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

Explore the impact of globalisation on nation-states and the European Union, the economic costs of a non-political Europe, and the challenges faced by the European government. Discover the structural reasons for the lack of reactivity in European policies.

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

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

  2. 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 L’Europa nella globalisazione

  3. I.1.Globalisazione in teoriaThe 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. Retorica e realtà della globalisazione

  4. I. Retorica e realtà della globalisazione I.2. Globalisation and Nation-StatesHence 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.

  5. La discesa del 2009 • Output gaps • Inequalities • Global imbalances II. la crisi

  6. Growth’s loss Source: Datastream.

  7. Annual OECD output gap (Output gap in 2007=0), 2000-2009 plus OECD projections for 2010 & 2011 Source: OECD Economic Outlook.

  8. II. Interprétation – Interpretation – Interpretazione II.1. Inégalités – Inequalities – Disuguaglianze II.2. Déséquilibres globaux – Global Imbalances – Squilibri Globali

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

  10. Number of tax brackets and marginal income tax rates Central government rates* Source : OECD Tax Database. Calculations of the authors

  11. Number of tax brackets and marginal income tax rates* Central government rates* Source : OECD Tax Database. Calculations of the authors

  12. Wage Shares

  13. The building of global imbalances: the US external deficitCurrent account balance, % of GDP Source: Datastream.

  14. GDP Trends 1990-2009 • Assessing European economic performances • GDP per capital (PPP) III. The long run

  15. 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 III. The long run

  16. 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.

  17. GDP trends 1990-2009 Sources : FMI.

  18. GDP Per capita (PPP)

  19. Labour productivity

  20. Productivity in the manufacturing sector

  21. GDP per capita dynamics (average rates of growth) The Italian Puzzle Source: Confindustria 2010

  22. The monetary policy of the ECB • Consumer prices index IV. What’s wrong with the european government?

  23. Apparently, the monetary policy of the ECB has been successfull The monetary policy of the ECB

  24. Consumer prices index

  25. Exchange rates & Interest rates Sources : Datastream.

  26. 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

  27. Reactivity of fiscal policyGovernment deficit, % of GDP

  28. V. The economic cost of the non-political Europe V.1. A dissociation between legitimacy and powerThe 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?

  29. A big economy: the first or the second of the world Sources : Eurostat OCDE.

  30. Lack of legitimacy for the European government, once discretionary action exceeding its mandate is required • Limited national sovereignity

  31. V. The economic cost of the non-political Europe V.2. Proposal for reformThe 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)..

  32. V. The economic cost of the non-political Europe V.2. Proposal for reformThe 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.

  33. R&D spending by the public sector (en % du PIB) X pas de données 2001 2007 2008 Sources : Eurostat.

  34. 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. V. The economic cost of the non-political Europe

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