Download 1. Lecture

University of Piraeus
The EURO & the Sovereign Debt Crisis:
An International Political Economy
Approach
Professor El Thalassinos, Chair Jean
Monnet http://www.jeanmonnet-emu.eu
Aim
• To highlight the EU’s Political Economy
Dimension.
• To underline the EMU’s Political Economy
Aspect.
• To examine the relation between the
sovereign crisis and EURO’s operational
framework.
• To approach EMU’s shortcomings that
have contributed to today’s EU crisis.
Central Argument
• EURO’s Inadequacies and problems
stem from EU’s political nature.
• EURO is a project of profound political
implications.
• EURO was decided to be implemented,
primarily, on political criteria.
• EMU is a project that has raised the
stakes for EU members very high.
Setting the Stage…
• The EU is by far the most successful peace project
in history.
• EU’s development is a history of incremental
approach towards:
 Political integration;
 Economic integration;
• Strategy: promoting further integration through the
attainment of specific economic goals.
• Result: development of institutional bonds and
common interests.
History’s Lessons…
• Numerous attempts throughout European
history to unify the continent.
• EU represents a fundamental break with
Europe’s violent past.
• Zollverein (GER): the roots of the EU’s
(E.E.C.) theoretical foundation. Ironically
enough, a French (Schuman & Monnet)
conception of establishing a common
market (due to fear of the German power) is
based on the German culture of a
decentralized federal system of economic
and political management.
Stages of European Economic
Integration
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Preferential Trade Area
Free Trade Area
Customs Union
Single Market
Monetary Union
Fiscal Union
Full Economic Union/Integration
• The EU has come long way to reach the stage of
the Monetary Union, evolving in a volatile
international political & economic environment for
more than 50 years.
The Road to the EMU
•
European Economic Cooperation: basis and institutional
framework had been laid down from:
a) Treaty of Paris (1951) – ECSC
b) Treaties of Rome (1957)
c) Hague Treaty (1958)
d) Treaty of Brussels (1967)
•
Monetary Union - Early Attempts and beyond:
- 1970: Werner Report
- 1970s: Collapse of Bretton Woods Regime → the European
Monetary Snake (Basle Accord)
- 1979 – EMS & ERM I: The DM & Bundesbank at the centre
→culture of Monetary Discipline and Monetary Institutions
- 1986: Single European Act
- 1989: Delors Report
- 1992: Treaty of the EU, Maastricht Convergence Criteria and
Monetary Union Structures.
Goals: relatively stable prices, healthy fiscal sector, healthy
monetary conditions, stable Balance of Payments for each
country that wished to participate.
The Political Economy Context
of the EMU
•
General Context:
a) Decline of the US hegemony & emergence of new actors.
b) Rise of Economic & Monetary Issues in Foreign Policy Agenda.
c) Emergence of GER as global Economic power.
d) GBR & FRA underlining their role in international conflicts
•
Result: a new political & economic environment within which
the EU was called to evolve. In this context, the DMark
represented for the Germans the absolute symbol of national
pride, that were reluctant to give up in favor of a common
currency.
•
The EMU brings to the foreground EU’s perennial questions:
- Supranationalists (Federalists) VS Intergovernmentalists
- Economists VS Monetarists
- Trade off between GER vs FRA + GBR
•
Turning Point: German Unification – FRA promotes the Monetarist
view of the EMU attempting to institutionalize even more the
German participation in the EU putting a Unified Germany within a
European context. In fact, Francois Mitterrand had set the
acceptance of the Maastricht Treaty as a prerequisite to the
German’s for giving his approval to Germany’s Unification
Remarks on the EMU
•
Three Phases of the EMU:
a) Coordination of Economic Policy between member states
b) Achieving Economic Convergence (economic cycles
broadly in steps)
c) Adoption of the common currency (EURO)
Have all the aforementioned taken place at order of
appearance?
•
Centralized Monetary Policy
•
Coordination but Decentralized Economic and Fiscal
Policy
•
Independence
•
Goals of the EMU (according to Classic Economic Theory):
1) Price Stability = Low Inflation (prices and wages)
2) Economic Growth and Development
3) Increase of Employment
Significance of Monetary Union
•
Political Significance
While in 1995 only few (two) member states could claim that they fulfilled
the Maastricht criteria, in 1997 eleven member states were considered
as eligible for the EMU…
•
Economic Significance
- Motives for establishing a Monetary Union:
a) Increase of Monetary stability & Economic Security against
speculation.
b) Increase of Financial Credibility in International Markets.
c) Boosting of the Single Market that precedes a Monetary Union.
d) Increase of Economic power and independence
•
Economic Rationale of a Monetary Union
- Elimination of exchange rates fluctuations & devaluations
- Greater price transparency
- Reform of labor markets & opening up of economies to greater
competition
Results:
- More efficient allocation of resources
- Reduction of Cost of Capital
- Boost of Productivity & Investments
- Greater Prosperity
O.C.A. Theory
•
Optimum Currency Area (O.C.A.) Theory (Robert Mundell et al)
- An Optimum Currency Area is a geographic region that adopts
a single currency for optimizing economic efficiency.
- General Criteria for the establishment of an O.C.A.
a) Production Flexibility including Labor and Capital Mobility Price and Wage Flexibility→ Convergence;
b) Openness of the Participating Economies;
c) Financial Integration: a Risk Sharing System & monetary
transmission mechanisms;
d) Similar Business Cycles and Real Economic Convergence;
e) Political Integration: Commonality of Destiny.
- Endogenous Criteria for a member state to participate to an
O.C.A.
a) Volume of Trade of a Candidate Country
b) Diversified Production of a Country’s Economy
c) Fiscal Policy Coordination but Decentralized
d) Similarity of Structural Characteristics of member economies
OCA – Benefits & Costs
1) Benefits
• Elimination of Currency Risk and Financial Uncertainty
- Predictability of Price levels
- Price mechanism and markets function more effectively
- Reduction of hedging costs
- Facilitates the function of money markets and capital
markets
• Reduction of Foreign Exchange Costs = Increase of
International Trade
• Convergence and Reduction of Prices of goods and services.
• Decreasing of Foreign Exchange Currency level of reserves
available for interventions in currency markets.
• Decrease of Interest Rates and enhancement of Competition
• Elimination of Speculation towards weak national currencies.
• Financial Solvency at the cost of ceding part of sovereignty
2) Costs
• Loss of independent national monetary & exchange rates
policy
But enough with Theory…
Is the EMU an OCA?
1)
Labor and Capital Mobility: capital mobility is quite high labor mobility relatively low
2)
Openness of the Participating Economies: The EURO
has a significant trade effect (increased trade by 5% to
15% in the Eurozone) without “fortress Europe”
3)
Risk Sharing System – Fiscal Redistributing
Mechanism: great politico-economic implications for the
Eurozone.
Key Questions:
a) GER has reaped the benefits from the establishment of
the common currency. Is it the time also to bear the
hegemonic costs of the EURO = Fiscal Redistributing
Mechanism + Eurobond.
b) Are other European ready to accept mutuality on EU
countries’ debts?
- EMU and Bail-out Mechanism (ESM, EFSF)
4)
Business Cycles & Economic divergences
What is still missing?
 Economic Convergence (real economy)
 Price Convergence
 Elimination of Structural Rigidities in product and labor
markets
 Increased Labor Mobility
 Openness of Economies
 Full Integration of the participating economies
 Sound management of public financing. There is lack of
fiscal discipline, despite the SGP.
 Fiscal Transfer System
 A European Monetary Fund (ESM, EFSF ?)
 Sense of common supranational destiny
Positive Effects of the EURO
• Trade Creation VS Trade Diversion: all empirical
research shows that intra-EMU trade by 5% to
10%, and without trade diversion vis-à-vis the rest
of the world (no fortress Europe).
• Lower Transaction Costs
• Less Uncertainty in Trade from FX fluctuations
• Price Transparency and Less Segmentation of
market→ foster competition and price convergence
& co-movement
• Capital Market Integration increasing competition
and opening up new sources of financing for
companies.
• Economies of Scale due to larger market size
• Openness of economies has been facilitated as
cross border mergers have increased steadily.
Still, the EURO per se is neither
Good nor Bad
•
EMU trade effect may not be attributed only to the elimination of
exchange rates uncertainty :
 increased credibility of ECB;
 price transparency;
 higher macroeconomic stability;
 reduction of trade costs;
 progress of Common Market.
•
Some countries were better placed to reap the trade benefits
from a common Currency. This depends on several factors:
 High Level Trade Openness: greater exposure to trade→
greater benefits
 Exchange Rate Volatility: higher volatility prior to EMU,
greater benefits due to decline of exchange rates
uncertainty.
 Market Flexibility and Reforms: Competitiveness = higher
flexibility in shifting resources, adaptability of production,
limiting entry and exit costs→ higher benefits.
 Structural Characteristics of member states’ economies:
economies that have solid economic and productive
structures, healthy bureaucracy and are export their
products benefit more.
USA as an OCA – Enabling Factors
(Sources: www.pimco.com; Robert Mundell speech in
Jean Monnet Global Conference 11/2011)
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Several US states have defaulted in the past. Yet, it was never
considered as a dollar problem but rather a fiscal policy problem.
Three developments allowed the U.S. to become a full-fledged
monetary union:
 the drafting of the U.S. Constitution, which gave Congress the
power to coin and regulate money;
 Creation of the Dollar: the establishment of the Federal Reserve
and the Fed’s issuing of Federal Reserve Notes in 1914;
 Creation of the Central Bank: the introduction of the Banking Act
of 1935.
 Consolidation of States’ debt into the US debt. States were then
sovereign to run their own debts and budgets.
Other fundamental factors:
 Dividing but overlapping sovereignties on fiscal policy
 Residual powers were left to states.
 Although historical practice is not in favor of bail outs, American
constitution does not prohibit it.
 Automatic changes in fiscal transfers between regions and
central government through a progressive tax system that
closely related to income levels. Such a mechanism does not
exist in the EU as it qualifies as a major step towards further
integration.
But is there a perfect OCA?
• Kouparitsas M. (Federal Reserve Bank of Chicago,
2001), “Is the US an Optimum Currency Area? An
empirical Analysis of Regional Business Cycle”
 He applied in his analysis the division of the US
into the eight regions as the Bureau of Economic
Analysis does. He found that five of the eight
regions of the country satisfied Mundell's criteria to
form an Optimal Currency Area. However, he
found the fit of the Southeast and Southwest to be
questionable.
• Alesina-Baro-Tenreyro (Harvard University, 2002),
“Optimal Currency Areas”, “Optimal Currency Areas”
 “…based on the historical data on inflation, trade,
and comovements of prices and outputs, we
argued that there exist well-defined dollar and euro
areas…the adoption of another’s country’s
currency increases bilateral trade and raises the
co-movement of prices.”
USA vs EMU as an OCA 1995-2010 (1)
(Sources: www.pimco.com; www.ecb.int)
•
Aggregate inflation and growth
differences are not too dissimilar.
•
Since 1995, U.S. average real
GDP has been only 0,5% higher
than Europe’s real GDP.
•
European unemployment rate
was 3% higher than the USA’s
over the same period.
•
The difference between the U.S.
and Euro labor markets can be
attributed to specific factor
contribution to real GDP growth.
•
The U.S. scores much higher in
terms of labor productivity, labor
mobility and wage flexibility.
USA vs EMU as an OCA 1995-2010 (2)
(Sources: www.pimco.com; www.ecb.int)
• Factor specialization index:
the extent to which a
country's production pattern
differs from those of a
comparison group of
countries.
• Krugman’s research
showed that the higher the
degree of specialization,
the more synchronized
business cycles could
become between countries.
• Relatively low factor
specialization for the EU
relative to the U.S. since
early 2000.
USA vs EMU as an OCA 1995-2010 (3)
(Sources: www.pimco.com; www.ecb.int; Speech by Jean-Claude Trichet,
President of the ECB, Jackson Hole, U.S.A., 08/2011)
•
Trichet: similar dispersion in
Unit Labor Costs (ULC) in areas
with both high and low wage
costs, a reflection of differences
in economic diversity and
competitiveness.
•
2006 paper “How Wages
Change: Micro Evidence from
the International Wage
Flexibility Project”: average real
wage rigidity, is very low for the
U.S. (10%), but much higher for
the eurozone (25% avrg).
•
The density of labor unions and
bargaining power is high in the
EU (45%) and low in the US
(20%).
•
U.S. the least rigid in wages,
while the eurozone experiences
far greater rigidity.
USA vs EMU as an OCA 1995-2010 (4)
(Sources: www.pimco.com; www.ecb.int)
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The eurozone has lacked
mobility of labor for some
time (OECD Survey: 4% of
the European workforce has
lived and worked in a
different member state.
•
Since 2000, the average
labor mobility has been a lot
higher in the U.S. and than
in the European Union.
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Qualitative difference
between US-EU: cultural
diversity and language
barriers
USA – EU: faced similar problems
• USA: Federalism VS Confederalism:
 States’ Rights and the Civil War
• EU: Federalists VS Intergovernmentalists
 States’ rights and the limits of European
Integration
• USA: States’ Default:
 Consolidation of debt
• EU: States’ Default
 No structures existed when the crisis broke out
– imperative need of Economic Governance
framework (set up of ESM, EFSF)
 The leap forward→ EUROBOND, it seems
inevitable, that’s why countries like GRE have
to be present and economically “alive” when
that development takes place.
…but in the end of the day…
Source: (www.pimco.org)
• Mundell (O.C.A.):
 Different countries & different national currencies: Surplus
Countries allow high inflation→ Deficit Countries enjoy
increased employment
 Many regions & a single currency: Central Monetary Authorities
reduce inflation (contractive monetary & fiscal policy)→ high
unemployment in the deficit regions.
 What is needed: coordination among central banks to avoid
unemployment and inflation whereby surplus countries help to
adjust deficit countries.
•
Decentralized policy: economies to have an effective adjustment
mechanism to absorb shocks.
•
U.S. has more optimum currency area features than the Eurozone.
But it does not necessarily mean higher and more sustainable
economic growth. Key for the EMU is to eliminate labor market
rigidities.
•
Structural reform: it has been very modestly implemented in the
eurozone.
•
The eurozone debt crisis has one “advantage” as it may push for
quicker reforms.
EMU: Fostering Political Integration
through full Economic Integration
• First, European monetary integration has been part of
the broader process of economic and financial
integration;
• Second, European integration is a political process;
• Third, economic, financial and monetary integration
has evolved gradually over a long period, and is still
evolving (adjustment);
• Fourth, the advancement of European integration has
proceeded hand in hand with the advancements of
economic theory.
Core and Periphery in view of
the Sovereign Crisis
• Powerful EU Economies: eager to develop
a large and competitive Eurozone,
allowing less solvent EU nations to enjoy
increased financial credibility;
• Periphery states: large infusions of liquidity
(unprecedented access to credit due to
cheap cost of capital). BUT: "productive
capacity" of the periphery was limited by
rigid labor markets and inefficient
allocation of those financial resources.
Timeline of EU Sovereign Crisis and Responses
(Source: ECB and various)
Crisis Event
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9/2008: Lehman Brothers files for Bankruptcy
4/2010: GRE seeks financial support
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7/2010: Banks stress test results
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11/2010: IRL seeks Financial Support
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4/2011: POR seeks Financial Support
6/2011: GRE situation exacerbates
EU Response
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10/2008: ECB activates extra liquidity & refinancing
measures
5/2010: EC, ECB, IMF support GRE
6/2010: ECB sets up EFSF
07/2010: ECB announces stricter rules on bank
collaterals
10/2010: SGP to be tightened
12/2010: EU, IMF rescue package for IRL agreed
12/2010: Go ahead for ESM from EU leaders
3/2011: Euro area agrees on “Pact for the Euro
5/2011: EC, ECB, IMF support POR
9/2011: ECB enhances liquidity operations ($US)
10/2011: EFSF becomes fully operational
10/2011: ECB announces second covered bond
purchase program
11/2011: EU Council strengthens economic
governance
12/2011: ECB supports bank lending & money market
activity
2/2012: ECB approves eligibility criteria for credit
claims
The Role of Germany – Why is it so warm
Advocate of strict Fiscal Policy Rules?
•
Hyperinflation of the Weimar Republic:
"On 1st November 1923,
1 pound of bread cost 3 billion,
1 pound of meat 36 billion,
1 glass of beer 4 billion."
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A medal commemorating
Germany's 1923 hyperinflation
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Bond Markets: their lethal enemy,
Inflation
The DM: ultimate symbol of national
pride for GER
Free riders problem
German Unification: power shift
Germany: the undisputed economic
dominant power of Europe = regime
builder – Fiscal Pact and general
management of the Crisis
It is not whether the German’s
dominate within the EU, but rather
how do they exert their supremacy.
Role of Germany …and the
Greek Problem
•
Strict policy→ laying down policy rules so as to ensure that no
other EMU country will walk down the path that the Greek
government followed:
 “…we reiterate our decision taken on 21 July 2011 that
Greece requires an exceptional and unique solution.”
•
The EU has set certain fiscal goals, explicitly avoiding to
dictate specific measures:
 “… The mechanisms for the monitoring of implementation
of the Greek programme must be strengthened, as
requested by the Greek government. The ownership of the
programme is Greek and its implementation is the
responsibility of the Greek authorities.”
•
Still, the economic measures taken in Greece are not towards
the right direction as the Greek Government has failed to
actively promote structural changes in the Greek economy and
reform drastically the public sector, both being imperative to be
realized. On the contrary, it has severely hit low & middle class
creating a lot of societal strain and following a reactive policy
which followed no specific strategic plan, but only aimed to
satisfy Troika’s goals…
Fiscal Status in the EMU (2010)…
Sovereign Crisis is a European Problem!
•
Maastricht Economic and
Monetary Convergence Criteria
for joining the EMU:
1) Inflation: < 1,5% higher than the
average of the three best performing
(lowest inflation) member states of the
EU.
2) Long Term Interest Rates: < 2%
higher than those in the three lowest
inflation member states.
3) Exchange Rates Stability:
applicant countries should have
joined the ERM II under the EMS
for two consecutive years and should
not have devalued their currency
during that period.
4) Fiscal Criteria:
- Annual Government Deficit: ratio
of annual government deficit to GDP
< 3% at the end of the preceding
fiscal year.
- Government Debt: ratio of
Government debt to GDP < 60% at
the end of the preceding fiscal year
•
The Euroarea has been
demonstrating weak economic
activity over the last few years.
EMU members’ exposure to Greek Bonds (2011)
Greece
• Country's total debt: €329bn
• Total debt as percentage of
GDP: 165.6%
• Greece is heavily indebted to
all Eurozone countries. It owes
nearly $74 billion to Germany
and France, with the latter
being heavily exposed to the
Greek debt.
• FRA & GER have reduced their
exposure by 40 bn Euros since
last quarter 2011…
•
4/2010 – GRE resorts to Troika
support: race against the clock
between the Greek side and
those parties exposed to the
Greek debt.
Greece left to Default?
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Great Exposure of European Banks and Governments to Greek Bonds; the
Banks are the blood lines of a country’s economy providing the necessary
liquidity for economic development.
The Risk of Contagion and the Domino effect; (GRE Banks shrinking, AUSTR
banks exposed to HUNG Banks, ITA Banks exposed to AUST banks and so on)
Germany dependence on EMU’s well being due to export propelled growth
 Thus, leaving Greece to Default does not appear to be a realistic
option…
YET, “Pacta Sunt Servanta” – Greece has violated this “axiom”, fuelling
distrust by its EU partners
EU sources: “The roots of Greece's fiscal calamity lie in prolonged deficit
spending, economic mismanagement, government misreporting, and tax
evasion.”
The core issue in Greece is not about implementing further austerity economic
measures, but rather it is about rationalizing the Greek economy’s structures and
promoting economic development measures.
Greece’s sovereign debt crisis is the symptom rather than the cause of its
economic crisis. In fact, even though several rescue packs have been agreed to
be “administered” to the Greek Economy, its debt ratio to the GDP will continue to
be above 120% in 2020, due to its GDP contraction (2011: -7%).
If Greece does not actively promote the necessary structural changes in its
economy, then it will be obliged to voluntarily leave the EMU, being surpassed by
contemporary developments in the EMU.
Greece needs to restore its credibility both as a state towards its own citizens, as
a reliable EU partner and as a solvent International Economic Actor. Greece has
to earn back its partners’ trust!
At the same time, major EU partners have to cease making destructive and
provocative statements that undermine Greece’s international economic position
and its recovery & to take the necessary leap forward towards a fiscal and
political Union (Eurobond).
What is needed is more Europe rather than less Europe.
Concluding Remarks (1)
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The EU is by far the most successful peace project in history.
EU’s development is a history of incremental approach towards economic
and political integration.
EMS and ERM I laid the foundation towards the EMU and the Maastricth
Treaty
The EMU brings to the foreground EU’s perennial questions:
- Supranationalists (Federalists) VS Intergovernmentalists
- Economists VS Monetarists
- Trade off between GER vs FRA + GBR
Three Phases of the EMU:
a) Coordination of Economic Policy between member states
b) Achieving Economic Convergence (economic cycles broadly in steps)
c) Adoption of the common currency (EURO)
Have all the aforementioned taken place at order of appearance?
Goals of the EMU (according to Classic Economic Theory):
1) Price Stability = Low Inflation (prices and wages)
2) Economic Growth and Development
3) Increase of Employment
Concluding Remarks (2)
•
•
Motives for establishing a Monetary Union:
a) Increase of Monetary stability & Economic Security against
speculation.
b) Increase of Financial Credibility in International Markets.
c) Boosting of a Single Market that precedes a Monetary Union.
d) Increase of Economic power and independence in the
International Political and Economic arena.
Economic Rationale of a Monetary Union
- Elimination of exchange rates fluctuations & devaluations
- Greater price transparency
- Reform of labor markets & opening up of economies to greater
competition
Results:
- More efficient allocation of resources
- Reduction of Cost of Capital
- Boost of Productivity & Investments
- Greater Prosperity
Concluding Remarks (3)
•
•
Is the EMU an OCA?
 Labor and Capital Mobility: capital mobility is quite high - labor
mobility relatively low
 Openness of the Participating Economies: The single currency
has increased trade by 5% to 15% in the Eurozone
 Risk Sharing System – Fiscal Redistributing Mechanism – Bail
out Mechanisms: great politico-economic implications for the
Eurozone. Fiscal Union→ Political Integration
 Similar (Synchronized) Business Cycles and Economic
Characteristics of the Participant Economies: European
economies are substantially diverse.
But is there a perfect OCA?
 There exists clear Euro area and Dollar area, but neither of them
fully fulfills the OCA theory’s criteria.
 Still, U.S. has more optimum currency area features than the
Eurozone. But, even though the U.S. is (presumably) closer to an
optimum currency area than the EMU, it does not necessarily mean
higher and more sustainable economic growth. Key for the EMU is to
eliminate labor market rigidities.
 Still, the EURO has already some positive effects. But the EURO is
neither good nor bad per se. It offers the chance to economies that
are better organized and structured to reap the benefits from the
elimination of exchange rates.
Concluding Remarks (4)
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Today, the EMU poses clear political and economic challenges as the
EMU leaders are called to take the next bold step towards fiscal
integration, which points clearly to greater political integration. Thus, it is
the time of truth for all participants concerning their willingness and their
determination towards the vision of a more integrated Europe.
The EMU offered to GER and more advanced economies a larger internal
market, while at the same time it offered to the periphery’s economies the
chance to enjoy increased credibility that was translated through access
to cheaper capital and increased credit lines.
However, GRE failed to use this facilities to enhance its economy’s
productive base. Thus, when the markets started treating these
economies in a diversified risk manner, credit availability became scarce,
and GRE nearly defaulted.
GER is not willing to let disadvantaged economies to put the EURO at
risk for historical, political and economic reasons. However, if the cost of
supporting the EURO is increased above the benefits that GER reaps,
then it would be tempted to be the first country to abandon ship…
GER has a long history of fiscal discipline that is dictated by fear of high
inflation. However, while laying down strict rules is a prerequisite for the
EURO’s management, still economic development is a goal that eludes
the EMU today.
Today, not many EMU countries fulfill the Maastricht criteria, revealing
that the sovereign debt problem is a European one and that fiscal
discipline alone does not suffice for the EMU to prosper.
Concluding Remarks (5)
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The Greek economy represents the weakest link of the EMU. Its
qualitative and quantitative improvement is not only to the EMU’s benefit,
but foremost for the country’s well-being.
Greek Economy may not have a much, worldwide, in terms of rigidity…
Greek economy is called to reset and be founded on new basis by
promoting a new economic model where the state would have a strategic
role of channeling economic actors activities towards fields that the
country has relative advantage, rather than being itself a business
partner, as it used to be over the last 30 years.
For this to be realized, the necessary break up with the past is needed
clashing with unproductive interest groups.
Thus, more austerity measures would add nothing to Greece’s endeavor
to recover; rather, they would exacerbate present recession. Instead,
what is needed is the setup of new economic management structures by
the government and of a clear and stable economic, tax, political and
constitutional framework that would constitute a reliable environment for
attracting investments and promoting business practice.