Transcript András INOTAI

András INOTAI
How to manage the costs of
crisis management in the
European Union?
„Post-Crisis Economic Development of EU and Bulgaria”
18-19 October 2012, Sofia
1. Macroeconomic impacts of the global
financial and economic crisis
- return to growth or lost decade?
- rapid recovery of exports: another argument for
export-oriented growth pattern?
- budget deficit and steps towards fiscal
consolidation
- the long-term negative impact: what to do with
reducing the public debt?
2. Shifting emphasis on crisis management: from
fiscal consolidation to growth stimulus?
- original approach: unilateral fiscal consolidation
- no other way available in some countries
- German pressure (raising revenues by higher taxes and
more efficient tax collection + cutting expenditure
during social crisis, reducing the staff of public
administration, stopping subsidization of state-owned
companies)
- attitude of financial markets
- blind belief in automatic return to growth as a result of
„successful” fiscal consolidation
- belief in return of international capital
- higher labour market flexibility
3. Why unilateral fiscal consolidation does not
work?
- crisis deepened, negative spiral emerging (negative
growth, high unemployment)
- adjustment costs very high but different degrees across
member countries
- negative social and political consequences
- continuous/repeated negative opinion of rating
agencies
- no return of confidence + foreign capital, increasing
costs of refinancing debt
4. Factors of „change of paradigm”
- failure of one-sided approach based on fiscal
consolidation
- spread of crisis to several other member
countries
- slowing/frozen growth prospects in the EU (and
the world economy): towards a „lost decade”
without reaching pre-crisis GDP levels before
2014-2020
- rapidly growing unemployment, with special
regard to youth unemployment („lost
generation” and its socio-political
consequences)
4. Factors of „change of paradigm”
- populism and demagogy, anti-EU
movements and public opinion
- income polarisation
- undermining the middle class-based
structure and threat to the fundamentals of
European democracy
- failed or delayed reacion at EU level
(partial crisis management instead of
clearcut crisis prevention – see Greece
between January and May of 2010)
5. Dilemmas at present: how to mix policy
measures of fiscal consolidation with
growth stimulus?
- first fiscal consolidation before growth stimulus
- growth as a remedy of more manoeuvring room
for fiscal consolidation
- both at the same time, but how?
6. What kind of steps in favour of growth-oriented
strategy?
- EU-2020 – key targets agreed, but…
- growth and jobs
- Six Pack (German influence) – structural
change, privatisation, deregulation of labour
markets
- but: short vs. longer term effects
social and political costs
different adjustment capacity of
member countries
- growth stimulus of Euro 120 bn (less than 1 per
cent of EU GDP)
6. What kind of steps in favour of growth-oriented strategy?
- uncertainties:
- very limited manoeuvring room of several
countries
- loosening fiscal discipline if money for growth
available
- behaviour of financial markets uncalculable
- Euro 120 bn very small amount, when
exacerbated debate about the future of the
multiannual financial framework between 2014
and 2020
7. Key elements of potential growth
- domestic demand?
- limited space
- more space if poorer segments of the
society favoured
- external „support”: Germany’s „budgetary
easing”?
7. Key elements of potential growth
- investments: yes, if…
- still existing overcapacities
- general investment climate (due to economic, social and
political factors)
- future-oriented investments
- in which sectors
- time factor: short-term easing vs. long-term remedies
- uncertainty of long-term investments (R+D, innovation)
- education and long-term supply-demand on labour
markets
- splitting labour markets (competitive vs. uncompetitive
sectors – and government policies needed everywhere)
7. Key elements of potential growth
- exports: most important growth factor
- experience with crisis (quick recovery of
exports)
- growing orientation towards extra-EU
markets, but…
- factors of international competitiveness
8. Conclusions
- unilateral fiscal consolidation does not help
- change necessary but results far from unambiguously
positive
- exports as key factor of growth
- debt problem international: EU and USA (to be managed
by internationally controlled higher inflation)
- key challenges hidden by crisis (demography, labour
market, social model, even democracy)
- a new quality of EU-level policy-making necessary: fiscal
transfer union + political union – as soon as possible
(time is rapidly running out)
8. Conclusions
- fiscal consolidation and the management of its
social and political costs (negative social
impacts more threatening than consequences
of climate change in the second decade of the
21st century)
- fiscal consolidation without eliminating key
factors of lack of competitiveness
- how to direct investments into the „real sector”
- how to encourage personal savings for
investments and not for private consumption
- political vs. economic rationality
Thank you for your attention.