Featured Analysis

Policy Insight | Crisis decision-making. How Covid-19 has changed the working methods of the EU institutions | CEPS

The Covid-19 pandemic has caused the dynamics of the EU institutions to change. Much attention has been paid to the functioning of the EU institutions at the highest political level, but less so at the working levels of the Council, the Commission and the European Parliament (EP).

What was the nature of EU action in this time and how well did the decision-making machinery work? This contribution analyses all three main institutions by: a) describing how decisions are usually made; b) exploring how they were made in corona times; and c) assessing how well the individual institutions were equipped and able to adapt to these unusual circumstances.

It finds that the handling of these challenges varied greatly across the three institutions, largely because of structural reasons and differences in institutional DNA. Overall, crisis decision-making has worked surprisingly well, as the EU’s machinery is multilayered and has proved to be solid and resilient. Interinstitutional crisis coordination is yet to be improved.

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EU-UK financial market access in 2021, by K. Lannoo, European Capital Market Institute (ECMI)

On the 27th of July, the European Capital Market Institute (ECMI) published a Research Report by Karel Lannoo named EU-UK financial market access in 2021 which acknowledged that amid the uncertainty of EU-UK negotiations, financial market access is sure to be marked by more friction.

As the end of the transition period approaches, both sides are diverging, which indicates that financial services trade across the Channel will be very different next year. Even if a trade agreement were to be concluded by the end of 2020, market access will be well below what it is today. Equivalence decisions are limited in scope, and equivalence assessments await conclusion. And what will be the means for recourse?


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About the author

Karel Lannoo has been CEO of CEPS since 2000, a Leading Independent Think Tank on European Policies, ranked among the top 10 think tanks in the world. He is General Manager of the European Capital Markets Institute (ECMI) and the European Credit Research Institute (ECRI), both operated by CEPS.

Policy Insight | Feasibility Study for the creation of a CMU Equity Market Index Family | CEPS

This is the final study of the ‘Feasibility study for the creation of a CMU Equity Market Index Family’ conducted by CEPS for the Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA).

The CMU Equity Market Index Family assessed in the study covers 38 indices, including all share, ESG, SME Growth Market, sectoral, company size, and market size-based indices. They are calculated for both the most liquid stocks and least liquid stocks to promote convergence. For each of the indices the price, gross and net return rates are calculated.

The authors conclude that there is some potential among investors for a CMU Equity Index Family. To some extent, the CMU All Share Index has potential as a benchmark for mutual fund, or to be tracked by ETFs, and this is especially the case for some of the sub-indices. Whether this potential is realised will depend largely on the quality of the index provider, the pricing of the use of the indices and the implementation strategy.

The executive summary can be downloaded here.

Derivatives in Sustainable Finance, by K. Lannoo and A. Thomadakis, European Capital Market Institute (ECMI)

On the 15th of July, the European Capital Market Institute (ECMI) published a Research Report by Karel Lannoo and Apostolos Thomadakis named Derivatives in Sustainable Finance which acknowledged that sustainability has risen in scope and importance on the agenda of policymakers.

In Europe, this has translated into the EU Sustainable Finance Action Plan, which aims to: i) reorient capital flows towards sustainable investments; ii) manage financial risks stemming from climate/environmental/social issues; and iii) promote transparency and long-termism in financial and economic activity.

A market that could play a significant role towards Europe’s green transition is derivatives. The market has been tightly regulated since the 2007-08 financial crisis, making it safer and more transparent. Derivatives facilitate capital-raising via the hedging of risks related to sustainable investments. Moreover, they enhance the transparency and the price formation process of the underlying securities, and thus foster long-termism.

This report highlights how derivatives markets can – through their forward dimension, their global and consolidated nature, and their proper regulation – contribute to:

  1. enabling the EU to raise and channel the necessary capital towards sustainable investments;
  2. helping firms hedge risks related to ESG factors;
  3. facilitating transparency, price discovery and market efficiency; and
  4. contributing to long-termism


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About the authors

Karel Lannoo has been CEO of CEPS since 2000, a Leading Independent Think Tank on European Policies, ranked among the top 10 think tanks in the world. He is General Manager of the European Capital Markets Institute (ECMI) and the European Credit Research Institute (ECRI), both operated by CEPS.

Apostolos Thomadakis, Ph.D. is a Researcher at the European Capital Markets Institute (ECMI), an independent research institute run by CEPS’ Financial Markets and Institutions Unit.

ESG resilience during the Covid crisis: Is green the new gold? by J. Barbéris and M. Brière, European Capital Market Institute (ECMI)


On the 9th of July, the European Capital Market Institute (ECMI) published a Policy Brief by Jean-Jacques Barbéris and Marie Brière named ESG resilience during the Covid crisis: Is green the new gold? which addressed the impact of the Covid-19 crisis on global equity markets and analysed the subsequent investment behaviour.

The resilience of Environmental, Social, Governance (ESG) funds is not completely new. During the Covid-19 crisis – which clearly has strong social and environmental implications – investors perceived their strong performance as a defensive characteristic and cumulative flows continued to increase while massive sales occurred in traditional funds.

The analysis is this commentary shows that investors’ preference for ESG compared to conventional funds has not lessened – quite the opposite, in fact. At the EU level, the focus on ESG is likely to remain strong for asset managers and institutional investors. On a policy level, this has been supported so far by the Action Plan on Sustainable Finance and will continue with the upcoming Renewed Strategy.


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About the authors

Jean-Jacques Barbéris is Head of Institutional and Corporate Clients Coverage at AMUNDI.

Marie Brière is Head of Investor Research Center at AMUNDI, Affiliate Professor at Paris Dauphine University and Member of the ECMI Academic Committee.

Policy Insight | SURE – From temporary facility to permanent instrument | CEPS

Short time-work (STW) schemes have proved to be the ace card in member states’ response to the social and employment crisis induced by the Covid-19 pandemic. In mid-May 2019, almost 50 million workers (or 26.8% of the European workforce) applied for the support of STWs schemes.

The highest share of workers in STW schemes was registered in France (with 11.3 million, 47.8% of the workforce); Italy (with 8.3 million, 46.6% of the workforce): Germany (10.1 million, 26.9% of the workforce); and Spain (4 million, 24.1% of the workforce).[1]

While these numbers are likely to increase, they already exceed the number of STW allowances that were paid out during the 2008-09 crisis. In the third quarter 2009, Italy, Belgium, and Germany – the countries with the highest coverage of STW schemes in Europe – counted a total of 6% of all workers under such schemes. At this time only 12 member states had STW schemes in place; nine introduced them between 2008 and 2009 (Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, the Netherlands, Poland, Slovakia and Slovenia). Another reason for the disparity in member states’ coverage is that in 2008-09 short-time work schemes were of limited scope and mainly applied to workers with open-ended contracts.. Conversely, as soon as the pandemic took hold, member states modified the institutional design of STW schemes to cover workers who were not formally included, to loosen or speed up access to the instruments, raise subsidies, extend the maximum duration of STW and protect workers against dismissal once the subsidy ended.

According to the 2020 country stability programmes, the budgetary impact of the STW schemes and similar discretionary measures adopted to face the Covid-19 is significant. In Italy and France, the expenditure amounted to 1.1 % of the GDP and in the Netherlands 1.8%.[2] The budgetary effort, however, affected member states asymmetrically; they entered the pandemic with different fiscal positions and highly indebted countries had less fiscal space to face the challenges of the crisis than less indebted ones.

The proposal for a Support to mitigate Unemployment Risks in an Emergency (SURE), despite some limits, represents a first step towards a European job insurance scheme that helps to preserve employment in firms temporarily experiencing weak demand and to cushion the social consequences of mass redundancies. Furthermore, the counter-cyclical nature and a significant volume of resources mobilised make SURE Europe’s first step towards a EU fiscal capacity stabilisation instrument.

SURE remains, however, a temporary mechanism, not only in the temporal sense, but also because its existence depends on the evolution of the Covid-19 crisis. From a legal perspective, indeed, SURE is based on Article 122(2) TFEU, which allows the European Union to provide financial assistance to member states in difficulty due to exceptional circumstances beyond their control. In the legal provisions of SURE, such conditions are clearly specified as being Covid-19 related. This means that if another crisis were to occur in the future, SURE would not be in the EU’s toolkit to provide immediate support to the countries in need.

One key reason for this is that the capacity of the EU to provide member states in need with financial support under SURE ultimately relies on the guarantees offered by all individual member states in this specific context.

In order to transform SURE into a permanent mechanism (yet still for temporary support) the Commission should be able to access such guarantees without waiting for the ad hoc consent of each and every member state.

One realistic option to do so is to frame SURE as a special instrument outside the MFF ceilings under Article 175 (3) TFEU. The activation would still be triggered by the request of a member state facing an exceptional and unexpected crisis that led to a steady rise in expenditure for STW schemes and similar measures. Such a request would still be submitted to the Commission to then propose a financial assistance agreement to the member state in need, which would be finally formally approved by the Council with a qualified majority vote.

Two examples of existing instruments based on Article 175(3) TFEU are the European Solidarity Fund and the European Globalisation Adjustment Fund, which are special instruments outside the Multiannual Financial Framework (MFF) and provide support to member states in exceptional circumstances (e.g. natural disaster or large-scale redundancies). Both these instruments, however, provide grants, while SURE offers loans.

A better comparison to appreciate SURE as a permanent instrument is therefore the European Investment Stabilisation Function (EISF), proposed by the Juncker Commission in 2018, though never adopted. Similar to SURE, EISF was designed with the possibility for the Commission to offer back-to-back loans to countries facing asymmetric shocks they could not manage on their own. And like the EISF, SURE would operate under the “margin available under the own resources ceiling for payment appropriations” (Regulation 407/2010).

At the moment, two other lending programmes operate under the same scheme, the Balance of Payments assistance facility and the European Financial Stability Mechanism. As both cover the maximum amount of own resources the EU may raise in one year (1.20 % of the EU’s GNI in the current MFF 2014-20), in the case of a permanent SURE, an increase of the own resources ceiling should be envisaged.

All this should be possible. The Commission has already expressed its intention to build on SURE to propose a permanent instrument, and the European Parliament has long given its support for a loan-based stabilisation capacity within the MFF. No strong opposition should come from member states because, as the current crisis shows, any country can find itself in trouble and benefit from SURE.

[1] Data retrieved from Müller and Schulten (2020)

[2] Data retrieved from EC assessment of stability programmes, available here.


This commentary has originally been published by CEPS

Policy Insight | Next Generation EU – Shock absorber or larger, debt-financed EU budget? | CEPS

The Franco-German agreement to support those hardest hit by the current crisis with a €500 billion fund to be financed by new EU debt appeared to have cleared the way for a major European instrument. The ‘Next Generation’ instrument would help member states absorb shocks by providing the weaker economies with grants. The European Commission used this political breakthrough to propose a €750 billion instrument – to be added to the normal budget of the EU. Unfortunately, the Commission’s proposal is more like an enlarged standard EU budget than a shock absorber.

For a long time, a recurring criticism of the euro area has been that mature federations and monetary unions, like the US, have shock absorbers that mitigate the impact of idiosyncratic shocks to member states or regions (Eichengreen et al. 1991).[1] The creation of a common fund could thus be of strategic importance for the long-term stability of the euro.

Closer inspection of the Commission’s plan shows that shock absorption only plays a minor role. The Commission communique proposing the Next Generation fund (NGEU) does mention solidarity, but only once. The main purpose is described as:

To ensure the recovery is sustainable, even, inclusive and fair for all Member States…”  

This implies that the new instrument has four purposes, of which only the last could be related to solidarity or shock absorption. It is natural for politicians to assume that one instrument can serve many goals. But this ambiguity confronts reality when funds have to be allocated. Each euro can be spent only once.

Looking at the proposed allocation of the funds, one finds that less than one-tenth of the total (55 bn) should be “allocated based on the severity of the socio-economic impacts of the crisis (under REACT-EU), which is presented as a top-up of current cohesion policy.[2]

The most important part of Next Generation EU is a new Recovery and Resilience Facility of €560 billion, whose purpose is to offer financial support for investments and reforms, including in relation to the green and digital transitions and the resilience of national economies, linking these to the EU priorities – but with no reference to the impact of shocks.

The bulk of Next Generation EU should thus not be allocated to help absorb a shock, but to provide financial support for investment linked to EU priorities. This absence of a clear shock-absorption purpose has made it difficult for the Commission to justify the allocation of funding. The Commission has published detailed background information on a complicated formula used to pre-allocate most of the funds on the basis of the Commission’s spring forecast and past unemployment rates.[3]

But forecasts are by definition uncertain, and this degree of uncertainty is extreme at present. There are huge differences between the forecasts of various international financial institutions and those of the private sector, with all of them changing rapidly as the weeks go by. This ‘veil of ignorance’ represents a unique opportunity to agree on a shock-absorption instrument for the EU. But the funding for such an instrument should be linked to real actual economic shocks, not some pre-fixed formula, even if based on the forecasts of shocks.

Introducing the notion that the NGEU funds could be pre-allocated has not only killed the idea that it could serve as a shock absorber, it also has had a deleterious effect on the political economy of the negotiations. With pre-allocation, member states will now feel justified to follow the principle of juste retour and simply try to maximise the amounts they can obtain in grants or loans. This will make it much more difficult to reach an agreement, and those hardest hit by the crisis might not end up with the biggest slice of the pie.

Allocating funds ex post in line with the actual economic impact of the pandemic would be possible; in any case the funds will not flow immediately because member states must present credible plans for how to spend the money. It would thus be possible, indeed preferable, to not pre-allocate the funds to individual member states but to make the allocation a function of the economic shock sustained, with the exact amount of funds to be determined as new data comes in.

The Commission should change its approach urgently and make clear that there should be no pre-allocation of funding under the Next Generation EU fund. Without this change of course the EU will just end up with a temporarily larger budget and miss the chance to create a real shock-absorption mechanism that could have a major stabilising impact in the long term.

[1] B. Eichengreen, M. Obstfeld and L. Spaventa (1990), “One money for Europe? Lessons from the US currency union”, Economic Policy, 118-187.

[2] A €55 billion top-up of the current cohesion policy programmes between now and 2022 under the new REACT-EU initiative to be allocated based on the severity of the socio-economic impacts of the crisis, including the level of youth unemployment and the relative prosperity of member states.

[3] Other factors enter as well: population, inverse GDP per capita and youth unemployment, see https://ec.europa.eu/commission/presscorner/detail/en/ip_20_940.


This Op-ed has originally been published by CEPS

Analysis | Artificial intelligence’s great impact on low and middle-skilled jobs | Bruegel

Artificial intelligence and machine learning will significantly transform low-skilled jobs that have not yet been negatively affected by past technological change.

Originally posted by: Bruegel

By: and

The academic literature suggests that, in the past decades, technological progress has led to job polarisation in European Union countries. While computer technologies and robots have replaced, to some extent, routine middle-skilled jobs such as machine operation, construction work or administrative work, they have also led to an increase in complementary, non-routine high-skilled jobs (eg managers, professionals) and in low-skilled jobs (eg agriculture, cleaning and personal care services). However, our new research suggests that the new technologies that have emerged since 2010 – artificial intelligence and machine learning – are set to change drastically the job landscape over the next few decades. These technologies are likely to have a deeper impact across a wider range of jobs and tasks, including possible destruction of low-skilled jobs.

(…) new technologies that have emerged since 2010 – artificial intelligence and machine learning – are set to change drastically the job landscape over the next few decades. These technologies are likely to have a deeper impact across a wider range of jobs and tasks, including possible destruction of low-skilled jobs.

Artificial intelligence (AI) systems are able to perform tasks that involve decision-making, therefore changing the impact of automation on the workforce. AI-powered technologies can now retrieve information, coordinate logistics, handle inventories, prepare taxes, provide financial services, translate complex documents, write business reports, prepare legal briefs and diagnose diseases. Moreover, they are set to become much better at these tasks in the next few years thanks to machine learning (ML): computers fed by big data can learn, practice skills and ultimately improve their own performances and perform their assigned tasks more efficiently.

Our new working paper evaluates the ‘probability of automation’ for different jobs, using data from 24 European countries. This probability is initially computed at the job task level and then aggregated at the occupational level (Table 1). Since each job consists of a variety of tasks, with different potential for automation, the probability of automation at the job level does not necessarily mean the destruction of jobs, but rather whether automation can significantly transform the nature of those jobs.

Table 1: European jobs with the highest and lowest probabilities of automation

Source: Brekelmans and Petropoulos (2020) based on Nedelkoska and Quintini (2018).

We use this measure of automation in an aggregate framework where jobs are grouped into three different categories of skill: low, middle and high-skilled jobs. Figure 1 shows the results.

Figure 1: Exposure to automation of different skill groups

Source: Brekelmans and Petropoulos (2020).

These results suggest that artificial intelligence and machine learning will have different impacts compared to computer and robotic technologies, which caused job polarisation (drop in routine middle-skilled jobs and increase in low-skilled jobs). In contrast, AI is highly likely to significantly alter not only middle-skilled jobs, but also low-skill employment. Moreover, while the high skilled are relatively less at risk from AI and ML-induced transformation, its impact is still non-negligible for these jobs.

The results also suggest a future transformation of work. In middle and low-skilled jobs, AI systems will complete the easily automated tasks while humans continue to perform those that cannot be automated. A high probability of automation may also be associated with the creation of new tasks and jobs though the productivity gains from adopting AI technologies, but these jobs and tasks will most likely be high-skilled.

The transformative nature of AI and ML requires proactive measures to re-design labour markets. Countries with high degrees of labour flexibility, high quality science education and less pervasive product market regulations tend to have higher skill-oriented job structures and are therefore less exposed to labour transformation due to automation.

The transformative nature of AI and ML requires proactive measures to re-design labour markets. The workforce needs to be prepared for the upcoming changes, while the efficiency gains from these technologies should be harnessed. Countries with high degrees of labour flexibility, high quality science education and less pervasive product market regulations tend to have higher skill-oriented job structures and are therefore less exposed to labour transformation due to automation.

Recommended citation
Brekelmans S., G. Petropoulos (2020), ‘Artificial intelligence’s great impact on low and middle-skilled jobs’, Bruegel Blog, 29 June, available at https://www.bruegel.org/2020/06/artificial-intelligences-great-impact-on-low-and-middle-skilled-jobs/

Analysis | Germany’s heavy burden | Europp – LSE Blog

Germany will take over the presidency of the Council of the European Union today. Nele Marianne Ewers-Peters writes that the country will face the unenviable task of attempting to chart a path of recovery from the Covid-19 pandemic, while also addressing the numerous other issues and commitments confronting the EU’s member states.

As Germany takes over the presidency of the Council of the European Union today, it will be faced with the task of leading the Union out of crisis mode and toward a path to recovery. In this crisis-ridden EU, Germany will need to set the agenda and strike a clear balance between the many existing demands and expectations it now confronts, yet without emerging as the EU’s Zuchtmeister (disciplinarian) once again.

Even prior to the Covid-19 pandemic, Germany’s presidency agenda included negotiations over the EU’s Multiannual Financial Framework (2021-2027), reform of the asylum system and burden-sharing for incoming refugees, the Green Deal, which was introduced by the European Commission in 2019, and the negotiations over the EU’s future relationship with the UK. Moreover, tensions in the transatlantic relationship with the US, an EU summit with China, and on-going sanctions against Russia linked to the Ukraine conflict form another list of priorities and responsibilities that will need to be tackled sooner rather than later.

With the spread of Covid-19, however, the winds have turned. Germany’s Ambassador to the EU, Michael Clauß, has already expressed concerns the country will not be able to implement its ambitious programme and that it will have to primarily focus on the economic and financial recovery from the pandemic. What has become clear is that Germany, as Europe’s economic giant, will have to act as the balancer and broker among the other member states, their demands and expectations. Only by navigating through the EU’s diverging interests and addressing the risk of general fragmentation will Germany be able to move the EU closer to a community of stability and solidarity.

Immediate priorities and challenges

Covid-19 has changed Germany’s priorities and the ensuing crisis will have a significant impact not just on the German presidency, but on the ‘trio’ of presidencies over the next 18 months that includes Portugal and Slovenia. During the last decade, it has become clear that in times of crisis, EU member states tend to turn inwards to ensure their own well-being. Solidarity is cracking under the strain – and not only among the more Eurosceptic countries.

Angela Merkel at a European Council meeting in February 2020, Credit: European Council

Germany’s key task will be to create and implement a well-structured recovery plan that will allow all member states to benefit equally. While southern European countries, particularly France, Italy and Spain, have been among the hardest hit by the spread of Covid-19, they were also experiencing economic problems before the pandemic. Indeed, Covid-19 is just the latest in a long list of developments that have placed the EU in an almost permanent crisis mode. The refugee and migration crisis, as well as the fallout from debates over the rule of law in Hungary and Poland, have all demonstrated a lack of solidarity that is once again clearly visible. Germany’s presidency is thus likely to be dominated by crisis management initiatives.

At the same time, the EU must bolster its position internationally. Its response to Covid-19 will be balanced against the need to maintain cooperation with both China and the United States as the Union’s key trading partners. As China and the US have clashed over the outbreak and have ongoing disputes over trade and other geopolitical issues, the EU has a clear incentive to underline its status as a strong and global actor. Germany’s EU presidency was supposed to lead the Union towards a stronger global position and greater stability, but it is now expected to focus on stronger solidarity among the EU-27 and facilitating a speedy recovery.

Balance as the way forward

The only way forward for Germany during its EU presidency will be to balance its commitments and priorities. First, finding a balance that can accommodate the other EU member states will be key to avoiding fragmentation. Some member states are more affected by Covid-19 than others and new dividing lines between southern, northern and eastern members have emerged. Only by balancing these competing demands and building on Angela Merkel’s cautious and goal-oriented approach can Germany hope to ensure the stability of the Union in the long-term.

Second, it will have to balance its priorities, responsibilities and tasks. While the immediate priority is ensuring a speedy recovery from Covid-19, other long-term strategies cannot be kept out of sight. The Green Deal, the next Multiannual Financial Framework, maintaining economic and fiscal stability, and the EU’s foreign policy and external relations will all have to be on the agenda in some form. To meet the ambitions set out by the Commission in 2019, all actors will have to pull together.

For a speedy return to normality, cooperation with external actors will be vital and here, again, balance will be key. Other crises, such as tensions in Ukraine and instability in the Mediterranean, have not vanished. Germany and Europe will be best served by balancing their relations between the East and West: fostering the transatlantic relationship with the US is key for Europe’s security, but it must also maintain good relations with China as one of its main trading partners.

As the agenda-setter for the second half of 2020, Germany carries a heavy burden. Achieving a speedy and equal recovery for all EU member states is a question of unity and solidarity. But if Germany is able to balance its commitments and demands, the EU can emerge as a stronger and more stable Union.

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Note: This article gives the views of the author, not the position of EUROPP – European Politics and Policy or the London School of Economics.

About the author

Nele Marianne Ewers-Peters – University of Kent
Nele Marianne Ewers-Peters is Research Fellow at the Global Europe Centre at the University of Kent. She previously taught at the University of Kent and University College London. Her research focuses on the relationship between security organisations including the AU, EU and NATO and the role of member states therein.

Analysis | How EU external energy policy has become ‘supranationalised’ – and what this means for European integration | Europp – LSE Blog

Since the beginning of European integration, EU member states have been reluctant to share competences over their external energy relations. Against this backdrop, the new requirement to have bilateral energy agreements assessed by the Commission implies a surprising expansion of supranational powers in energy diplomacy. Philipp Thaler and Vija Pakalkaite take a closer look at this development and find that it is closely linked to a novel instrument for compliance governance. As peculiar as this case may seem at first sight, the underlying procedural expansion of supranational governance capacity may play a growing role in future chapters of European integration.

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