Download Job creation and job destruction and the role of

A DECADE OF ADJUSTMENT AND
UNEMPLOYMENT IN THE EUROZONE? THE
POLITICAL AND ECONOMIC DIMENSION
Christopher A Pissarides
London School of Economics
Chair, Cyprus Council of National Economy
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Single market and beyond
• The single market in Europe has been good for
jobs and growth
• Trade expanded, the poorer countries caught up
and internal migration removed bottlenecks
• It is essential to complete the single market in
services because this is where the future of
employment in Europe
2
The debt crisis
• The single currency was a great idea as the next
step in European integration
• But it back-fired. It is holding back growth and job
creation
• Present situation very unsatisfactory: it should either
be dismantled or the leading countries should do the
necessary as fast as possible to make it growth- and
employment- friendly
• For this we need banking and fiscal union!
3
Banking union
• For a healthy future the Eurozone needs
banking union – common supervisor, ECB
decides what banks should be dissolved and
how recapitalisation is done
• We urgently need Eurobonds and we need the
European Stability Mechanism that recapitalises
banks without creating unsustainable sovereign
debts
4
Fiscal union
• We also need fiscal union – at least some
central control of individual country fiscal
finances
• Fiscal transfers are already taking place,
through the structural funds and the stability
mechanisms
• Some control of country budgets will make them
more generally acceptable and more effective
5
Eurozone and the crisis
• Continuing as at present, plodding along with haphazard
decision making (as in the case of Cyprus), inconsistent
debt-relief policies (compare Cyprus, Greece and
Ireland), policy pronouncements pushed forward only to
be withdrawn when markets don’t like it (as practised by
the Chairman of the Eurogroup after the Cyprus bail-in),
will get us nowhere
• Fiscal austerity is destroying jobs. The rest of the world
is coming out of crisis and taking on new challenges
• Europe is looking backwards and watching powerless
the rising unemployment
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NOR
KOR
SWI
AUT
JAP
LUX
NET
MEX
AUS
GER
ICE
CHI
CZE
NEZ
ISR
BEL
CAN
SWE
FIN
DEN
TUR
UK
USA
SLV
FRA
POL
EU
ITA
EST
EURO
HUN
SLK
IRE
POR
CYP
GRE
SPA
Unemployment in advanced
countries, 2012
(Eurozone in red)
30
25
20
15
10
5
0
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Coming out of crisis
• As the European Union is coming out of the debt
crisis it needs to prepare for a job-rich growth
that will increase productivity and bring back the
unemployed into jobs
8
Infrastructure
• After years of austerity and structural reform
Europe needs new infrastructure programmes
• These should be coordinated at EU level, and
be outside the recurrent budget
• It needs to set up institutions to monitor
competitiveness and evaluate infrastructure
needs to achieve it
• The needs are different in each country – tourist
projects, transport, telecommunications?
9
New institutions
• A Fiscal Policy Council is needed to monitor the
fiscal budgets in the Eurozone
• A Growth and Competitiveness Council is
needed to evaluate the reforms needed to
increase growth and competitiveness
• Approve spending that is outside the budget
balance
10
Labour market flexibility
• The labour market needs to be more flexible, especially
in the southern countries
• Flexibility means more freedom of employers to run their
business without too much regulation
• Minimum wages that are at the appropriate level to
encourage labour supply but not discourage job creation
• Best job security is provided by a labour market that
creates and destroys many jobs to take advantage of
new opportunities, supporting large labour turnover rates
11
Income security
• Income security for those between jobs is
supported by the government
• It runs programmes that take over from passive
support after 6-12 months
12
Structural reform
• Many countries, especially in the south, still lack
a flexible labour market
• Recent reforms associated with the debt
reduction programmes are in the right direction
but they are taking time to have a positive
impact and they need the cooperation of all
social partners.
13
Austerity and reform
• Austerity has an immediate impact on the
economy
• Its large negative effects undermine the reform
programme and make it more difficult to reach
the longer-term objectives
• Timing of austerity and reform is not conducive
to quick recovery and growth
14
Thank you!
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