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Global supply chains: lessons from a decade of disruption. Bruegel Working Paper Issue 05/2024, 04 March 2024.
Full text linkThis paper explores both the character and impact of three recent shocks to global supply chains: the COVID-19 pandemic, the Russian invasion of Ukraine and the US-China trade war. These were large shocks which have had significant impacts on domestic and international supply chains, but these impacts have differed in their longevity, economic impact and policy responses. We show that supply chains were remarkably resilient against shocks of such magnitude. However, this resilience was also achieved thanks to the equally remarkable size and scope of policy responses and global supply chain reorganisation. We recommend that pre-emptive policies may be justified to shield households and industry from future shocks. Given the entangled nature of these shocks and that their effects continue to reverberate, we emphasise the need for extensive future research to understand the nature of these shocks and the effectiveness of policy responses
The state of financial knowledge in the European Union. Policy Brief Issue 04/24, February 2024.
Full text linkOnly one in two individuals in the European Union, on average, is financially knowledgeable. In response to a 2023 survey containing five questions assessing basic financial knowledge, only half of the respondents answered at least three of the five questions correctly. This represents a low level of financial knowledge and an obstacle for individuals to invest in financial markets.
The questions most often answered correctly by respondents measured understanding of inflation and the relationship between risk and return. By contrast, only one in five respondents answered a question on the relationship between interest rates and bond prices correctly.
Regarding inflation, there is a large difference between the least and most educated respondents in terms of answering the relevant question correctly. Gaps in understanding the concept of inflation are also evident between the youngest (18-24) and oldest respondents (55+) and between the poorest and richest households.
A gender gap is present in financial knowledge, with 18 percentage points more men than women answering at least three out of five questions correctly, on average in the EU.
Those with greater financial knowledge are less financially fragile in that they can still cover their expenses if there is a sudden loss of income, and are more confident that they will have sufficient funds to sustain themselves during retirement.
Countries with higher proportions of people who are financially knowledgeable have higher numbers of people who both save with and borrow from financial institutions, an indication that financial knowledge may improve financial inclusion.
All EU countries have, or are in the process of putting together, a national financial literacy strategy. There is an urgent need to roll out these strategies, to monitor progress over time and to establish best practices.
Particular attention needs to be given to how financial knowledge interacts with digital skills as financial services are increasingly digitalised. Financial literacy strategies should also help close gender and other gaps in knowledge among vulnerable groups, and should ensure that financial education starts early and in schools
Incorporating the impact of social investments and reforms in the European Union’s new fiscal framework. Bruegel Working Papers, March 2024.
Full text linkThe European Union’s new fiscal framework aims to incentivise public investment and reforms by offering the option to extend the four-year fiscal adjustment period to seven years, thereby lowering the average annual fiscal adjustment requirement. EU countries can propose investment and reforms in the context of their national medium-term fiscal structural plans. When they do, these investments and reforms can be expected to also inform the fiscal adjustment proposed by member states. Yet, the EU lacks an agreed methodology for deciding on the potential quantitative impact of investment and reforms on the fiscal adjustment required under the new rules.
This paper first analyses the ‘investment friendliness’ of the new framework. Although the incentives offered for raising investment are powerful, the bar for extending the adjustment period mainly through higher investment is high, and the design of the new rules will make it hard to actually raise investment.
We next propose an approach for quantifying the impact of investment and reform on debt sustainability in the context of the new framework, taking into account uncertainty about their implementation and their economic effects. Such a methodology would also help the European Commission evaluate the impacts of recently adopted measures, the impacts of which are not yet observable. Developing this methodology will require revisiting the current commonly agreed methodologies for medium- and long-term capital stock and total factor productivity projections.
We illustrate the potential impact of investment on debt sustainability analyses through calculations on three social investment measures, that is, combinations of reform and public spending that aim to increase human capital and labour force participations. While the impact of individual reforms on fiscal adjustment needs is generally modest, the combined impact of several measures could be notable
Broader border taxes: a new option for European Union budget resources. Bruegel Policy Brief Issue 06/24, March 2024.
Full text linkThere is widespread agreement on the need for new resources to fund the European Union's budget in order to meet increasing spending demands, not least repayment of debt incurred as part of the EU’s post-pandemic economic recovery. In particular it is seen as desirable that the EU should have ‘own’ resources, or reliable ongoing revenue streams. But there is little agreement on what new own resources could consist of.
Limited reform so far has led to the introduction of a levy paid by EU members depending on plastic packaging waste generated in their territory and not recycled. Meanwhile, the European Commission has proposed resources for the EU budget from emissions trading revenues, and from levies collected under the EU carbon border adjustment mechanism (CBAM). There proposals are pragmatic and move in the right direction, but do not go far enough.
The debate about own resources should focus on whether the EU will be able to build genuine own resources based on common tax policies. The EU suffers from ‘tax leakage’ in which profits are shifted from high-tax to low-tax EU countries, and from there onto no or low-tax non-EU jurisdictions, often without the application of withholding taxes. It may not be too much of a stretch to compare this situation of tax leakage with the situation addressed by CBAM – a quasi-tax at the border. So far, an opportunity for what could be seen as a tax at the border of the internal market, aiming to protect the market from harmful competition, may have been missed. Such a tax could reflect the undertaxed profit rule agreed as part of the international deal on the corporate minimum tax. Focusing on protecting the revenues of EU members by common tax borders could offer scope for new own resources
Exposure to generative artificial intelligence in the European labour market. Bruegel Working Paper, Issue 06/2024, 07 MARCH 2024.
Full text linkWe apply two sets of generative artificial intelligence (GenAI) occupational exposure scores – one task-based, one ability-based – to the European Labour Force Survey. While using different methodologies, our findings reveal consistent demographic patterns across the two approaches: jobs held by women, highly educated and younger workers are more exposed to GenAI technology in Europe. We also review the literature on the recent productivity impact of GenAI. Within the same occupations, less-experienced or
less-skilled workers consistently get the largest productivity gains from GenAI support.
We argue that a task-based analysis is more fruitful than an ability-based one, both for guiding GenAI adoption in organisations and their workplaces, and for assessing the employment and job quality impact on workers.
Finally, we provide policy recommendations that can help workers (ie the labour supply) adjust to technological disruption, such as providing training and social safety nets. But we go further by also suggesting policy interventions that could redirect future labour demand towards better jobs, by promoting job redesign and organisational agility. Monitoring GenAI’s employment effects and researching the ‘jagged technological frontier’ is necessary to further build our understanding of the employment impact of this transformational technology
A tale of two treatises: the Werner and Delors Reports and the birth of the euro. Bruegel Essay, February 2024.
Full text linkIn the process towards European economic and monetary union, two reports played crucial roles. The 1970 Werner Report argued for both a supranational monetary pillar and a supranational economic pillar, while the 1989 Delors Report focused on the monetary pillar, and there was scepticism about discretionary fiscal policy. A background paper to the Delors Report, The Werner Report Revisited, identified four weaknesses of the Werner Report: absence of internal momentum, institutional ambiguities, insufficient constraints on national policies and an inappropriate policy conception – issues that remain very much on the European Union agenda today
Ukraine’s path to European Union membership and its long-term implications. Bruegel Policy Brief Issue 05/24, March 2024.
Full text linkWhether and when Ukraine accedes to the European Union will depend greatly on how and when its war with Russia ends and post-war reconstruction starts, and how the EU handles issues of governance, security, migration, trade, investment, the energy transition, decarbonisation and the EU budget.
The enlargement process is likely to overlap with post-war reconstruction, increasing the EU's influence in fostering Ukraine’s institutional development. Ukrainian leaders will have strong incentives to comply with the accession criteria, which the EU should use astutely to create a better-functioning economy and public institutions, especially by reducing opportunities for corruption. This will require clearer standards for rule-of-law and fundamental values, including effective tools to ensure continued compliance after accession. That is also the most effective way to ensure a positive impact of future enlargements on EU governance.
The EU will also need to develop assistance programmes to help the Ukrainian government manage post-war external and internal security challenges, including the large number of weapons in circulation, and to encourage Ukrainian refugees to return to the country when possible, as they will be needed for the reconstruction effort.
If the current EU budget rules were applied and there were no transitional arrangements – which is unlikely – we calculate the total annual cost of Ukraine's integration into the EU budget at 0.13 per cent of EU GDP, which would hardly change net recipient/payer positions of current EU members. Some of this funding would come back to the EU via EU companies participating in EU-funded projects in Ukraine. Ukraine’s entry into the EU would benefit EU GDP via trade, migration and foreign direct investment, boosting employment, production and tax revenues in the EU.
The history of EU enlargement shows that the strongest motivation for difficult reforms is a credible and predictable accession process based on rewarding reforms. Both Ukraine and the EU would benefit from progressive integration of the country into EU policies, alongside the formal accession negotiations. That would show the Ukrainian public the tangible benefits of moving towards EU standards, while also bringing Ukraine into areas such as energy cooperation and decarbonisation
COVID-19 in the European Union: health impacts and effects on economic activity. Bruegel WORKING PAPER | ISSUE 13/2022 | 19 JULY 2022.
Full text linkThis paper quantitatively describes different aspects of the COVID-19 pandemics: new cases, hospitalisations, intensive-care admissions and deaths, while illustrating their changing relationships over time. It then assesses how the different variables have affected relevant sectoral and macroeconomic indicators. Finally, it concludes that, from an economic perspective, what matters when it comes to managing the pandemic is to prevent intensive-care admissions and deaths arising from COVID-19. The success of vaccination should be measured in terms of its ability to prevent the most serious consequences, rather than its ability to prevent infections and hospitalisations
Decarbonisation of the energy system. Bruegel Policy Contribution Issue n ̊01/22 | January 2022.
Full text linkThree quarters of the European Union’s greenhouse gas emissions stem from burning coal, oil and natural gas to produce energy services, including heating for buildings, transportation and operation of machinery. The transition to climate neutrality means these services must be provided without associated emissions.
It is not possible today to determine tomorrow’s optimal clean energy system, largely because the cost, limitations and capability developments of competing technologies cannot be predicted. Energy systems with widely diverging shares of ‘green fuels’, in the form of electricity, hydrogen and synthetic hydrocarbons, remain conceivable. We find the overall cost of these systems to be of the same order of magnitude, but they involve larger investments at different stages of value chains. A large share of synthetic hydrocarbons would require more investment outside the EU, but less in domestic infrastructure and demand-side appliances, while electrification requires large investment in domestic infrastructure and appliances. Current projections show an overall cost advantage for direct electrification, but projections will evolve and critical players may push hard for alternative fuels. Policy will thus play a major role in shaping this balance.
Political decisions should, first, push out carbon-emitting technology, primarily through carbon pricing. The more credible and predictable this strategy is over the coming decades, the smoother will be both divestment from brown technologies and investment in green technologies.
Second, policy needs to help ensure that enough climate-neutral alternatives are available in time. Clear public support should be given to three system decisions about which we are sufficiently confident: the massive roll-out of renewable electricity generation; the electrification of significant shares of final energy consumption; and rapid phase-out of coal from electricity generation. For energy services where no dominant system has yet emerged, policy should forcefully explore different solutions by supporting technological and regulatory experimentation.
Given the size and urgency of the transition, the current knowledge infrastructure in Europe is insufficient. Data on the current and projected state of the energy system remains inconsistent, either published in different places or not at all. This impedes the societal discussion. The transition to climate neutrality in Europe and elsewhere will be unnecessarily expensive without a knowledge infrastructure that allows society to learn which technologies, systems, and polices work best under which circumstances
COVID-19 and the shift to remote work. Bruegel Policy Contribution Issue n˚09/22 | June 2022.
Full text linkCOVID-19 has accelerated the shift to remote work. Enabling knowledge workers to do their jobs from home or elsewhere brings benefits by increasing labour participation, avoiding unproductive commuting time (thus reducing the carbon footprint), and reducing the gender gap by enabling single parents or partners with domestic-care responsibilities to work.
Not all jobs are suitable for remote work, but far more remote work is feasible than was typical prior to the pandemic.
The post-pandemic new normal is sure to differ both from the pre-pandemic normal and from current arrangements. Hybrid arrangements in which part of the week is spent at the office, and part at home, are likely to become the norm.
Employers, workers, educators, trade unions and governments will need to adapt to the new normal. For employers and managers, the change emphasises the need to manage based on results rather than hours worked, and likely implies many changes in how they manage their employees. Workers will need to be flexible in order to capitalise on the new opportunities in the evolving world of work, and to ensure they have suitable skills for remote work. Educators will need to further emphasise digital skills, and to accelerate the shift from traditional education to lifelong learning. Trade unions will need to re-think how they recruit workers who do not see each other every day, and how they can respond to evolving social protection needs. Policymakers will need to deal with distributional effects driven by the shift to remote work, to protect the work-life balance that remote work potentially erodes, and to seek to ensure that the shift to remote work does not erode social protection