Welfare state and social Europe

Helsinki Graduate School of Economics Situation Room, 21 May 2020

Effective management of the COVID-19 crisis requires real data in real time, often drawn from multiple sources. This column describes how researchers in Finland have created a remote-access ‘Situation Room’ that allows for real-time analysis of the Finnish economy, both for the government and for the wider public. The results from the study provide useful insights for policymakers in Finland and beyond.

Massimo Motta, Martin Peitz, 30 April 2020

The European Commission has been asked to develop a proposal for a new recovery fund of more than €1 trillion. Given the substantial support needed by most sectors in the present circumstances, it is crucial to identify the ones which are most important to proper functioning of the EU economies. Based on the principle of subsidiarity, this column formulates two general criteria to identify these sectors: those for which (i) the volume of cross-border trade within the EU is large, or (ii) externalities across member states are important. Support schemes should be oriented towards the future and not try to preserve the status quo ante.

Tilman Tacke, Anu Madgavkar, Hans‐Helmut Kotz, 30 April 2020

The first two decades of the 21st century saw job opportunities expand and prices for discretionary consumer goods drop. But these gains came at the cost of social contracts in many countries, where working arrangements became more fragile, wages stagnated, and the labour share of income fell. This column argues that the severe economic consequences of the COVID-19 pandemic have revealed vulnerabilities in the social contract. When the immediate crisis is over, risk may need rebalancing towards an increasing role for institutions and mutualisation.

Massimo Motta, Martin Peitz, 18 April 2020

State aid is essential to reduce long-run harm to the EU economy as a result of the Covid-19 crisis. However, non-harmonised programmes across EU member states generate serious risks to the functioning of markets, particularly if they go beyond short-term liquidity provision or employment support. This column suggests imposing strict conditions on state aid for recapitalisation of firms and argues in favour of an EU-wide programme for critical sectors. Such a programme would prevent harmful market distortions and maintain a level playing field for EU companies.

Daniel Baksa, Zsuzsa Munkacsi, Carolin Nerlich, 12 April 2020

Ageing populations can transform the composition of an economy’s labour force and threaten the stability of its pension system. This column examines the possible effects of reversing the recent pension reforms adopted since the early 2000s. It appears that reversing past pension reforms would be very costly and would put a disproportionate burden on current and future young generations. Even without reversals, further reforms are needed to address the adverse macroeconomic and fiscal impact of population ageing.

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