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The annual Brussels rentrée is fast approaching. Late August will see the beginning of a busy schedule, promising eventful weeks and months to come. Expected events like summits, AQR and EBA stress tests will meet with political and geostrategic risks. Many observers predict a stormy autumn – are they right?
Sub-sovereign bonds are a segment that has attracted little attention to date. Bonds are the dominant form of funding for Germany's Länder, though, and they also play an important role for the regions in Spain. While the Länder benefit from Germany’s excellent sovereign rating, only those Spanish regions not forced to request financial assistance from the central government at the height of the debt crisis have recently been able to obtain financing via the capital market. In France the issuance by the municipalities is likely to increase due to the newly established Agence France Locale. A local authority finance agency is also in the process of being introduced in the United Kingdom. The importance of the sub-sovereign bond market crucially depends on country-specific institutional arrangements.
The Balance-of-Payments Facility of the European Union is a medium-term financial assistance mechanism for non-euro area member states suffering from a balance-of-payments crisis. This Research Briefing reviews current challenges in the ongoing negotiations between the European Parliament, the Commission and the Council on a recent legislative proposal which aims to streamline the facility with the current institutional framework of the ESM. Still, there is a particular need for reconciliation regarding the facility's volume, economic conditionality and the future role of the IMF.
Migration patterns within the eurozone have changed fundamentally. While prior to the crisis many citizens from Central and Eastern European EU countries migrated to Spain and other peripheral countries, the westward migration is now primarily directed to the core. The crisis has also triggered increasing migration from the periphery to the core. Eurozone migration acts as a sensible adjustment mechanism in the labour markets. In Germany it contributes to the reduction of bottlenecks in the market for qualified labour, whereas in the GIPS it functions like a safety value. Migration also fosters growth in the host countries, while the impact on the GIPS is ambiguous. Emigration reduces persistent structural unemployment especially in problem sectors like construction. It also helps to rein in public spending. However, the huge swing in the migration balance, especially in Spain, weighs on domestic demand. Higher remittances would be helpful to mitigate the shock from the outflow of purchasing power. While fears of a brain drain are overstated, lasting migration deficits would accelerate population ageing in the periphery.
During its 6-month EU Council presidency, Italy wants to launch a renewed reform of the Stability and Growth Pact. This will also be an issue on this week’s European Council von 26 and 27 April. The extent of the reform is not clear yet – but it is clear that a softening of the just revised fiscal rules is anticipated.
The adoption of the proposal to extend the Savings Taxation Directive is another important stepping-stone towards comprehensive, universal automatic exchange of information at the EU level. The current schedule is very optimistic. But given the international developments over the past year it may be assumed that nothing will be able to stop the march of automatic exchange of information even beyond the EU's borders on a medium-term horizon. It remains to be seen to what extent it will actually be possible to coordinate the multitude of international initiatives with one another and ensure adequate data protection.
In mainland Europe, the financial position of many institutions for occupational retirement provision (IORPs), which offer defined benefit pension plans, has markedly improved in recent years. Nonetheless, the market conditions facing pension funds remain tough. The main challenges here are the persistently low yields on high-quality bonds and the beneficiaries' rising life expectancy. New regulatory requirements, such as those contained in the recently published draft revision of the EU Directive on Institutions for Occupational Retirement Provision ('IORP II'), are also likely to pose a challenge for many IORPs.
In the run-up to the European elections, populist parties continue to gain attention for their eurosceptic positions. However, a closer look at the party manifestos shows that most populist parties have only a few objectives in common. And even if they were to experience electoral success, their political influence in the next European Parliament may be rather limited. However, repercussions on the national level may become more salient after the elections.
On May 1, 2004, eight CEE countries joined the European Union, followed by Bulgaria and Romania in January 2007. Strong trade, investment and monetary integration with the EU have been the cornerstone of the successful economic catch-up story of those economies which started much earlier than actual accession. Ten years and a textbook boom-bust cycle later, the CEE-10 have witnessed not only the benefits but also the drawbacks of such strong trade and financial integration. Still, we expect high and rising trade openness and strong integration in European manufacturing value chains will continue to support the CEE-10 industry-based growth model.
In less than five weeks, from May 22-25, the elections for the European Parliament (EP) will be held across the EU. 751 MEPs from 28 countries will be elected for a period of five years. For the first time, the largest political groups in the EP have nominated a pan-European candidate for President of the Commission. In the run-up to the election date, each of the main political groups has published a manifesto with an agenda for the next electoral term. The attached presentation provides an overview of the positions in key areas taken from their own manifestos.