Transcript Montreal_conf_2_en_european_crisis

The European crisis :
integration or
disintegration ?
Éloi LAURENT (OFCE/Sciences-po)
[email protected]
Université d’été “Le capitalisme en crises”
Université de Montréal, 29 June 2010.
Outline
 From the "U.S. financial crisis" to the European political
crisis;
 European integration or politics repressed;
 Maastricht or the nominal illusion; the euro, ten years on;
 Tax and social competition; Germany and the smallcountry mindset;
 How to get out of the crisis in Europe?
 Three long-term scenarios.
From the “US financial crisis” to the
European political crisis
 In late 2008, early 2009: tenth anniversary of the euro: general self-indulgence
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in Europe. Everything was perfect in the best of worlds;
But the global crisis shed a crude light on the difficulties of the European Union
to respond as a sovereign economic power and a cohesive block ;
Yet one could reasonably entertain the hope that the Union, after five decades
of economic integration and ten years of monetary union, could become the
laboratory of international cooperation in the crisis.
But obvious unwillingness of member states to coordinate within the euro area,
economic heart of Europe; obvious lack of European solidarity towards the new
member states, and more generally the periphery;
In all, the European response to the crisis was late and timid to a crisis that
Europe first denied: the crisis caught up with Europe. The euro area is paying
the (high) price of complacency.
European integration or politics
repressed
 Europe "alive and organized« , a project launched by Jean Monnet and Robert
Schuman (May 9, 1950) on a fundamental idea: Sharing the raw materials of
war to render it materially impossible.
 The European Coal and Steel Community (ECSC April 18, 1951) was the first
step, technical in appearance, eminently political;
 Schuman: "Europe will not happen at once, or in a single plan: it will be built
through concrete achievements which first create a de facto solidarity.".
Declaration of 9 May 1950: declaration of interdependence. The Rome Treaty,
extending the logic of peace by the market;
 Political power is suspect in Europe, it must be tamed and disguised; there is a
deliberate empty space of sovereignty, a non-European government: that
logic is at the heart of the current crisis.
Maastricht or the nominal illusion
 Under the auspice of this logic, the Maastricht Treaty has
defined a new economic constitution for Europe, which is still
in place;
 The Treaty of Rome (EEC, 1957) put at the top of the
constitutional order the principle of “free and undistorted
competition”; the Maastricht Treaty (EU, 1992) crowns the
principle of “price stability”;
 A new hierarchy is born whose apex is Article 105, the ECB
and the Stability and growth Pact: “economic governance” by
rules not “economic government” by political authorities .
The European economic constitution
Source : Laurent, 2006.
The euro, 10 years on
 What is the record of this system, of ten years of euro? The comparison with the EU 15
countries that have not adopted the single currency reveals serious deficiencies. First,
the standard of living, real GDP growth per capita, has declined in the euro area since the
single currency. It has progressed more slowly in 1999-2008 than in Sweden, the United
Kingdom and Denmark.
 The rate of economic growth was also reduced in the euro zone from 1989-1998 to 19992008, when it has stepped up in the three EU 15 countries taken as a benchmark. The
growth of labor productivity has also been reduced by half in the euro area between
1989-1998 and 1999-2008, whereas it was almost maintained in Sweden, the United
Kingdom and Denmark.
 Yes, inflation fell from 3.3% to 2.2% in countries that have adopted the euro, but it fell to
1.7% in European countries which have retained their currency (the rate of long term
interests have been reduced in exactly the same proportions). Deficits and debt have also
been further reduced in Sweden, the United Kingdom and Denmark than in the euro
area. Comparison with the United States, the only economic region of comparable size, is
hardly more flattering;
 More importantly regarding the current crisis, real divergence between member states
of the euro area has widened.
The nominal success
Prices and costs lowering and stabilization in the euro area annual growth, in %
7
6
5
4
3
2
1
0
-1
Uni t l a bour cos t
Source : Fitoussi and Laurent (2009).
Infl a tion
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
-2
Euro area vs UE-non euro
Source : European Commission.
Euro area vs US
Source : Commission européenne.
Real divergence
Source : Fitoussi and Laurent, 2009.
Tax and social competition
 The overall performance of countries in the euro area is not good, but it also
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conceals very different situations;
That raises the question of the quality of cooperation between member States
of the euro area. It looks like economic governance, by rules, has lead to a
deceiving culture of discipline but not to a true culture of cooperation;
The adoption of non-cooperative economic strategies in the euro area (tax and
social competition) is particularly damaging in terms of cohesion and economic
efficiency. It was first practiced by the smaller countries in the euro area
(Ireland), but since 2000 the biggest economy of the region, Germany, has fallen
for it;
Germany has regained its position as the leading world exporter, but this
growth strategy has resulted in a continued weakness in German domestic
demand and thus a weaker contribution to the growth of the euro area.
Tax and social competition is an EU problem, but it is most damaging for euro
area countries since they share the same currency and can not use the exchange
rate. Divergence in competitiveness will threaten the monetary union.
Tax competition
Source : Commission européenne.
The German small country
growth strategy
Trade openness and unit labour cost in Germany, 1987-2007
45
8
7
6
5
4
3
40
35
2
1
0
-1
-2
-3
30
25
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
Trade openess (left scale)
Source : Commission européenne.
Unit labour cost, business sector (right scale)
Germany vs. « Club Med »
Source : Laurent and Le Cacheux, 2010.
How to exit the European crisis?
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Barely a teenager, the euro is now a currency in suspension: it has a few years - two, maybe three to demonstrate its viability. If this period is not being used to initiate profound institutional
reforms, there is no doubt that the euro area will disintegrate under the weight of its
contradictions, triggering a global crisis far more violent than the fall of 2008.
 Designed to address the immediate liquidity problems, the ESF saves time to implement real
reforms. The ESF has been established for a period of three years, corresponding to the horizon set
by the Commission for the return of the States under the 3% of GDP that the Stability Pact imposes
on public deficit.
 The Franco-German dialogue is very difficult and nothing is done in the purely disciplinary or the
idea of cooperation to resolve problems of competitiveness of member countries and to enhance
prospects for growth in the euro area. Without mechanism for mutually beneficial cooperation,
strengthening the discipline lacks credibility.
 We should establish a "sustainable federalism" based on three pillars: strengthening
macroeconomic discipline not only on deficits but also on public and private debt and
competitiveness of States, applying intelligent penalties to states that do not respect the common
rules (“carbon surtax” which proceeds would go to the EU budget; re-direct EU resources withing
the “EU 2020” strategy to a large "green" economy conversion of Southern Europe countries in
order to restore their competitiveness.
Three long term scenarios
 The “empty Empire”: first scenario closest to what Europe is today. Europe has
become an "empire of the rule.“: human rights and the market. Historic
achievement but gradually the imbalance between market and democracy
becomes unbearable: the power of rules occupies the political center of the
empire so that it becomes hollow as it is extends; the economic cost of nonEurope becomes higher;
 The “return of city-states”: The EU is a small Globalization, regional GDP per
capita in 2005 is 24% of the average of 27 in north-eastern Romania to 303% of the
average in Central London : 1 to 13. The marked regional disparities could
threaten national unity in each EU country; The effects of concentration and
agglomeration related to the success of the Single Market brought back cities to
center stage, parallel with city-states of the Middle Age (Italy and Netherlands);
 The “European Renaissance”: “European public goods”; “European Community
for environment, energy and research”.