Download The global economic outlook

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
I. Retorica e realtà della globalisazione
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…
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I. Retorica e realtà della globalisazione
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.
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II. la crisi
La discesa del 2009
 Output gaps
Inequalities
Global imbalances
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Growth’s loss
6
4
2
0
-2
-4
-6
-8
1999
2000
2001
2002
2004
2003
EU
Source: Datastream.
©Jean-Paul Fitoussi/6
2005
Japan
2006
US
2007
2008
2009
Annual OECD output gap (Output gap in 2007=0), 2000-2009 plus OECD
Figure 5.1 projections
Annual OECD Output
(Output
in 2007 = 0),
forGap
2010
&Gap
2011
2000-2009 plus OECD projections for 2010 & 2011
2.0
0.0
United States
Euro Area
Percent
-2.0
Italy
-4.0
Japan
-6.0
-8.0
2000
2001
2002
2003
Source : OECD Economic Outlook
Source: OECD Economic Outlook.
2004
2005
2006
2007
2008
2009
2010
2011
II. Interprétation – Interpretation – Interpretazione
II.1. Inégalités – Inequalities – Disuguaglianze
II.2. Déséquilibres globaux – Global Imbalances –
Squilibri Globali
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Average yearly growth of income minus growth of total average income. Mid1980s to mid-2000s
1.5
1.0
0.5
Bottom quintile
Middle three quintiles
0.0
Top quintile
-0.5
-1.0
-1.5
-2.0
France
-2.5
Germany
Italy
United Kingdom
United States
OECD
Number of tax brackets and marginal income tax rates
Belgium
Number of Brackets
Minimum Rate
France
Number of Brackets
Minimum Rate
Germany
Number of Brackets
Minimum rate
Italy
Number of Brackets
Minimum Rate
Central government rates*
Source : OECD Tax Database. Calculations of the authors
1981
1991
2001
2008
23
7
7
5
72%
55%
55%
50%
12
12
6
4
60%
56.8%
52.75%
40%
2
2
2
2
56%
53%
48.5%
45%
32
7
5
5
72%
50%
45%
43%
Number of tax brackets and marginal income tax rates*
Spain
Number of Brackets
Minimum Rate
Ireland
Number of Brackets
Minimum Rate
UK
Number of Brackets
Minimum rate
US
Number of Brackets
Minimum Rate
Central government rates*
Source : OECD Tax Database. Calculations of the authors
1981
1991
2001
2008
30
16
6
4
65.1%
56%
39.6%
21.7%
5
3
2
2
60%
52%
42%
41%
6
2
3
2
60%
40%
40%
40%
16
2
5
5
70%
31%
39.1%
35%
Wage Shares
85%
80%
75%
70%
65%
60%
France
Germany
Italy
Japan
Spain
United Kingdom
United States
Euro area
55%
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
The building of global imbalances: the US external deficit
Current account balance, % of GDP
2
1
0
-1
-2
-3
-4
-5
-6
-7
1970
1973
1976
Source: Datastream.
©Jean-Paul Fitoussi/13
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
III. The long run
 GDP Trends 1990-2009
 Assessing European economic performances
 GDP per capital (PPP)
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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
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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.
©Jean-Paul Fitoussi/16
GDP trends 1990-2009
440
ZE
USA
Asie
400
360
320
280
240
Asie (2009 = 400 ; 7.5)
200
Etats-Unis (2009 = 161.2 ; 2.5)
160
120
Zone euro (2009 = 135.5 ; 1.7)
80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Sources : FMI.
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GDP Per capita (PPP)
France
Germany
Italy
UK
Japan
Australia
China (right axis)
1,000
0,20
0,900
0,15
0,800
0,10
0,700
0,05
0,600
0,500
0,00
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
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Labour productivity
125
120
115
110
105
100
95
90
85
80
1991 1992 1994 1995 1997 1998 2000 2001 2003 2004 2006 2007 2009
Qtr3
Qtr3
Qtr3
Qtr3
Qtr3
Qtr3
France
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Germany
Euroland
Productivity in the manufacturing sector
The Italian Puzzle
GDP per capita dynamics (average rates of growth)
1951-60
1961-70
1971-80
1981-90
1991-00
2001-09
Italy
Euro Area
USA
France
Germany
UK
Spain
Japan
5,4
4,9
3,1
2,3
1,6
-0,4
4,3
3,7
2,4
1,8
2,1
0,5
1,8
3,0
2,2
2,2
2,2
0,6
3,7
4,4
2,7
1,9
1,6
0,5
7,1
3,5
2,7
1,2
1,8
0,3
2,3
2,2
1,8
2,5
2,2
1,1
3,5
6,3
2,4
2,6
2,4
1,0
7,6
8,9
3,3
3,4
1,0
0,3
Source: Confindustria 2010
IV. What’s wrong with the european government?

The monetary policy of the ECB
 Consumer prices index
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The monetary policy of the ECB
Apparently, the monetary policy of the ECB has been successfull
7
Fed
6
BoE
5
4
3
BCE
2
1
BCE
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BoE
Fed
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
Consumer prices index
6,0
5,0
Etats-Unis
4,0
3,0
2,0
1,0
Zone euro
0,0
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
-1,0
-2,0
Zone euro
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Etats-Unis
2005
2006
2007
2008
2009
Exchange rates & Interest rates
5
1,7
1,6
4
1,5
1,4
3
1,3
1,2
2
1,1
1
1
0,9
0
0,8
1999
2000
2001
2002
2003
2004
ECB rate
Sources : Datastream.
©Jean-Paul Fitoussi/25
2005
2006
1 euro = …$
2007
2008
2009
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
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Reactivity of fiscal policy
Government deficit, % of GDP
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
UK
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US
Japan
Euroland
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?
©Jean-Paul Fitoussi/28
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
Sources : Eurostat OCDE.
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
Lack of legitimacy for the European government,
once discretionary action exceeding its mandate is
required

©Jean-Paul Fitoussi/30
Limited national sovereignity
V. The economic cost of the non-political Europe
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).
.
©Jean-Paul Fitoussi/31
V. The economic cost of the non-political Europe
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.
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R&D spending by the public sector (en % du PIB)
2001
Sources : Eurostat.
©Jean-Paul Fitoussi/33
2007
2008
X
pas de données
V. The economic cost of the non-political Europe
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.
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