Featured Analysis

Policy Insight | Cross-border data access in criminal proceedings and the future of digital justice | CEPS

When investigating and prosecuting crime, a wide range of law enforcement and criminal justice actors increasingly seek to obtain electronic data held by service providers that are subject to another jurisdiction. Yet the processing of cross-border requests for cross-border electronic information raises several legal and practical dilemmas related to basic rule of law and fundamental rights safeguards.

This report examines the ways in which data can currently be requested, disclosed and exchanged, in full respect of the multilayered web of legally binding criminal justice, privacy and human-rights standards that apply within the EU, and in cooperation with third countries. It presents the result of discussions between members of a Task Force set up jointly by CEPS and the Global Policy Institute at Queen Mary University of London. Members of this Task Force included EU and national policymakers, providers of internet and telecommunication services, prosecutors, criminal lawyers, civil society actors and academic experts.

The report initially reviews the set of EU constitutional principles and legal instruments that uphold the existing framework for judicial cooperation in cross-border data gathering. It then looks at initiatives promoted by third countries and at the international level to establish various forms of cross-border public-private cooperation, before examining the e-evidence proposals currently discussed at the EU level.

Based on the inputs of the Task Force members, the report identifies a set of policy, normative and technical solutions that can facilitate rule of law-based and fundamental rights-compliant judicial cooperation for the purpose of cross-border gathering and transfer of data in criminal proceedings.

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Policy Insight | EU Trade and Investment Policy since the Treaty of Lisbon | CEPS

This paper analyses the most salient developments in the EU’s trade and investment policy since the entry into force of the Treaty of Lisbon, and sketches the key trade challenges and priorities for the current Commission. In particular, it analyses how the EU institutions applied their newly conferred competences within a new institutional set-up in order to address the various internal and external challenges facing EU trade policy.

The paper demonstrates that since the entry into force of the Treaty of Lisbon more than a decade ago, the EU institutions have had to constantly use their newly conferred competences within a new institutional set-up to address the various internal and external challenges. Moreover, it argues that a more assertive trade policy under the ‘geopolitical’ von der Leyen Commission will be consolidated and further reinforced in the ongoing trade review of the EU’s trade policy, which will aim to contribute to the EU’s post-Covid 19 recovery in line with the EU’s new ‘Open Strategic Autonomy’ model.

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Policy Insight | Measuring price stability in Covid times | CEPS

The recent fall in both headline and core inflation in the euro area has increased pressure on the European Central Bank (ECB) to adopt further measures to stimulate the economy. With headline inflation turning negative for two months, additional measures seem to be warranted. However, inflation data based on consumer prices should not be the only guide for policy in the kind of turbulent times we are currently experiencing. A broader price index such as the GDP deflator provides important additional information for policy decision.[1] This broad indicator is increasing at a rate of around 2%. There seems to be no danger of broad-based deflation.

How to measure price stability?

The main aim of the ECB is to preserve price stability, which it has defined as an inflation rate of “below, but close to 2%”. To calculate the inflation rate, the ECB uses the harmonised index of consumer prices (HICP). This is harmonised across countries and covers the consumption baskets of representative households. Changes in HICP captures changes in purchasing power that can affect aggregate demand and consumption in particular. For this reason, it is a key variable for public perceptions of price developments and can be more easily understood than the more abstract concept of the GDP deflator. This is why it has been adopted by the ECB as the reference metric. Likewise, measures of expected inflation-based consumer prices vary widely, both in the form of surveys and those derived from inflation-protected bonds (which are based on measures of the consumer price indices (CPI), rather than the GDP deflator).

The GDP deflator is an alternative measure of inflation. It measures the difference between nominal and real GDP and, unlike the HICP, captures changes in prices related to production and income developments throughout the entire economy. The GDP deflator incorporates not only the prices of domestically produced consumer goods and services, but also other categories of prices, such as the prices of capital goods, including government spending. Crucially, and unlike the HICP, it excludes taxes and the prices of imports. It is not affected, therefore, by changes in tax policies and input price developments. In recent years, this latter aspect has become important in a context of volatile commodity prices.

These two different measures of inflation (CPI and GDP deflator) have a slightly different economic meaning and their relevance can change over time. The main concern is that measures of inflation based on consumer prices are more relevant in a context where there are developments in demand, and in particular households’ propensity to spend and their purchasing power. This was the case during the ‘Great Moderation’ in the early 2000s when development in private debt was largely disregarded. With the advent of the financial crisis, high levels of government and corporate debt became the key issue for macroeconomic policy. Debt sustainability for governments and corporates depends more on the growth of their revenues, i.e. nominal GDP, than on consumers’ purchasing power as measured by the CPI.

The Covid-19 pandemic differs from previous crises in that it has had a strong impact on consumption patterns, with demand disappearing for some goods and services and being temporarily in excess for others. Moreover, goods or services requiring close contact have changed in nature and/or have become subject to restrictions. All these aspects are not necessarily reflected in the baskets used to compute the price indices. Indeed, recent research[2] points to the fact that the Covid-19 pandemic has led to changes in consumer expenditure patterns that can introduce significant bias in the measurement of inflation. The results suggest that the official CPI, measured in its standard composition, understates the actual inflation rate. In addition, as part of the response measures to Covid, many governments have lowered VAT rates, contributing to a fall in consumer prices. In most countries – Germany is one example – the VAT reduction is temporary, implying that measured CPI inflation will increase again next year when the tax cut is reversed. A forward-looking central bank should look beyond this temporary effect.

Figure 1, which shows the annualised growth rates of the headline HICP, the core index and the GDP deflator by quarter[3] over the past two years, indicates three very different states of inflation. Since the beginning of the year, HICP inflation has been falling drastically and even turned negative in the last observation. By contrast core inflation is still positive but on a declining trend. The GDP deflator is on an increasing pattern, despite the recession, and above the target. Even before the pandemic, the GDP deflator had been much closer to the ECB’s 2% target than the core CPI. This suggests that, pre-Covid, the broader, underlying price trends have been less deflationary than often assumed.

If one takes a longer time perspective (see Figure 2), it is apparent that the HICP headline inflation rate has been very volatile over the past few years, and much more so than other measures of inflation. This is mainly due to shifts in energy prices. It is not the first time the GDP deflator provides a different signal than consumer prices-based measures. For example, in early 2011, the ECB was concerned about an increase in inflation, mainly induced by higher oil prices. The GDP deflator, however, was weaker. If the ECB had given some weight to this indicator, it might have avoided what later turned out to have been a too-tight policy stance.[4]

In the present context of high debt, volatile oil prices combined with temporary but significant changes in consumption, the information coming from consumer price measures is very loud. In these circumstances, policymakers should take into account developments in the GDP deflator, which for the time being do not point to additional easing measures. We do not argue that the ECB should redefine its policy target in terms of the GDP deflator, but it should consider this variable when setting policy.[1] Taylor (1993) showed that the policy of an inflation-targeting central bank could be described by a simple rule in which the central bank reacts to ongoing inflation. In the original specification, the proper measure of inflation is the broadest possible price index, namely the GDP deflator. See also Bernanke (2015)

[2] See for instance Cavallo (2020) and Seiler (2020)

[3] A major drawback of the GDP deflator is that it is available only quarterly and with a lag.

[4] See Alcidi et al. (2016)

Assessing Next Generation EU | Europp – LSE Blog

The unprecedented fiscal package adopted by the European Council this summer – dubbed Next Generation EU – is vital for the recovery of the euro area, write Lorenzo Codogno and Paul van den Noord. However, they estimate that the creation of a Eurobond and permanent fiscal capacity at the centre would have been a more powerful means to mitigate the impact of the crisis.

Featured Image Credit: European Council

The magnitude of the Covid-19 shock to economic activity in the Eurozone and elsewhere is unprecedented in post war history. The OECD, for instance, currently expects the Eurozone economy to shrink by 7.9% in 2020, almost twice the contraction in 2009. Yet the macroeconomic policy responses have been equally unprecedented, both at the national and pan-European levels. Most significantly, the Covid-19 pandemic finally broke the taboo on a pan-European fiscal policy, dubbed ‘Next Generation EU’.

Although the programme is not yet finalised, it is set to contain the following elements. The bulk of the fiscal expansion is provided in the form of grants and loans to member states by the Recovery and Resiliency Facility (RRF) amounting to €312.5 and €360 billion, respectively, summing up to roughly 5% of EU GDP. While the exact formulas are still under discussion, the intention is to spread out the transfers over the years 2021 to 2025, with the onus of the support on those countries that have been hit the most by the crisis. Alongside the RRF, member states would receive €77.5 billion under a range of other programmes, such as ‘ReactEU’ and the Just Transition Fund.

Using conservative assumptions on the multiplier effects, we estimate the impact on Eurozone economic growth to be a cumulative 1.5% by 2023 and 3.0% by 2027 (Figure 1). Most of this will benefit the Eurozone periphery, where the cumulative effect could be as large as 4% by 2023 and well over 8% in 2027.1 While impressive enough, this is excluding the impact of a range of other – national and supranational – policy initiatives that need to be taken into consideration as well. This will tell us whether or not Next Generation EU is indeed the game-changer it is intended to be, or not.

We use a stylised macroeconomic model developed in a recent paper that is aimed at capturing the cumulative impact of policy change over the medium run. We proceed in two steps, broadly reflecting the chronology of events. First, we look at both the national and pan-European fiscal responses (e.g. SURE) which were primarily shaped during the initial stages of the outbreak and the associated lockdowns in the spring, as well as the ECB’s monetary policy response. Next, we add in the impact of Next Generation EU.

Figure 1: Next Generation EU – estimated cumulative impact on real GDP

Source: European Commission, European Council, authors’ own calculations.

Finally, we compare these policy responses to a hypothetical case in which an alternative macroeconomic policy and governance framework is assumed along the lines of our paper. Specifically, we assume (i) a single Eurobond to replace national bonds on banks’ balance sheets so as to break the link between banking and sovereign distress, (ii) Eurozone fiscal capacity, including automatic stabilisers and discretionary (but rules-based) policy, and (iii) a new quantitative easing (QE) scheme that mandates the ECB to purchase Eurobonds (while national sovereigns lose QE eligibility and those still on the ECB’s balance sheet are swapped for Eurobonds as well).

All simulations assume that the core and the periphery are hit by an adverse demand shock of respectively -10% and -15% of GDP and an adverse supply shock of respectively -5% and -7.5% of GDP. This is obviously a very crude gauge of the Covid-19 shock, and views are bound to evolve as information flows in. Also, we assume a favourable risk premium shock of -200 bps in the core – and hence an equivalent shock to the spread – due to a flight to safety (this is aside from the endogenous change in the spread in response to the changes in debt positions).

Actual policy

Table 1 reports the computed changes in main aggregates and policy variables in the core, periphery and euro area at large. The first column, labelled ‘I’, shows the combined impact of:

1. Monetary policy stimulus consisting of a sustained 25bp cut in the policy rate2 and asset purchases amounting to 12.3% of GDP per annum sustained for two years.3 We also assume an exogenous cut in the periphery yield by 200 bps over and above the impact of the ECB’s asset purchases to reflect the availability of a new ESM credit line (though this may never be used for various reasons).

2. Fiscal stimulus amounting to 5.2% of GDP in the core and 3.2% of GDP in the periphery.4 Besides, we factor in a range of pan-EU measures adopted in the spring, such as React EU, that involve fiscal stimulus of the order 0.4% of GDP in the core and 0.8% in the periphery.

Table 1: Shock-responses

Note: Scenarios refer to: I = National fiscal responses + SURE + ESM credit line + monetary policy, II = I + ‘Next Generation EU’, III = Safe asset + permanent fiscal capacity.

Column II of the table reports the computed outcomes of the actual policy, including the impact of Next Generation EU. Specifically, while leaving all other assumptions unchanged, it is assumed additionally that:

1. Grants are allocated under the Recovery and Resilience Facility to the tune of 1.0% of local GDP in the core and 4.5% of local GDP in the periphery. As a result, the increase in the primary deficit at the centre would average around 3.5% of euro area GDP.

2. Loans are allocated to the tune of 0.4% of local GDP in the core and 6.7% of local GDP in the periphery. This leaves the primary deficit at the centre unaffected (loans are below the line). Still, it does have an impact on EU-debt (and a corresponding issuance of common bonds) of an additional 3.5% of Eurozone GDP.

3. About 20% of the above Next Generation EU package is assumed to be used for funding of existing national measures, which therefore would reduce the national fiscal stimulus accordingly.

The main results of the simulation can be summarised as follows:

1. The contraction of output is considerably smaller (-1.5%) with much less divergence between the core and periphery. The widening yield spread would be neutralised as well, while bank credit would not shrink. So, the package would be quite effective according to our stylised model.

2. On the fiscal side, we see the primary deficits at the national level still increasing substantially by 6% of GDP in the core and 3.5% of GDP in the periphery. Yet, especially in the periphery, this is a much smaller increase than in scenario I, helped by the more favourable macroeconomic environment, the less prevalent automatic fiscal stabilisers and the use of transfers from the centre to fund national programmes. The same holds for the public debt position.

Policy response with a safe asset and fiscal capacity

Scenario III reported in Table 1 is based on the following assumptions:

1. We maintain all national policy measures as well as the creation of the ESM credit line as assumed in scenarios I and II. We also assume the supranational fiscal stimulus (both loans and grants) on aggregate to be the same as in scenario II, but instead with the fiscal stimulus used to fund pan-European (as opposed to national) programmes and projects. The rationale for this choice is to avoid the crowding out of national spending programmes. We also slash the asset purchases by the ECB by half.

2. Alongside discretionary fiscal expansion at the centre, we assume supranational automatic fiscal stabilisers to cater for some horizontal redistribution. This could be the result of a centralised unemployment insurance or re-insurance scheme or the creation of a rules-based European buffer fund, for example. Specifically, we assume that for every 1 percentage point contraction in national GDP, an automatic transfer of 0.2 percentage points of national GDP would occur. This transfer replaces equivalent national automatic stabilisers to provide genuine fiscal relief.

3. We assume that a safe asset (the same common bond that is issued to raise money for fiscal stimulus at the centre) is created before the pandemic and swapped for national sovereigns on banks’ balance sheets to remove the bank-sovereign doom loop. We also assume that only the safe asset has been made eligible for purchases by the ECB. Hence all asset purchases carried out by the ECB in this scenario refer to purchases of the safe asset (in the secondary market).

The main results can be summarised as follows:

1. The aggregate stabilisation is more potent than in scenario II, though this is entirely attributable to the stabilisation of output in the core. This is not surprising given the absence of (discretionary) fiscal transfers. Yet the periphery is not (much) worse off relative to scenario II. Even so, the yield spread widens somewhat relative to scenario II, reflecting the absence of sovereign debt purchases by the ECB, but without affecting bank lending as the doom loop is broken.

2. The fiscal-monetary policy mix has shifted towards the former, with the aggregate fiscal deficit at the centre widening more than in scenario II – as the supranational automatic stabilisers kick in – and the asset purchases halved. Since the ECB would purchase the common bond only, its yield is now disconnected from the national yields and falls relative to them.

All in all, with a safe asset and a (partly rules-based) fiscal capacity, more of the pandemic shock would have been absorbed, with less quantitative easing needed. Moreover, the asset purchases would be directed to the safe asset rather than national sovereigns and hence avoid the political conflict this could entail and the need to keep the purchases in check with the capital key. The current policy response could be seen as a second-best, i.e. a less efficient way to respond to an economic shock, although still powerful, if not vital. This exercise shows that it would be worthwhile considering a more permanent macroeconomic stabilisation mechanism in the future.


1. The ‘core’ includes Belgium, Germany, France, Netherlands, Austria, Finland, Luxembourg, and, for the purpose of this exercise also Estonia and Ireland. All other Eurozone countries are included in the periphery.

2. This refers to the PELTROs which are available at a rate 25 bps below the REFI of -0.5%.

3. This comprises the additional envelope of the Asset Purchase Programme (APP) of €120 billion adopted in March 2020 and the Pandemic Emergency Purchase Programme (PEPP) with an envelope of €1,350 billion adopted in June 2020 (including an initial envelope of €750 billion adopted in March). Both are assumed to be extended by another year to a total of €2,940 billion or 24.6% of 2019 GDP.

4. Estimates based on data from Bruegel with some modifications.

Lending to European households and non-financial corporations: Growth and trends, by N. Kommuri, X. Li and R. Musmeci, European Credit Research Institute (ECRI)

On 5 October, the European Credit Research Insitute (ECRI) published a research report by Nagesh Kommuri, Xinyi Li and Roberto Musmeci named Lending to European Households and Non-Financial Corporations: Growth and Trends – Key findings from the ECRI Statistical Package 2020 analysing data on outstanding credit granted by monetary-financial institutions (MFIs) to households and non-financial corporations (NFCs) for the period from 1995 to 2019.

Key findings 

  • In 2019, loans to EU households and non-financial corporations (NFC) increased by 2.5%.
  • For the fifth year in a row, total loans in non-euro area countries grew more than loans in euro area countries.
  • Compared to 2018, the growth rate of total loans in 2019 increased from 1.9% to 2.4% in the euro area, and in non-euro area countries the growth rate was from 2.8% to 3.7%.
  • Between 2018 and 2019, household loans in EU increased by 3.5% and non-financial corporations (NFC) loans increased by 1.2%.
  • Total household loans grew most in Bulgaria (+13.5%), Hungary (+12.3%), Malta (+10.0%), Poland (+8.1%), Slovakia (+8.0%) and Lithuania (+7.8%). The largest contractions were registered in Greece (-8.6%), Cyprus (-5.2%).
  • Hungary (+8.1%), Austria (+6.7%), Luxembourg (+6.7%), Finland (+6.6%), Bulgaria (+5.9%) and Germany (+5.7%) were among the member states with the largest growth rates in NFC loans. Significant reductions were registered in Greece (-11.8%), Cyprus (-9.0%), Italy (-7.0%) and Ireland (-5.6%).
  • Since the Covid-19 outbreak the transaction flows and outstanding amount of loans to non-financial corporations have increased significantly, while household loans transaction flows have fallen and loan growth stabilised.

To purchase the ECRI Statistical Package 2020, please click here

About the package

The ECRI Statistical Package 2020 provides data on outstanding credit granted by monetary-financial institutions (MFIs) to households and non-financial corporations (NFCs) for the period from 1995 to 2019. Credit volumes and annual growth rates are broken down by sector and credit type to enable detailed insights into credit market developments over time and across countries. It comprises 45 countries including the EU Member States, UK, EU candidate and EFTA countries as well as the US, Canada, Japan, Australia, Russia, Mexico and Saudi Arabia.

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Policy Insight | Who will really benefit from the Next Generation EU funds? | CEPS

Southern and central-eastern European countries will be the biggest beneficiaries of financial support under the new EU Recovery and Resilience Facility and React-EU, as well as of the new Multiannual Financial Framework.

Two main risks might reduce the economic impact of these instruments, however: i) the traditionally slow absorption rate of European structural investment funds and ii) limits to the capacity of national governments to channel very large amounts of public investment.

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Policy Insight | Whose pact? The cognitive dimensions of the New EU Pact on Migration and Asylum | CEPS

This Policy Insight examines the new Pact on Migration and Asylum in light of the principles and commitments enshrined in the United Nations Global Compact on Refugees (UN GCR) and the EU Treaties. It finds that from a legal viewpoint the ‘Pact’ is not really a Pact at all, if understood as an agreement concluded between relevant EU institutional parties. Rather, it is the European Commission’s policy guide for the duration of the current 9th legislature.

The analysis shows that the Pact has intergovernmental aspects, in both name and fundamentals. It does not pursue a genuine Migration and Asylum Union. The Pact encourages an artificial need for consensus building or de facto unanimity among all EU member states’ governments in fields where the EU Treaties call for qualified majority voting (QMV) with the European Parliament as co-legislator. The Pact does not abolish the first irregular entry rule characterising the EU Dublin Regulation. It adopts a notion of interstate solidarity that leads to asymmetric responsibilities, where member states are given the flexibility to evade participating in the relocation of asylum seekers. The Pact also runs the risk of catapulting some contested member states practices’ and priorities about localisation, speed and de-territorialisation into EU policy.

This Policy Insight argues that the Pact’s priority of setting up an independent monitoring mechanism of border procedures’ compliance with fundamental rights is a welcome step towards the better safeguarding of the rule of law. The EU inter-institutional negotiations on the Pact’s initiatives should be timely and robust in enforcing member states’ obligations under the current EU legal standards relating to asylum and borders, namely the prevention of detention and expedited expulsions, and the effective access by all individuals to dignified treatment and effective remedies. Trust and legitimacy of EU asylum and migration policy can only follow if international (human rights and refugee protection) commitments and EU Treaty principles are put first.

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‘It’s not a French-German Europe’: How small creditor states stand up for their interests in the EU | Europp – LSE Blog

Featured Image Credit: European Council

It is often assumed that if both France and Germany support an EU proposal, it is likely to be implemented. Yet as Magnus G. Schoeller explains, this is not always the case. Drawing on a new study, he documents the success of smaller ‘creditor states’ in blocking Franco-German initiatives within Europe’s Economic and Monetary Union.

EU leaders recently agreed on a 750bn euro recovery package to fight the consequences of the Covid-19 crisis. The larger share of the jointly borrowed money shall be distributed to member states as grants (390bn) rather than loans (360bn). Apparently, the EU needed another crisis to set up a new stabilisation mechanism. When two years earlier France and Germany proposed a genuine Eurozone budget to stabilise the Economic and Monetary Union (EMU), the initiative failed. Instead of a Eurozone budget, member states agreed on a reform delivery tool called the ‘Budgetary Instrument for Convergence and Competitiveness’ (BICC). Ultimately, even the BICC was dropped in the context of the Covid-19 recovery package. No one protested.

The story of the failed Eurozone budget shows how smaller member states can prevent a Franco-German proposal from materialising. When the initiative was negotiated, a Dutch-led coalition of eight smaller EU countries succeeded in replacing the Eurozone budget proposal with a different instrument to incentivise national reforms. Since then, the ‘frugal states’ north of the Alps have no longer been willing to rely solely on Germany to advocate their interests. Against the backdrop of Brexit, which could lead to a power shift in favour of Germany and France, they have instead formed their own coalitions. In the words of Dutch Prime Minister Mark Rutte, they have made it clear that ‘it’s not a French-German Europe’.

However, small states lack the resources to block an unwelcome proposal right away. Therefore, they need to use strategies. ‘Issue replacement’ is one such strategy. If actors do not like an issue on the political agenda, they can try to reach a deal on another issue under the same label, thereby replacing the original proposal by stealth. The other negotiating parties may prefer a deal on the new issue to a costly victory, lengthy negotiations, or even no deal at all. This is especially true in political negotiations, where public salience increases the pressure on negotiators to bring home an agreement. In other words, striking a deal on a different issue while keeping the old label allows everyone to keep face.

This is precisely what happened to the Franco-German proposal. Although the initiative was far less ambitious than Macron’s original vision, it was a clear commitment to a stabilising budget for the Eurozone that would exist independently of the EU budget. The money originating from tax revenues, national and European resources should substitute national spending. By contrast, the BICC adopted by the Eurogroup one year after the Franco-German proposal was part of the EU budget, subject to structural reforms, conditional on national co-financing, and most of the funds would flow back to the member states providing them. To put it bluntly, money would be channelled to the Commission and Eurogroup, and come back with reform conditions attached. Still, the BICC was the final outcome of the Eurozone budget debate.

To be sure, the Franco-German initiative and the frugal counter-proposal were not new. When the Commission presented its roadmap towards ‘Completing Europe’s Economic and Monetary Union’ by the end of 2017, it suggested two different budgetary instruments: a reform delivery tool and a stabilisation function. At about the same time, eight smaller EU countries – the Netherlands, Finland, the three Baltics, Sweden, Denmark and Ireland – joined forces to promote their own views on EMU reform. They suggested supporting the implementation of structural reforms through the EU budget – but no stabilisation function. In the following two years, the ‘New Hanseatic League’, as the group was soon known, met regularly at the sidelines of Council meetings.

When Germany and France proposed their Eurozone budget, the Dutch Finance Minister wrote a letter on behalf of the eight Hansa countries – joined by Austria, Belgium, Luxembourg, and Malta – rejecting the proposal. In the June 2019 Eurogroup negotiations leading to the BICC agreement, the New Hansa countries succeeded in blocking all key features of a stand-alone budget while realising their own preferences of a reform delivery tool. There would be no stabilisation function and no budgetary instrument outside the EU budget. Instead, the instrument would focus on structural reforms and its size would be decided only under the rules and ceilings of the Multiannual Financial Framework (MFF).

The success of the New Hanseatic League comes with three innovative features in EMU politics: First, the policy entrepreneurship of the Netherlands reflects a change in the Dutch EMU strategy. While Dutch preferences on EMU reform were at the frugal end of the spectrum already during the Eurozone crisis, their strategy has changed from brokering a Franco-German compromise to forming a hawkish corner with smaller allies. Second, the New Hanseatic League operates without Germany. Formerly, these frugal states were represented by Germany. Once Germany found a compromise with France, the other states accepted the deal. With the New Hansa, however, EMU’s small creditor states built a new front in EMU decision-making. Third, while coalition-building and bargaining in the Eurozone usually takes place behind closed doors, the New Hanseatic League went public by making its position papers available online and cooperating with media outlets such as the Financial Times.

These features helped the New Hanseatic League replace the Eurozone budget proposal with the BICC. What is crucial to the success of this issue-replacement strategy, however, is that it allows all negotiating parties to keep face. After the June 2019 agreement, the French Finance Minister stated: ‘we did tonight what we had set out to do: we’ve created a genuine eurozone budget.’ Talking about the same agreement, the Dutch Finance Minister commented that ‘no matter the noise people feel they have to make, this is about competitiveness and convergence and not in any way about stabilisation’. After the details were settled in the October agreement, the French minister reiterated that ‘we are now not far from having concretely the eurozone budget that we were expecting’. The Eurozone budget proposed by France would have existed outside the EU budget with a volume of three to four per cent of the Eurozone’s GDP to provide fiscal transfers in the case of economic shocks. Even if the BICC had finally materialised, none of these features would have been achieved.

The story of the failed Eurozone budget shows how small states can prevent a Franco-German initiative from translating into actual EU reform. To reach this end, it seems more promising to make a counter-proposal, which may even replace the original proposal, than simply trying to veto an initiative. This is all the more true in view of the UK’s exit from the EU, in which frugal and integration-sceptical states have lost a powerful veto player at their side. The latest episode of the ‘Frugal Four’ opposing the Franco-German initiative for a grant-based Covid-19 recovery fund repeats the new pattern. Fiscally conservative states in EMU are no longer willing to rely on Germany to defend their interests, but rather team up and make their own voices heard. However, this new role also implies more responsibility for the common good. Opposing a Franco-German reform proposal may easily result in a deadlock that could exacerbate the EU’s crises – not only in the realm of economic and monetary policy.

Policy Insight | Migrant integration policies at the local level in Belgium | CEPS

While integration policies are traditionally decided at the national and regional levels (e.g. inclusion in the welfare system, and access to education), integration itself essentially happens locally. In the case of Belgium, local authorities and stakeholders can implement national policies differently and design their own programmes, which can lead to different levels of migrant integration, even though the institutional and regulatory framework at national level is the same for all regions and local authorities. This study analyses these differences at the Belgian local level to understand which factors and measures are more successful than others.

Results show that the major elements hindering integration are: weak communication and coordination of key integration players; lack of awareness of responsibilities and goal-setting at the local and regional levels; inconsistent access to funds; the lack of stakeholder networks in Belgium; inconsistency in the interests of stakeholders; and the absence of a comprehensive response and sense of political priority.

The paper suggests that a target-based approach, combined with efficient communication and cooperation between different institutions, are important factors in improving the integration of immigrants at the local level. In municipalities where different institutions face conflicts of interest or a lack of communication channels, integration appears to be less successful, mostly due to poor outreach to the disadvantaged groups (e.g. non-EU migrants) by employment services and other integration initiatives.

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Policy Insight | Paving the way for future labour migration – A Belgian-Tunisian Skills Mobility Partnership | CEPS

Since September 2017, the European Commission has been encouraging the use of new approaches to broaden labour migration to the EU. In response to this call, several pilots for skill mobility partnerships are being tested by partner countries with, for example, different target groups (e.g. recent graduates or young professionals), types of contract (e.g. internship or work) or duration.

The IOM skills mobility partnership between Belgium and Tunisia highlights the importance of multidimensional cooperation between different stakeholders from both countries (e.g. immigration office, public employment services, employers’ associations) throughout the implementation of the project (e.g. in assessing labour market needs, streamlining procedures, selecting candidates). Throughout this pilot project, IOM improved its understanding of the private sector’s interest in international hiring and the difficulties faced by companies with this issue, while companies became acquainted with different aspects of international labour migration such as ethical recruitment practices and skills recognition.

All participants found a job after their internship in Belgium, the great majority back in Tunisia and some in a subsidiary of the Belgian host company. The project therefore achieved its main objectives of i) providing concrete opportunities for skills mobility to third country nationals while ensuring skills return, ii) meeting the labour market needs in terms of skills, and iii) supporting the private sector’s interest in international hiring. Foreign investment on the part of some of the Belgian host companies was but one positive spillover from this project.

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