EU institutions

Randolph Bruno, Nauro Campos, Saul Estrin, 17 July 2021

Do different economic integration arrangements vary in terms of their capacity to attract foreign direct investment? This column uses a structural gravity framework on annual bilateral FDI data for 142 countries between 1985 and 2018 to revisit this question. It finds that deep integration in the form of EU membership increases FDI by about 60% from outside the EU and by about 50% from within the EU. The effect of EU membership on FDI appears to be significantly larger than that from the less deep integration arrangements (EFTA, NAFTA, or MERCOSUR), with the Single Market the cornerstone of this differential impact. 

Marco Buti, Vitor Gaspar, 08 July 2021

Almost 30 years ago, the European Council in Maastricht agreed, on 10 December 1991, the draft Treaty on the European Union. In this column, the authors, who were both involved in preparing the summit, examine the arithmetic of the Maastricht reference values in relation to the macroeconomic facts as of today. Broader questions to do with fiscal architecture and institutional design will be addressed in a subsequent column.

Miguel Ampudia, Thorsten Beck, Alexander Popov, 11 June 2021

The trade-off between stability and growth has long been a subject of policy debate and informs views on the extent to which the supervision of banks should be centralised. This column presents analysis of the ECB’s Single Supervisory Mechanism, using the announcement of the mechanism and its implementation as a quasi-natural experiment. It finds that centralised bank supervision is associated with a decline in lending to firms, which is accompanied by a shift away from intangible investment and towards more cash holdings and higher investment in easily collateralisable physical assets.

Ethan Ilzetzki, 10 June 2021

Fiscal rules were enshrined in the founding documents of the European Monetary Union. This column presents the latest CfM-CEPR survey, in which the panel of experts on the European economy were nearly unanimous in agreeing that the existing EU fiscal rules require revision. Most panel members would opt for some combination of fiscal councils; more flexible, countercyclical, or expenditure-based rules; and increased fiscal capacity at the EU level. A smaller share of panelists would scrap fiscal rules altogether, leave fiscal policy to national authorities, and provide greater clarity that the EU would not bail out countries facing debt problems. A single panel member called for stricter rules with greater enforcement.

Christoffer Kok, Carola Müller, Steven Ongena, Cosimo Pancaro, 09 June 2021

Since the financial crisis, stress tests have become an important supervisory and financial stability tool. Relying on confidential data available at the ECB, this column presents novel evidence that supervisory scrutiny associated with stress testing has a disciplining effect on bank risk. Banks that participated in the 2016 EU-wide stress test subsequently reduced their credit risk relative to banks that were not part of this exercise. Relying on new metrics for supervisory scrutiny, it also shows that the disciplining effect is stronger for banks subject to more intrusive supervisory scrutiny during the stress test.

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