European Economics http://lists.repec.org/mailman/listinfo/nep-eec European Economics 2026-04-06 Central bank communication on financial stability – A shadowed sibling? https://d.repec.org/n?u=RePEc:srk:srkwps:2026154&r=&r=eec Central bank communication on financial stability has been less studied than on monetary policy. Our paper aims to contribute to the growing literature in this area. Our focus is the region of Central Europe, where financial sectors are intertwined through close cross-border ownership, and about half of the countries are members of the euro area. Using large language models (LLMs) combined with country-specific contextual analysis, we study executive summaries of Financial Stability Reports (FSRs) published since the early 2000s by seven Central, Eastern, and Southeastern European (CESEE) central banks, as well as by Austria and the European Central Bank (ECB). We construct a novel financial stability sentiment index and document that central bank communication is strongly risk-focused, most notably in the case of the ECB. In addition, prior to the Global Financial Crisis, the Austrian central bank was much less concerned than other central banks in the region although Austria plays a pivotal role in the financial system in the region. Our analysis of the link between financial stability sentiment communication and macroprudential policy action highlights that many central banks actively use and communicate about borrower-based measures, while most countries activated non-zero counter-cyclical capital buffers belatedly or not at all. Finally, comparing central banks’ communication on financial stability and monetary policy, we find that euro area national central banks and the ECB’s FSR communicated about the rising risks of post-Covid inflation in a timely manner, ahead of the ECB’s monetary policy communication. JEL Classification: C55, E58, E61, H12, D83 Martin, Reiner Klacso, Jan Mohácsi, Piroska Nagy Evdokimova, Tatiana Ponomarenko, Olga central banking, Central Europe, communication, euro area, European Central Bank, financial policy, macroprudential policy 2026-04 Geopolitical risk and sovereign stress in the Euro Area https://d.repec.org/n?u=RePEc:pra:mprapa:127823&r=&r=eec Using local projections, this paper documents that neither global geopolitical risk (GPR) shocks nor GPR shocks originating in smaller euro area countries have a significant impact on Euro Area sovereign stress, whereas GPR shocks originating in Germany generate sizable effects, against the backdrop of the recent surge in geopolitical risk following the Russian invasion of Ukraine. Frangiamore, Francesco Saadaoui, Jamel Geopolitical Risk, Sovereign Stress, Local Projections. 2026-01-26 Price stability & risks: Benign outlook vs potential concerns https://d.repec.org/n?u=RePEc:zbw:imfswp:339584&r=&r=eec The ECB anticipates stable growth and inflation, while Europe is faced with geopolitical threats, lack of competitiveness and fiscal challenges. At such a time, central bankers need to consider the dynamics of risk scenarios that arise from potentially mis-aligned or mis-perceived trends and policy-relevant parameters and prepare for timely policy responses. This paper focusses on potentially unsustainable fiscal trends, potential growth misperceptions and their implications for inflation developments and the policy stance. It highlights risks for fiscal inflation in the euro area. This document was provided by the Economic Governance and EMU Scrutiny Unit at the request of the Committee on Economic and Monetary Affairs (ECON) ahead of the Monetary Dialogue with the ECB President on 26 February 2026. Hegemann, Hendrik Wieland, Volker 2026 Consumer Price Stickiness in the Euro Area During an Inflation Surge https://d.repec.org/n?u=RePEc:bfr:banfra:1038&r=&r=eec We use CPI micro data for nine euro area countries to document new evidence on consumer price stickiness in the euro area during the 2021-2024 inflation cycle. In 2022, the monthly frequency of price changes reached 12%, compared with an average of 8% over 2010–2019, roughly a four percentage-point increase; it then fell quickly in 2023 and more slowly in 2024, ending close to its pre-pandemic level. The decline in the frequency of price changes was faster for food and nonenergy industrial goods (NEIG) than for services, where frequencies remained elevated in 2024. The overall frequency rose mainly because there were more price increases, while the magnitude of the average size of the price increases or decreases changed only marginally during the surge. Products with a larger imported-energy cost share responded more strongly, and hazard-rate evidence shows that the probability of price adjustments increases with the gap between actual and optimal prices, consistent with state-dependent pricing and a steepening of the Phillips curve. To illustrate the implications of this state dependence, a macro model suggests that peak inflation would have been almost 1 percentage point lower if the frequency had not responded to the inflation surge. Cristina Conflitti Daniel Enderle Ludmila Fadejeva Erwan Gautier Alex Grimaud Eduardo Gutiérrez Valentin Jouvanceau Jan-Oliver Menz Alari Paulus Pavlos Petroulas Pau Roldan-Blanco Elisabeth Wieland Price Rigidity, Euro Area, Inflation Surge, Micro Price Data 2026 Quantifying Macroeconomic Spillovers: The Role of Trade Linkages in Propagating Conflict Shocks https://d.repec.org/n?u=RePEc:pot:cepadp:98&r=&r=eec Geopolitical conflicts generate macroeconomic spillovers that extend beyond directly affected countries through trade and commodity linkages. This paper quantifies these effects for Germany, France, Italy, and Spain using a monthly Trade-Related Conflict Exposure (TRCE) index for 2009–2023 within an external-instrument Structural Vector Autoregression (SVAR) framework. We find that conflict shocks transmitted via import channels significantly affect industrial production and inflation. Headline inflation responds in a hump-shaped pattern, with peak effects of around 0.30 percentage points in Germany and 0.18 percentage points in France. Energy prices react immediately and strongly, food prices more gradually, and core inflation rises persistently in Germany, France, and Spain, indicating broader second-round effects. Historical decompositions show that conflict shocks account for a substantial share of the 2022–2023 inflation surge. Overall, the results highlight the importance of trade integration and commodity-specific exposure in shaping asymmetric inflation dynamics within the Euro Area. Ulrich Eydam Florian Leupold inflation, military conflicts, spillover effects, structural vector autoregression, trade 2026-03 Scenarios concerning the possible consequences of the Iran war for euro area inflation https://d.repec.org/n?u=RePEc:zbw:imfswp:339582&r=&r=eec In this note, we provide a brief first quantitative assessment of possible consequences of the energy price shock for euro area inflation. We consider different scenarios of more or less persistent increases of gasoline, diesel, natural gas, kerosine price increases on headline and core HICP inflation. The quantitative analysis is based on an estimated Bayesian Vector Autoregression model for the euro area. The model also accounts for transmission via electricity prices. The baseline scenario is based on the recent, average, price increases extending for two to three months, followed by a development determined endogenously within the BVAR. In this case, year-on-year inflation rises by about 1.5 percentage points by the first half of 2027. Core inflation rises by about 0.5 percentage points. If energy prices are assumed to return to February 2026 levels within a few months, the effects are much smaller and less persistent. Monetary policy should not respond directly to movements in energy prices and headline consumer price inflation. However, monetary policy would need to tighten in response to rising core HICP and domestic inflation. Hegemann, Hendrik Wieland, Volker 2026 Mind the Gap: AI Adoption in Europe and the U.S. https://d.repec.org/n?u=RePEc:fip:l00001:102954&r=&r=eec AI adoption is much higher among American workers than it is among European workers. Is this widening the gap between U.S. and EU productivity growth? Alexander Bick Adam Blandin David Deming Nicola Fuchs-Schündeln Jonas Jessen generative artificial intelligence (AI); technology adoption; labor productivity 2026-03-30 Macroeconomic Impacts of EU Defense Spending https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/053&r=&r=eec Europe’s defense spending is undergoing a historic shift. With NATO members expected to reach 2% of GDP and discussions underway to increase targets to 5% by 2035, this paper examines the possible macroeconomic consequences of such rearmament using two complementary approaches. First, using an annual panel dataset covering 27 EU countries over the period 1989–2023, we show that past national defense spending has stimulated economic activity in the short term, and entailed sizable cross-border spillovers. Importantly, we find that spending multipliers varied considerably across countries and over time: they tended to be larger when import intensity is low, fiscal space (captured by sovereign yields spread) is ample, and public investment efficiency is high. Second, a novel high-frequency dataset of monthly defense procurement contracts from Opentender, covering EU-27 countries from 2009 to 2023, allows for improved causal identification using fiscal news and instrumental variables based on European aggregate defense procurement and each country’s geographic proximity to major adversaries. The estimates corroborate the positive effects of defense spending on output and show that equipment procurement has the strongest relative impact. Given the larger and more synchronized nature of the current European defense buildup relative to past national episodes in our sample, multipliers might fall below historical estimates, especially if monetary policy is not accommodative. Davide Furceri Pedro Juarros Mr. Saurabh Mishra Anh D. M. Nguyen Ana Sofia Pessoa Alexandre Sollaci Defense spending; Fiscal Multipliers; European Union; Spillover effects; Procurement; Fiscal news shocks; High-Frequency. 2026-03-20 Schaffen Wero und der digitale Euro mehr Wettbewerb im Zahlungssystem? https://d.repec.org/n?u=RePEc:zbw:iwkkur:339646&r=&r=eec Grenzüberschreitende Kartenzahlungen waren in der EU bisher nicht über EU-Dienstleister möglich. Wero und der digitale Euro sollen für mehr europäische Souveränität im Zahlungsverkehr sorgen. Problematisch ist, dass der digitale Euro Wero Konkurrenz macht. Demary, Markus 2026 Unveiling Risk on Bank Balance Sheets: From Risk Disclosure to Credit Reallocation https://d.repec.org/n?u=RePEc:sef:csefwp:773&r=&r=eec We examine how banks adjust credit allocation when hidden credit risk is revealed. Using supervisory risk disclosure data from the European Central Bank’s 2014 Asset Quality Review, we find that banks experiencing larger increases in non-performing loans and provisions significantly reduce risk-weighted exposures while keeping total credit volumes largely unchanged. This suggests that de-risking primarily occurs through portfolio reallocation-particularly within portfolios-rather than through credit contraction. We document heterogeneous responses depending on the rating approach used to measure credit risk and we show that capital constraints amplify, but are not the sole driversof, de-risking. Finally, we provide evidence that supervisory risk disclosure plays a key role in shaping banks’ risk-taking behavior, even in the absence of observable adjustments in their financial statements. Brunella Bruno Imma Marino Transparency, Bank Supervision, Credit risk, Non-performing loans 2026-03-17 A Renewed EU Budget Support Framework to Maximise Leverage and Impact https://d.repec.org/n?u=RePEc:cgd:ppaper:384&r=&r=eec Amid mounting pressure on European development budgets, the EU must maximise the effectiveness and impact of its development finance toolkit. Although the European Commission is among the world’s largest providers of budget support, its allocations are not systematically aligned with partner countries’ creditworthiness or debt vulnerabilities. This misalignment undermines efficiency, with grants often concentrated in countries that retain market access rather than those facing constrained fiscal space. The framework is further limited by uneven regional distribution, a bias toward lower-risk environments, and fragmented engagement beyond the EU Neighbourhood. Drawing on a comparative assessment of international best practices and financial modelling of alternative grant–loan configurations, this paper explores how EU budget support can be strengthened to expand financing capacity, enhance development impact, and increase leverage in the run-up to the 2028–2034 Multiannual Financial Framework. It outlines options for optimising the grant–loan mix and estimates the potential gains from a more strategically calibrated financial toolkit. Bernat Camps-Adrogue Tay Drummond Mikaela Gavas Laura Granito Jasper Siegfried 2026-03-09 Eurobonds&colon; The Right Time for the Trojan Horse? https://d.repec.org/n?u=RePEc:nsr:niesrp:48&r=&r=eec The Blanchard&sol;Ubide proposal would convert debt equivalent to 25 per cent of each EU member state's GDP into jointly issued 'blue bonds', backed by individual rather than joint guarantees and without requiring treaty change. While the timing appears opportune &dash; amid US policy uncertainty, a weakening dollar, surging European defence spending and growing appetite for integration &dash; the proposal contains serious structural flaws. Paul Mortimer-Lee 2026-03 WSI Minimum Wage Report 2026: Consolidation of the New European Minimum Wage Policy https://d.repec.org/n?u=RePEc:zbw:wsirep:339641&r=&r=eec In recent years, minimum wage policy in Europe has undergone a profound change: Many EU countries have raised their minimum wages above average and focused on the goal of ensuring an adequate standard of living. A consolidation of the new course is now emerging, as EU countries are now increasingly basing their minimum wage calculations on reference values as recommended in the European Minimum Wage Directive. The Directive was recently found to be fundamentally in compliance with European law by the European Court of Justice. In Germany, the Minimum Wage Commission has significantly increased the minimum wage and is now pursuing the goal of reaching 60% of the median wage. However, as the reference value has not yet been enshrined in law, progress in this country is still on shaky ground. Lübker, Malte Schulten, Thorsten 2026 Zwischen Handelskriegen und Energiewende: Auswirkungen des EU-China-Handelskonflikts auf deutsche Unternehmen in der Branche für erneuerbare Energie https://d.repec.org/n?u=RePEc:zbw:iubhbm:339586&r=&r=eec As the global energy transition accelerates, the renewable energy sector has emerged as a showplace for geopolitical competition. Amid intensifying geopolitical uncertainty, e.g. the trade frictions between the EU and China, European firms face the challenge of balancing cost efficiency with strategic sovereignty. This thesis therefore investigates how current trade tensions between the EU and China impact the supply chain strategies of German companies in the photovoltaics, wind, and battery sectors. Methodologically, the study combines a qualitative literature analysis with four semi-structured expert interviews with representatives from academia and policy think tanks. Based on a deductive-inductive coding approach, it identifies seven core risk categories and ten strategic response patterns. The findings reveal that the primary threat lies not in potential tariff or non-tariff trade barriers, but in a deep-seated, asymmetric dependence on China for critical raw materials and technological components. Consequently, while a full decoupling is deemed impractical, the research advocates for a robust de-risking framework centered on diversification of sourcing and production locations, nearshoring and friend-shoring, strategic partnerships with third countries, investments in technological innovation and circular economy approaches, complementary inventory strategies, and selective engagement with China. Ultimately, these strategies represent a shift toward more resilient governance structures, providing a roadmap for policymakers and executives to secure Europe's energy infrastructure within an era of systemic rivalry. Raschke, Jennifer Schubart, Constantin Geoeconomics, Supply Chain Resilience, EU-China Trade Relations, Renewable Energy Industry, Derisking, Strategic Sovereignty 2026 Inflation expectations and a conservative central banker: Evidence from a natural experiment https://d.repec.org/n?u=RePEc:zbw:imfswp:339583&r=&r=eec This paper studies the response of inflation expectations to an exogenous shift in central bank preferences. We use the unexpected announcement of the resignation of Jens Weidmann, the president of the Deutsche Bundesbank, in 2021 as a natural experiment constituting a rare case of an exogenous shift in the composition of the ECB's Governing Council. As a member of the Governing Council, he was a known policy hawk and a vocal critic of the ECB's asset purchases. Our evidence from survey data suggests that the news about the resignation causes a strong increase in individual inflation uncertainty of German households and a significant fall in the level of trust in the ECB. The effect on the mean inflation expectations remains inconclusive. Thus, the shift in policy preferences exerts a strong effect on second moments, while the first moment effect remains weak. Grebe, Moritz Tillmann, Peter Monetary policy delegation, central bank governor, household survey, inflation uncertainty, trust 2026 How can Europe scale up its venture capital market? https://d.repec.org/n?u=RePEc:bfr:econot:435&r=&r=eec Europe’s venture capital market is growing but remains much smaller than in the United States, holding back innovation. The gap is partly due to a lack of appetite among private European investors. A more integrated ecosystem, pan-European funds and measures to facilitate institutional investors’ access to venture capital are all key to boosting start-up financing. <p> Le capital-risque progresse en Europe mais reste très en deçà du modèle américain, ce qui constitue un frein à l’innovation. Ce retard tient à une faible mobilisation des investisseurs privés européens. Un écosystème plus intégré, des fonds paneuropéens et des mesures facilitant l’accès des investisseurs institutionnels au capital-risque sont clés pour renforcer le financement des start-up. Lucille Collet Jean-Baptiste Gossé Frédéric Guével Camille Jehle 2026-02-18 Inflation in France : CPI or HICP ? https://d.repec.org/n?u=RePEc:hal:journl:hal-05502577&r=&r=eec This article examines the methodological differences between the two inflation indices published by the French National Statistical Institute (Insee): the national Consumer Price Index (CPI, IPC), used for domestic indexation purposes, and the Harmonised Index of Consumer Prices (HICP, IPCH), used at the European level. It shows that these differences are neither minor nor purely technical, but instead lead to systematic discrepancies in the measurement of inflation in France. In particular, the treatment of healthcare expenditures -based on gross prices before reimbursements in the CPI, unlike the net-of-reimbursement approach used in the HICP - results in a structural understatement of the inflation actually borne by households. Additional methodological differences, including private school fees, public broadcasting licence fee or gambling, further contribute to the observed gaps between the two indices. The article argues that, in the French case, the HICP is more consistent with international statistical recommendations and better suited for measuring purchasing power and real incomes, for example to measure rates of change "in constant euros". François Geerolf Purchasing power, Price index methodology, France, Consumer Price Index (CPI), Inflation measurement, Harmonised Index of Consumer Prices (HICP), Méthodologie des indices de prix, Pouvoir d’achat, Indice des prix à la consommation harmonisé (IPCH), Indice des prix à la consommation (IPC), Mesure de l’inflation 2024-07-09