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ProfessorStefan Collignon
The Lisbon Process tomorrow
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
II. MANAGING EURO’S MACROECONOMY
III. POLICY RECOMMENDATIONS
CONTENT
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Introduction
• Lisbon Agenda 2000: to “become the most competitive and dynamic economy in the world within a decade”– Fighting unemployment
– Reform the welfare system
• What have we achieved?
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Growth of per capita income has fallen
Average growth rates of per capita income
-4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00%
USAEU-25
Former EU-15Euro area
LatviaEstonia
LithuaniaBulgaria
RomaniaSlovakiaHungary
Czech RepublicPoland
SloveniaCyprus
MaltaGreeceFinland
SwedenUK
LuxembourgFrance
BelgiumSpain
DenmarkGermany
ItalyAustria
NetherlandsPortugal
Ireland
1990-1999 2000-2007 Difference
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Growth of per capita income depends on:
– Employment growth
– Productivity growth
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Employment is up: from 2000-2007 – Europe +0.4% p.a.
– USA -0.3%
– Spain +1.7%
– Italy +0.4%
– Germany +0.1%
– France -0.1%
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Unemployment is down
0
2
4
6
8
10
12
60 65 70 75 80 85 90 95 00 05
Euro areaEuropean Union (27 countries)EU15EUROTRENDUnited StatesUSTREND
Unemployment rates: Europe and USA
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
But labour productivity growth has slowed down– Euroland:
• 1.7% for 1990-99
• 1.0 % for 2000-2007
– Italy is at the bottom with 0.4%
– Labour market reforms have created flexibility to employ low skilled workers
– Structural reforms have not improved the productivity of workers
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Why? We find:
• The Lisbon indicators have little or no significance for TFP
• Reforms necessary to improve TFP are not implemented
• The problem: no one is in charge to look after Europe’s collective interest
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
But even more important for labour productivity:
• The accumulation of capital per worker (capital intensity) has slowed
• This explains the main difference between Europe’ and America’s performance
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
What Europe needs:
• High job creation and high productivity
• High overall rates of investment and more investment per worker
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
• High overall rates of investment follow consumption demand – Accelerator model
– Capacity enlarging investment
• Higher consumption requires higher wages
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Consumption is clearly higher in USA than Euroland
-1
0
1
2
3
4
5
1980 1985 1990 1995 2000 2005
Euro area EUROTRUnited States USATR
Contribution of private consumption to GDP growth
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
Investment per worker (higher capital intensity) requires higher wages– Substitution effect
– Over the last decades wages have fallen relative to capital in Europe, but not in USA
– This must stop
– But higher wages must not cause inflationary pressures
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ProfessorStefan Collignon
I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE
54
56
58
60
62
64
66
68
70
60 65 70 75 80 85 90 95 00 05
Euro area EUROTRUnited States USATR
Adjusted Wage Share: Euroland and USA
The wage share has fallen since 1980
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ProfessorStefan Collignon
II. MANAGING EURO’S MACROECONOMY
To increase overall investment and capital accumulation, Europe needs
• growth supporting macroeconomic management– Monetary policy to keep price stability
– Fiscal policy that keeps debt sustainable
– Income policies that benefit ordinary households
• But Europe’s institutional framework is not conducive to such policy mix
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ProfessorStefan Collignon
III. POLICY RECOMMENDATIONS
What to do?
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ProfessorStefan Collignon
II. MANAGING EURO’S MACROECONOMY
The Lisbon strategy objectives remain valid– We need more growth
– We need more employment
– We need higher productivity
• Only higher productivity will allow sustainable wage increases– Microeconomic reforms need to be matched by
efficient macroeconomic management
• But Europe’s institutional framework is not conducive to such policy mix
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ProfessorStefan Collignon
III. POLICY RECOMMENDATIONS
Institutional reforms: the taboo• Europe after France and Netherlands
• Europe’s problem: output legitimacy is not enough– Collective action problem (CAP)
– Free riding
– Difficulties augment with number of member states
• Lisbon Treaty keeps Europe’s boat afloat
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ProfessorStefan Collignon
III. POLICY RECOMMENDATIONS
• Europe needs more democracy
• Jaures: “democracy is the humus of socialism”
• Citizens want to have the possibility to choose the general orientation of policies
• We need a large debate about policy options
• The election of the European Parliament is the opportunity to return power to the people
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ProfessorStefan Collignon
III. POLICY RECOMMENDATIONS
• The next President of the European Commission should be – Nominated by political parties
• Social Democrats should nominate their candidate soon
– Elected by the European Parliament as the candidate who has a majority for his/her policies in parliament
– The European Council must appoint the candidate that emerges victorious from elections
• No more shady backroom deals
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ProfessorStefan Collignon
III. POLICY RECOMMENDATIONS
European politics need a new vision
• A “European government” to manage our common affairs
• Concrete steps to improve daily policy making
This must be the purpose of a new strategy after the Lisbon agenda