EconPol Policy Reports

More than twenty years after the beginning of negotiations, a new window of opportunity seems to have opened for the ratification of a trade agreement between the European Union and Mercosur. For Mercosur, this comes at a crucial juncture in its integration process: the future of the South American trade bloc appears to be more uncertain than ever, with member states holding diverging views on Mercosur’s objectives. Thirty years after its foundation, the original goals of Mercosur’s integration process have been only partially achieved. While there has been some success in terms of trade liberalization within Mercosur, the goals of forming a customs union and pursuing deeper integration steps remain unfulfilled. High Most Favored Nation (MFN) tariffs and non-tariff trade barriers within the region, coupled with the lack of trade agreements, hinder the integration of Mercosur countries into the global economy.

The EU faces the challenge to combine large and sustained investments to promote the transition towards a green, digital, and competitive Europe while maintaining fiscal sustainability. Based on a comprehensive literature review on the effects of fiscal rules and investment clauses on public finances, this in-depth analysis provides some guidance how higher public investments can be achieved by a targeted golden rule without harming fiscal sustainability in the EU fiscal framework. The study also discusses the role of investments in the current proposals of the European Commission on the reform of the EU Economic Governance.

The US Inflation Reduction Act (IRA) promotes renewable energy and contributes to climate protection, but also offers generous tax credits and subsidies to incentivize production in the United States. While the planned generosity of the program has sparked an intense debate about potential negative spillover effects on the global economy, little is known about the quantity of potential adverse effects. In the new EconPol Policy Report the authors conduct a large-scale international survey among leading economic experts worldwide to quantify the effect of the US Inflation reduction act on the global economy. On a global scale, experts are little concerned about negative effects of the IRA on their domestic economy, estimating both the impact on national output and the risk of business outflows to be low. However, we uncover large heterogeneity in the potential impact of the IRA across countries and regions. In Europe, particularly in France and Germany, economic experts are highly concerned about the IRA and expect a significant effect of the IRA on the domestic economy. In terms of economic policy reactions, roughly 41% of the respondents support economic countermeasures.

The new Policy Report analyses the role of social policies in different European welfare states regarding minimum income protection and active inclusion. It finds consistent differences in terms of crisis resilience across countries and welfare state types. In general, Nordic and Continental European welfare states with strong upstream systems and minimum income support (MIS) show better outcomes in core socio-economic outcomes such as poverty and exclusion risks. However, labour market integration shows some dualisms in Continental Europe. The study shows that MIS holds particular importance if there are gaps in upstream systems or cases of severe and lasting crises.

This paper conducts an in-depth analysis of the National Recovery and Resilience Plans (NRRPs) of Austria, Belgium, and Germany. Exploiting a detailed database that covers all the investments and reforms included in the NRRPs and building on insights from semi-structured expert interviews, we study their alignment with EU objectives, the additionality of the spending, and the cross-border effects. We find that all three NRRPs are well aligned with the objectives defined in the RRF Regulation but differ greatly in terms of additionality. Cross-border projects are only of limited importance. We finally highlight some missed opportunities for other cross-border projects.