Band 20, Heft 2

The 30 years old Maastricht Treaty on European Union (EU) is based on the political vision that a stable euro requires sound budgetary policies and sustainable public finances in all the participating countries. This article reviews how the European framework for managing sovereign risk in the Economic and Monetary Union (EMU) has evolved in challenging times. The main finding is that over the years European policymakers have applied a range of special provisions contingent on the state of national economies, the demand for public investment, the need for a sound financial system, the effectiveness of monetary transmission, or on general concerns with the integrity of the eurozone, in a way which hampers fiscal discipline. The growing prominence of this state-contingent governance could mark the political transition from the Maastricht Treaty’s focus on public risk reduction to a ‘Next Generation EMU’ which favours public risk sharing. The challenge in designing the future EMU architecture will be to balance the need to preserve the integrity of eurozone with the need for fiscal discipline.

Central to the recent European Commission’s proposals for the reform of the current fiscal rules is the introduction of national medium-term fiscal structural plans. The proposed emphasis on compliance with country-specific net expenditure trajectories aimed at government debt sustainability is to be welcomed. However, several details of this expenditure path are either not clear or run the risk of political manipulation. What is more, maintaining the one-size fits all 3 % threshold for the budget balance undermines several of the acclaimed advantages of the proposed new governance system, including that it would be simpler and less pro-cyclical. Furthermore, enforcement under the proposed framework is also unlikely to be stronger than under the current framework. Last, but not least, the proposal does not discuss the need for an EU framework for debt restructuring.

This paper examines the economic cost of Brexit for the City of London. Even though the Covid pandemic may have delayed some plans for relocations by financial firms from London to the EU, the EU’s finance hubs are growing. Paris has become the bloc’s top trading hub, while Frankfurt, Dublin and Amsterdam are also emerging as hubs for different financial services specialisms. There were three drivers behind the UK government’s stance on Brexit which have been largely detrimental to City of London interests: First, Getting Brexit Done by concluding a boilerplate agreement on goods, while neglecting financial services; second, leaving the single market and ending freedom of movement making a deal on financial services impossible, and third, the false and arrogant mantra that ‘the EU needed the City more than the City needed the EU’. Prime Ministers Johnson, Truss and Sunak have led the UK into further self-inflicted economic and political decline and regulatory uncertainty. Brexit will over the next few years have a negative impact on jobs and tax receipts. The City of London will have to adapt to the harsh realities of a hard Brexit, perennial tensions with Brussels and growing competition from European financial centres and from New York.

This paper surveys the literature on the economic effects of sanctions on Iran, with a principal focus on those imposed after 2006. We discuss the challenges of isolating the impacts of sanctions and evaluate recent methodological approaches used to measure causal effects. Specifically, we focus on the application of the synthetic control method to disaggregate the exogenous and endogenous factors responsible for economic underperformance in Iran. We review studies on the macroeconomic impacts of Iran sanctions and examine those that focus on the sectoral effects of sanctions. Our survey reveals a large and growing body of literature that remains incomplete. There are significant gaps in the existing research on the impact of sanctions. Iran will likely remain the most important case study as researchers seek to fill those gaps.

After four decades of unprecedented growth, the Chinese economy faces a plethora of structural problems: The bursting of the world’s largest real estate bubble, the demographic decline and the turn to a preference for autarky are resulting in a potent mix. Solving the above-named problems will results in a prolonged phase of slow growth or even stagnation. Not tackling the issues will be even worse, for the adjustment process will eventually be even more painful. Real estate is probably the biggest issue. Too many apartments were built for too few people. The second key problem is the demography. The United Nations are suggesting that China’s population may shrink to about half its current level by 2100. Since China does not consider immigration, the aging population will be a drag on economic development and, of course, real estate. The Chinese Communist Party has engineered an economic mirage: That soufflé will only rise once.

Globalization, e.g. as measured by the ratio of global trade to global production (or GDP), has stopped advancing and may well recede in the years to come. Whether this is harmful for economic welfare depends on the precise reasons of this development. The effect of increasing border measures on GDP, however, is quite clearly negative. Because technological progress will continue to lower trade costs, globalization will bounce back forcefully when the geopolitical environment becomes more benign again.

Two sources of geopolitical tension – G7 sanctions on Russia and conflict between the United States and China – have the potential to reshape the global monetary system. This short paper argues that only the second is likely to have far-reaching, and heavily negative, consequences if allowed to develop further.

The global economic landscape is undergoing a transformative shift, as evidenced by the BRICS nations’ increasing dominance. This development raises questions about the emergence of economic and political blocks and their potential leverage. China and India, as the world’s most populous nations within the group, are instrumental in driving global economic demand. The expansion of BRICS, with new members possessing vast natural resources, amplifies the group’s influence. However, the BRICS face a monetary and financial Achilles heel, especially in the case of China, hindering their ability to act independently. As the BRICS gain geopolitical significance, the G7 responds with infrastructure initiatives and trade agreements, though success hinges on reciprocal concessions. The BRICS thus serve as a wake-up call for the G7, prompting considerations of rejuvenating political and economic links amidst a shifting global landscape.

The essay traces the evolution of the Eurasian regionalism over the last three decades. It focuses on the inherent contradictions between the centripetal market forces and the geopolitical clashes affecting the economic integration perspectives. In Eurasia, economic integration has been repeatedly reinterpreted in terms of geopolitical power; at the same time, economic interaction emerged across the politically motivated boundaries.

Russia’s war against Ukraine unfolded unprecedented geopolitical, economic and energy-related tension in the European Union (EU). Amidst this situation, decision-makers and scholars alike have returned to concepts of geopolitics to reflect the EU’s external affairs and its position in the international (trade) system. Indeed, geopolitical considerations help us to understand the sanctions imposed by the EU against Russia. The restrictive measures against Russia and the Russian-controlled areas in Ukraine are, to date, the most comprehensive measures adopted autonomously by the EU. They reflect the EU’s geopolitical considerations in carving out a strong response to Russia’s military aggression against Ukraine and the unparalleled political and security threat in Europe.

China has played a central role in the previous phase of hiper-globalization but also in the ongoing phase of slowbalization, characterized by the decreasing size of global value chains which started after the global financial crisis in 2008. More recently, US-China strategic competition is contributing to the slowbalization process, especially in the technology space. Against such backdrop, China is reducing its dependence on the outside world, betting on technological self-reliance and working hard to build its own ecosystem. However, such trend does not mean isolation; on the contrary, China actively shapes its unique form of globalization by creating its own neighbourhood or area of economic influence. A prominent example of this effort is the Belt and Road Initiative (BRI), which aims at increasing China’s soft – and possibly hard – power with a hub and spoke approach.

Since the globalization of China has not been accompanied by an opening of its political system and society, political conditions for the economic development must be viewed in a global context. In addition to the economic slowdown, China faces a demographic challenge that has been ignored for a long time, and social upheavals have also been overlooked in the West in the euphoria over the market potential in the People’s Republic. The economic dependencies between the German and Chinese economies are two-sided. German companies should assess the risks of their China engagement, while corporates strategies are no substitute for a courageous foreign trade policy.

Contrary to optimistic predictions from the financial industry in 2011, China’s economy will not have overtaken that of the USA by 2025. Since 2012, Xi Jinping has largely brought the market, private property and the capitalist mode of production back under the control of the Chinese Communist Party. Xi has curtailed the success factor of decentralization and continued to expand the failure factors of interventionism and state control. Capital is now flowing out of China, putting the renminbi under devaluation pressure. Even a relocation of production capacities from China primarily to other Asian countries can already be observed. In its policy of hegemony, China is steering the economy to achieve political and geopolitical ends and is practising geoeconomics. What remains unclear is how the geoeconomics pursued by Xi is intended to enable long-term growth in China.

This article outlines how the systemic rivalry between the West and China is preventing effective collaboration in the fight against climate change. Three approaches are suggested that can help the West achieve tangible action in the sphere of climate policy. First, the West must build up pressure points such as CBAM or even tariffs to incentivise greater climate protection measures. Second, climate partnerships with more substantial financial resources will incentivise developing countries to accelerate decarbonisation and not just follow the Chinese model. Third, climate action in the US and EU must be well calibrated.