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Keywords = European Union border policies

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20 pages, 304 KiB  
Article
Normative Power and Europeanization: The EU’s Global Agenda for Gender Equality
by Oana-Andreea Ion, Gabriela-Roxana Irod and Cristian Pîrvulescu
Societies 2025, 15(8), 208; https://doi.org/10.3390/soc15080208 - 27 Jul 2025
Viewed by 346
Abstract
This article explores how the European Union (EU) promotes gender equality beyond its borders, situating the analysis within broader debates on external Europeanization and normative power. While most studies have examined the domestic impact of EU policies, this paper focuses on how gender [...] Read more.
This article explores how the European Union (EU) promotes gender equality beyond its borders, situating the analysis within broader debates on external Europeanization and normative power. While most studies have examined the domestic impact of EU policies, this paper focuses on how gender equality norms are projected internationally and conceptually investigates the mechanisms involved in their diffusion. Drawing on existing theoretical literature, the article analyzes how EU-level normative strategies may interact with domestic political, institutional, and societal dynamics in third countries, often in complex and contested ways. Rather than providing empirical testing, the study identifies core mechanisms—such as strategic communication, partnerships, and funding tools—and reflects on their limitations and the role of local agency in interpreting or resisting EU-promoted norms. The findings highlight the difficulty of isolating EU influence from other international and transnational drivers of norm diffusion, and the need for caution in attributing policy shifts solely to EU action. The article concludes that a better understanding of these processes requires more attention to domestic contexts, as well as future empirical research to complement conceptual analyses of Europeanization in sensitive policy domains such as gender equality. Full article
26 pages, 4157 KiB  
Article
Research on the Effect and Path of CBAM on Green Technology Innovation in China’s High-Carbon Manufacturing Industries
by Lin Yang, Zhengnan Lu and Mengsha Shen
Sustainability 2025, 17(5), 2305; https://doi.org/10.3390/su17052305 - 6 Mar 2025
Viewed by 1210
Abstract
To cope with global warming, the European Union will implement the Carbon Border Adjustment Mechanism (CBAM) in 2026. CBAM may seriously affect the export of China’s high-carbon manufacturing products. To illustrate this issue, this paper uses DID for analysis, taking CBAM as a [...] Read more.
To cope with global warming, the European Union will implement the Carbon Border Adjustment Mechanism (CBAM) in 2026. CBAM may seriously affect the export of China’s high-carbon manufacturing products. To illustrate this issue, this paper uses DID for analysis, taking CBAM as a shock policy. To further explore the impact pathway, this article utilizes a high-dimensional fixed-effect model for mechanism analysis. The results are as follows: (1) CBAM stimulates the vitality of green technology innovation in the high-carbon manufacturing industry; (2) public environmental concern has a positive moderating effect on green technology innovation; (3) financial support plays a mediating role; (4) green technology innovations are more likely to be influenced by CBAM in the eastern region, the petrochemical, and nonferrous industries. Based on research findings, suggestions are as follows: (1) promote green technology innovation in high-carbon industries; (2) increase financial support for green technology innovation in high-carbon enterprises; (3) guide the public towards green and low-carbon consumption; (4) strengthen policy support for low-carbon development in the central and western regions. Full article
(This article belongs to the Topic Multiple Roads to Achieve Net-Zero Emissions by 2050)
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27 pages, 6854 KiB  
Review
Navigating the Evolution of Cyprus’ Electricity Landscape: Drivers, Challenges and Future Prospects
by Venizelos Venizelou and Andreas Poullikkas
Energies 2025, 18(5), 1199; https://doi.org/10.3390/en18051199 - 28 Feb 2025
Viewed by 1777
Abstract
The energy transition of Cyprus presents a distinctive case study influenced by its geographic isolation, regulatory evolution, and the imperative to integrate renewable energy sources (RESs). This paper critically examines the chronological progression of Cyprus’ energy transition, beginning with the formulation of a [...] Read more.
The energy transition of Cyprus presents a distinctive case study influenced by its geographic isolation, regulatory evolution, and the imperative to integrate renewable energy sources (RESs). This paper critically examines the chronological progression of Cyprus’ energy transition, beginning with the formulation of a liberalized electricity market aligned with the European Union’s Target Model. The analysis explores key drivers underpinning increased RES investments, while addressing the transformative impacts of global disruptions on energy security and policy priorities. Furthermore, it assesses pivotal regulatory reforms and the advancement of enabling infrastructure, such as advanced metering systems and cross–border interconnections, which underpin the island’s energy modernization efforts. Finally, this paper identifies opportunities for Cyprus to position itself as a regional smart energy hub, offering valuable insights into the challenges and prospects faced by isolated energy systems within the context of the European energy transition. Full article
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29 pages, 1698 KiB  
Article
Sustainability Transition in the Visegrád Group: Shared Goals, Different Paths
by Piotr M. Bolibok, Bartłomiej Zinczuk and Anna Matras-Bolibok
Sustainability 2025, 17(5), 1951; https://doi.org/10.3390/su17051951 - 25 Feb 2025
Cited by 1 | Viewed by 812
Abstract
This paper aims to investigate the sustainability performance trajectories of the Visegrád Group (V4) countries since their accession to the European Union. Given their shared historical, geopolitical, and socio-economic backgrounds, this study explores common evolutionary patterns and convergence within the sustainable development goal [...] Read more.
This paper aims to investigate the sustainability performance trajectories of the Visegrád Group (V4) countries since their accession to the European Union. Given their shared historical, geopolitical, and socio-economic backgrounds, this study explores common evolutionary patterns and convergence within the sustainable development goal framework. This research employs the Kml3D non-parametric clustering algorithm and standard beta and sigma convergence tests. The analysis covers the 2004–2023 data sourced from the European Sustainable Development Report 2023/24 by the Sustainable Development Solutions Network. The findings demonstrate that while each country follows a distinct path, Czechia and Slovakia exhibit notable similarities in the evolution of individual sustainability dimensions. This underscores the influence of path dependence, institutional inertia, and cross-border policy coordination in sustainable development. The results also suggest that although the V4 countries generally converge in socio-economic and infrastructural dimensions of sustainability, divergence persists in education, gender equality, nature preservation, and institutional performance. Full article
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25 pages, 516 KiB  
Article
Price Behavior and Market Integration in European Union Electricity Markets: A VECM Analysis
by Cristian Valeriu Stanciu and Narcis Eduard Mitu
Energies 2025, 18(4), 770; https://doi.org/10.3390/en18040770 - 7 Feb 2025
Cited by 1 | Viewed by 1184
Abstract
This study examines the integration and price behavior of European Union electricity markets using a Vector Error Correction Model (VECM). Employing daily wholesale day-ahead electricity prices from 24 EU countries spanning October 2017 to September 2024, the research identifies seven regional clusters of [...] Read more.
This study examines the integration and price behavior of European Union electricity markets using a Vector Error Correction Model (VECM). Employing daily wholesale day-ahead electricity prices from 24 EU countries spanning October 2017 to September 2024, the research identifies seven regional clusters of markets based on similarities in price trends. The analysis reveals strong long-term equilibrium relationships and dynamic short-term adjustments, highlighting the interconnectedness of these markets. Central players, such as Germany in Block 1 and France in Block 2, emerge as pivotal in driving regional stability, while markets like Romania and Bulgaria (Block 3) demonstrate significant interconnections. Scandinavian and Baltic regions (Blocks 4 and 5) showcase unique balancing mechanisms influenced by shared infrastructure. Aggregated inter-block dynamics underscore the critical role of central hubs like Blocks 1 and 3 in bridging market disparities. Despite progress, regional heterogeneity persists, with slower adjustments observed in certain clusters. The findings emphasize the need for targeted policies to enhance cross-border electricity trading and infrastructure investments, ensuring equitable integration across all regions. By addressing these disparities, the EU can bolster market efficiency and resilience, contributing to its overarching energy strategy and transition to sustainable energy systems. Full article
(This article belongs to the Special Issue Economic Approaches to Energy, Environment and Sustainability)
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39 pages, 3474 KiB  
Review
Hydrogen as a Renewable Fuel of Non-Biological Origins in the European Union—The Emerging Market and Regulatory Framework
by Andrzej Graczyk, Paweł Brusiło and Alicja Małgorzata Graczyk
Energies 2025, 18(3), 617; https://doi.org/10.3390/en18030617 - 29 Jan 2025
Cited by 1 | Viewed by 1393
Abstract
The European Union continues to lead global efforts toward climate neutrality by developing a cohesive regulatory and market framework for alternative fuels, including renewable hydrogen. This review article critically examines the recent evolution of the EU’s policy landscape specifically for hydrogen as a [...] Read more.
The European Union continues to lead global efforts toward climate neutrality by developing a cohesive regulatory and market framework for alternative fuels, including renewable hydrogen. This review article critically examines the recent evolution of the EU’s policy landscape specifically for hydrogen as a renewable fuel of non-biological origin (RFNBO), highlighting its growing importance in hard-to-abate sectors such as industry and transportation. We assess the interplay of market-based mechanisms (e.g., EU ETS II), direct mandates (e.g., FuelEU Maritime, RED III), and support auction-based measures (e.g., the European Hydrogen Bank) that collectively shape both the demand and the supply of hydrogen as RFNBO fuel. The article also addresses emerging cost, capacity, and technical barriers—ranging from constrained electrolyzer deployment to complex certification requirements—that hinder large-scale adoption and market rollout. The article aims to discuss advancing and changing regulatory and market environment for the development of infrastructure and market for hydrogen as RFNBO fuel in the EU in 2019–2024. Synthesizing current research and policy developments, we propose targeted recommendations, including enhanced cross-border coordination and capacity-based incentives, to accelerate investment and infrastructure development. This review informs policymakers, industry stakeholders, and researchers on critical success factors for integrating hydrogen as a cornerstone of the EU’s climate neutrality efforts. Full article
(This article belongs to the Section B: Energy and Environment)
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20 pages, 1490 KiB  
Review
Unleashing Energy Potential: Insights of Energy Audit Practices
by Veronika Liberova, Inguna Bremane, Dace Lauka, Krista Laktuka, Tereza Bezrucko, Karina Zvirbule, Alise Egija Bezrucko and Dagnija Blumberga
Energies 2025, 18(3), 522; https://doi.org/10.3390/en18030522 - 23 Jan 2025
Viewed by 1063
Abstract
This article examines energy audit procedures as a crucial instrument for raising building and business energy efficiency in European Union (EU) Member States. Energy audits, which include technical, economic, and environmental aspects, are essential to reaching the EU’s climate targets, which include increasing [...] Read more.
This article examines energy audit procedures as a crucial instrument for raising building and business energy efficiency in European Union (EU) Member States. Energy audits, which include technical, economic, and environmental aspects, are essential to reaching the EU’s climate targets, which include increasing energy independence and cutting emissions by 55% by 2030. The study highlights how crucial energy efficiency initiatives are to combating climate change, cutting energy use, and advancing sustainable development. A thorough examination of methods, financing sources, and legislative frameworks reveals differences in how Member States carry out directives such as the Energy Performance of Buildings Directive and the Energy Efficiency Directive. A case study on Latvia is included in the article, highlighting the country’s energy audit regulations, implementation difficulties, and successes. This study applied a bibliographic methodology or review of the scientific and other relevant literature, analyzing sources identified through targeted keyword searches in academic databases and a variety of online sources, including official legal websites, handbooks, reports, plans, and other publicly available digital resources. The integration of energy efficiency principles and country performances are compared using data from the Odyssee and Mure databases. The results highlight how important it is to standardize energy auditing practices, promote information sharing across national borders, and move past obstacles like public resistance and budgetary limitations. Policy recommendations to improve energy efficiency and aid the EU’s transition to climate neutrality by 2050 are included in the research’s conclusion. Full article
(This article belongs to the Section B: Energy and Environment)
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21 pages, 2802 KiB  
Article
The Impact of the EU’s CBAM on China’s Carbon Emission Policy
by Ruiyu Geng, Qianyi Cai and Hanbin Wang
Climate 2025, 13(1), 5; https://doi.org/10.3390/cli13010005 - 30 Dec 2024
Viewed by 3999
Abstract
The European Union’s Carbon Border Adjustment Mechanism (CBAM) has not only accelerated the development of China’s energy policy, but it has also posed new obstacles. This paper aims to explore the influence of CBAM at various phases of its evolution on policy formulation [...] Read more.
The European Union’s Carbon Border Adjustment Mechanism (CBAM) has not only accelerated the development of China’s energy policy, but it has also posed new obstacles. This paper aims to explore the influence of CBAM at various phases of its evolution on policy formulation for China’s six main high-emission industries. The policy analysis indicates that the Chinese government, in response to the demands of CBAM, has expanded its emission reduction programs. These now include sustainable energy endeavors, like hydrogen, alongside traditional high-emission industries. Moreover, the Chinese government has implemented 39 initiatives for energy conservation and emission reduction. These initiatives seek to restructure industrial frameworks via legislative modifications, enhance manufacturing methodologies, and establish stringent emission regulations. Nonetheless, there is insufficient adherence to policy implementation in China’s high-emission industries, failing to provide substantial reductions in emissions. In light of the demands from the CBAM carbon taxes and its own emission reduction objectives, the Chinese government has prioritized enhancing enforcement in the six main sectors. Full article
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18 pages, 3146 KiB  
Article
Carbon Border Adjustment Mechanism (CBAM) to Tackle Carbon Leakage in the International Fertilizer Trade
by Christian Bux, Roberto Leonardo Rana, Caterina Tricase, Paola Geatti and Mariarosaria Lombardi
Sustainability 2024, 16(23), 10661; https://doi.org/10.3390/su162310661 - 5 Dec 2024
Cited by 2 | Viewed by 2893
Abstract
Carbon emissions have negative effects on the climate regardless of the location they are generated, and several strategies were introduced to meet the Sustainable Development Goals, precisely, Goal 13 “Take urgent action to combat climate change and its impacts”. Recently, to tackle the [...] Read more.
Carbon emissions have negative effects on the climate regardless of the location they are generated, and several strategies were introduced to meet the Sustainable Development Goals, precisely, Goal 13 “Take urgent action to combat climate change and its impacts”. Recently, to tackle the so-called carbon leakage, the European Union (EU) introduced the Carbon Border Adjustment Mechanism (CBAM), which is a crucial instrument to establish a fair price for the carbon emissions during the production of certain carbon-intensive goods, including fertilizers. The objective of this study is to assess the efficacy of the CBAM in addressing carbon leakage within the EU by evaluating the virtual carbon emission flows to the EU in the timespan 2019–2023, focusing on the top ten primary exporters of fertilizers. The assessment is based on the comparison of the world weighted average (WWA) emission factor and the country-specific one, to identify a more suitable method for measuring carbon emission flows. Results highlighted the opportunity of treating countries individually, rather than employing WWA emission factors. Emissions could be minimized by reducing production levels in countries with lax environmental policies, but this could penalize third-party economies. Sustainable development can be achieved by introducing fair environmental policies, maintaining constant production levels, economically compensating production economies, and exporting skills and know-how. Full article
(This article belongs to the Section Sustainable Food)
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23 pages, 838 KiB  
Article
Sustainable Cycling: Boosting Commuting and Tourism Opportunities in Istria
by Aleksandar Šobot, Sergej Gričar, Violeta Šugar and Štefan Bojnec
Sustainability 2024, 16(23), 10604; https://doi.org/10.3390/su162310604 - 3 Dec 2024
Cited by 3 | Viewed by 1931
Abstract
This study explores the evolution of cycling in Istria, a region located in parts of Slovenia and Croatia along the Northern Adriatic coast, recognised for its vibrant tourism sector. The research aims to evaluate the potential of cycling for both daily commuting and [...] Read more.
This study explores the evolution of cycling in Istria, a region located in parts of Slovenia and Croatia along the Northern Adriatic coast, recognised for its vibrant tourism sector. The research aims to evaluate the potential of cycling for both daily commuting and tourism while examining its economic, environmental, and social impacts. The study uses secondary data from 2010 to 2023, econometric methods, and interviews to assess how cycling contributes to economic growth, regional collaboration, employment rates, and greenhouse gas (GHG) emissions. In Slovenia, regression analysis indicates that bicycle imports positively correlate with tourist arrivals, which positively influences GDP. However, VAR analysis shows that employment has a negative impact on GHG emissions. In contrast, the increase in bicycles contributes to higher GHG emissions, suggesting the possibility of greenwashing or double pollution. In Croatia, regression coefficients were found to be insignificant, aligning with insights gained from interviews. Nonetheless, VAR analysis reveals that tourist arrivals and GDP positively reinforce each other, while GHG emissions negatively affect employment. Bicycles are shown to reduce GHG emissions, and tourist arrivals are also associated with lowered GHG emissions. The study concludes that cycling holds significant potential for fostering sustainable tourism and regional development; however, the differing impacts observed in Slovenia and Croatia necessitate tailored policy interventions. The hypothesis is partially confirmed in Slovenia, where bicycle imports positively impact tourist arrivals and GDP but are challenged by increased GHG emissions, while in Croatia, the hypothesis is not supported by direct economic gains from cycling. However, bicycles contribute to reducing GHG emissions. Full article
(This article belongs to the Special Issue Infrastructure, Transport and Logistics for Sustainability in Tourism)
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21 pages, 1807 KiB  
Article
Research on the Inhibitory Effect of the EU’s Carbon Border Adjustment Mechanism on Carbon Leakage
by Tian Lan and Ran Tao
Sustainability 2024, 16(17), 7429; https://doi.org/10.3390/su16177429 - 28 Aug 2024
Cited by 3 | Viewed by 2474
Abstract
Associated with more ambitious targets for reducing emissions, the European Union (EU) plans to implement the Carbon Border Adjustment Mechanism (CBAM) fully in 2026, aiming to reduce carbon leakage and competitiveness concerns by imposing tariffs on carbon-intensive imports, which is expected to significantly [...] Read more.
Associated with more ambitious targets for reducing emissions, the European Union (EU) plans to implement the Carbon Border Adjustment Mechanism (CBAM) fully in 2026, aiming to reduce carbon leakage and competitiveness concerns by imposing tariffs on carbon-intensive imports, which is expected to significantly impact its trade partners. Existing research has focused on CBAM’s impact on macroeconomic indicators but has insufficiently addressed its effects on global and regional carbon leakage, especially in non-EU countries like China. This research offers a detailed analysis of industry-specific leakage rates and integrates both global and regional impacts by employing the dynamic recursive GTAP-E general equilibrium model to numerically simulate CBAM’s inhibitory effect on carbon leakage under different carbon tariff scenarios, while also exploring the synergistic effects of anti-leakage policies in non-EU countries. Our simulations indicate the following: (1) CBAM effectively inhibits carbon leakage, with greater inhibition observed at higher tax rates and with the expansion of covered industries. (2) Establishing China’s domestic carbon market pricing can further reduce regional carbon leakage rates. Implementing global export carbon tax policies will significantly diminish the risk of global carbon leakage. (3) The implementation of CBAM is projected to reduce China’s total exports to the EU, though this loss will be partly offset by trade diversion effects. Carbon-intensive industries are more adversely affected in the short term, while all industries except fossil fuels face inevitable long-term negative impacts. Full article
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16 pages, 314 KiB  
Article
May I Come In? EU Policies to Control Migration: The EUTF
by Ana Beatriz da Costa Mangueira
Soc. Sci. 2024, 13(7), 377; https://doi.org/10.3390/socsci13070377 - 22 Jul 2024
Viewed by 2021
Abstract
What types of policies has the European Union (EU) implemented to control migration flows in recent decades, and what are their strategies? This paper aims to explore the measures developed by the EU to manage migration flows and identify how they operate. While [...] Read more.
What types of policies has the European Union (EU) implemented to control migration flows in recent decades, and what are their strategies? This paper aims to explore the measures developed by the EU to manage migration flows and identify how they operate. While a securitisation approach, such as activities of border control, has been widely discussed by scholars in this field, it is worth exploring and understanding other kinds of instruments aimed at curbing irregular flows through executing programs such as the Emergency Trust Fund for Africa (EUTF), developed in the aftermath of the Arab uprisings to address the “root causes” of the displacement. In light of this, this research conducts a case study and qualitative content and descriptive analysis of documents on the EUTF. Preliminary findings indicate patterns in what motivated the EU to undertake these actions and present the main strategies of the Fund in the North Africa region. However, some factors may have led to disappointing outcomes for the EUTF, such as the increase, in 2019, of nationals leaving the North Africa region towards Europe, as reported by UNDESA. Full article
(This article belongs to the Special Issue Globalization and International Migration to the EU)
19 pages, 1217 KiB  
Article
Measuring the Cost of the European Union’s Carbon Border Adjustment Mechanism on Moroccan Exports
by Wissal Morchid, Eduardo A. Haddad and Luc Savard
Sustainability 2024, 16(12), 4967; https://doi.org/10.3390/su16124967 - 11 Jun 2024
Cited by 2 | Viewed by 2828
Abstract
The ‘Fit for 55’ policy package was presented in the European Commission’s Green Deal framework, comprising a set of proposals to improve existing energy and climate legislation. Among its main proposals was a revision of the European Union’s Emission Trading System to expand [...] Read more.
The ‘Fit for 55’ policy package was presented in the European Commission’s Green Deal framework, comprising a set of proposals to improve existing energy and climate legislation. Among its main proposals was a revision of the European Union’s Emission Trading System to expand its sectoral coverage. Anticipating the possible loss of competitiveness with carbon pricing within the EU—which may lead to ‘carbon leakage’—a carbon border adjustment mechanism (CBAM) was included in the package. This scheme takes the form of an export tax levied by the European Union on some goods manufactured in non-carbon-taxing countries. In this paper, we provide a first-order estimate of the potential impact of CBAM on Morocco’s exports using an input–output approach. Our main findings suggest that the scheme would yield a carbon bill ranging from USD 20 to 34 million annually to Moroccan exporters in its initial phase. Morocco can mitigate such economic losses by instituting a national Emission Trading System, a tax reform, or speeding up the decarbonization of its economy. Full article
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32 pages, 11541 KiB  
Article
Impacts of Carbon Border Adjustment Mechanism on the Development of Chinese Steel Enterprises and Government Management Decisions: A Tripartite Evolutionary Game Analysis
by Borui Tian, Mingyue Zheng, Wenjie Liu, Yueqing Gu, Yi Xing and Chongchao Pan
Sustainability 2024, 16(8), 3113; https://doi.org/10.3390/su16083113 - 9 Apr 2024
Cited by 8 | Viewed by 4057
Abstract
Upon the implementation of the European Union Carbon Border Adjustment Mechanism (CBAM), substantial challenges are anticipated to impact the international trade of Chinese steel products. To safeguard the competitiveness of Chinese steel products on the global stage, this paper establishes a tripartite evolutionary [...] Read more.
Upon the implementation of the European Union Carbon Border Adjustment Mechanism (CBAM), substantial challenges are anticipated to impact the international trade of Chinese steel products. To safeguard the competitiveness of Chinese steel products on the global stage, this paper establishes a tripartite evolutionary game model, involving large steel enterprises, small- and medium-sized steel enterprises, and the government. The model integrates collaborative emission reduction and free-riding benefits among enterprises, along with the government’s dynamic subsidies and penalties. First, we calculate the replicator dynamic equations and conduct stability analysis to obtain the evolutionary trends and system equilibrium points in different phases of the CBAM. Then, we validate the evolutionary theoretical analysis of the model through example simulation analysis. Finally, we explore the impact of different parameters on the agents through a sensitivity analysis of parameters. The findings indicate that (1) large enterprises demonstrate greater sensitivity to CBAM, making their production structures more susceptible to changes in CBAM policies; (2) small- and medium-sized enterprises are more prone to free-riding behavior influence; (3) government intervention should be kept within appropriate boundaries, as excessive intervention may lead to strategic oscillation, with passive management being chosen by the government during the strengthening phase of CBAM; (4) elevating the price in the Chinese carbon market would slow down the structural changes in the production of Chinese steel enterprises, serving as an effective measure to counteract the impacts of CBAM. This paper provides theoretical support for how steel enterprises and the government can respond to CBAM, aiding stakeholders in selecting optimal strategies during different implementation stages and mitigating the impacts of the CBAM to the maximum extent possible. Full article
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126 pages, 14996 KiB  
Article
Target2: The Silent Bailout System That Keeps the Euro Afloat
by David Blake
J. Risk Financial Manag. 2023, 16(12), 506; https://doi.org/10.3390/jrfm16120506 - 7 Dec 2023
Cited by 1 | Viewed by 4257
Abstract
Target2 is the Eurozone’s cross-border payment system, which is mandatory for the settlement of euro transactions involving Eurozone central banks. It is being used to save the Eurozone from imploding. A key underlying problem is that the Eurozone does not satisfy the economic [...] Read more.
Target2 is the Eurozone’s cross-border payment system, which is mandatory for the settlement of euro transactions involving Eurozone central banks. It is being used to save the Eurozone from imploding. A key underlying problem is that the Eurozone does not satisfy the economic conditions for being an Optimal Currency Area, i.e., a geographical area over which a single currency and monetary policy can operate on a sustainable, long-term basis. The different business cycles in the Eurozone, combined with poor labour and capital market flexibility, mean that systematic trade surpluses and deficits will build up because inter-regional exchange rates can no longer be changed. Surplus regions need to recycle the surpluses back into deficit regions via transfers to keep the Eurozone economies in balance. But the largest surplus country—Germany—refuses to formally accept that the European Union is a ‘transfer union’. However, deficit countries, including the largest of these—Italy—are using Target2 for this purpose. Target2 has become a giant credit card for Eurozone members that import more than they export to other members, but with two differences compared with normal credit card debt: neither the debt nor the interest that accrues on the debt ever needs to be repaid. Furthermore, the size of the deficits being built up is causing citizens in deficit countries to lose confidence in their banking systems, leading them to transfer their funds to banks in surplus countries. Target2 is also being used to facilitate this capital flight. However, these are not viable long-term solutions to systemic Eurozone trade imbalances and weakening national banking systems. There are only two realistic outcomes. The first is a full fiscal and political union, with Brussels determining the levels of tax and public expenditure in each member state—which has long been the objective of Europe’s political establishment. The second outcome is that the Eurozone breaks up. Full article
(This article belongs to the Special Issue Bank Lending and Monetary Policy)
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