Welcome back to our newsletter. In this issue, we discuss European sovereignty in defense, industrial competitiveness, and public spending on infrastructure and innovation. We also address the role of maritime hubs in global trade, the impact of globalization on gender equality, and language and cognitive skills in a diverse and aging population.
Enjoy the read!
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EconPol Is Now on LinkedIn!
Just a few feeks ago, we launched our brand-new LinkedIn page – and we are excited to connect with you there. It will be our platform for discussing key policy topics, sharing updates on our latest publications, and giving you a closer look at our events and activities.
Follow us to join the conversation and stay up to date.
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Lunch Debate: Funding Ideas, Not Companies – Rethinking EU Innovation Policy from the Bottom Up
Brussels, 3 July 2025
European industry has fallen behind in high-tech innovation. Amid an increased focus on industrial competitiveness and growing public spending, it is crucial for the EU to allocate R&D subsidies more efficiently. How? By targeting companies with the greatest potential for innovation and growth. This is what a report recently co-published by EconPol Europe and the Institute for European Policymaking (IEP) at Bocconi University concludes.
The study, entitled "Funding Ideas, Not Companies: Rethinking EU Innovation Policy from the Bottom Up", was presented in Brussels on July 3. The presentation was followed by comments by Marc Lemaitre (Director General for Research and Innovation) and Dagmar Schuller (CEO and Co-Founder, audEERING) and closed by a Q&A session.
Under its lens is the EU Horizon Program, through which the EU has provided about EUR 100 billion to support research and innovation since 2020. By analyzing the program’s outcomes, the authors – ifo President Clemens Fuest and IEP Director Daniel Gros – observe that a large proportion of the funding has gone to a small number of big corporations or broad-based consortia with modest innovation and growth performance. They argue that any innovation program should redirect funding to small and medium-sized companies with greater innovation potential.
The full report is available here.
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What Do Economists Think About Tariffs? Insights from the Economic Experts Survey
Over the past few months, the global economy has been grappling with ongoing uncertainty stemming from the unpredictability of the US administration and unclear tariff outcomes. According to the Q2-2025 Economic Experts Survey (EES), pessimism dominates among experts. On average, European economists expect tariffs on US imports to reach 18 percent by the end of the year – five points above their own recommendations. On the other hand, recommended rates diverge significantly across EU countries, ranging from 15–20 percent in France to 5–10 percent among German experts, for instance. This highlights the European Commission's struggle to present a unified stance toward the US, a factor likely contributing to the suboptimal outcome of the recent Turnberry agreement.
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Policy Debate of the Hour
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A Fast Track to Defense Sovereignty in the EU – How Can It Work?
Russia’s war in Ukraine and the US administration’s shifting stance toward the EU have pushed European defense sovereignty to the forefront. The latest EconPol Forum examines how Europe can strengthen its defense capabilities amid these challenges. Key priorities include urgent response strategies in support of Ukraine in the event of a US withdrawal and advancing defense cooperation under current EU treaties – including with non-EU countries. The issue also discusses the risks of establishing rigid institutional frameworks that could limit long-term strategic autonomy and highlights the value of public spending on defense R&D.
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Economic Policy and its Impact
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Cognitive decline from the age of 30 is a widespread belief, fuelling concerns in ageing societies. But is this assumption backed up by evidence? The authors of this article argue that it is largely based on cross-sectional data which fail to distinguish between the effects of ageing and generational differences. Using unique longitudinal data, they reveal a different story: cognitive skills tend to increase until the early forties, and declines at older ages only appear among those with below-average engagement in skill-related activities. Active use may therefore be crucial in preserving cognitive abilities for longer.
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Institutions Across the World
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Do global companies promote gender equality, or can they sometimes hold it back? According to this study, global firms are more likely to hire more women than non-global companies and can transmit gender norms to partner countries through commercial ties. However, a look at executive roles hints at a “race to the bottom” among global firms for female top managers in gender-unequal commercial environments.
ifo economist and co-author to this study Pia Heckl recently discussed the topic in the latest episode of the ifo podcast “Economy for All”, answering the question: Does Globalisation Make the World of Work Fairer for Women? Listen to the episode here (German only).
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Germany has eased its decades-long policy of fiscal restraint to stimulate investment in infrastructure. But what needs to be done to generate growth out of debt? Efficiently allocating public funds is key. To accomplish this, the government should refrain from subsidizing projects or regions where private money can do the job. This is the main takeaway from this article, which evaluates Germany’s subsidized broadband rollout from 2010 to 2019. Although the subsidies significantly increased coverage, they did the same to rents and property prices. The rollout – authors suggest – could have largely been financed by private willingness to pay.
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The widespread use of the internet has reshaped opportunities for prospective migrants, including access to foreign language learning. From 2012 to 2021, the app Duolingo introduced 84 courses that connect source and target languages. In this contribution, Joop Adema assesses the impact of these rollouts, finding that the courses improved the language skills in the EU and especially enhanced the language proficiency and employment prospects of migrants within the region.
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Policy Report: The Role of Maritime Chokepoints for German International Trade
Maritime transport accounts for half of Germany's extra-EU trade, with routes highly concentrated through a few global hubs and strategic chokepoints. A new Policy Report, to be published on August 20, quantifies and highlights Germany's reliance on trade transit through a few key maritime chokepoints.
Analysis of 2023 data found that German imports are heavily dependent on the Suez Canal (9.8 percent), Bab al-Mandab (9.4 percent), Malacca (8.7 percent) and the Taiwan Strait (7.1 percent), with much lower dependence on Hormuz. Dependency, however, varies greatly depending on the product, trading partner, and sector: Asian imports often pass through multiple chokepoints, with agriculture and mining showing particularly high exposure to Bab al-Mandab and Suez.
The project was commissioned by the Federal Ministry for Economic Affairs and Energy (BMWE) and was directed by Prof. Dr. Katharina Erhardt (Heinrich-Heine-Universität Düsseldorf, DICE) and Prof. Dr. Lisandra Flach (ifo Institute und LMU Munich). Project team: Lukas Eberth (DICE) and Philip Bodenschatz (ifo).
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