Geoeconomic Fragmentation: What’s at Stake for the EU


Book Description

Geoeconomic fragmentation (GEF) is becoming entrenched worldwide, and the European Union (EU) is not immune to its effects. This paper takes stock of GEF policies impinging on—and adopted by—the EU and considers how exposed the EU is through trade, financial and technological channels. Motivated by current policies adopted by other countries, the paper then simulates how various measures—raising costs of trade and technology transfer and fossil fuel prices, and imposition of sectoral subsidies—would affect the EU economy. Due to its high-degree of openness, the EU is found to be exposed to GEF through multiple channels, with simulated losses that differ significantly across scenarios. From a welfare perspective, this suggests the need for a cautious approach to GEF policies. The EU’s best defence against GEF is to strengthen the Single Market while advocating for a multilateral rules-based trading system.




Connectivity Wars


Book Description




Bulgaria in Global Value Chains: Leveraging Integration with the EU


Book Description

As a small open economy, Bulgaria benefits from economic exchanges with global partners. However, after a boost before the Global Financial Crisis and EU accession, its integration in global value chains has been growing only modestly in recent years and it remains particularly low when it comes to links with EU partners. To capitalize from the integration with the EU Single Market and exploit the opportunities that will come from joining the euro zone and the Schengen area, Bulgaria should focus on enhancing its non-cost competitiveness by improving its governance and investing in infrastructure and human capital.




Italy


Book Description

Activity expanded by nearly 1 percent in 2023, with GDP surpassing its pre-pandemic level by 41⁄2 percent. Headline inflation fell on the drop in energy prices, with core inflation also moderating. Employment rose alongside real activity. Financial conditions have eased somewhat but remain tight. Despite fiscal deficits much larger than pre-COVID, the public debt ratio declined on deferred recording of tax credits and strong nominal GDP growth. Sovereign debt risks are moderate overall, but high at the medium- and long-horizons. Low fertility and low female labor force participation foreshadow faster population and work force declines amid weak productivity growth.




Austria


Book Description

Strong policy responses have helped to mitigate the impact of the recent shocks. Output recovered rapidly from the pandemic and, in response to the energy price shock, the authorities made use of available fiscal room to mitigate its impact while preserving price signals to encourage lower gas consumption and taking steps to secure access to additional gas supplies. Despite these efforts, the economy slipped into recession over the last few quarters, with high energy prices, elevated inflation, and higher interest rates weighing on output and demand. Inflation still persists above the euro-area average even as it has steadily declined since January 2023, in particular as services inflation has proved to be sticky amid high wage growth. Over the medium term, demographic headwinds pose significant fiscal and growth challenges.




Stepping Up Venture Capital to Finance Innovation in Europe


Book Description

Relative to the US, productivity growth and investment in R&D in lagging in the EU, where it is more difficult to finance and scale up promising, innovative startups. Many of the most successful EU startups move elsewhere for financing, causing the EU to lose out on both the direct growth benefits and positive spillovers from these innovative firms. The EU could nurture innovative startups by accelerating the development of its venture capital (VC) ecosystem. Reducing regulatory frictions, especially ones that deter pensions funds and insurers from investing in VC, combined with well-designed tax incentives for R&D investments could help accelerate the development of the VC sector. These and other key CMU initiatives, such as the consolidation of stock markets and reforming and harmonizing insolvency regimes, will take time. Given the urgency to boost innovation, giving public financial institutions like the European Investment Fund a more active and expanded role in kickstarting VC markets where needed and in familiarizing investors with the VC asset class can be a helpful interim step.




Euro Area Policies


Book Description

The euro area economy has been resilient in the face of multiple, large shocks, including the pandemic, Russia’s gas shut-off, and fallout from the war in Ukraine. Nonetheless, the adverse shocks have had persistent effects which shape economic prospects. Energy-intensive industries, in particular, have struggled to adjust to higher input costs and continue to underperform. Despite subdued overall activity, employment growth remains robust. Inflation has declined significantly from its late-2022 peak in response to the ECB’s policy tightening and the decline in commodity prices.




The Political Economy of Geoeconomics: Europe in a Changing World


Book Description

This book brings together researchers from different analytical perspectives for the study of contemporary geoeconomics to create a broader and more useful catalogue of conceptual tools, empirical entry points, and case studies around the subject. The distinctive contribution this book offers is its firm rooting in International Political Economy and the hitherto under-researched geoeconomics dynamics of Europe. Many existing accounts of geoeconomics have been developed in International Relations and often reproduce some of the state-centric and static assumptions of the discipline. Recent scholarship furthermore tends to focus on the US-China rivalry, thus discounting the role of other global powers in shaping geoeconomics. As a first collective contribution to the topic in the field of International Political Economy, the book stands to become a major reference point in the field for the coming years. Interest in geoeconomics as well as in related concepts like weaponized interdependence or emerging new rivalries has been on the rise in recent years and will be one of the key research areas in the coming decade of transition and change in Europe and beyond. Chapters 1, 2 and 7 are available open access under a Creative Commons Attribution 4.0 International License via link.springer.com.




Italy


Book Description

Output grew robustly in 2022 despite surging energy prices on the post-pandemic recovery and fiscal stimulus. Inflation jumped and the current account fell into deficit. Employment reached new highs. Fiscal support and higher borrowing costs kept deficits large and public debt very high. Bank credit has begun to decline although loan quality continues to hold up. Italy’s National Recovery and Resilience Plan (NRRP), supported by EU financial resources, aims to boost productivity and labor force participation, which would help offset the drag on growth from the declining working age population.




Euro Area Policies


Book Description

The euro area economy has shown resilience in the aftermath of Russia’s invasion of Ukraine and the largest terms of trade loss in several decades, reflecting strong policy efforts to secure gas supplies and cushion disposable incomes. Nonetheless, activity has weakened, with the economy slipping into a mild technical recession in early 2023, and inflation is far above target. While headline inflation has started to decline with the easing of supply bottlenecks and energy prices, core inflation is proving more persistent. Euro area banks are well capitalized and liquid overall, but the rapid tightening of monetary policy after a prolonged period of accommodation can expose pockets of weakness in the financial system, including in the nonbank sector.