Opinion & analysis

Policy Insight | Reading between the lines of Council agreement on the MFF and Next Generation EU | CEPS

The recent agreement on the EU budget is an unprecedented and historic achievement for the European Union. It has broken a taboo and advanced the integration process. We all saw that the negotiations were arduous, but given the magnitude of the challenge facing the heads of state and government, it would have been naïve to expect otherwise.  It is virtually impossible to find a comparable agreement between numerous countries in any other part of the world; by this measure alone it is impressive.

Having said that, what has been agreed is complex and bewildering to many. While attention has focused on the Next Generation EU, the agreement also includes the ‘normal’ multiannual financial framework (MFF) 2021-27. Comments to the effect that the EU has deleted all funding for health, or much of the research budget, are based on the Next Generation EU ‘temporary’ measure and not on the underlying MFF.

This paper aims to present a brief rundown of the actual changes in numbers and reflect on the meaning of the agreement.

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Policy Insight | Compulsory licensing and access to future Covid-19 vaccines | CEPS

Since the recent World Health Assembly failed to declare future Covid-19 vaccines a global ‘public good’, they are confirmed as private (intellectual) property and will be subject to patent rights protection as a pharmaceutical product. This confirmation could, however, trigger concerns about access to vaccines on the grounds of public health, which is a valid consideration for both developing and developed countries, including EU member states.

Would developing countries have access to affordable Covid-19 vaccines, once available? Would an EU member state be eligible to import generic versions of a patented vaccine if it has insufficient or no manufacturing capacity? Moreover, how to enable an expeditious and predictable multiple patent examination process so that Covid-19 vaccines could become market-ready more efficiently?

This paper examines compulsory licensing and Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health as policy alternatives to voluntary licensing for access to affordable future Covid-19 vaccines. With regard to manufacturing capacity, the EU and its member states may not be eligible to import since they opted out of the Paragraph 6 system outright (although they may still export under the same system). Fortunately, this does not appear to be a major problem since statistics show that most EU27 imports of all pharmaceuticals are from Europe itself, with China a distant second supplier.

For China, however, its pharmaceutical-related patent protection measures under the US-China Economic and Trade Agreement on admissibility of supplemental test data and effective patent-term extension are conducive to a predicable multiple patent examination process for streamlined searches and consistent examination results. To this end, a few initiatives launched in the past at regional and international levels, such as the European Patent Convention and the Patent Cooperation Treaty and, among the world’s largest patent office, the Trilateral Cooperation (on patent) and IP5 Cooperation, for example, will be essential to deliver on these objectives. As contracting members, EU member states will benefit from all these mechanisms.

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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.

Policy Insight | Presidential elections in Poland – Politically toxic, legally dubious | CEPS


The re-election of Polish President Andrzej Duda cements the politically toxic status quo and may serve as a catalyst for further acts of constitutional vandalism. This has implications for both Poland and the European Union, which should brace itself for a rocky yet predictable ride with the authorities in Warsaw. With the elections over now, the aftertaste is especially bitter because the process itself was legally dubious.

Implications for Poland

A cliché it may be, but Poland’s political landscape is polarised. In this respect the presidential elections have changed little, other than making the interaction between the two main parties – Prawo i Sprawiedliwość (PiS, Law and Justice) and Platforma Obywatelska (Civic Platform) – even more partisan than before. The elections have simply proved that society is split down the middle.

After a brutal campaign, Andrzej Duda won by a very slim majority of 51.03%, with Rafał Trzaskowski polling 48.97%. The incumbent president enjoyed most support in eastern Poland, particularly in rural constituencies. The results contrast starkly with those of Rafał Trzaskowski, who had major gains in western Poland and in bigger cities overall. In many respects these results are impressive, given that he joined the presidential race almost at the last minute and that – throughout his campaign – he had to contend with all manner of allegations, innuendos and attacks by PiS and the state-owned media.

The rhetoric coming from Duda’s megaphone raised eyebrows not only domestically but also around the world. Duda and his spin doctors straddled the line between patriotism and far right nationalism. His pronouncements and those of PiS politicians were tinged with homophobia and antisemitism, and may have appealed to his base but they appalled many. Duda and his camp managed to divide the electorate into ‘true’ Poles voting for him, and the ‘worst kind’ voting for Trzaskowski.

The outcome is that Duda now faces at least two challenges. First, he needs to prove that he is the president of all Polish citizens. Second, he must demonstrate his independence from the backseat driver, leader of PiS, Jarosław Kaczyński. Both tasks are daunting, not to say impossible.

As stated, Duda’s legitimacy is also undermined by the way the elections were conducted. Ever since the start of Covid-19 crisis, Kaczyński and his cronies were involved in a political dance macabre. Fearful of the economic and social implications of the pandemic, PiS initially pushed for elections on 10 May. Given the lockdown and all its restrictions, this timing was less than ideal. When push came to shove, PiS rammed changes to electoral rules through Parliament in order to organise a fully postal ballot. The new rules were signed by President Duda, even though, according to Constitutional Tribunal jurisprudence, the regulations governing elections could not be amended less than six months before the elections.

Notwithstanding, PiS belatedly realised that the state apparatus was not ready for an exercise of such gargantuan proportions at short notice. Consequentially, in the midst of self-made chaos, Kaczyński – together with the leader of his coalition partner – took the decision to postpone the elections. An attempt to translate that political act into a formal decision, staged by two ordinary members of the Sejm (lower chamber), failed to hold water, however.

All these shenanigans could have been avoided if Kaczyński had ordered the relevant state authorities to declare a state of natural disaster, which would have permitted the lawful postponement of elections, at least until the autumn. But the economic fallout of the pandemic would most probably have undermined Duda’s chances of re-election. Eventually, the elections were scheduled for 28 June, with a possible second round between the two highest-scoring candidates on 12 July.

Once again, the electoral rules were swiftly changed by the Parliament. The State Electoral Commission was put back in charge and the legislation offered two alternative ways of voting. First, voters were allowed to cast their ballots at polling stations. Second, a postal ballot was introduced for some voters, in particular the Polish diaspora around the world. This arrangement was also constitutionally vague. Each ballot was accompanied by a declaration stating the personal details of the voter. Even though the declaration was in a separate envelope it had to be posted together with the ballot paper. It is hard to marry this practice with ballot secrecy, which is guaranteed by the Polish Constitution. At the same time, many practical obstacles were experienced by those who voted by post. Some ballot papers arrived late, thus not allowing people to vote in time, others were invalidated by bureaucratic ‘error’ (such as not being stamped).

Overall, it is doubtful that the elections met the constitutional test of equality. Duda’s campaign was propped up by the government, whose members toured the country and attended political rallies. Additional thrust was given by the partisan public media, financed from the state budget. This was even criticised by an OSCE-ODIHR election observation mission.[1] Legal challenges to the way in which the elections were organised, based on the grounds listed above and many others, are now pending. However, with the Supreme Court under siege, the result is hard to predict.

The question is, what comes next? Judging by early comments from PiS and its elites, a further onslaught on the judiciary, followed by a dismantling of independent media, is on the cards. To add fuel to the fire, PiS and the media it controls are trying to portray Duda as the victim of a brutal campaign against him. This is unlikely to create a platform for honest political dialogue with the opposition that Duda himself has called for. And indeed poses a challenge for the European Union.

Implications for the EU

It is no secret that the EU and its institutions have struggled to handle the rule of law crises brewing in its unruly ‘teenage’ member states in recent years. Proceedings under Article 7 TEU have reached a dead end. Any new rule of law mechanisms based on dialogue are unlikely to be fit for purpose as they presuppose the presence of a ‘gentleman’ at the other end. The trouble with Poland is exacerbated by the fact that the EU is talking to people who hold office, but not power. Furthermore, as recent history has shown, talking to populists is an unenviable task because it means trading arguments with slogans. With the Soviet-style propaganda coming from Poland’s state-owned media, it is mission impossible.

The EU has also had recourse to legal tools, in particular the infringement proceedings. But one needs to remember that the authority of the Court of Justice has recently been undermined by the German Constitutional Court’s judgment on the bonds purchasing programme. This has been seized upon by Warsaw and feeds anti-EU rhetoric.

Nevertheless, the European Commission should not give up the fight. Au contraire, in future it should act more often and much faster than thus far. This might put more pressure on the authorities in Warsaw and place their dubious activities under the spotlight. Furthermore, linking EU funding to rule of law compliance is a must. The recent proposals put forward by Charles Michel, President of the European Council, are a step in this direction.

The main challenge, however, is as follows. If Kaczyński and his party feel free to act in breach of the Polish Constitution, to dismantle the Constitutional Tribunal and independent judiciary and ram laws through Parliament in violation of law-making procedures, why would they feel the need to comply with EU law?

Perhaps the time has come for more political action along the lines of the boycott of Austrian representatives in 2000, when the right-wing party of Jörg Haider joined Austria’s government. It may face opposition from the usual suspects, Hungary’s Viktor Orbán in particular. But, if all else fails, it is worth the other EU member states giving it a try.

One thing is clear. The problem will not go away soon. Unless something extraordinary happens, the next parliamentary elections in Poland are three years away. A lot can change before then; the political sands may shift with the possible political retirement of Kaczyński; there are new cohorts of voters that became active during the campaign; and there is the solid political capital on which Trzaskowski can build. That said, untold damage could still be done before the end of the legislative cycle.

[1] See https://www.osce.org/odihr/elections/poland/457204.

This commentary has originally been published by CEPS

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


Please follow this link to download the full document


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.


Please follow this link to download the full document


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