EconPol Policy Reports

As the economy and our daily life return to a “new-normal” in the midst of Covid-19, the possibility of a second wave leaves lots of uncertainty about future developments. To understand indications about the impact of the pandemic on economic performance in different countries across the world, we conducted a survey among 950 economic experts in 110 countries. This report gives an overview of the most important results of the survey and compares them in different world regions and countries. An extra focus is placed on the European Union’s strategy to combat the crisis and how experts from member states assess the different policy measures.

The functioning of the Eurozone was irreversibly transformed by the European debt crisis and now, as a consequence of the Covid-19 pandemic, a new and even more devastating crisis has hit the EU. German Chancellor Angela Merkel has abandoned her opposition to substantial intercountry transfers and any form of debt mutualization, a turnaround motivated by the exceptional circumstances brought about by the pandemic. The risk that Italy’s fragile financial, economic and political situation, exacerbated by the current crisis, could destabilize the entire Eurozone in the absence of sizeable external assistance was probably one of the main determinants of the German government’s policy shift. In this policy report, Luigi Bonatti and Andrea Fracasso argue that this move will be insufficient to drive Italy into a sustainable and satisfactory growth path, and it will need further financial support from EU institutions and member states. Should they agree to provide financial assistance to the Eurozone's most vulnerable countries and make permanent what was supposed to be temporary, or expose the zone to a possible implosion?

This paper discusses the introduction of new own resources to finance the EU budget. Currently roughly two thirds of the budget is financed from GNI-based own resources, which are essentially contributions made by the member states out of national tax revenues. While GNI resources are transparent, fair and in line with the principle of subsidiarity, they are criticised for leading to political debates that emphasise the cost of EU spending rather than on the benefits, and for contributing to the framing of discussions on the EU budget in terms of net balances, rather than value added through common policies and the provision of European public goods. Clemens Fuest and Jean Pisani-Ferry propose that the EU should receive a new source of funding in the form of revenue from the European emissions trading system (ETS). They recommend that revenue from the ETS be used to finance the EU fund for economic recovery (Next Generation EU), which was adopted in July.

Improving the economic and social integration of immigrants should be prioritized along with economic and health policies to prevent a rise in far-right parties in the wake of the Covid-19 crisis, as the economic downturn caused by the pandemic and the increased economic insecurity of large numbers of the population could lead to xenophobic reactions and rejection of immigrants. This policy report from Anthony Edo and Yvonne Giesing analyzes the impact of immigration on the rise of far-right parties and finds that, while there is a general tendency towards an increase in far-right voting caused by immigration, this is not automatic and depends on the type of migration. And, say authors, the degree of economic and social integration of immigrants plays an important factor in the formation of anti-immigrant sentiment.  

Hernán D. Seoane (EconPol Europe, Universidad Carlos III de Madrid) has reviewed the main theories of interest rate determination and studied the dynamics of the real interest rate in US. Using cointegration techniques, he searched for equilibrium relationships between the real interest rate, monetary factors and real factors and studied how these relationships change with the policy regimes. His analysis of monthly US data since the early 20th century finds equilibrium relationships between a measure of the real interest rate, the policy interest rate and industrial production growth only after the end of the Bretton Woods. The equilibrium relationships between these variables are not invariant to changes in the monetary policy regime.