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IF ECONOMIC GOVERNANCE IN THE EU IS THE PROBLEM …. IS POLICY CO-ORDINATION THE SOLUTION? IAIN BEGG European Institute, LSE Probably Probably not ECONOMIC GOVERNANCE It combines the philosophy and architecture of economic policy-making with the institutions, machinery and practices that shape the evolution of the economy WHAT IS AT STAKE? EMU as a system of governance – Spluttering and at risk of falling into disrepute – Process overkill; strategic void – What was it Harry Truman said? The spectre of China (and India etc.) Reform of European social model – But towards what? GOVERNANCE CHALLENGES Doubts about the policy paradigm Is methodology of policy-making effective? – Including which level of governance… Accountability and legitimacy Transparency and communication Participation by actors – Is the degree of plurality appropriate? …and, of course, key question: does it work? LISBON FAULT-LINES Strategic aims not really contested – But shifting priorities undermine consistency – Few demonstrate case for Community level Policy instruments have been inadequate – Problems with incentives & means – Action plan fatigue? Target proliferation? Delivery failings – Targets missed or ignored – Pervasive effects of sluggish growth rate – Large disparities among the Member States Cumulative Growth in GDP, 2000-06, % Latvia Lithuania Ireland Greece Poland Czech Republic Portugal FR. Germany Euro area EU-25 0.0 10.0 20.0 30.0 40.0 50.0 60.0 TRAJECTORY OF ECONOMY The reform ‘j’-curve Performance With extensive reforms Without major reforms A B Time RATIONALE FOR CO-ORDINATION Spillover effects across economies – Mutually reinforcing policies: common interest – The example of fiscal policy » Avoiding undue pressure on monetary policy etc. – Does it apply to Lisbon strategy? How? The vincolo esterno argument Policy learning and improvement – Adoption of a preferred, common ‘model’ – Exchange of experience & good practice - EES AND WHAT WAS/IS LISBON? General, if loose agenda for economic reform – Common aims, but national priorities Could …..be – A process that engenders positive externalities » Axiomatically true if growth is enhanced, but … – A procedure that stimulates policy learning But is it only a synonym for structural reform? – If so, case for co-ordination ‘not proven’ AND THE RE-LAUNCH? Another accurate diagnosis Another re-statement of the imperatives – Though less ‘breathless’ in tone Another obligation to produce action plans Another commitment to community action – …but scant means, and possibly budget cuts A fresh call for MSs to take ‘ownership’ – …but no naming, blaming and shaming FIRST IMPRESSIONS Integrated guidelines largely uncontroversial Majority of MSs miss NRP deadline – Trivial, perhaps, but… Very diverse content in five NRPs – Degree of consultation – Explicit linkage to the IGs – Statement of new policies / existing practices Realism of what is proposed WHAT NEXT? Re-launch of sustainable development strategy – Principles set out in June; deal in December? – Should restore longer-term focus – ‘Smart growth’: stress economic opportunities Major challenge is implementation – How to engage national actors more convincingly – Whether delivery can keep pace with wish-lists Ideas needed for moving up the j-curve GORDON BROWN’S RECIPE Pamphlet published 13/10/2005 ‘We had no idea that Europe now has to compete in global markets. Not even the Germans, with their $157bn (€131bn) trade surplus’ ‘Imagine our relief when you set out a plan to save Europe: “greater flexibility in product markets, labour markets and capital markets” and “a framework for macroeconomic stability that supports stability and growth”.’ [Letter of response from other Finance Ministers - FT] CONCLUDING COMMENTS Member States broadly know what’s needed – But have to overcome inertia & resistance – Perhaps requires a perception of crisis Far from clear how co-ordination adds value – Losing credibility in fiscal policy – Still searching for a rationale on supply-side Demand-side not pulling its weight Yet governance challenge remains central IF ECONOMIC GOVERNANCE IN THE EU IS THE PROBLEM …. IS POLICY CO-ORDINATION THE SOLUTION? IAIN BEGG European Institute, LSE [email protected]