Transcript Euro-zone crisis: from internal devaluations to a job

Euro-zone crisis: from internal
devaluations to a job-friendly
alternative?
Raymond Torres, Director, International Institute for Labour
Studies, ILO
Euro-zone versus US
Unemployment
Euro-Zone
US
Inflation
Euro-Zone
US
Public Deficit
Euro-Zone
US
Investment % of GDP
Euro-Zone
US
2009
9.6
9.3
2012
10.9
8.2
0.3
-0.3
-6.4
-13.0
19.0
14.7
2.0
2.1
-3.2
-8.1
19.5
16.3
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Starting position
• Overall similar or better than the US
• Somewhat larger intra-zone imbalances than
in US
• But more limited institutional capacity to
address those imbalances
3
Reaction to this situation: “internal devaluation”
• Fiscal austerity in deficit countries
• Attempts to regain competitiveness through
“labour market reforms” in deficit countries
– Employment regulations relaxed
– Wage formation decentralised
– Significant cuts in minimum wages in some cases
• Conditional support to address debt issues
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Effects of these policies
• Recession and higher unemployment in deficit
countries, social unrest
• Further banking problems and little reduction
in deficit, requiring more austerity
• Contagion to other countries, pushing them to
move to austerity, and global risks
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What went wrong?
•
Internal devaluation does not work if:
– Productive base too narrow to react to new incentives
– Credit system does not function well, especially for small
enterprises
– More and more countries move to austerity within the zone
–
Some of the labour market reforms not well designed
• Links between central bank and sovereigns were cut
– Central bank no longer lender of last resort for governments
– Unclear whether central bank is lender of last resort for banks
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An approach based on growth and jobs
•
Repairing credit system, adopting credible mediumterm fiscal plans
• Wages growing in line with productivity in surplus
countries
•
Boosting investment and jobs now
– EIB, structural funds, EU growth initiatives
– Activation policies: youth activation guarantees
– Social dialogue would boost consensus and confidence
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• Strong, well-designed labour market institutions
– Public employment services
– Collective bargaining helps! The lower wage increases, the
more the pressures on public budgets to stimulate the
economy
– Examples of well-designed employment protection
systems (Austria, Netherlands)
– Training will be crucial
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Alternative approach will improve job prospects
Employment growth advanced economies (Source:GEL model)
0.5
0.0
-0.5
-1.0
2009
2012
Baseline scenario
2015
Poorly designed cuts
2018
2019
Job-centred approach
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…and also deficits in medium term
Government deficit advanced economies (Source: GEL model)
0.0
-0.5
-1.0
-1.5
-2.0
2009
2012
Baseline scenario
2015
Poorly designed cuts
2018
2019
Job-centred approach
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How to make an alternative possible?
• Evidence-based analysis that prove that an alternative works
-- formulation of an alternative with country differentiation
• Strengthen the constituency for the real economy: key role of
social dialogue in countries and at EU level
-- creation of an observatory?
-- position papers that highlight risks of present course and
benefits of alternative?
• International policy coordination: analysis and voice of ILO in
Europe, G20, etc. in cooperation with EC (DG Employment )
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Thank you for your attention!
Further reading: World of Work Report 2012,
avauilable at:
www.ilo.org/inst
[email protected]
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