Transcript Zuleeg - CEBRE

European Policy Centre
How do we handle the economic
crisis? Policy implications for the
European Union
17 June 2009
Dr Fabian Zuleeg
Senior Policy Analyst
Introduction
• Fabian Zuleeg, Senior Policy Analyst, responsible for the programme
‘Europe’s Political Economy’ (EPE) at the European Policy Centre (EPC)
• Professional economist with private sector, public sector and academic
experience
• Contact: [email protected]
• EPC: Brussels-based think-tank with 400+ member organisations
• Mission: To make European integration work
• Independent, providing objective and impartial analysis, focus on
concrete policy recommendations
• EPE priorities: Competitiveness & innovation, Social Europe (Well-being
2030), Climate Change, Better Policy Making & Economic Governance
The financial crisis
• Long term underlying global imbalances: US triple deficit, speculative
bubbles (but not simply a US problem)
• Triggered by sub-prime mortgage/property markets
• Something rotten in the financial sector – leverage, risk, return
• Crisis building throughout 2008
• Lehman Brothers collapse in mid September
• Danger of systemic collapse in October
• Governments injecting liquidity
• Taking over banks’ assets and liabilities
• Underwriting loans, guaranteeing deposits
The economic crisis
• Spill-over from financial to real economy (jobs and
growth)
• Worst economic crisis for developed world since WWII
• Variability in the impact on developing countries
• Structural change in US and EU – away from exportoriented manufacturing and debt-financed consumerisms
• Clearly more than a cyclical downturn – need to use a
wide range of instruments: monetary, fiscal, structural
reform, social, green etc.
• But towards what goal?
• What can policy do?
Policy responses so far
• Decreasing interest rate and monetary policy mechanisms
• Defence of currencies in some countries (not necessary in
Eurozone)
• Fiscal stimulus: national & European recovery programmes
• Coordination for financial and economic measures (Single Market
rules)
But
- Monetary policy insufficient
- Deficit and debt levels soaring
- Hard to spend sensibly and quickly
- Some countries struggling
- Long term policies?
Emerging difficulties
• A year of change – new EP (more extremism), next Commission
• Are the current agreements being implemented?
– Lack of green, knowledge economy investment
– Slow to get spending going
– Rising protectionist/economic nationalism tendencies
• Variable impact on different countries
– Cost of dealing with climate change – too much in the current crisis? (for
manufacturing and for lower income member states)
– Tensions within Eurozone – higher risk premium for Irish, Greek, Italian
debt
– Difficulties for countries outside the Eurozone to defend currency - who
and how to assist? Some countries close to the brink…
• How can a repeat be avoided?
– How to supervise and regulate financial markets and at what level?
The real impact of the crisis
•
•
•
Europe’s economies not (no longer?) in danger of immediate collapse
But there will be pain, especially in some countries
Need for real change in the EU economies
– Acceleration of structural change
– Emerging knowledge economy
– Global shift of economic activity
•
•
•
•
•
•
Low growth – for some time to come
Unemployment, worklessness and poverty
Negative impacts: health, crime, social cohesion
Sustainability of social Europe – pensions, healthcare, education, social
protection
Long term public finance issues
What will Europe’s future competitive advantage be?
How can we save the real economy?
• Crisis might be mitigated but can’t be avoided
• Fiscal stimulus needed but must invest in the future, not the past
(green economy, innovation and education, not old manufacturing)
• Put the money where we said we would put it…
• Longer term limits of debt-financed spending so we should spend the
money wisely…
• Must also clean up financial sector but, as crisis eases, stop throwing
good money after bad
• Need for structural reform in the medium to long term: Public
finances, public services, labour markets etc.
• Lisbon+ is needed urgently
• Common action to avoid negative spillovers (given interdependence)
• More Europe needed to deal with the crisis, not less! Not least
because there are more difficulties than ‘just’ the current crisis
Europe’s future economic challenges
• The financial and economic crisis
• Climate Change/energy
• Globalisation (competition, migration, new economic powers,
technological change)
• Demographics (and impact on the sustainability of EU’s social
models)
• Income disparity (between and within countries)
• Global conflict and terrorism
• Changing societies and integration
• International development
• Diseases and emergencies
Where will we be in 2030?
• The perfect storm? Interrelated and mutually reinforcing challenges
• Increasing in complexity and magnitude
• Europe is falling behind in its policy responses …
 Under-investment in human capital, lack of spending on commercial
innovation, public debt, mobility, retirement policies, etc.
• Europe’s choice: Act together (decisively) or go under (slowly)
• All EU member states too small to survive on their own in the global
economy
• Need to safeguard the Single Market – greatest achievement so far
• Common action to safeguard our way of life in many difficult policy
fields (energy, taxation, public finances, social security etc.)
• Need leadership and vision for the future