadening dialogue with Iran.

What role for migration policy in the Ukraine crisis? CEPS Commentaries, 27 March 2014

While the geopolitics of the Ukraine crisis have dominated headlines, little attention has been paid to the potential challenges arising from the movement of people from the region to the EU. Yet recent history should tell us this could be a grave oversight. As we witnessed during the Arab Spring in 2011, political upheaval can result in people fleeing their state in fear of persecution or seeking to leave their state in search of new horizons and economic opportunities. The EU would do well to learn from that experience and the policy failures that resulted from the Union’s response of closing its borders and returning people to Africa. This Commentary argues that it is critical that – independently of the still uncertain outcome of the Ukraine crisis – the EU formulates and implements a credible policy strategy addressing the potential impact and benefits of mobility between Ukraine and the EU.

The European Parliament’s New Role in Trade Policy: Turning power into impact. CEPS Special Report No. 89, 21 May 2014

The power of the European Parliament in EU trade policy has increased significantly with the Lisbon Treaty. Even though it had already acquired a greater informal role, the codification of its involvement enables the EP to have a stronger say in trade policy. Against the background of increased legal competences granted by the Treaty of Lisbon to the European Parliament in EU trade policy, this Policy Brief addresses two important questions. The first concerns the extent to which the EP’s power in trade policy has increased: Has the EP effectively played a bigger role since the end of 2009? The second relates to the substance of the EP’s trade policy preferences: Does the EP attempt to push EU trade relations into a more or less normative and/or protectionist direction? Its main argument is that the Lisbon Treaty not only heralds a major leap forward in legal terms, but that the current EP legislature has also managed to increase its political clout in trade policy-making. Nevertheless, a major challenge for the new EP legislature 2014-2019 will be to turn this into effective influence.

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.

ECB Policy and Eurozone Fragility: Was De Grauwe Right? CEPS Working Document No. 397, June 2014

Paul De Grauwe’s fragility hypothesis states that member countries of a monetary union such as the eurozone are highly vulnerable to a self-fulfilling mechanism by which the efforts of investors to avoid losses from default can end up triggering the very default they fear. The authors test this hypothesis by applying an eclectic methodology to a time window around Mario Draghi’s “whatever it takes” (to keep the eurozone on firm footing) pledge on 26 July 2012. This pledge was soon followed by the announcement of the Outright Monetary Transactions (OMT) programme (the prospective and conditional purchase by the European Central Bank of sovereign bonds of eurozone countries having difficulty issuing debt). The principal components of eurozone credit default swap spreads validate this choice of time frame. An event study reveals significant pre announcement contagion emanating from Spain to Italy, Belgium, France and Austria. Furthermore, time-series regression confirms frequent clusters of large shocks affecting the credit default swap spreads of the four eurozone countries but solely during the pre-announcement period. The findings of this report support the fragility hypothesis for the eurozone and endorse the Outright Monetary Transactions programme.