EconPol Opinions

The Commission has recently launched a review of the economic governance rules. One reason for this (re-)launch is that it is widely assumed that the debt reduction criterion cannot and should not be enforced when the suspension of the fiscal rules motivated by the Covid crisis ends. The main reason given is that debt levels have increased and that this makes it more difficult to reach the debt reduction target, which is one twentieth of the difference between the actual and the 60% reference value. However, this argument is wrong. The debt reduction criterion becomes easier to achieve during the post-Covid recovery phase because nominal GDP growth is higher than before the crisis, thus reducing the primary surplus required to achieve any given reduction in the debt to GDP ratio.

Thirty years after its foundation, Mercosur’s member countries have little reason to celebrate. On the one hand, trade liberalization within Mercosur in the first years after its foundation have led to an intensification of intra-Mercosur trade and can be regarded as an early success. On the other hand, the transition from a trade agreement to a customs union has failed and deeper integration steps hardly seem feasible. In the past 10 years, China has overtaken the EU as Mercosur’s most important trading partner, resulting in trade flows shifting away from Europe to the Chinese market. What’s more, integration into global supply chains has been successful only in places. In light of this, the EU-Mercosur trade agreement could play an important role – argue Andreas Baur, Lisandra Flach and Feodora Teti.

Economic incentives to accelerate vaccine production would be much more productive than the empty threat of suing AstraZeneca. The additional cost for boosting vaccine supply for Europe might run into a couple of billions of euros, but this would be a lot less than the cost of prolonged disruption to the economy and society, let alone the lives lost. Clemens Fuest and Daniel Gros examine the EU's mistakes. 

Even in times of the corona pandemic, environmental and climate protection are among the dominant topics in the economic policy debate. This is justified. Global warming is one of the greatest challenges of our time. Tackling it requires a transformation of the economy. CO2 emissions must to be reduced, and we need to adapt to the climate change that has already occurred or will occur despite all efforts. European policymakers have set out to drive this transformation under the banner of the Green New Deal. The objectives of the Green New Deal are shared by a large majority of the population. But it is controversial how and with which instruments these goals should be pursued.

The border adjustment mechanism proposed by the European Commission is designed to reduce imported CO2 emissions. An attractive initiative on paper but whose implementation is a real headache as it conflicts with the trade negotiations conducted by the same Commission. Stefan Ambec and Claude Crampes (EconPol Europe and Toulouse School of Economics) examine the plans and consider the solutions.