Transcript Diapositiva 1

CAN EUROPE RESPOND TO ITS
CHALLENGES?
José Viñals
Director General
Banco de España
IESE, Madrid, July 8th 2004
Contents
 European integration and the process of globalisation
 EU´s Economic Performance: The European Model
 Challenges
 What should economic policy do?
 Conclusions
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European integration and the process of globalisation
 Europe is favourably contributing to globalisation (One
Market, One Money)
 Considerable institutional success
Past:
Present:
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-Enlargements 1986 (Sp, Post) and 1995 (Sw, Aus, Fin)
-Single Internal Market 1993
-Monetary Union 1999
-Central-Eastern European enlargement May 2004
-European Constitution
3
How is the EU economy performing?
 Long-term evolution is most useful also to understand
present European problems and future prospects
 The European economic and social model
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The European economic and social model
Economic and social
cohesion
Macroeconomic
stability
Growth
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5
Economic growth EU 15 (1960-2000)
5
%
4.5
4
3.5
3
2.5
2
1.5
1
1961-1970
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1971-1980
1981-1990
1991-2000
6
Growth malaise most worrying
 In spite of institutional progress
 Frustrating relative to the past
 Frustrating relative to expectations
 Frustrating relative to the US
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Economic growth: EU vs US
5
%
4.5
4
US
3.5
3
2.5
2
EU
1.5
1
1961-1970
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1971-1980
1981-1990
1991-2000
8
Per capita GDP (US = 100)
120
%
US
100
80
EU
60
Japan
40
20
0
1950
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1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
9
Productivity and employment growth: EU vs US
4.0
4.0
EU
3.5
US
3.5
3.0
3.0
Productivity
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
Employment
Productivity
-0.5
Employment
-1.0
-1.0
1971-1980
4.0
1981-1990
1991-2000
1971-1980
4.0
EU
3.5
3.5
3.0
3.0
2.5
2.5
2.0
1.5
1.5
1.0
1.0
0.5
1991-2000
US
Employment
Productivity
2.0
1981-1990
Productivity
0.5
Employment
0.0
0.0
-0.5
-0.5
-1.0
-1.0
1991-1995
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1996-2000
1991-1995
1996-2000
10
Macroeconomic stability: EU vs US
1961-1970 1971-1980 1981-1990 1991-2000
EU
Inflation
Cyclical instability
3.9
0.9
10.8
1.7
6.7
1.2
2.7
1.0
Inflation
Cyclical instability
2.8
1.8
7.9
2.0
4.7
2.4
2.8
1.5
EU - US
Inflation
Cyclical instability
1.1
-0.9
2.9
-0.3
2.0
-1.2
-0.1
-0.5
US
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Income inequality in EU
2.1
Ratio of 5% richest over 20% poorest incomes
Gini Coefficient
0.325
0.32
2
0.315
1.9
Lower is less unequal
0.31
Lower is less unequal
0.305
1.8
0.3
1.7
0.295
1970
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1980
1990
1995
2000
1970
1980
1990
1995
2000
12
European long-term economic performance:
where do we stand?
 Mixed performance of the European model
 Lights-macro stability and cohesion
 Shadows-growth
 Other factors?
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Whan can explain such low growth?
 Demography?
 Preference for leisure?
 Stability-oriented macropolicies?
 Other factors?
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Other factors
 EU is not a country
 Growth has not been a priority
 Unfavourable European economic environment
 Supply-side problems
 Innovation and competitiveness failures
• Little R+D+i
• Insufficient tertiary education of quality
• Uncompetitive product-markets
 Socio-economic cohesion systems very inefficient at both EU and
national levels
• Inflexible labour markets
• Inadequate tax systems
 Single market incomplete and not dynamic
• Financial system
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R + D expenditure (% GDP)
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EU
US
Total
1.9
2.6
Private
1.2
1.8
Public
0.7
0.8
16
Expenditure in tertiary education (% GDP)
EU
US
Total
1.4
3.0
Private
0.3
1.6
Public
1.1
1.4
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Europe recognises its problems
 Lisbon Agenda (2000)
 Ambitious goal: to become the most dynamic economic area
by 2010 …
 … but inadequate means: voluntarism, no teeth.
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Challenges
 Achieve higher sustained growth
while
 Consolidating macroeconomic stability
 Maintaining an adequate degree of cohesion
 Challenging environment
 Recent EU enlargement
 Adverse demographics
 Technological change
 Globalisation
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What is at stake?
• Success of enlargement
 Future standards of living of European citizens
 Sustainability of the European model
 Process of European integration
 Role of Europe in the world
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The European model under strain
Economic and social
cohesion
Macroeconomic
stability
Growth
↑
Cornerstone
Threat to macro stability
(budget deficits, inflation)
●
 Low growth 
•High growth needs 
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 even lower growth
●
Cohesion can no longer be financed
●
Stable macro policies
●
Modernised cohesion (incentive-compatible)
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What should be done?
 Growth must become the top priority for policy
 European
 National
 But fostering growth requires massive reforms
 Of economic policies at European and national levels
 Of European economic governance (EU as a catalyst-facilitator)
 Absolute need for a minimum degree of political consensus
 So far, very difficult to achieve (Germany, France, Italy)
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To do list: National level
 Essential
 Germany is key to unblock reforms
 Which reforms?
 Goods and (particularly) services markets
 Labour markets and cohesion policies
 R+D+i+e
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To do list: European level
1. Complete Single Market and make it more dynamic
2. Boost investment in knowledge (R+D+i+e)
3. Redesign-modernise cohesion policies
4. Improve macroeconomic policy framework (more symmetry
in fiscal and monetary policies)
5. Improve methods of economic governance
6. Refocus the EU budget
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Conclusions
 Europe is nowadays at a cross-roads
 Economic problems are deep and structural
 Unless decisive change of course to place growth as the top priority
 Standards of living of European citizens will stagnate or fall
 The European model will not survive
 The very process of European integration will be at risk
 The role of Europe in the world will shrink further
 Diagnosis of problems and solutions is clear: fundamental growth
problems requires focus on growth
 Will there be the political will to act?
 So far, no …. but some hope
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European Constitution is a positive step
•
Best way to ensure a reaction is to identify the very painful consequences of
failing to react
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xxxxxxxxxx
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1. Complete and make more dynamic the Single Market
 Financial services and integrated capital markets
 Regulatory & competition policies for new entry
 Policies to facilitate intra-EU labour mobility
 “Green cards” for 3rd country nationals
 Infrastructure for connecting up markets
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2. More investment in knowledge
 Higher spending in R+D+i [1.9%=>3%] & higher education
[1.4%=>3%]
 Better spending [several centres of excellence]
 Independent European Agency for Science and Research
 Tax credits for small start-ups
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3. Redesign cohesion policy
 Fundamental change needed
 Cohesion and convergence
 The best cohesion is to achieve real convergence
 Goal: nations and not regions
 Funding criteria: efficiency in generating value-added
 Restructuring
 Deeply affects the Common Agricultural Policy
 Eligibility criteria: restructuring need and a good proposal
(value added rather than rents maintenance)
 Comprises affected individuals in all Member States
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4. More symmetric macro policy
 More effective & flexible implementation of SGP
 Reinforce the role of the Commission
 Create independent national Fiscal Auditing Boards
 Foster higher surpluses-lower deficits in good times
 Better policy coordination
 A consistent fiscal stance for the euro area
 Reinforced dialogue euro area Council/ECB/Commission
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5. Better economic governance
 Simpler and more effective decision-making needed in
large, heterogeneous Europe
 Stronger EU enforcement of the Single Market
(independent EU bodies, like Competition Agency)
 Better descentralisation of regulatory functions
 Incentives for implementing the Lisbon Agenda (role of the
EU budget)
 Qualified majority voting
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6. Refocus the EU budget
 Cohesion should be consistent with growth, not an
impediment to it
 Reorganise radically economic expenditures, focussing on
limited areas:
 Growth fund (for the EU)
 Convergence fund (for low-income countries)
 Restructuring fund (for affected individuals)
 Revenues: target tax bases with EU dimension
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Cyclical evolution EU vs US (1990-2004)
6
%
5
US
4
3
2
1
EU
0
-1
-2
1990q1
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1992q1
1994q1
1996q1
1998q1
2000q1
2002q1
2004q1
33
Países candidatos: indicadores básicos (a)
PIB
(% PIB UE)
PIB per cápita (b)
(% media UE)
Población
(millones)
Tasa de paro
(% pobl.activa)
Chipre
Eslovaquia
Eslovenia
Estonia
Hungría
Letonia
Lituania
Malta
Polonia
República Checa
Países en adhesión
0.11
0.25
0.23
0.07
0.65
0.15
0.09
0.04
2.23
0.71
4.57
74
47
70
40
53
33
38
58
40
59
47
0.6
5.4
2.0
1.4
10.0
2.4
3.7
0.4
38.6
10.3
74.8
3.9
19.4
5.7
12.4
5.7
13.1
16.5
6.5
18.4
8.0
14.5
Bulgaria
Rumanía
Países candidatos
0.17
0.50
5.25
24
24
45
8.5
22.4
105.6
19.7
6.6
13.1
UE
100
100
377.5
7.2
Fuente: Eurostat y Banco de España.
(a) Datos correspondientes a 2001.
(b) Medida en paridad del poder de compra.
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US vs UE: Philips Curves
Inflation
14
76/80
12
EU
10
71/75
81/85
76/80
8
71/75
US
6
81/85
86/90
66/70
86/90
91/95
4
61/65
66/70
91/95
96/00
2
96/00
61/65
Unemploymen
t
0
1
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2
3
4
5
6
7
8
9
10
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Per capita GDP (% EU average)
100
%
90
80
Spain 1986
70
60
Greece 1981
New member states
50
40
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044
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Income inequality “within” and “between” countries in EU before and after Enlargement
UE - 15
UE - 27
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“Within” “Between
"
0,008
0,149
0,064
Total
0,160
0,213
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