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Analysis of developments in EU capital flows in the global context (2nd report)

The purpose of our report is to provide a comprehensive overview of capital movements in Europe in a global context.

By: , , , and Date: January 28, 2016 Topic: Macroeconomic policy

This report analyses capital movements in Europe in a global context. Capital outflows from the EU as a whole declined in recent quarters and there was even a net inflow in 2015Q1, driven by both euro-area and non-euro area countries.

Some emerging countries experienced capital outflows, which are likely related to expectations about tightening monetary policies in the United States. Our econometric results confirm the importance of global factors in driving capital flows to emerging countries, but also show that FDI flows are rather insensitive in contrast to portfolio and other investment flows.

Following a period of more than two decades of large-scale foreign exchange reserve accumulation by primarily emerging-country central banks, reserves started to decline, which is a rather marked trend-change and can lead to interest rate increases in advanced countries and offset the impacts of quantitative easing policies.

At the EU’s border, Ukraine managed to attract some capital in recent months, but Russia continues to display persistent net capital outflows. We report a remarkable similarity between capital flows in central and eastern European member states and euro area periphery countries during the past twelve years.

We analyse the bilateral patterns of capital flows to Greece and Cyprus in the context of their respective crises. Intra-euro area financial integration continues to be lower than it was in the pre-crisis period.Our econometric analysis shows the dis-anchoring of EU countries’ domestic savings and investments in the pre-crisis period, which has reversed in the past six years.

While the euro-area aggregate financial cycle fluctuated rather moderately, a major divergence of domestic financial cycles can be observed within the euro area, which was very much linked to capital flows. The credit cycles for the UK, Denmark and Sweden are found to have been close to the euro-area cycle. We analyse the challenges faced by macro-prudential policy in the euro area and suggest improvements.

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Blog Post

Owning up to sustainability risks: the EU should champion international standards

To keep European Union capital markets open and integrated, new international standards should be reflected in future European law and accounting practice to provide further incentives for a reallocation of capital, reflecting in particular climate risks.

By: Alexander Lehmann Topic: Banking and capital markets, Green economy Date: April 26, 2022
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Opinion

China’s Covid policy to be year’s largest economic shock

Beijing’s ‘dynamic zero-Covid’ policy could devastate the domestic economy, but the effects will also be felt globally.

By: Alicia García-Herrero Topic: Global economy and trade Date: April 26, 2022
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Blog Post

Venture capital: a new breath of life for European entrepreneurship?

Whether the dynamism of European venture capital of the past two years can be sustained and kick start a credible alternative to bank finance in the European Union remains to be seen.

By: Maria Demertzis and Lionel Guetta-Jeanrenaud Topic: Banking and capital markets Date: February 10, 2022
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Blog Post

Better sustainability data is still needed to accelerate the low-carbon transition in capital markets

Investors need more trustworthy sustainability data. Regulators should leave space for better products to emerge, while remaining alert to well-known patterns of misconduct in capital markets.

By: Alexander Lehmann Topic: Banking and capital markets Date: October 18, 2021
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Policy Contribution

Europe should not neglect its capital markets union

The European Union’s capital markets remain very underdeveloped compared to the United States. The market for equity, as measured as the size of the total market capitalisation of listed domestic firms relative to GDP, is much larger in the US and in Japan than in Europe.

By: Maria Demertzis, Marta Domínguez-Jiménez and Lionel Guetta-Jeanrenaud Topic: Banking and capital markets Date: June 7, 2021
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Blog Post

Confronting the risks: corporate debt in the wake of the pandemic

As European economies emerge from lockdowns, it is becoming clearer that corporate debt has reached critical levels. A new French scheme, in which the state guarantees portfolios of subordinated debt, shows how financial support could be targeted better.

By: Alexander Lehmann Topic: Banking and capital markets Date: April 28, 2021
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Past Event

Past Event

Completing the banking union in the age of Next Generation EU

Invitation only event to discuss the banking union.

Speakers: Tuomas Saarenheimo and Nicolas Véron Topic: Banking and capital markets Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 27, 2020
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Past Event

Past Event

Next Generation EU debt: how is it structured?

The impact of EU debt on the EU market of safe assets.

Speakers: Gert-Jan Koopman and Guntram B. Wolff Topic: Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: October 22, 2020
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Policy Contribution

Emerging Europe and the capital markets union

The European Union's capital market union needs a revamp because of Brexit and the deep recession, and to underpin the European Green Deal. In particular, equity capital in the countries of central and eastern Europe is underdeveloped. These countries should take measures to facilitate equity finance, accompanied by reform at EU level.

By: Alexander Lehmann Topic: Banking and capital markets Date: September 17, 2020
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Past Event

Past Event

Bruegel Annual Meetings 2020 - Day 2

Second day of Bruegel Annual Meetings.

Topic: Banking and capital markets, Digital economy and innovation, Global economy and trade, Green economy, Macroeconomic policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 2, 2020
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Blog Post

Boosting the resilience of Europe’s financial system in the coronavirus crisis

Europe has a heavily bank-based financial structure, but bank-based financial structures are associated with higher systemic risk than market-based financial structures. The higher level of systemic risk in Europe suggests caution when pursuing policies that stimulate risk taking and debt creation by banks, especially in the wake of COVID-19. Priority should be given to financial diversification and equity finance.

By: Joost Bats, Aerdt Houben and Dirk Schoenmaker Topic: Banking and capital markets Date: July 17, 2020
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Policy Contribution

European Parliament

The European Central Bank in the COVID-19 crisis: whatever it takes, within its mandate

To keep the euro-area economy afloat, the European Central Bank has put in place a large number of measures since the beginning of the COVID-19 crisis. This response has triggered fears of a future increase in inflation. However, the ECB's new measures and the resulting increase in the size of its balance sheet, even if it were to be permanent, should not restrict its ability to achieve its price-stability mandate, within its legal obligations.

By: Grégory Claeys Topic: European Parliament, Macroeconomic policy, Testimonies Date: May 20, 2020
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