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:
Topics: EU institutions, Macroeconomic policy
Tags: Cyprus, EU, Eurozone crisis
How much do countries benefit from membership in the European Union?
Nauro F Campos, Fabrizio Coricelli, Luigi Moretti, 9 April 2014
In the wake of the recent crisis, the debate about the economic benefits from EU membership has intensified. This column presents new results about the benefits countries derive from becoming EU members, using data from the 1980s and 2004 enlargements. There are substantial positive pay-offs, with a gain in per capita GDP of approximately 12%. Despite differences across countries, the evidence shows that the benefits of EU membership outweighed the costs for most countries – except for Greece. An important research question would be to identify factors that allow countries to better exploit EU entry.
The process of economic integration in Europe is more than half a century old. WWII provided impetus and, even if from the outset it was driven much by politics, considerations about economic benefits have always been paramount (Martin et al. 2012.) Integration has since deepened and broadened, with slowdowns but without major reversals.
Topics: EU institutions
Tags: EU, EU enlargement, monetary benefits
The eye, the needle and the camel: Rich countries can benefit from EU membership
Nauro F Campos, Fabrizio Coricelli, Luigi Moretti, 5 April 2014
One concern with EU enlargement is that relatively poorer countries benefit more from becoming members. This column uses data from the 1973 and 1995 enlargements to show that richer countries also benefited a lot from joining the EU. Per capita incomes would have been considerably lower had these countries not joined the EU when they did. Yet, the difference between the estimated benefits for 1973 and 1995 enlargements is large, and thus, should not be attributed to differences in per capita incomes at the time of joining.
EU members are all alike; every EU candidate is a candidate in its own way. This is, of course, our attempt at rephrasing Anna Karenina’s opener (“Happy families are all alike; every unhappy family is unhappy in its own way”). Tolstoy had marriage in mind while Diamond (1997) had domesticated animals.
Topics: EU institutions
Tags: economic benefits, EU, EU enlargement
European merger policy reform
Tomaso Duso, Klaus Gugler, Florian Szücs, 26 January 2014
In 2004, European merger law was substantially revised, with the aim of achieving a ‘more economic approach’ to merger policy. This column discusses a recent empirical assessment of European merger cases before and after the reform. Post-reform, the outcomes of merger cases became more predictable, and the Commission prohibited fewer pro-competitive mergers. While there remains room for improvement in several aspects, the reform seems to have been successful in bringing European competition law closer to economic principles.
In May 2004, the legal basis for merger evaluation in the EU was substantially revised. By then, it was apparent that the old legislation – which first came into force in 1989 – was lacking in a number of ways.
Topics: Competition policy, EU policies
Tags: Competition policy, deterrence, dominance, EU, merger policy, mergers, mergers and acquisitions, transparency
Meeting Russia’s challenge to EU’s Eastern Partnership
Thorvaldur Gylfason, Per Magnus Wijkman, 25 January 2014
The EU’s Eastern Partnership is currently in turmoil. Armenia and Ukraine – two of the four partner countries (which also include Moldova and Georgia) did not initial association agreements. This column discusses the role of Russia in discouraging such negotiations. The soft power of the EU was apparently no match for the hard power of Russia in the cases of Armenia and Ukraine. A successful partnership would require peaceful international relations between the four partners, and solving their conflicts with Russia.
EU’s Eastern Partnership is in turmoil after its Summit in Vilnius on 29 November 2013.
Topics: Politics and economics
Tags: Eastern Partnership, EU, Russia, Ukraine
What drives protests in the Ukraine? This time, it is institutions
Nauro F Campos, 22 December 2013
Mass political protests are erupting in Ukraine. The conventional wisdom views them as driven by popular dissatisfaction with the government’s rejection of the EU agreement. This column argues that the main cause for the protests is the weak institutional framework that emerged after the collapse of communism. Therefore, a potential EU involvement will be most beneficial in providing a stable institutional setting. Utilising this historical moment is important in order for Ukraine to avoid the example of Argentina.
Once more, mass political protests erupted in 2013, this time in Ukraine. Protests are starting to spread and swell (freezing temperatures notwithstanding), but so far they have been mostly concentrated in the capital city.
Topics: Europe's nations and regions, Institutions and economics
Tags: EU, protests, Ukraine, weak institutions
Aligning energy markets and climate-policy objectives in the EU
Carlo Carraro, Thomas Longden, Giacomo Marangoni, Massimo Tavoni, 27 November 2013
In recent years, European coal consumption has increased, while natural gas consumption has declined – despite Europe’s commitment to reduce greenhouse-gas emissions. This perverse scenario is partly attributable to EU policies. Subsidies to renewables and energy efficiency targets have the unfortunate side effect of lowering carbon prices, thus partially offsetting their environmental benefits. Raising the EU carbon price would be preferable to employing multiple policy instruments, since it would minimise distortions in energy markets, achieve cost efficiency, and raise fiscal revenues.
Europe’s commitment to reducing greenhouse-gas emissions has not prevented the paradoxical situation of a revival of coal imports and a reduction of gas consumption. This article reviews recent work on the appropriate measures that need to be implemented to move European energy markets closer to the energy mix consistent with climate-policy targets.
Topics: Energy, Environment, EU policies
Tags: carbon pricing, climate policy, coal, energy mix, EU, greenhouse gases, natural gas, renewables subsidies
Do European fines deter price fixing?
Mario Mariniello, 22 September 2013
Cartel fines imposed by the European Commission routinely reach hundreds of millions of euro, having increased since the new 2006 fining policy. This column argues that they are still below their optimal level and come too slowly. Fines were often lower than the additional cartel profits and imposed 10 to 20 years after making the law-breaking decision was made – sometimes after the responsible managers had retired. To speed investigations, the Commission should Increase resources dedicated to inquiries; fines should also be raised.
Anti-cartel enforcement is the least controversial of competition-policy themes. Price fixing, market sharing and other agreements to restrict competition have obvious negative effects on welfare.
Topics: Competition policy, EU policies
Tags: Cartels, competition, EU, price fixing
Eastern European migrants are net contributors – not costs – in the West
Joakim Ruist, 17 September 2013
This year the free movement of eastern European workers within the EU has been questioned. Fearing excessive use of their own welfare systems, governments have argued for continued access restrictions. This column presents research showing that eastern European migrants have been net contributors to public finances of the richer EU15 nations that received them.
In 2004 when the EU expanded from 15 to 25 member countries, all EU15 countries except Sweden made use of the possibility to temporarily restrict the new EU citizens’ access to their labour markets and welfare systems for up to seven years. The UK and Ireland only imposed minor restrictions.
Tags: Eastern Europe, EU, public finance
Migration and wage effects of taxing top earners: Evidence from the foreigners' tax scheme in Denmark
Henrik Kleven, Camille Landais, Emmanuel Saez, Esben Schultz, 17 September 2013
How responsive is international migration by high-skilled workers to tax differentials across countries? This column provides evidence from Denmark suggesting that a preferential scheme was highly successful in attracting rich foreigners. It warns that, absent international tax coordination, preferential tax schemes to high-income foreigners could substantially weaken tax progressivity at the top of the distribution.
Tax-induced international mobility of talent is a controversial public-policy issue, especially when tax rates differ substantially across countries and migration barriers are low as in the case of the EU.
Topics: Migration, Taxation
Tags: EU, migration, tax competition