Transcript Credible Commitments in Euro-Med Partnership : Evidence from

The Mediterranean and the New Euro-Mediterranean Perspectives
Daedalos Institute of Geopolitics
Nicosia, 9-10 October 2008
Credible Commitments in Euro-Med Partnership :
Evidence from Turkey and beyond
Mehmet Ugur
Jean Monnet Reader
European Political Economy
Plan
1. Credible commitments: an anathema in
international politics?
2. 3 Pre-requisites for an effective EMP
3. Evidence from Turkey
4. Evidence from other Mediterranean
countries
5. Conclusions
Credible commitments: Do they matter?
Reforms (R)
Yes, they do!
Think of EU conditionality (for
membership or in the context of
EMP)
FPF’
FPF
”
EU Conditionality
Re
P’
R’p
I’p
p
Rp
Ip
Se
Sp
S’p
If both parties (EU and partner)
can commit credibly, the
partner can achieve higher
policy reform at R’p > Rp and
enjoy higher constituent
support at S’p > Sp.
The difference can be labelled
as credibility bonus.
Constituent Support (S)
But: there is no such thing as
free lunch. Credible
commitment implies reduced
scope for discretion!
Credible commitments: Why tie one’s
hands?
For 2 reasons:
1. Problems with discretionary policy
2. Reputational gains
Problems with discretionary policy
a. Discretion has not been associated with:
i. good governance,
ii. economic performance, or
iii. political stability
b. Returns on discretionary policy declines as intra-country
heterogeneity increases.
c. Returns on discretionary policy declines as international
integration deepens.
Reputational gains (from tying one’s hands)
a. Credible commitment reduces the cost of policy reform
(credibility bonus).
b. In initial stages, the marginal cost of reform is low but the
marginal benefits are high.
c. Credible commitments for ‘winning friends’.
3 Pre-requisites for an effective EMP
The Euro-Med Partnership (EMP) will be effective if the following
conditions can be satisfied:
1. Agreements must be as complete as possible
2. Unilateral EU side-payments to MCs must be large enough to:
a. Reduce the cost of reforms; and
b. Reflect the level of positive externalities associated with
reforms in MCs.
3. EU must come up with front-loaded side-payment offers, which
must:
a. Be as close as possible to the eventual offer, and
b. Be related to the MC’s future discount rate
Tovias and Ugur (2004), ‘Can the EU anchor policy reform? The case of the EuroMed Partnership, EU Politics, vol. 5, no. 4, pp. 395-418.
Evidence from Turkey - 1
Before 1999: Falling growth rates, increasing risks
Evidence from Turkey- 2
Before 1999: High and persistent inequality
Evidence from Turkey - 3
Before 1999: shorter government tenure
Number of governments and PMs
UK
1990-97
3 governments, 2 PMs
Belgium
1992-99
2 governments, 1 PM
Greece
1990-2004
3 governments, 3 PMs
Ireland
1989-97
4 governments, 3 PMs
Spain
1993-2000
3 governments, 3 PMs
Turkey
1989-99
10 governments, 7 PMs
Evidence from Turkey – 4
After 1999: Growth expectations revised upwards
Benchmark Turkish GDP growth in the 1990s: 3.93%
1.
Deutsche Bank (2005) - Projection period: 2006-2020
–
–
–
2.
Turkey in the EU
Turkey returns to the 1990s
Turkey in the Middle East
: 4.1%
: 3.1%
: 1.9%
ABN-AMRO (2004)
–
–
–
With accession reforms only
Turkey in a slow-growth EU
Turkey in a fast-growth EU
: 4.9%
: 5.0%
: 6.2%
(2005-2013)
(2014-2024)
(2014-2024)
Evidence from Turkey - 5
After 1999: Growth expectations revised upwards
Benchmark Turkish GDP growth in the 1990s: 3.93%
3.
OECD (2004) - Projection period: 2000-2014
–
–
–
Optimist scenario
Medium growth scenario
Low growth scenario
: 7.4%
: 5.2%
: 3.1%
Dervis et al (2004) – Projection period: 2005-2025
4.
–
–
In domestic currency
In foreign currency
: 5.0%
: 6.0%
Evidence from Beyond Turkey - 1
After 1999: Improved consistency in MEDA?
MEDA I: 1995-1999
Commitment Payment
(C)
(P)
P/C (%)
MEDA II: 2000-2006
Commitment Payment
(C)
(P)
P/C (%)
Bilateral
Algeria
Egypt
Jordan
Lebanon
Morocco
Syria
Tunisia
West Bank and Gaza
Total bilateral
Regioanl
TOTAL
164.0
30.2
686.0
157.0
254.0
108.4
182.0
1.2
660.0
127.5
101.0
0.0
428.0
39.0
111.0
53.0
2586.0
25.0
471.0
47.0
3057.0
874.0
Source: EU Commission
18.0
23.0
43.0
1.0
19.0
0.0
39.0
53.0
25.0
47.0
29.0
338.8
592.5
331.4
132.7
980.1
179.7
517.6
522.3
3595.1
1052.1
4647.0
142.3
695.4
345.5
181.5
917.4
90.9
489.2
486.4
3348.6
711.9
4060.0
42.0
117.0
104.0
137.0
94.0
51.0
95.0
93.0
93.0
68.0
87.0
Evidence from Beyond Turkey -2
Any change in trade patterns?
Share of Mediterranean countries in EU-25 imports and expports
2000
Imports
Exports
Balance
6.5
9.7
-3.2
2002
2002
2003
2004
2005
2006
6.9
7.2
8.2
8.5
-1.3
-1.3
Source: Eurostat 2007
7.2
8.8
-1.6
7.3
9.5
-2.2
7.5
9.5
-2.0
7.3
9.0
-1.7
Conclusions
•
Closer integration with the EU involves costs and benefits
•
Mediterranean countries face high adjustment costs, associated with high
returns.
•
The EU faces low adjustment costs associated with high returns
•
Credible commitment mechanisms are required to address this asymmetry
•
Credible commitments can reduce the costs and increase the benefits of
policy reform in the context of EMP
•
Evidence suggests that credible commitment mechanisms have worked in
Turkey from 2002 – 2005.
•
After 2005, EU-Turkey accession negotiations lost not only pace, but also
credibility.
•
EMP: some improvement, but too much remains to be done.