https://hdl.handle.net/10419/77970 Bruegel Working Papers Mon, 14 Sep 2026 12:01:02 GMT 2026-09-14T12:01:02Z https://hdl.handle.net/10419/322549 Title: Sovereigns on thinning ice: Debt sustainability, climate impacts and adaptation Authors: Calcaterra, Matteo; Consiglio, Andrea; Martorana, Vincenzo; Tavoni, Massimo; Zenios, Stauros Andrea Abstract: A fundamental problem for sovereigns enacting climate policies is whether they can manage increasing debts as their economies suffer from adverse climate impacts. We develop stochastic debt sustainability analysis integrating a coupled climate-economy model with debt financing scenario optimisation, and stress test sovereign debt for representative countries globally under the Intergovernmental Panel on Climate Change marker narrative scenarios of climate change. The stress test combines socioeconomic and climate pathways with calibrated aleatory scenario trees of economic, fiscal and financial variables to generate forward-looking debt projections over the century. These projections incorporate climate-induced damages to economic growth, spanning the broad spectrum of impact functions from the literature. Our findings reveal significant risks to sovereign debt sustainability, particularly under high climate damages, that are large from mid-century. Expected costs increase by up to 3 percent of GDP under high climate impact in a world of regional rivalries, or 0.25 percent under low impact in a middle-of-the-road narrative, with considerable variation between countries. The long-run debts of highly impacted countries are unsustainable. We assess whether adaptation investments or fiscal consolidation can mitigate potential climate-debt crises. Public financing of reactive adaptation is a justified expenditure that breaks even but does not fully restore the debt sustainability of highly impacted high-debt countries. Maintaining public spending while ensuring debt sustainability appears infeasible under climate impacts. Wed, 01 Jan 2025 00:00:00 GMT https://hdl.handle.net/10419/322549 2025-01-01T00:00:00Z https://hdl.handle.net/10419/322543 Title: Gender diversity and economic growth Authors: Ostry, Jonathan David Abstract: Most macroeconomic and growth accounting models assume that male and female workers are perfectly substitutable in the aggregate production function. Whether this assumption is valid is an empirical question that this paper aims to answer by estimating the elasticity of substitution between female and male labour. We apply linear and non-linear techniques to firm-level data, cross-country sectoral data and cross-country aggregate data. We find that women and men are far from being perfect substitutes in production, a result that is consistent with much microeconomic evidence, but has not permeated to macroeconomics. The failure to account for imperfect gender substitutability has far-reaching implications. In particular, standard growth accounting exercises are likely to attribute to technological progress gains that are more properly attributable to the impact of greater gender inclusiveness in the labour force over time. Put differently, the gains from gender inclusiveness are likely to be much larger than standard economic models estimate. Wed, 01 Jan 2025 00:00:00 GMT https://hdl.handle.net/10419/322543 2025-01-01T00:00:00Z https://hdl.handle.net/10419/322545 Title: The quickly fading memory of why and when bank capital is important Authors: Berg, Jesper; Boivin, Nicolas; Geeroms, Hans Abstract: Less than fifteen years after the global financial crisis of 2007-2008, banks and policymakers are calling for deregulation and lower capital requirements in the financial sector. They dispute that the Basel framework, the global standards for regulating large international banks, should be implemented fully in the European Union. One concern is that stricter capital regulation will affect the competitiveness of European banks compared to those in the United States and will restrict loan provision in the EU, despite Europe's significant investment gap. However, deregulation should not be confused with reducing capital requirements for banks. On balance, there is only limited empirical evidence that respecting the capital requirements necessary to support financial stability hampers credit to the economy, investment or economic growth in the long term. Only well-capitalised banks can continue financing the economy during economic setbacks, and weakening the implementation of the Basel standards increases the risks of a new financial crisis. Bank lending and access to financing surveys also show there is no credit crunch in the euro area at present and that capital requirements are not the primary constraint on credit provision. A detailed look at current banking regulation does not support the conclusion that European banks are more strictly regulated overall than US banks. A direct comparison suggests rather the opposite. However, the compliance cost incurred by EU banks from current banking regulation can be reduced by simplifying EU rules. Wed, 01 Jan 2025 00:00:00 GMT https://hdl.handle.net/10419/322545 2025-01-01T00:00:00Z https://hdl.handle.net/10419/322599 Title: European export finance needs a reboot Authors: McCaffrey, Conor; Poitiers, Niclas Abstract: Export credit agencies (ECAs) play an important role in international trade by providing derisking instruments that function as public assistance to companies engaging in international commerce. As the geopolitical environment has become more fraught, this support has become ever more important. In recent years, the role of ECAs has evolved from a purely commercial one to include the pursuit of strategic goals, such as fighting climate change, shaping trade relations with key partners and securing access to critical raw materials. However, the system of European export credit agencies is not well equipped to deal with these challenges. ECAs are national with a variety of models and not all European Union countries have one. There is little transparency on their operations, very limited steering at the EU level and, beyond a small pilot project in Ukraine, no EU-level funding for European public goods. Non-EU ECAs have increasingly used funding instruments not available to EU ones, partly because of competition from countries not subject to the OECD Arrangement on Officially Supported Export Credits and state aid constraints. This makes the lack of coordination not only a strategic oversight but a potential competitive disadvantage. For these reasons, we argue that reform of the European ECA sector is necessary. We advocate for improved transparency and EU-level steering to ensure European strategic objectives are met. More complex is the question of how European public goods could be adequately supported by ECAs. Several models are possible, with the most promising option being EU level funding for projects implemented by national ECAs coupled with some form of EU level oversight. Wed, 01 Jan 2025 00:00:00 GMT https://hdl.handle.net/10419/322599 2025-01-01T00:00:00Z