Transcript CAN THE CRISIS ENDAGER EU?

CAN THE CRISIS ENDAGER
EU?
Jože Mencinger
EIPF and University of Ljubljana
International Conference on Economic Policies in the
Global Crisis
Belgrade, September 24-25, 2009
SUMMARY
-
The roots of the crisis:
(1) Owners of companies are replaced by owners of assets;
(2) Financial inventions create virtual wealth;
(3) Worker are turned to “labour force”
(4) globalization of “casino” capitalism
(5) changes in income distribution, savings and investments;
-
The “Solutions”
EU ability to cope with the crisis:
(1) reactions of EU institutions to crisis
(2) what keeps EU together,
(3) danger of long lasting crisis - “Yugoslav syndrom”
THE ROOTS OF THE CRISIS 1 (J.Huffschmid)
Wage share in the USA, Japan and the EU-15, 1975-2005
81
wage share in % of GDP*
79
77
75
73
71
69
67
20
00
20
01
20
02
20
03
20
04
20
05
99
98
97
96
94
19
95
93
92
91
19
90
89
88
87
86
84
19
85
83
82
81
19
80
79
78
77
76
19
75
65
* bereinigt um Veränderungen der Beschäftigtenanteile
Quellen: European Economy, 6/2002 und 6/2004, Statistical Annex, jedw eils Table 32
EU-15
USA
Japan
THE ROOTS OF THE CRISIS 2 (J. Huffschmid)
Shares of profit and investment in the EU-15, 1975-2005
34
32
28
share of investment
share of profits
26
Linear (share of
profits)
Linear (share of
investment)
24
22
20
4
20
05
3
2
1
99
20
00
98
97
96
94
19
95
93
92
91
89
19
90
88
87
86
84
19
85
83
82
81
79
19
80
78
77
76
18
19
75
in % of GDP
30
FINANCE DRIVEN CAPITALISM (J.Huffschmid)
GLOBALIZATION OF “CASINO” CAPITALISM
x
Investments
Savings
Acquisitiona
Speculations
Financial investors
Privatizations
WORLD LEADERS STATEMENTS
G20 - London, April 2009
• ‘We face the greatest challenge to the world economy in
modern times; a crisis which has deepened since we last
met, which affects the lives of women, men and children in
every country, and which all countries must join together
to resolve. A global crisis requires a global solution.’
• ‘We agreed to make the best possible use of investment
funded by fiscal stimulus programmes towards the goal of
a resilient, sustainable and green recovery.’
• ‘We have committed ourselves to work together with
urgency and determination’.
AGREED UPON MEASURES 1
1. Fiscal Stimulus
USA, no new money in EU, $5 trillion $ of cumulative government borrowing 20082010 in excess of 2007 borrowing
2. Financial Regulation
-
-
Financial Stability Board; renamed and expanded FS Forum (set up 1999);
coordination of regulators around the world,
collaboration with IMF to provide early warning of macroeconomic and financial
risks
extending regulation to all important financial institutions, instruments and
markets, including hedge funds,
tough new principles on pay and compensation,
improving quality, quantity and international consistency of capital requirements;
prevent excessive leverage; ensure reserves are built up in expansions;
take action against non-cooperative tax havens (list published by OECD),extend
regulatory oversight of Credit Rating Agencies
3. International Institutional Reform
-
strengthening of IMF
review of IMF quotas by 2011
heads and senior managers of IMF & World Bank to be appointed by open process;
AGREED UPON MEASURES 2
• Multilateral development banks
– $100bn announced, mainly financed by borrowing in international
capital markets
• Commitment to assist poorest countries
– reaffirm historic commitment to meeting the Millennium Development
Goals
– provide $6bn additional concessional aid (gold sales and surplus income)
Commitment to refrain from raising new barriers to investment or trade,
- will not constrain world wide capital flows;
- committment to conclusion of Doha Round
QUESTIONS
-
-
adding to existing debt of 3.8 times GDP in USA,
regulating wrong system,
strenghtening an institution which assisted in the creation of theo crisis;
who gains from WTO agreements, multinationals and national elites rather
than people
REACTIONS OF EU TO FINANCIAL CRISIS
First phase: confussion
• Confussion – mantras on Lisbon strategy which consists of empty talks on
knowledge based society and which is based on irrelevant supply side
economics;
Second phase: normal EU reactions
• EU disregards the Stability Pact and ends empty talks on Lisbon strategy;
• EC begins to ignore the competition rules; subsidies to banks are suddenly
consistent with competition;
• The privatization religion is replaced by provisional nationalizations
• ECB discovers that deflation is worse than inflation, lowering interest
rates, pumping money to the banking system, EC proposes fiscal package
(130 billions €)
WHAT CAN EU DO?
Questions ?
-
EU is association of the countries rather than association of citizens?
EU budget amounts to 1 percent of GDP; is there a room for fiscal intervention?
Who identifies himself as a European?
What will increased diversity in the level of development bring?
Is there a danger of Yugoslav syndrom? Who is exploiting whom?
The pillars of EU stability?
-
The dependence of a member on EU;
Inertia (CAP, Stability Pact)
Ability to disregard or adapt its own rules (Stability Pact, competition rules)
Democratic deficit (refusal of EU constitution)
Constant creation of new rules and new institutions (vested interests)
Empty talks (Lisbon Strategy, neoliberalism and supply side economics)
THE END OF CONVERGENCE?
GDP GROWTH IN EU15 AND EU10 (NMS)
8
%
NMS 10
6
4
2
EU15
0
-2
-4
-6
99
00
01
02
03
04
05
06
07
08
09
10
IS THERE THE END OF MACROECONOMIC
CONVERGENCE
110
EU27=100
100
90
Slovenia
80
70
NMS (2004 enlargement)
60
Latvia
50
40
30
1998
2000
2002
2004
2006
2008
2010
2012
2014
DISPERSION OF THE DEVELOPMENT
LEVEL IN EU27
35
IR
30
GDP/capita 000 €
SW
25
ESP
20
SI
CZ
15
EST
10
PL
LAT
5
BG
RO
0
2007
LIT
PT
MT
2004
HU
CY
GR
FI
FR
GE
IT
A
UK
DK
BE
NL
DIVERGENCE IN YUGOSLAVIA
240
240
GDP551
GDP881
200
1988
Slovenija
200
SL
160
160
Hrvatska
HR
120
Vojvodina
SrO
80
CG
B iH
Vojvodina
120
80
Makedonija
Makedonija
B iH
CG
40
40
Kosovo
0
YU
SrbijaU
YU
Kosovo
0
0
40
80
120
160
1955
200
THE DEPENDENCE OF SLOVENIA ON EU
GDP growth
8
%
Slovenia
6
Slovenia predicted
4
EU15
2
0
-2
2001
2002
2003
2004
2005
2006
2007
2008
WHAT CAN A COUNTRY DO ?
IS A MEMBER COUNTRY AN ECONMIC ENTITY?
A country as economic entity should be able:
• 1. to print money;
• 2. to collect taxes;
• 3. to control the flows of goods, labor, and capital over its borders;
• 4. to create rules of the game – economic system.
Indeed,
1. monetary policy is shifted to ECB;
2. fiscal policy is restricted by Stability Pact and EU regulations;
3. countries cannot control flows of goods and capital;
4. EU directives form economic system
5. majority of flows are linked to EU
CRISTOPHO COLOMBO ?
He was the first economist. He did not know, where he goes,
when he was there, he did not know where he is, and he
was traveling for public money.
How could I know where we are going ?
I only know where I would like that we go
THANK YOU !