Peripheral Member States Research Articles

The Dutch Disease of the Euro Area Peripheral Member States

ABSTRACT This study analyzes explanations identified in the literature for the subpar economic performance of the so-called peripheral member states of the Euro Area since the mid-1990s, comparing it to those of the core, catch-up, and financial hub member states. It argues that a key factor in the peripherals’ malaise was a financial Dutch disease-like mechanism, as the adoption of the euro led to large and sustained capital inflows. This resulted in a structural shift in the productive structure of peripheral economies away from technologically advanced manufactured goods, which are characterized by higher productivity growth. Consequently, peripheral member states specialized in non-tradable sectors, and in low-technology and labor-intensive tradable goods and services sectors, which largely explains the peripherals’ low economic growth, low productivity growth, and growing macroeconomic imbalances. Furthermore, this study argues that the economic underperformance of catch-up member states can also be explained by a financial Dutch disease mechanism.

A Normative View from the Periphery: Serbia and the EU Asylum Acquis

Abstract Since 2014, as part of the EU accession negotiations, Serbia is meticulously conducting legal, policy, and institutional reforms in order to align its asylum and migration law and policy with the EU acquis. At the same time, as a consequence of the European policies put in place since 2015 (fences, large-scale pushbacks), Serbia faces a high risk of becoming a buffer zone in between EU Member States Greece and Bulgaria (whence many refugees enter Serbia) and Croatia and Hungary (which many refugees seek to enter). While aiming to implement EU law as a candidate Member State, Serbia is simultaneously trying to avoid stronger migration pressure and becoming a hotspot which are the consequence of implementing the EU acquis. Caught between these two conflicting policy aims, Serbia is following the example of Greece in limiting migration pressure by keeping its asylum system dysfunctional, ignoring refugee needs and undermining refugee protection. The substandard character of the Serbian asylum system in practice (both when it comes to its slow and inefficient asylum procedure, limited access to legal aid and information, as well as when it comes to an unsustainable and dysfunctional reception and integration system) makes returns to Serbia a violation of European Human Rights law (i.a., ECtHR 21 November 2019, Ilias and Ahmed v Hungary, application no. 47287/15), while it also gives migrants and refugees a strong incentive to move on to the EU. This combination of formally adopting, but not implementing, the EU acquis will be analysed as a normative response to the perceived lack of legitimacy of the EU acquis, which uses the weak position of peripheral Member States like Greece and neighbouring countries like Serbia to impose a disproportionate burden on them.

Unstable Bonds: CERN’s Relations with Its Peripheral Member States, 1950s–1960s

The European Organisation for Nuclear Research (CERN) established in 1954 constitutes one of the first forms of European cooperation of the post-Second World War period. Historically, CERN developed outside of the institutional frame of the ECSC/EEC and can be seen as an early example of an alternative path to Europeanisation within the scientific domain. Through a reconstruction of the negotiations between CERN and three of its member states – Spain, Greece, Yugoslavia – regarding their participation in the organisation in the 1950s and 1960s, I show that Europeanisation at CERN had a political and a scientific dimension. On the one hand, the intergovernmental character of CERN made it an attractive organisation for these countries to join. On the other hand, CERN’s centrality in the European physics landscape was shaped in response to the difficulties faced by these three members.

The Dutch Disease of the Euro Area Peripheral Member States

The Dutch Disease of the Euro Area Peripheral Member States

Углубление интеграции и институциональная трансформация: дилеммы стран Евросоюза

The Covid-19 pandemic was a catalyst for the growing systemic crisis of the EU and at the same time gave the Union an impetus towards its qualitatively new development in favor of deeper integration, expressed in a change in the financial and economic space of the EU. Realizing the risks of their internal destabilization, the EU core countries decided to sacrifice the surplus from their economic successes through the socialization of debts in order to save the most affected peripheral Member States to preserve both the integration union and the European idea itself. The purpose of this article is to explain the difficulty of making this decision and its compromise nature, as well as to clarify the likely consequences and suggest options for the further development of the situation. The authors first compare the pros and cons of debt socialization. Then the variables are compared: the Spanish proposal, the Franco-German initiative and the negotiating platform on the "next generation EU" by Ursula von der Leyen with the fundamental points of the European Council compromise decision. It also provides answers to questions about the volume, conditions, mechanism, and control over the expenditure of the financial assistance provided. The breakthrough steps taken by the Member States towards finding an optimal solution are analyzed. The result of the study is a balanced conclusion about the ambiguous nature of the decision adopted by the EU but having a historical significance and opening prospects for the further deepening of integration processes. This is facilitated by reaching an agreement on the need to bring the core of the EU closer to the periphery through the socialization of debts, as well as the importance of structural reforms that would ensure the construction of a harmonious economy of the future based on a new technological platform and formulated in a breakthrough plan called the next generation EU. Success is not guaranteed, as it depends on the behavior of all Member States, but it is real.

How effective are sovereign bond-backed securities as a spillover prevention device?

Brunnermeier et al. (2017) propose the introduction of sovereign bond-backed securities (SBBS) in the euro area. It and other papers address how the securitisation would insulate senior security holders from actual default-related losses. This article generalises the assessment by using the VAR-based Diebold & Yilmaz (2012) spillover index methodology to assess potential attenuation of the spillover of shocks in holding-period returns across asset markets from the introduction of SBBS. This is made possible by employing SBBS yields estimated from historical euro area member state sovereign bond yields using Monte Carlo methods, as described in Schönbucher (2003). The econometric results show that (i) SBBS tranching protects senior SBBS holders by reducing the spillover of shocks from the higher-risk peripheral member states to it; (ii) spillovers from high risk sovereigns to a weighted portfolio are much higher than those to the senior SBBS; (iii) a smaller junior SBBS tranche reduces spillover from it to the senior SBBS; and (iv) rolling window analysis indicates that the spillover of shocks from the junior tranche to the senior tranche declines during a period of financial stress.

Slow Steaming as Part of SECA Compliance Strategies among RoRo and RoPax Shipping Companies

Many geographically peripheral member states of the EU are critically dependent on short sea Roll-on/Roll-off (RoRo) and mixed freight–passenger (RoPax) shipping services for intra-European trade. The implementation of the Sulfur Emission Control Area (SECA) regulation was expected to raise the operating cost for RoRo and RoPax shipping, and slow steaming was proposed as an immediate solution to save the increased cost. Previous research has investigated the issue of slow steaming and SECA using a quantitative approach. However, the reaction of the RoRo and RoPax shipping firms toward slow steaming as a mitigating factor in the face of expected additional SECA compliance costs using qualitative methodology has not been explored yet. In addition, the knowledge regarding the impact of slow steaming on the competitiveness of short sea RoRo and RoPax with respect to service quality is limited. This article has addressed these issues through the analysis of multiple cases focusing on RoRo and RoPax firms operating in the North and Baltic Seas. Overall, our findings suggest that the 0.1% SECA regulation of 2015 requiring the use of higher-priced MGO has not caused slow steaming in the RoRo and RoPax segments to a large extent. The increased bunker prices are partially transferred to the customers via increased Bunker Adjustment Factor and partly borne by the shipowners. We have found that out of 11 case firms in our study only one RoRo and one RoPax firm have reduced vessel speeds to compensate for the additional SECA compliance costs. We conclude that for RoPax and RoRo segment bunker prices, rigorous competition and, most important, different service quality requirements have significantly restricted the potential implementation of slow steaming.

The Cohesion Policy on the EU’s Eastern and Southern Periphery: Misallocated Funds?

The cohesion policy of the European Union has become its primary instrument promoting development in the peripheral member states. The enduring consequences of the 2007–2008 crisis and the economic governance agenda requiring fiscal discipline from the member states have raised the policy’s significance further. However, similar economic inequalities characterize the EU nowadays as several decades ago. The cohesion policy is by no means alone responsible for this, but the reasons for its ambiguous performance deserve further scrutiny. Empirical studies explain variation in fund performance with domestic institutional quality and absorption capacity, but the member states’ fund spending strategies have not been addressed so far. This is puzzling because they are important determinants of the economic effects of EU funds. The paper fills this gap by investigating the spending strategies of the Southern and the Eastern members in two recent programming cycles (2007–2013 and 2014–2020). Assessed on five expenditure categories, the paper reveals that physical infrastructure investments enjoyed priority over long-term growth-generating R&D and human capital projects and that the allocation of EU funds did not reflect domestic development needs.

An Oddity in the European Regulatory Space: Peripheral Flag Carriers in the Baltic States and eu Competition Law

This article examines the effects that eu state aid rules impose on the airline sectors of small peripheral Member States. By the same token, it looks at the Central and Eastern European airline sectors and examines the rationale behind the practice of states to keep alive their loss-making flag carriers. The article compares the vicissitudes of the Baltic flag carriers, Estonian Air and airBaltic. It is suggested that, behind the apparently irrational behavior, there could be found a rationale, namely the wish to offer connectivity above market level, and, with regard to poorer peripheral Member States, beyond market quality. This in turn is attributable to the wider external benefits to the domestic economy that air services bring but which cannot be internalized by the airlines. Therefore, in particular in the context of the asymmetrical integration model, which is on the rise in the eu, state aid rules are discovered to amplify the differences between the center and the periphery.

How Effective are Sovereign Bond-Backed Securities as a Spillover Prevention Device?

Brunnermeier et al. (2017) propose the introduction of sovereign bond-backed securities (SBBS) in the euro area. It and other papers address how the securitisation would insulate senior security holders from actual default-related losses. This article generalises the assessment by using the VAR-based Diebold & Yilmaz (2012) spillover index methodology to assess potential attenuation of the spillover of shocks in holding-period returns across asset markets from the introduction of SBBS. This is made possible by employing SBBS yields estimated from historical euro area member state sovereign bond yields using Monte Carlo methods, as described in Schonbucher (2003). The econometric results show that (i) SBBS tranching protects senior SBBS holders by reducing the spillover of shocks from the higher-risk peripheral member states to it; (ii) spillovers from high risk sovereigns to a weighted portfolio are much higher than those to the senior SBBS; (iii) a smaller junior SBBS tranche, and the introduction of a mezzanine security, reduces spillover from it to the senior SBBS; and (iv) rolling window analysis indicates that the spillover of shocks from the junior tranche to the senior tranche declines during a period of financial stress. JEL Classification: C58, G11, G12, G17

How Effective are Sovereign Bond-Backed Securities as a Spillover Prevention Device?

Brunnermeier et al. (2017) propose the introduction of sovereign bond-backed securities (SBBS) in the euro area. It and other papers address how the securitisation would insulate senior security holders from actual default-related losses. This article generalises the assessment by using the VAR-based Diebold & Yilmaz (2012) spillover index methodology to assess potential attenuation of the spillover of shocks in holding-period returns across asset markets from the introduction of SBBS. This is made possible by employing SBBS yields estimated from historical euro area member state sovereign bond yields using Monte Carlo methods, as described in Schonbucher (2003). The econometric results show that (i) SBBS tranching protects senior SBBS holders by reducing the spillover of shocks from the higher-risk peripheral member states to it; (ii) spillovers from high risk sovereigns to a weighted portfolio are much higher than those to the senior SBBS; (iii) a smaller junior SBBS tranche, and the introduction of a mezzanine security, reduces spillover from it to the senior SBBS; and (iv) rolling window analysis indicates that the spillover of shocks from the junior tranche to the senior tranche declines during a period of financial stress.

Commodification and ‘the commons’: The politics of privatising public water in Greece and Portugal during the Eurozone crisis

In response to the Eurozone crisis, austerity and restructuring has been imposed on the European Union’s peripheral member states in order to receive financial bailout loans. In addition to cuts in funding for essential public services, cuts in public sector employment and the further liberalisation of labour markets, this has also included pressure towards the privatisation of state assets. Yet, workers have not simply accepted these restructuring pressures; rather, they have organised and fought back against austerity and enforced privatisation. Based on a historical-materialist perspective and following a strategy of incorporated comparison, in this article, we will comparatively assess the struggles against enforced water privatisation in Greece and Portugal set against the background of the structuring conditions surrounding the Eurozone crisis.

Framing PIGS: patterns of racism and neocolonialism in the Euro crisis

ABSTRACTVan Vossole's article explores the racist framing of the peripheral member states of the European Union, the PIGS (Portugal, Ireland (and/or Italy), Greece and Spain). It demonstrates a strong connection between the processes of racialization and depoliticization, as well as the return of colonial dynamics in the Eurozone. Side-stepping political economy and history, the culturalization of politics perfectly complements the ‘post-political’ neoliberal hegemony. Political and media discourses reproduce it in both populist and corporate interests. The culturalization of politics reduces the differences between centre and periphery to certain ‘cultural characteristics and habits’, as reflected in stereotypes of laziness, non-productivity, corruption, wasteful spending and lying. These make it possible to blame the PIGS for the current crisis, legitimizing drastic austerity measures and a loss of sovereignty. The loss of sovereignty shows remarkable similarities with what Kwame Nkrumah defined as neocolonialism: the continuation of colonial power relations through processes of economic dependence, conditional aid and cultural hegemony. While this problematic only resurfaced during the recent Euro crisis, Van Vossole discusses how today's racist discourses and neocolonial politics have their roots in the past, particularly in anti-Irish and anti-Mediterranean racism and in the (semi-)colonial position of the PIGS in the British and Ottoman empires. Besides structural violence against the periphery, a major consequence of this racialization is that it jeopardizes any possibility of further democratic political integration on the basis of a common European identity.

Chinese foreign direct investment in the European Union: explaining changing patterns

In the post-financial crisis period, new patterns have emerged in the development of Chinese foreign direct investment (OFDI) in the EU. This article examines these changes by analysing mergers and acquisitions (M&A) data from the Thomas SDC database in the period 2002–2014. Our initial analysis has suggested four significant developments. First, Chinese M&A in the EU shows rapid growth after 2008. Second, the core member states of the EU are still the main destination, but semi-peripheral and peripheral member states are new targets for Chinese OFDI. Third, investment goes to more diversified sectors. Fourth, state-owned companies remain significant but private companies and sovereign wealth funds are becoming increasingly prominent investors. These changes are tentatively explained by two sets of factors. The forced privatization of (undervalued) assets in the EU due to the Eurozone debt crisis, as well as a relatively friendly investment environment, are pull factors, attracting Chinese investors to the EU; the main push factors are the Chinese efforts to reduce dependence on export and reliance on the US dollar, as manifested in the Chinese government's Going Global Policy.

Shortcomings of the EU state aid model from peripheral perspective: the case of Estonian Air

The problems with national airlines in small peripheral member states indicate that the effects of strict competition policy and state aid rules of the European Union (EU) may not be equally useful for all member states and their citizens. Measures that are considered efficient from the perspective of one EU member state may not necessarily improve the welfare at the EU level and vice versa. While common competition policy rules are often justified by referring to the core values of European integration and the Single Market, the values themselves prioritize different aspects of the ideals of free market, European solidarity, and institutional stability. Curiously, as a result, the EU practical regulations are often imposing significant costs on a local peripheral consumer while even unable of meeting the proclaimed European values. By using the case study of the Estonian national flag carrier Estonian Air the current study focuses on the question whether the EU state aid regulation is simultaneously rational and sufficiently flexible to take into account the joint values of the European single market and specific needs of peripheral member states.

Trade intensity and output synchronisation: On the endogeneity properties of EMU

Using annual bilateral data over the period 1988–2011 for a panel of 26 industrialised and emerging economies, we analyse in a time-varying framework the determinants of output synchronisation in EMU (European Monetary Union) distinguishing between core and peripheral member states. The results support the specialisation paradigm rather than the endogeneity hypothesis. Evidence is found in the euro period of diverging patterns between the core and the peripheral EMU countries raising questions about the financial stability of EMU.

Keynes and the Eurozone's Crisis: Towards a Fiscal Union?

The majority of the peripheral member states of the Eurozone Portugal, Italy, Spain, and Greece have experienced financial crises. Until now, the European leaders attempted to solve the crises mainly through austerity measures. For them, either it is an ideo logical or a political matter; the answers have identified with the free market beliefs. In this paper, we will argue that until now all the solutions that have been agreed on the European level do not help to solve the root causes of the Greek financial problem. The national governments of the European Union do not follow any of the Keynes ian ideas to overcome the cris is. The European leaders seem to have forgotten their role to act as a policy makers. Under these conditions, even if the Greek financial problem can be moderated, it cannot be solved. The above observation is highly significant for the future of the European Union because every currency union in order to survive needs a mechanism of fiscal transfers. This mechanism does not exist in the Eurozone. Thus, this crisis will continue to affect the performance and function of the EU.

The Balassa-Samuelson Effect and the Channels of its Absorption in the Central and Eastern European Countries

The aim of the study is to estimate the magnitude of the Balassa-Samuleson effect as well as the effectiveness of the labour and the product market in its absorption in Poland, the Czech Republic, Hungary and Slovakia. The obtained results allowed to determine the magnitude of the systematic component of inflation differentials relative to the euro area, hence to assess the risk of common monetary policy inadequacy with respect to these economies. The obtained estimates suggest that the catching-up driven inflationary pressure is a non-negligible issue in the context of the CEECs integration with the euro area, since the systematic inflation differentials were comparable in size to those experienced by the so-called peripheral member states in the first decade after the introduction of the euro. Moreover, in the case of Poland none of the potential absorption mechanisms of the Balassa-Samuelson effect seemed to mitigate the convergence-induced inflationary pressure over the sample period. The outcomes suggest that ignoring the non-fulfilment of theoretical model assumptions regarding wages and markups, which is common in the literature, distorts estimation results.

Trade Intensity and Output Synchronisation: On the Endogeneity Properties of EMU

Using annual bilateral data over the period 1988-2011 for a panel of 24 industrialised and emerging economies, we analyse in a time-varying framework the determinants of output synchronisation in EMU (European Monetary Union) distinguishing between core and peripheral member states. The results support the specialisation paradigm rather than the endogeneity hypothesis. Evidence is found in the euro period of diverging patterns between the core and the peripheral EMU countries raising questions about the future stability of EMU.

Trade Intensity and Output Synchronisation: On the Endogeneity Properties of EMU

Using annual bilateral data over the period 1988-2011 for a panel of 24 industrialised and emerging economies, we analyse in a time-varying framework the determinants of output synchronisation in EMU (European Monetary Union) distinguishing between core and peripheral member states. The results support the specialisation paradigm rather than the endogeneity hypothesis. Evidence is found in the euro period of diverging patterns between the core and the peripheral EMU countries raising questions about the future stability of EMU.