His main expertise is in international political economy (IPE), in particular the problem of uneven deveolopment and the new challenges posed by rising countries to the current global governance scheme.Andrea Brasili is a Senior Economist at the EIB (Luxembourg) where his research interests are both micro (firm level) data analysis and macroeconomic developments, in particular those related to fiscal policy. He received his PhD in Public Economics from the University of Pavia (Italy). Before joining the EIB, he worked in the private sector (in Italian banks and asset management companies) as a research economist, still collaborating with academia.

Chapter 1 by K. Atanas, D. Revoltella, A. Brasili, and J. Schanz describes how the war in Ukraine poses new challenges for public investment in the EU. It has worsened the macroeconomic environment by increasing uncertainty and raising energy and other input costs. Concerns over public debt and increases in current expenditure, to contain the impact of higher energy costs, might decrease government spending on investment. That said, large EU-wide programmes will be supporting governments’ investments over the coming years, in particular through the Recovery and Resilience Fund and RePowerEU. RePowerEU is designed to rapidly reduce dependence on Russian fossil fuels—a challenge that can be addressed only with coordinated policies and efforts both at the national and EU levels. While the cost may not be overwhelming, it comes on top of the large investment needs related to transitioning to a net-zero carbon economy. The solidarity within the European Union will need to be a key ingredient for successfully overcoming these challenges.

Using a pan-European, firm-bank matched data set, we find weak evidence of investment misallocation in Europe. Firms with higher debt overhangs invest significantly less, in particular in sectors that are facing good global growth opportunities. We also find that firms with higher debt overhangs are more likely to invest if they borrow from undercapitalized banks, and this effect is particularly strong in industries facing good global growth opportunities, suggesting a misallocation of investment associated with ‘zombie lending’. Our results are consistent with theories of investment misallocation due to agency problems at firms and at banks.