Transcript single europe

Single European Market
Ideally
• When an economy produces more output it
will be based on two outcomes
– The economy should be experiencing full
employment
– The real GDP per capita should be growing so that
the population can reap the gains and the workers
can receive greater compensation
What happened in Europe
• From the 1970s to the 1990s they had
economic growth or increases in output
• But they had high levels of unemployment
there was no increase in jobs
• And the Labor Compact prevented gains from
increases in wages
The Economy of the European Union
in Perspective
• By 1993, treaties set up the European Union
– EU-15 (The first big group)
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United Kingdom
Ireland
Spain
Portugal
Germany
Belgium
Netherlands
Luxembourg
France
Austria
Italy
Greece
Sweden
Denmark
Finland
More Joined in May 2004
• Eastern Europe and Baltic States
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Cyprus
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Malta
Poland
Slovakia
Slovenia
Two more in January 2007
– Bulgaria
– Romania
• 2013
– Croatia
• By 2013, we are up to 28 members
• Note that the definition of what it means to be
Europe is evolving over time—many are beyond
the Iron Curtain
Major Economies
Country
2006 GDP
(Billions of 2006 $)
2006 Population
(Millions)
2006 Per Capita
GDP
(2006 $)
Germany
$2,580
82
$31,300
France
$1,899
61
$31,000
United Kingdom
$1,941
60
$32,100
Italy
$1,657
59
$28,200
Spain
$1,225
44
$27,800
Netherlands
$579
16
$35,400
Sweden
$319
9
$33,100
Belgium
$301
10
$32,500
EU-27 (Before
Croatia)
$13,018 (2005)
493.0
$26,500 (2005)
Jobs and Productivity:
A Trade-Off in Reverse?
• !970s to the !990s
– High investment and high productivity growth
– Low or no job growth
• US pattern
– High job growth
– Low productivity growth
• Europe was not following a sustainable path
– Not with very high unemployment
Europe was experimenting with
different labor market policies
• With different policies, countries were
following different paths
• Germany—Bad situation getting worse
– Had unemployment rates above 9% for several
years in the late 90s
– 2004-2006 had unemployment over 10%
• France—Bad situation getting a little bit better
– Had unemployment rates above 11% for 6 straight
years in the 1990s
– 200-2006 came down to about 9%
• Italy—Bad situation getting a lot better
– Italy had unemployment rates above 11% for the last
part of the 90s
– By 2006, unemployment was down below 7%
• United Kingdom—Bad situation getting a whole
lot better
– Above 10% in 92 and 93
– But 2005 and 2006, they were more like 5%
What caused the divergences?
• Netherlands and the United Kingdom led the way
in reforming labor market policies
– Continue to protect the unemployed, but also provide
incentives to find and take a job
• Netherlands as an example
– Unemployment compensation had been 80% of
previous wages
– The reduced it to 70% (Way above US levels)
– Made it more difficult to declare yourself disabled
– Taxes for long-term sick leave were tied to number of
employees that end on long-term sick leave
• Old way—do not lay off, but declare them sick so that they
could get sick benefits. New way—that would increase corp
taxes
General Terms
• Protect the worker not the job
• Do not discourage workers from hiring
– Too high wages
– Too many required benefits
– Block firing
– Preventing expanding
Where is EU behind?
• They are further beyond in areas of
information techno
• Especially in areas of retail trade
– Like our Walmart and Target
• In areas of wholesale trade
• In areas of financial services
• Other service based industries that use the
new techno
– Like the hospital story
Why is the US ahead?
• We are so much more flexible and willing to
reorganize
– Both in the front end with the customers and the
back end with production
What could Europe do?
• Single Market Project
– Aims to increase productivity by increasing
competition across countries
– Many barriers were reduced, but there were still
many different rules and laws
– Single European Act in 1986
– Single Market Act of 1992
• To unify regulations (like safety regulation)
• Help to expand competition
More Single Market
• Four freedoms
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People
Goods
Service
Capital
• Harmonized literally thousands of regulations
across countries (labeling laws, testing
procedures, consumer protection laws)
• Limited custom checks (Many rules completely
elimated)
More Single Market
• Many now have the right to live, work, and
study across Europe
• You can have your bank account in any
country
• Use your cash card in any country
• Euro
• Easier for firms to invest in different countries
• Europe has anti-trust policy
What are the gain?
• The first pass shows the gains to be modest
– 1986-2006: 1.8% extra GDP and 2-3 million extra
jobs
• More Exports outside the EU
– 7% of European GDP in 1992
– 12% of European GDP in 2005
– More competitive and more integrated with
international markets
Limited, but
• Although the gains are limited, there is a hope
– Setting the ground work for future growth and
integration
– Stable framework
– Allow higher savings and investment
– Not just a one-time boost, but a sustained
increase
Loss in Momentum
• Big start in the 90s, but by the late 2000s
many feel there was a loss in momentum
– Cross border investment among the EU-15 in 2000
was 14 times larger than in 1992
– But by 2004 investment was only 4 times as large
as in 1992
– Why?
• 90s had many mergers across borders
• But many were reversed in the early 2000s
• Trade growth continued to grow, but slowly
Why? Cont..
• Very little labor movement
– In the EU-15 before 2004 only 0.1% of the
working-age population changes its country of
residence in a given year
– Only about 1% move between a region within a
country in a given year
– To contrast about 3% of the population in the US
moves to a different state each year
What could Europe do?
• Lisbon Agenda: A European Knowledge-Based
Economy?
– In March 2000, as it became clear that
productivity was slowing and the economy was
not using the new techno as the US,
– Heads of state gathered in Lisbon
• Make the European Union the most dynamic and
competitive knowledge-based economy in the world
capable of sustainable economic growth with more and
better jobs and greater social cohesion, and respect for
the environment by 2010
European Commission
• Set up to bring harmony to regulations across
countries
• Has become a big regulator itself
– About 3,500 directives per year
• On everything from recycling to noise pollution
– Maybe it is better that the European Commission
is issuing these rules as compared to each country
– Attitude has been to limit and constrain business
as compare to let it grow or innovate
Limits Limits Limits
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Limits on hours worked
Limits on the ability of the business to expand
Limits on the ability to sign certain contracts
Conditions for hiring
On and on
• They need the ability to shake themselves up
United States of Europe?
• There are people that make that claim
– Helmut Kohl, former Chancellor of Germany
• The great goal that we and our European friends have
in common—”a United States of Europe”
– EU anthem
– May 9 is Europe Day
• Less talk than a decade ago especially with the
financial issues