A financial or a social crisis? l’Europa e (è?) il nostro futuro Cortone il 1/10/2010 Jean-Paul Fitoussi

A financial or a social crisis?l’Europa e (è?) il nostro futuro

Cortone il 1/10/2010

Jean-Paul Fitoussi

L’Europa nella globalisazione

I. Retorica e realtà della globalisazione

I.1. Globalisazione in teoria

I.2. Globalisazione & Nation-States

II. La crisi

III. The long run

IV. What’s wrong with the european government ?

V. The economic cost of the non-political Europe: the European economic government

©Jean-Paul Fitoussi/3


I.1. Globalisazione in teoria

The phenomena of globalisation is happening in a world populated by Nation

States, without any emptiness in between the Nations.

What is the function of a Nation state if not to protect its population ?

More than ever the Nation States of the world are well and alive – the hyper

power of the United States, the super power of China, Russia, India, etc…



I.2. Globalisation and Nation-States

Hence the rhetoric of globalisation clashes with the reality of the phenomena as

power and protection are putting strict limits on the interplay of free markets.

The European Union is a case of its own: it is populated by Nations which are no

more full states – as they have given up important elements of sovereignity

especially in the euro area – and the Union is not yet a full state.

That explains the concern the European populations about protection. Protection is

not protectionism. Indeed, it is the main incentive for people to lie in society.


II. la crisi

La discesa del 2009

Output gaps

Inequalities

Global imbalances


Growth’s loss

Source: Datastream.

Annual OECD output gap (Output gap in 2007=0), 2000-2009 plus OECD projections for 2010 & 2011

-8.0

-6.0

-4.0

-2.0

0.0

2.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Per

cent

Japan

United States

Euro Area

Italy

Source : OECD Economic Outlook

Source: OECD Economic Outlook.


II. Interprétation – Interpretation –

Interpretazione

II.1. Inégalités – Inequalities – Disuguaglianze

II.2. Déséquilibres globaux – Global

Imbalances – Squilibri Globali

Average yearly growth of income minus growth of total average income. Mid-1980s to mid-2000s

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

France Germany Italy United Kingdom United States OECD

Bottom quintile Middle three quintiles

Top quintile

Number of tax brackets and marginal income tax rates

1981 1991 2001 2008

Belgium Number of Brackets 23 7 7 5

Minimum Rate 72% 55% 55% 50%

France Number of Brackets 12 12 6 4

Minimum Rate 60% 56.8% 52.75% 40%

Germany Number of Brackets 2 2 2 2

Minimum rate 56% 53% 48.5% 45%

Italy Number of Brackets 32 7 5 5

Minimum Rate 72% 50% 45% 43%

Central government rates*Source : OECD Tax Database. Calculations of the authors

Number of tax brackets and marginal income tax rates*

1981 1991 2001 2008

Spain Number of Brackets 30 16 6 4

Minimum Rate 65.1% 56% 39.6% 21.7%

Ireland Number of Brackets 5 3 2 2

Minimum Rate 60% 52% 42% 41%

UK Number of Brackets 6 2 3 2

Minimum rate 60% 40% 40% 40%

US Number of Brackets 16 2 5 5

Minimum Rate 70% 31% 39.1% 35%

Central government rates*Source : OECD Tax Database. Calculations of the authors

Wage Shares

55%

60%

65%

70%

75%

80%

85%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

France Germany Italy Japan Spain United Kingdom United States Euro area


The building of global imbalances: the US external deficitCurrent account balance, % of GDP

Source: Datastream.


III. The long run

GDP Trends 1990-2009

Assessing European economic performances

GDP per capital (PPP)


III. The long run

Ik we look ahead, the most likely evolution would be the following conditional on the continuation of past trends:

The share of Asia in the world GDP will importantly increase

The share of the US will increase in the OECD GDP

The share of the euro area will decrease at the world level, at the OECD level

and at the European level


Assessing European economic performances

Can such evolutions be avoided ?

The increase of the share of Asia is utterly normal, but the decrease of

the share of the euro area is pathological. What are the reasons and how

can it be avoided?

Since the beginning of the 1980s, European Economic performance has

been poor. The catch-up process vis-à-vis the US has come to a term at

the beginning of the eighties.


GDP trends 1990-2009

Sources : FMI.

80

120

160

200

240

280

320

360

400

440

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

ZE USA Asie

Asie (2009 = 400 ; 7.5)

Etats-Unis (2009 = 161.2 ; 2.5)

Zone euro (2009 = 135.5 ; 1.7)


GDP Per capita (PPP)


Labour productivity

Productivity in the manufacturing sector

The Italian Puzzle

GDP per capita dynamics (average rates of growth)

Italy Euro Area USA France Germany UK Spain J apan

1951-60 5,4 4,3 1,8 3,7 7,1 2,3 3,5 7,61961-70 4,9 3,7 3,0 4,4 3,5 2,2 6,3 8,91971-80 3,1 2,4 2,2 2,7 2,7 1,8 2,4 3,31981-90 2,3 1,8 2,2 1,9 1,2 2,5 2,6 3,41991-00 1,6 2,1 2,2 1,6 1,8 2,2 2,4 1,02001-09 -0,4 0,5 0,6 0,5 0,3 1,1 1,0 0,3

Source: Confindustria 2010


IV. What’s wrong with the european government?

The monetary policy of the ECB

Consumer prices index


The monetary policy of the ECBApparently, the monetary policy of the ECB has been successfull

0

1

2

3

4

5

6

7

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

BCE BoE Fed

BCE

Fed

BoE


Consumer prices index

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Zone euro Etats-Unis

Zone euro

Etats-Unis


Exchange rates & Interest rates

Sources : Datastream.


Macroeconomic policies & industrial strategy

This monetary strategy seems all the more detrimental that the level and

the evolution of the exchange rate impact on the industrial structure.

One of the main determinant of industrial policy is the exchange rate,

especially in sectors characterised by increasing returns.

The difficulty is compounded by the fact that Europe has no growth

policy, and in particular no policy to react to the slowdown of internal

demand.

Fiscal policy is a case in point


Reactivity of fiscal policyGovernment deficit, % of GDP


V. The economic cost of the non-political Europe

V.1. A dissociation between legitimacy and power

The European contradiction lies in in the following: no policy to sustain

internal demand; so growth can only be export led; but appreciation of

the euro. It is as if the EU did not draw the consequences of being a big

country, and continues to behave as if it were a small economy, or a

developing country. Why it is so?

What are the structural reasons for the lack of reactivity of European

policies?


Sources : Eurostat OCDE.

A big economy: the first or the second of the world

US UE (27) Euro zone (15)

Population (2008) 305 m 497 m 321 m

GDP (2008) 13,800 bn 16,570 bn 11,900 bn

GDP growth (1996-2007) 3,1 % 2,5 % 2,2 %

GDP per capita(2007) 44,760$ 30,100$ 32,900$

Unemployment (1996-2008) 4,9 8,6 9,0


Lack of legitimacy for the European government, once discretionary action exceeding its mandate is required

Limited national sovereignity



V.2. Proposal for reform

The two weaknesses emphasized above explain why Europe has no

strategy to benefit from globalisation, nor to protect its enterprises and

citizens. This lack of strategy is magnified when we take into account the

geopolitical dimension. Here Europe is very weak whenever it exists a

bilateral negociation (i.e. oil and gaz with Russia or trade and technology with

China and/or India).

.



V.2. Proposal for reform

The absence of reactivity in Europe is not contingent, but structural. It

stems from the dissociation between power and legitimacy. The European

government is unable to act in a discretionary way, because it would go

beyond its mandate. National governments, that have the legitimacy to

act, lack the instruments.

Exclude investment from deficit figures (golden rule). As the following

graphs show, there is no other way to close the gap with the US.


R&D spending by the public sector (en % du PIB)

Sources : Eurostat.

2001 2007 2008 X pas de données



V.2. Proposals for reform

The ECB. Accountability : political determination of the inflation objective and

political determination of exchange rate policy.

Competition doctrine : political guidelines for competition doctrine, in order to

allow the conduct of industrial policies.

A new Community ? Towards an European Community for Environment, energy

and research. Trying to combine the energy problem with the increasing

« demand » for environment.

Documents

A financial or a social crisis? l’Europa e (è?) il nostro futuro Cortone il 1/10/2010 Jean-Paul Fitoussi