We assess the economic impact of introducing consolidation with formula apportionment in the European Union and consider alternative enhanced cooperation agreements. We find that the consolidation is likely to yield a small aggregate welfare gain in Europe. However, not all countries benefit. A coalition of winning countries reduces the welfare gain and may induce a process of adverse selection which destroys the possibility of cooperation. We find that a coalition of similar countries (in terms of the size of their multinational sector) is more feasible in achieving agreement and is actually preferred by those countries over a Europe-wide reform.
- EUR ESE 01