The European Commission intends to revise the state aid rules to enable member states to adequately respond to the energy crisis caused by the US war on Iran. As highlighted in some of our recent publications featured in this newsletter, the impact of the Strait of Hormuz blockade on energy supplies, as well as the resulting inflation on households' purchasing power, cannot be left unaddressed. However, as other contributions explain, premature and ill-targeted state intervention on fuel prices carries risks.
Europe needs strategies that will make it resilient, ensure its security, and promote sustainable growth. EconPol’s latest and upcoming releases focus on these objectives by examining the potential of a global EU free trade initiative and how Europe can capitalize on the productivity and growth dividends of AI. At the same time, they discuss the effectiveness of military export bans and outline an industrial strategy for technological sovereignty.
Enjoy the read!
|
|
|
|
|
The Effectiveness of EU Export Bans on Military Goods
Despite the military export bans imposed on Russia, weapons recovered on the battlefield often contain Western components. This study analyzes EU export data to determine how these are still finding their way to Russia. As one major reason is re-routing via third countries, sanctions are only effective if they also target intermediary hubs. This has indeed proven successful in curbing indirect exports since early 2024.
|
|
|
|
|
The Role of the Strait of Hormuz for Germany and the EU
Published about a month ago, this Policy Brief sheds light on the role of the Strait of Hormuz in Europe’s energy supply, as well as on the potential consequences of a blockade. Unfortunately, this reading remains very timely: the conflict between the US, Israel, and Iran has continued to escalate since then, and a permanent blockade has effectively materialized. High energy prices and shortages are already leaving deep marks on the economy, as evidenced by the latest results of the ifo Business Survey.
→ While energy-driven inflationary pressure threatens to undermine Europe’s already weak growth, ifo President Clemens Fuest warns against the distortive effects of premature government intervention on fuel prices. Read the press release here.
|
|
|
|
|
Fiscal Drag in Europe – Key Facts
Inflation means more than just higher prices; it can also mean higher taxes. This recent publication examines how 21 EU countries have sought to curb fiscal drag – namely, the erosion of real wages resulting from higher nominal wages, fiscal progressivity, and the declining value of credits and deductions – between 2019 and 2023. While all of the countries took steps to limit fiscal drag, only 13 of them fully offset its effects. If high inflation were to return, systematic indexation or targeted reforms would be essential to preserving households' purchasing power, particularly in countries where the impact of the previous inflationary wave has not been fully neutralized.
|
|
|
|
|
Policy Report 57: “Global Europe 2.0 – The Economic Potential of New EU Trade Agreements in an Era of US Protectionism”
As the EU accelerates its trade agreement network in response to US tariffs, a key question emerges: how much of an economic buffer can these new partnerships truly provide?
This new Policy Report quantifies the economic potential of a “Global Europe 2.0” initiative, focusing on seven key partners: the Mercosur countries, India, the UAE, Australia, Indonesia, Malaysia, and Thailand. The results highlight how important such a strategy is for the EU. It bears significant potential to boost medium-term growth, particularly in the manufacturing sector. The benefits would be widespread: The EU's GDP would grow by up to 0.4 percent in aggregate – with all member states experiencing positive growth –, while the P7 countries would see an even more pronounced increase of nearly 1 percent.
The economic potential and incentive are thus evident. However, speed is critical in order to deliver economic relief to European sectors hit by US protectionism. Striking initial “shallow” trade deals and gradually expanding them over time is a pragmatic approach for the EU to hedge its economy against external shocks and secure long-term growth.
|
|
|
|
|
Breakfast Discussion at the MSC 2026: “Paving the Way for Tech Disruption – How to Rethink Industrial Policy”
fancyrosi studio, Munich | 13 February 2026
EconPol Europe’s panel discussion at the 2026 Munich Security Conference was a great success. A heartfelt thank you goes to all the speakers and participants!
The discussion centered on European industrial strategy and the steps Europe must take to achieve technological sovereignty. To accomplish this, policymakers must establish long-term goals that target societal needs while preventing wasteful public spending through efficiency assessments. Success also hinges on regulatory credibility of EU frameworks and, above all, greater deployment of venture capital to help startups bring innovations to market.
Watch the event impressions and recordings here.
→ Our panelists engaged in an intense discussion about the EU Chips Act as an example of EU measure lacking a truly European dimension: While it was meant to strengthen Europe’s role in the global semiconductor ecosystem, it essentially allowed some large member states to support their national champions. A recent EconPol Opinion, published in conjunction with the event, explains this in detail. Read it here.
|
|
|
|
|
|
EconPol Forum 02/2026: “The Transformative Potential of AI – Implications for Work, Firms, and Trade”
Artificial intelligence (AI) is having a profound transformative impact on the way people work, businesses operate, and economies compete globally. In the context of structurally declining productivity, Europe could find in the adoption of AI a driver for its own productivity and growth. But how well is the continent positioned to seize the productivity benefits of AI while addressing its potentially radical implications for the labor market?
Due out on April 30, the upcoming Forum explores how Europe can maximize AI's potential, offering multiple estimates of its expected productivity gains. The issue breaks down AI's varying impacts across countries, sectors, and workers. It examines key drivers of AI adoption – such as beliefs, digital infrastructure, and company size – alongside its medium-term effects on economic growth and employment and its implications in terms of market competition.
|
|
|
|
|
If you wish to subscribe to our EconPol Forum Email Alert, please click here.
We hope you enjoyed reading this latest edition of our EconPol newsletter. We’ll be back in June with our next issue.
Subscribe to our publication alert to be informed about the latest releases.
|
|
|
|
|
Privacy Policy and Data Protection
We place great importance on your privacy and would like to inform you of our up-dated privacy policy. We treat your information confidentially in accordance with the General Data Protection Regulation (GDPR).
In order to provide you with more transparent and clear information on how we pro-cess your personal information, we have divided our privacy policy into various chapters. In this description you will find the basis on which the data is stored and how we use the data. Here, you can also find out more about your rights, such as how to access your information and how to restrict the use of your information. Our privacy policy can be found on our website.
Subscribe | Unsubscribe | Feedback | Imprint | Privacy Policy
|
|
|
Provider
EconPol Europe – CESifo GmbH
Poschingerstr. 5
81679 Munich, Germany
Registered with the Munich District Court (Amtsgericht München) under HRB 125257
Managing Director
Prof. Dr. Dr. h.c. Clemens Fuest
VAT ID: DE218182755
Editor and Program Director EconPol Europe
Andrea Balestracci
Email: newsletter@econpol.eu
The reprint of excerpts from this alert is permitted only with written permission and provided that the source is acknowledged.
© 2026 EconPol Europe – CESifo GmbH
|
|
|
|
|
|
