The official mission of EU Cohesion Policy is to reduce “disparities between the levels of development of the various regions and the backwardness of the least favoured regions”. We run standard convergence analysis and find that this rather broad policy objective is only half-met. Countries and regions in Europe have been converging over the last decade but the dispersion in regional GDP per capita in each country is instead on the rise (Chart 1a). However, if we look at regional disposable income (after benefits and taxes) we do not find the same divergence pattern. This would suggest that governments, which are responsible for determining benefits and taxes, are able to successfully redistribute across regions. Even more interestingly, we do not… Read more
Bruegel blog
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Chart of the week: EU Cohesion Policy and the role of national governments
30th August 2012
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Which way for Europe?
29th August 2012
August was quieter than feared on the European bond markets. While resting on Europe’s celebrated beaches and mountains, policymakers could therefore take a step back from the sound and fury of the last few months and think about the future. Is the euro area sleepwalking into the United States of Europe? Is it exploring unchartered territory? Or are its constituent nation states drifting apart? Read more
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Introducing the Bruegel dataset of sovereign bonds holdings (and more)
27th August 2012
Early this year Jean Pisani-Ferry and I wrote a policy contribution titled “Who’s afraid of sovereign bonds”, where we were investigating the role of euro area banks in holding of domestic government debt securities, one of the important aspects of the sovereign-banking crisis loop. In order to do so, we needed to know how the share of domestic banks in total holdings had evolved over time. This required a breakdown of sovereign bond holdings by the different sectors of the economy, for each country and at the highest possible frequency. But in the process, we discovered that there is neither a single source for this kind of information, nor any common practice across the institutions providing the data[1]. We therefore… Read more
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Blogs review: The gains from fundamental tax reforms
27th August 2012
What’s at stake: Greg Mankiw recently highlighted a John Diamond study, which finds that a base-broadening, rate-reducing, Romney type tax plan would increase GDP relative to baseline by 5.4 percentage points over the next decade. While the specifics of this study are prone to discussion, similar simulations support similar findings – recognizing that the income tax systems of most countries are a complex, inefficient, and costly way of raising revenues to finance government expenditures. Looking beyond the headline numbers, however, reveals that these large efficiency gains often rely on the political feasibility of (1) making a majority of the population worse off, (2) raising burdens on older people, and/or (3) taxing imputed rents from housing. Read more
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Is Germany heading towards a referendum?
24th August 2012
The question of the compatibility of the German constitution (officially known as the Basic Law), with further European integration is at the origin of current debates in Germany. The Federal Constitutional Court (FCC) will decide in September on whether the European Stability Mechanism (ESM) exceeds the limits of the Basic Law. Meanwhile, a debate on holding a referendum in Germany on the future of the EU and new EU treaties emerges. This column summarizes the discussion. Read more
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Triggering competitiveness: A 'decalogue' from new firm-level evidence
23rd August 2012
Competitiveness is one of the most debated issues in policy circles. But, what triggers it? Capitalising on the first existing harmonised cross-country dataset measuring the entire range of international activities of firms in seven European countries, this column identifies the triggers of competitiveness. It argues that policymaking could be improved by firm-level evidence if there were less reluctance to the use of micro-founded indicators to inform policy decisions. Read more
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Europe should choose whether it wants Greece in or out
22nd August 2012
For the third time in three years the Europeans’ stance on Greece is economically inconsistent. One camp considers the country should leave the eurozone, while the other thinks this would have devastating contagion effects. It is not consistent to request more efforts from a country, while anticipating its exit from the euro. It is time for European leaders to choose. Read more
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Blogs review: the end of growth miracles
20th August 2012
What’s at stake: A provocative Project Syndicate oped by Dani Rodrik – arguing that the recipe that helped generate the growth miracles of the last decades will prove harder in the future – has generated an interesting debate in the blogosphere about the old economics question of convergence between countries. While economic debates in the blogosphere usually take place in a decentralized way – each blogger comments on his own blog – this debate is also notable for having mostly taken place in a central location: The Economist’s “Economics by invitation” blog. The death of the manufacturing convergence engine In a revised version of the paper that he initially prepared for 2011 Jackson Hole Symposium Dani Rodrik argues that despite… Read more
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Chart of the week: GDP down by 0.2% in the euro area
17th August 2012
August figures from Eurostat for the euro area show a decrease in GDP for the second quarter of 2012, after stagnating growth rates during the previous three months. While countries such as Austria, Germany and Slovakia have managed to catch up with pre-crisis GDP levels, Greece, Italy and Portugal still struggle with a GDP far below levels in 2007. Read more
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Why France will have no budget rule
14th August 2012
Like in other countries, the French Constitutional Council was asked to decide on the compatibility of the European fiscal treaty with the Constitution. The decision was actually requested by president François Hollande because of a legal uncertainty: would the provision of Art 3(2) according to which the rule limiting the structural budget deficit to 0.5 percent of GDP has to “take effect in the national law [..] through provisions of binding force and permanent character, preferably constitutional, or otherwise guaranteed to be fully respected and adhered to throughout the national budget process” require changing the French Constitution? Read more