Macroeconomic Dialogue – all talk and no action?

1. Presentation to NewGov conference ‘New Modes of Governance’, London School of Economics, 30-31 March 2006 Macroeconomic Dialogue – all talk and no action? Andrew Watt European Trade Union Institute for Research, Education and Health and Safety http://www.etui-rehs.org

2. Overview of presentation The economic case for policy coordination The relevance of the MED for policy coordination The limitations on the scope of the MED Proposals to reform the MED • EU level • National level Political perspectives • Interests of actors • Shifting consensus on macroeconomic policy • Relevance of future economic developments

3. Case for policy coordination Interdependence of actors Uncertainty, shocks Need for forward looking policies Time lags Sub-optimal equilibria All suggest simple policy assignment will not work

4. Investment share and unemployment, EU15, 1961-2001 Source: European Economy no. 4, 2002: Tables 3, 19, 24, 49: own calculations Note: real interest rates time series not available for EU15.

5. ECB main refinancing rates, inflation and real growth, 1999-2002 Source: ECB Monthly Bulletin February 2002, February 2001, Sept. 2000

6. The relevance of the MED for policy coordination Other coordination mechanisms (SGP, BEPGs, Eurogroup, Lisbon Strategy/EES) Limited to one or two elements and actors of the policy mix, or structural policy focus MED is the only coordination organ that brings together all policy mix actors ECB, social partners, finance ministers (?), Commission Implies potential to coordinate a growth and employment-oriented strategy (expanding nominal demand with wage-inflation anchor)

7. Limitations on the scope of the MED Weakly institutionalised • Bi-annual meetings at technical and political level • Very limited time • Discussions not strategic/forward-looking, limited to exchange of information 9useful) and positions (less so) • Only at EU-level, little articulation with national level • Fiscal policy not really represented • No external impact (confidentiality) • EU12 or EU25?

8. Limitations – actor constraints ECB – strong decision-making power/commitment, but mandate and independence gives it little incentive to compromise with other actors. Under prevailing understanding must simply deliver price stability – basta. No obligation to seek out least costly path. EPC – does not really represent fiscal policy. No aggregate representation of fiscal policy (Eurogroup?) and no national MEDs, where fiscal policy more relevant Employers – interested in exchange of views, but very cautious about‘positive’ forms of European integration. Unable to commit membership in any way Unions – intellectually committed to coordination and suffering most through managing inflation through unemployment. Limited ability to commit membership

9. Actor constraints – a shared view of the world? Actors sharing a basic model of the economy seen as key pre-condition Mixed picture Some ‘historical’ convergence of views (e.g. unions accept CB independence) MED itself has aided mutual understanding Ad hoc coalitions (SPs, ECB/COM, ECB/UNICE) But clearly ideological differences remain (unions to some extent isolated)

10. Reforms of the MED – proposals by unions • EU-level MED must be developed into an on-going governance instrument • More regular meetings (poss. Focussed on monetary policy and social partners) • More strategic orientation of debate • Incorporation of external expertise (scenarios) • Stronger articulation with national level • Need for a ‘voice’ to stabilise expectations • MEDs must be institutionalised at national level • To determine appropriate wage and fiscal policy stance for each country • To avoid beggar-thy-neighbour policies (real devaluation) • To underpin EU-level coordination efforts • Tie in national govts/fiscal policy

11. Political prospects for reforms of the MED Interests of actors Shifting consensus on macroeconomic policy (hegemonic discourse) Relevance of future economic developments • Actor interests • Currently only partially favourable • All actors would benefit from an improved equilibrium (higher employment and wages, higher profits and reduced social conflict, greater inflation predictability and reduced political pressure on ECB, end of SGP-related problems) • But how to move to new equilibrium? Prisoners’ dilemma of commitment and trust (e.g. btwn wage and monetary policy)

12. Political prospects for reforms of the MED • hegemonic discourse shifting • Maastricht assignment reflects neo-liberal high water-mark • Widespread dissatisfaction with fiscal (and to lesser extent monetary) regime: SGP reform • Perceived success of US ‘Keynesianism’ • More assertive finance ministers, stronger Eurogroup (?) • End of Issing’s reign • economic performance/crisis • Will continued underperformance promote more LM reforms or ‘structural reform’ of macro policymaking • Catastrophalist scenario (Flassbeck) • Intra-EMU competitive tensions, seccession from EMU

13. Challenges/incentives for organised labour Different traditions in EU countries Past problems with and opposition to ‘incomes policies’ New challenge: unemployment not inflation Organised labour in a position of weakness (declining membership etc) Gives TUs a role (again) Arrest decline in wage share Avoid beggar-thy-neighbour policies -> Europe’s trade unions must invest in coordinating their bargaining strategies