• Sept. 12, 2010

    Taking Stock of Europe's Financial Reform

    Taking Stock of Europe's Financial Reform

    Financial regulation, more than other domains of economic policy, is open to misinterpretation. Since most economists abandoned it for a long time, it lacks solid analytical and empirical foundations. Since it affects directly the actors of the powerful financial industry, it has to bear an excessive and constant lobbying that influences the terms of the debate. And since it applies to activities often hyperspecialized and geographically concentrated, its ins and outs are rather difficult to understand for outsiders. (in French)

  • July 19, 2010

    EU economic governance needs more democracy

    EU economic governance needs more democracy

    May 2010 will go down in history as the beginning of greater economic solidarity in the European Union as a result of the one-two punch of the Greek loan agreed on May 3 and the massive loan guarantee mechanism of May 9-10. But what shape that union will take remains unclear. German Chancellor Merkel wants more governance by rules, to enshrine restrictive budgetary discipline and draconian punishments for violators. French President Sarkozy wants more governance by leaders, with Eurozone countries to form a kind of economic government that determines Eurozone policy on an on-going basis. Neither will work, the first because it is too rigid as well as economically problematic, the second because it is too flexible as well as politically problematic. Neither, moreover, is very democratic.

  • July 16, 2010

    EU: let's create independent, national budget committees

    EU: let's create independent, national budget committees

    The sovereign debt crisis revealed the institutional weaknesses of fiscal policies in Europe. To an institutional weakness, it must be given an institutional response. How? We propose the creation of independent, national budget committees, as well as a European committee that would evaluate, on the basis of the information provided by the national committees, the impact of national fiscal policies for the Eurozone. Comparable to the European organization of competition or financial regulation, such an architecture would preserve national sovereignty in fiscal policies while offering a European diagnosis on the economic policy. (in French)

  • June 23, 2010

    Emergency vs. Emergency

    Emergency vs. Emergency

    In 1980, the French public debt amounted to 20% of GDP. In 2007, before the crisis, it had risen to 65%. By 2011, it could exceed 85%. The time has come to roll the debt back. It is an urgent task to design a process that reverses the political failures of the last thirty years. But it is equally important to ensure that the weak recovery under way does not stall or, worse, that we end up with a new recession. Thus we face two seemingly incompatible emergencies. Governments seem owed by the financial markets’ “request” for stern deficit-cutting measures, but the markets seem to understand that a new recession will deepen the deficit. This article argues that there is no such incompatibility. (in French)

  • June 18, 2010

    A Downgraded Europe?

    A Downgraded Europe?

    In 2007, a group presided by Felipe González was set up to write a report on “the future of Europe”, which was delivered to the European Counsel on June 17th. One understands that right now the priorities may be concentrated on finding parades to the attacks of the markets, rather than to envision the distant future of the Union. But this report is capital in more than one way. First because the relief that followed the signature of the Lisbon Treaty gave place to the question of what to do in the next twenty years. Second because the financial crisis obviously imposes to reform the European model of governance and the European policies. (in French)

  • June 14, 2007

    Tax-free extra hours worked: not such a bad idea, after all

    As a candidate, Sarkozy promised to reform labour markets. His first move concerns the infamous 35 hours workweek, not really a surprise. The shorter workweek had been introduced by the socialist government of Jospin with the explicit aim of sharing work to increase employment. It followed on earlier moves under President Mitterrand in the 1980s and under President Chirac in the 1990s. That the idea was mistaken may be obvious to (non-French) economists, but it remains controversial in France because substantial subsidies, introduced when the Jospin government realized that the measure could, well, actually reduce employment, make it difficult to identify its effects.

  • Feb. 7, 2007

    Unemployement: France should follow European ways

    The labour force in Britain has grown by 212 percent since 1851; over the same period, the number of jobs has grown by 212 percent. So - ignoring the business cycle - a market economy always provides more jobs, if there are more people «effectively» seeking work. The issue is how to increase the «effective» supply of labour. So let me focus mainly on the supply side of the labour market and, especially, on the problem of mobilising the unemployed in France. I will accordingly say a little about wage flexibility, which should be central to the demand side, and about skills.

  • Jan. 11, 2007

    Europe Needs Policies on Russia and Energy

    A year ago, the European Union was at a loss when Russia cut gas supplies to Europe through Ukraine and thus to Europe. Exactly one year later, Russia cuts oil supplies to Europe through Belarus, and the EU is equally lost. Seldom haws Russia so clearly displayed its principles. It is time for the EU to adopt policies on both Russia and energy. Otherwise, the cost of Europe's disorientation may grow exponentially. -->Russia is a market economy, and even its state sector is highly commercialized. In the last few years, the Kremlin has successfully focused on boosting the price of Gazprom stocks, rendering it the third most valuable publicly traded company in the world. Part of this endeavor has been to abolish political subsidies to friendly former Soviet republics and let gas and oil prices approach market prices. Belarus was the last country to enjoy oil subsidies from Russia, and now they are gone.

  • Nov. 30, 2006

    A Stronger Euro Would Not Help Reforms

    As currency markets start to question the soft landing scenario for the US economy and are impressed by growth prospects in Europe, the volatility of exchange rates is increasing and the euro is on the rise, both on a trade weighted basis and against the US dollar. Whether the rally will last or not is a relative issue. Assuming that the US housing market downturn remains contained and does not spread over the whole US economy, markets should be mostly sensitive to the news flow from Europe. In this regard, the latest batch of business surveys, starting with the Ifo index, was bullish for the European currency. So was the conspicuous silence of ECB's President Jean-Claude Trichet who, although repeating that Asian currencies should be more flexible, has not commented on the recent strength of the euro.

  • Nov. 22, 2006

    Europe and Chindia

    Overseas acquisitions by Indian companies have suddenly gone on top gear. In the first nine months of 2006, there were 112 foreign acquisitions by Indian companies with a combined deal value of $7.2 billion. Last year it was $4.5 billion, which was itself several times more than the figure for 2004. What is triggering this surge, why now, and why it should worry the Europeans? -->Let us examine the combination of the four factors which seems to interplay in this sharp turnaround:

  • Oct. 26, 2006

    Enough Italy Bashing

    The downgrade of Italy by two credit rating agencies is likely to re-invigorate a theory that has some popularity in the financial markets, namely that Italy could well be the first casualty of an ill-conceived monetary union. The rationale: Italy has suffered from a huge loss of competitiveness, its productivity is at a standstill and its public debt is running out of control. Real life has demonstrated that the country cannot compete with her neighbours on a level playing field, i.e. not without the repeated 'shots in the arm' provided by devaluations. According to this line of reasoning, investors should ultimately impose a higher risk premium and, as debt servicing becomes more costly, their pessimism would turn into a self-fulfilling prophecy: Italians would start dreaming of a 1992-style devaluation as the only way to bail out their flagging economy, at the expense, of course, of their main trading partners.

  • Sept. 6, 2006

    Euro-zone: The Revival of Productivity

    One thing has escaped analysts' attention about euro area GDP data so far this year - labour productivity. This key ingredient of economic welfare and catalyst of stock market performance has accelerated significantly. The reason for this oversight, unfortunately, is the poor performance of the European statistical system: very few countries produce timely and reliable data on productivity per worker, not to mention productivity per hour. Don't blame Eurostat for this woeful situation: this small EU Directorate cannot invent data that do not even exist at the national level of several large European economies. However, just because productivity is measured poorly, doesn't mean it should be overlooked. According to our tentative measurements, productivity per worker in the business sector, which grew on average by 0.7% from 1999 to 2005 on OECD estimates, reached 2.0% (annualised rate) in the first half of this year, peaking at 2.4% in the second quarter.

  • June 30, 2006

    Where now for EU corporate income taxes?

    Tax rates on company profits in developed countries have fallen significantly over the last two decades. An important reason for this has been the rise in the share of economic activity undertaken within multinational corporations. From the perspective of national governments setting tax rates and tax structures, multinational firms differ from purely domestic companies in one fundamental respect: their activities are mobile between countries.

  • June 28, 2006

    Taxing profit is arbitrary and complex: let’s reduce the complexity

    All governments seek to tax profit earned by companies. But they face at least two problems in doing so. Conventional wisdom says that governments have to compete with each other to attract scarce investment by multinational companies, and that such competition must inevitably lead to lower (and eventually zero) corporate tax rates. -->Evidence on whether this is really happening is mixed and corporation tax revenues have been buoyant in the last 10 years. So reports of the death of corporation tax are premature, to say the least. Yet governments do face a rather different problem in taxing company profit: where is profit located? This might have seemed an easy enough question to answer before our economies became globalised - and it still may seem fairly easy for many companies. But it is far from obvious for the large multinational companies which pay most corporation tax.

  • May 6, 2006

    High-skilled migrants: welcome to Europe!

    Germany's new immigration law of 2004 was in part designed to attract high-skilled immigrants. But during 2005, less than 1000 high-skilled immigrants came to Germany under the timid provisions of that law. France is currently discussing an immigration bill that also contains provisions for high-skilled immigration. However, the special provisions regarding «compétences et talents» don't seem to be a particularly courageous step forward either. Why are France and Germany finding it so difficult to effectively participate in the global competition for talent?

  • April 8, 2006

    Stock Market Consolidation: A New Game, But Who Sets the Rules?

    Financial markets have a bad habit of moving too fast. Many on the marketplace had become used to think that the European monetary union (EMU) meant the creation of an integrated European capital market alongside the progressive disappearance of fragmented, national markets. This left plenty of room for difficult policy questions: should securities regulation be kept separated from prudential supervision, as in the US or France, or brought under the same roof, as in the UK or Germany? Should the system be based on the coordination of national authorities, as now in the so-called Lamfalussy process and its intricate architecture of Europe-wide committees, or should a new European agency be created? Should the approach cover the whole EU and its 25 (soon 27) member states, or be limited to the Eurozone or the continent to bypass a possible British veto? But one thing seemed sure: the relevant scope of the next steps would be of pan-European scale.

  • April 2, 2006

    Why the European Energy Charter Needs Revision

    Russia has chosen energy security as the dominant theme for the summit of the G-8 in St. Petersburg in mid-June. This is a good choice. At present, world demand of oil is almost at 85 million barrells a day. Pessimists argue that world oil production is at its peak, while optimists suggest that in 2020 global output can rise to 105 million barrells a day, but that is only slightly more. -->As the supplier of one-fifth of the world's production of natural gas and one-ninth of its crude oil, Russia does play a key role. Its position is all the more important in Europe, where it is the dominant energy supplier. Both because of energy efficiency and environmental reasons, Europe is increasingly turning to natural gas, rendering Russia even more significant.

  • April 1, 2006

    Italy: the frog in cold water

    In 15 years Italy's share of world exports has lost one point, falling from 4 to 3 percent. Since the start of the monetary union, the volume of Italian exports has remained virtually flat, while it increased 25 per cent in Germany, 20 per cent in Spain, 10 in France. This is the result of rapidly deteriorating competitiveness, a serious problem for a country where, like in Germany, exports have traditionally been the main engine of growth. And in 2005 growth, after averaging 1 per cent over the previous four years, has come to a standstill.

  • April 1, 2006

    Spain and its current account imbalance

    The story of EMU has so far been marked by two opposing events: the dramatic recovery in competitiveness in a "core" country, Germany, who entered EMU at an overvalued real exchange rate owing mainly to unification, and the similarly impressive loss of competitiveness of some of the "periphery" countries, such as Portugal or Spain, which now display very large current account deficits. The road to the recovery of competitiveness in Germany has been wage moderation. Since 1996, when German labor costs were estimated to be about 20 percent overvalued, German wage inflation has regularly underperformed the EU average. Several years later, Germany has recovered its competitive edge and it is now gaining export share - sometimes at the expense of its EU neighbors, with the consequences that this implies for the EU business cycle.

  • March 19, 2006

    Euroland: The Insider Disease

    It seems that politicians have short memories. Almost exactly thirteen years ago, a freshly elected cabinet tried to change the rules setting the French minimum wage so that young and low skilled workers could be hired at a discount wage. Soon dubbed "minimum wage for youths", it sent thousands of college and high school students in the street and was quickly withdrawn by the then Prime minister Edouard Balladur. A remake of this bad movie is currently shot in Paris: the french prime minister Dominique de Villepin is confronted with a new generation of students rejecting a law introducing a more flexible labour contract with a two-year trial period for young workers. The endgame is likely to be the same as in 1993, in my view.