EconPol Policy Briefs

The debate over the next EU budget is already heating up. In early May the European Commission will publish its proposal for the Multiannual Financial Framework (MFF) for the years 2021-2027. Agricultural subsidies and regional transfers are likely to continue to swallow a large share of the EU budget. In view of the acute legitimacy crisis facing the EU, this spending structure calls for reform. The Commission has recommended using “European added value” (EAV) as a reform criterion. This policy brief considers whether allocating competences more effectively between the EU and its member states could boost the EU’s performance.

A key remaining issue for the completion of the Banking Union is the concentrated exposure of banks in many countries to their own sovereign. This paper examines the belief that banks should be allowed to buy large amounts of their own sovereign so that they can stabilise the market in a crisis and argues that it is mistaken for two reasons. In the first instance, banks are only intermediaries for private savings, and secondly, banks have a higher cost of funding than do their sovereign. The overall conclusion is that governments should make it more attractive for households (and other real money investors) to hold government debt directly.

Accountability bonds revive market discipline in the Eurozone without endangering fiscal and financial stability - and they address the various concerns from difference sides. Clemens Fuest (ifo Institute) and Friedrich Heinemann (ZEW) have proposed the new type of bonds for overcoming the debt crisis in the Eurozone two years ago. In our new EconPol Policy Brief, the two EconPol network members revisit their concept of accountability bonds in the light of current developments, respond to criticism and explain why they are an innovative instrument that stand a real chance of building a consensus, now more than ever.

Are convergent growth rates a sine-qua-non condition for a monetary union? Is there any economic tendency towards this outcome? Economist Roberto Tamborini, Università di Trento, says: "Higher growth across Europe is a valuable aim but is the devotion to pro-growth and convergence policies and to the formalisation of the convergence process in Europe's Economic and Monetary Union the correct answer?

“EU agricultural policy seems anachronistic. There is no justification for its dominant position in the EU budget,” says Professor Friedrich Heinemann, head of ZEW’s Research Department “Corporate Taxation and Public Finance” and author of the new ZEW study in cooperation with Bertelsmann Stiftung. The new ZEW study recommends reducing the costs of agricultural subsidies through significant national contributions to agricultural support. “If the Member States wish to privilege their farmers over other economic sectors, they should do so without passing the burden onto European taxpayers,” explains Friedrich Heinemann.