Cyprus: The next blunder
Charles Wyplosz 18 March 2013
The Cyprus bailout package contains a tax on bank deposits. This column argues that the tax is a deeply dangerous policy that creates a new situation, more perilous than ever. It is a radical change that potentially undermines a perfectly reasonable deposit guarantee and the euro itself. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors in Spain and Italy.
The decision to tax all Cypriot bank deposits has attracted massive attention (Spiegel 2013) – and rightly so. It is a huge blunder:
EU institutions Macroeconomic policy
EU, Eurozone crisis, Cyprus
Migration states and welfare states: Why is America different from Europe?
Assaf Razin, Efraim Sadka 01 September 2014
European migration exhibits a bias towards low-skilled workers, whereas the US attracts the majority of the world’s skilled migrants. At the same time, the welfare system in Europe is more generous than the one in the US. This column describes an analytical framework that can explain the existence of these differences. Whether a group (union) of member states competes or coordinates its policies has an impact on the skill composition of its migrants and the generosity of the welfare system.
European welfare and migration policies are strikingly different from states within the US. Over the last half century, Europe ended up with 85% of all unskilled migrants to developed countries, whereas the US retains its innovative edge by attracting 55% of the world-educated migrants.
Migration Welfare state and social Europe
migration, welfare generosity, EU, US, skilled migrants
Smaller is better: Disintegrated nations in an integrated Europe
Edoardo Campanella 12 August 2014
Separatism is on the rise in Europe. This column argues that, while the Eurozone Crisis is certainly reinforcing regional tensions, the underlying causes are globalisation and the deepening of the European project. Independence campaigners want access to the larger European market, while unfettering their regions from the centralised control of national governments. Renegotiating the terms of the relationship between national and regional governments is preferable to resorting to political threats or the use of force.
Throughout the course of history, there are few regions in the world whose map has changed as frequently and abruptly as that of Europe. Nowadays, political forces – less violent and bloody than in the past, but equally destructive – are slowly and imperceptibly eroding the borders of several countries. Tensions within states – not enmities among competing powers – are remodelling the political geography of Europe.
Europe's nations and regions Global governance Politics and economics
EU, regionalism, independence, Eurozone crisis, Catalonia, Scotland, separatism, secessionism, Flanders
Tax harmonisation in Europe: Moving forward
Agnès Benassy-Quéré, Alain Trannoy, Guntram Wolff 22 July 2014
Tax harmonisation has been controversial since the establishment of the European Economic Community, and corporation tax proposals are currently on the table in the EU. Although tax competition can be beneficial, tax harmonisation could curb tax competition that leads to the under-provision of public goods or to burden-shifting from mobile to immobile tax bases. As yet, no agreement has been reached on any ambitious harmonisation plan for mobile tax bases. This column explores the possibility of implementing partial tax harmonisation for corporate taxation and the taxation of the banking sector.
The issue of tax harmonisation has been repeatedly debated in the EU since the European Economic Community was established. Substantial tax harmonisation exists in the area of indirect taxation, and proposals regarding corporations are on the table, such as the project of Common Consolidated Corporate Income Tax (CCCTB, see European Commission 2011a). According to widely accepted economic theory (Zodrow and Mieszkowski 1986), tax harmonisation is a way to curb tax competition that leads to either the under-provision of public goods or to burden-shifting from mobile to immobile tax bases.
EU policies Financial markets Taxation
EU, tax, multinationals, tax competition, tax avoidance, banking union, tax harmonisation, corporation tax, Tiebout competition, financial activity tax
The Transatlantic Trade and Investment Partnership: Review of the debate on economic blogs
David Saha 20 July 2014
An early draft of the Transatlantic Trade and Investment Partnership (TTIP) sparked an intensive public debate over possible advantages and disadvantages. This column reviews some arguments in favour of the Partnership and against it. While there is some debate over how large the economic benefit could be in the face of already relatively low trade barriers, critics claim that the deal will lower standards of consumer protection, provision of public services, and environmental protection in the EU.
A study by the Centre for Economic Policy Research (CEPR 2013) for the European Commission models the effects of the Transatlantic Trade and Investment Partnership (TTIP) in a computable general equilibrium model. An ambitious deal, consisting of tariff barriers being lowered to zero, non-tariff barriers lowered by 25%, and public procurement barriers reduced by 50%, would lead to an increase in EU GDP by 0.5% by 2027. Growth effects for the rest of the world will be positive, on average, 0.14% of GDP due to increased demand from the EU and US.
Global governance International trade
US, EU, TTIP
Why the US and EU are failing to set information free
Susan Ariel Aaronson 14 July 2014
The internet promotes educational, technological, and scientific progress, but governments sometimes choose to control the flow of information for national security reasons, or to protect privacy or intellectual property. This column highlights the use of trade rules to regulate the flow of information, and describes how the EU, the US, and their negotiating partners have been unable to find common ground on these issues. Trade agreements have yet to set information free, and may in fact be making it less free.
Tim Berners-Lee, the architect of the World Wide Web, taught us that the internet we have is a function of the choices we (users, companies, policymakers, etc.) make about information flows. For example, in 1995, Berners-Lee chose not to patent his work on the World Wide Web because he feared patenting it could limit its universality and openness. He continues to advocate this. In March 2014, he called for an online bill of rights and created a new organisation to ensure that the web would remain the “web we want” – open, free, and neutral.
EU policies Global governance International trade
US, EU, WTO, information technology, trade, technology, internet, Human rights, national security, Information, free trade agreements, data protection, privacy
An ever closer union?
Bruno Maçães 09 July 2014
The debate on the future of the European Union is in full swing. In this column, Bruno Macaes – the Portuguese Minister for Europe – stresses the importance of policy coordination in achieving better integration. One way to do so is via a fiscal union, but this creates unity at the expense of diversity. A second way involves formal contracts and partnerships. But to make this approach less rigid, the political dialogue does not need to be formalised in actual contracts.
The debate on the future of the European Union is now in full swing. Perhaps the most interesting aspect of this debate is the way it harks back to a short clause in the EU's founding document. In the 1957 Treaty of Rome, the signatories pledged to work towards “an ever closer union”. It was never entirely clear what this meant, but that has not stopped many in the UK, the Netherlands, and other countries from arguing that this original ambition is also what is fundamentally wrong with the EU. A review by the Dutch government concluded that the “time for an ever closer union is up”.
EU institutions EU policies
A way out of the Ukrainian quagmire
Thorvaldur Gylfason, Inmaculada Martínez-Zarzoso, Per Magnus Wijkman 14 June 2014
The Ukraine saw EU soft power met by Russian hard power. This column argues that the EU should counter this hard power using trade policy, among other policies. EU members should agree a common policy and seek support from others to execute this policy. To date, the EU’s response has been too little, too late.
At the Vilnius Summit in November 2013, President Yanukovich chose not to sign the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU that Ukraine had spent five years negotiating.1 His decision was dictated both by Ukraine’s failure to fulfil the political conditions for signature set by the EU and by strong pressure by Russia on Ukraine to join the Eurasian Customs Union instead.2 His refusal to sign unleashed events in Ukraine that within six months led to the President’s flight to Russia, the installation of a new pr
EU policies Europe's nations and regions International trade
Russia, EU, civil war, free trade agreements, Ukraine, diplomacy
The problem with TTIP
L Alan Winters 22 May 2014
Most economists cheer the Trans-Atlantic Trade and Investment Partnership that the EU is currently negotiating with the US. This column argues it is a pity that TTIP and other mega-regional agreements have emerged. It sees the exclusion of China in particular as an existential threat to the world trading system. It urges policymakers in the EU to focus instead on the world trading system or even consider an agreement with China.
Much attention has been focused on the Trans-Atlantic Trade and Investment Partnership (TTIP) that the EU is currently negotiating with the US. Most economists cheer this development, but I regret it – it is a pity that it has emerged.
US, EU, trade agreements, TPP, TTIP
How unequal is the European Parliament’s representation?
Anish Tailor, Nicolas Véron 21 May 2014
The European Parliamentary elections are conducted under rules that give voters power that varies with their nationality. This inequality is higher than in European and US national elections, as well as in large emerging-market democracies like Brazil, India, and Indonesia. Making the distribution more equal would be simple, but would require a change in the EU Treaties.
This week’s European Parliament election (22–25 May) has several unprecedented features. Most importantly, the main pan-European parties are fielding lead candidates for European Commission President. Turning the election into a presidential horse race was intended to increase electoral participation and enhance the Parliament’s democratic legitimacy, even though it remains to be seen whether voters will actually see things this way.
EU institutions Politics and economics
elections, democracy, EU, Inequality, voting, European parliament, treaty change