professor stefan collignon 1 the lisbon process tomorrow
TRANSCRIPT
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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
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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
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0
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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
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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