• Sept. 11, 2006

    Why multiculturalism should not be abandonned

    In an article published in the Observer newspaper recently, a reporter writes of his visit to a local mosque. It was not just any mosque, but one frequented by some of the British Muslims held by the police in the plot to bring down several transatlantic planes. The reporter talks of meeting two TV teams at the mosque. One, from the US, came to try to find out why the UK is a hotbed of Muslim violence; the other team, which was French, was there to report upon the collapse of the British model of integration.

  • 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.

  • July 21, 2006

    Taxing the added value is not a good idea

    In his seasonal greetings to the press French president Jacques Chirac proposed to widen the tax base for employers' contributions to social security from wages to value added. The idea of cutting employers' payroll contributions to foster employment is not distinctively French. Instead the idea of financing it by widening the tax base from wages to value added certainly is: In general, governments tend to finance reductions in employers' social security contributions through the general tax system. This is the case of the German coalition government that plans to finance a reduction in employers' contributions to unemployment insurance from 6.5% to 4.5% through receipts from the general tax system.

  • 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.

  • June 6, 2006

    ALCA versus ALBA

    The decision by Bolivia to nationalize its natural gas and petroleum industries is going to result in heavy losses for Brazil, but it also shows that populism and contract breaches continue to be an "easy way out" for Latin America to justify its refusal to introduce much needed reforms. Nations in the region tend to periodically succumb to the temptation of using their vast natural resources to reach political objectives.

  • May 30, 2006

    WTO: the true cost of a non agreement

    For many commentators, the puzzling issue is no longer " how to save the Doha Development Round ", but " should we save the Round ? ". The departure of Rob Portman, the apparently irreconcilable positions, as well as the increasing concerns with regards to the usefulness of these negotiations, fuel a growing pessimism. Two options can be contemplated at this stage, after having missed the April deadline. The first option is to take advantage of the pressure associated with the forthcoming elections in Brazil, the U.S. or France, in order to conclude in emergency; the alternative is to miss this target, and to start a new process on the basis of new premises; the latter option would hardly put at risk a buoyant world trade. There is however a risk associated to such postponement recently suggested by Oxfam. There is a high probability of getting stuck in the sand, the delegations entering into a trench warfare where every lost centimetre is perceived as a major defeat.

  • May 16, 2006

    The end of a European integration process

    From the 1992 inception of the Single Market Program, to the introduction of the euro, to the enlargement to 25 member countries in May 2004, the process of European integration appeared to defy gravity. Bumps like the early 1990s currency crises did not halt it, but spurred it to leap onwards to the next step. Up to late May 2005, all this bolstered the confidence of those who, when designing the Single Market in the 1980s, could not imagine that the Iron Curtain would soon collapse and viewed a single European currency as a distant theoretically unavoidable but practically difficult endeavor. Many dreams had come true, and there was no Plan B, when the French and Dutch electorate rejected the Treaty establishing a Constitution for Europe.

  • May 15, 2006

    Energy Supply and Energy Security: a Mexican Perspective

    Oil prices have almost doubled in the past two years. After having breached the 75 dollar a barrel threshold for brief periods the market seems ready to test a price of 80 dollars for WTI, while global demand continues to grow. Future prices on the NYMEX are currently above 70 dollars until December of 2012. Yesterday the far dated quotes reached a new record. Refining margins have remained high and the average retail price of gasoline in the US should be higher this summer than last year. Prices are reflecting multiple constraints and imbalances along all of the supply chain. Capacity increases will be limited for at least the next three years, both in the upstream and in the downstream. More important, the oil service sector as well as construction and engineering companies are not able to meet their costumers' requirements. The resulting cost inflation is contributing to a shift of oil industry supply curves.

  • 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?

  • May 4, 2006

    Is the IMF still useful?

    IMF reform has been on the policy agenda for as long as most of us can remember. Since the breakdown in the early 1970s of the Bretton Woods System that the IMF had been created to oversee, observers have questioned whether the Fund still has a mission and tools appropriate to the task. For the older among us, recalling these earlier discussions, it seems like the IMF is always in search of a new job description. -->IMF reform has been on the policy agenda for as long as most of us can remember. Since the breakdown in the early 1970s of the Bretton Woods System that the IMF had been created to oversee, observers have questioned whether the Fund still has a mission and tools appropriate to the task. For the older among us, recalling these earlier discussions, it seems like the IMF is always in search of a new job description.

  • 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 2, 2006

    CNE / CPE : too much or not enough?

    It is almost commonplace to say that France is one the OECD countries where employment protection laws are the stricter. Restrictions to both the recourse of temporary contracts and the possibility of layoffs for permanent contracts are the result of over 30 years of continuous regulation imposed by successive governments, either right of left wing. From that respect, the two new contracts (CNE and CPE) recently proposed by the government are genuine breakthroughs. By suspending employment protection laws they solve in a quite radical way the problem of a far too rigid doctrine on dismissal. However, by doing it only for the two years of the contracts, they only introduce a mild change in the actual flexibility of employment while they bear the risk to comfort the inefficient and unfair dualism of the labour market.

  • 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 30, 2006

    CPE: should a bad reform be held?

    There is no clear economic evidence that the partial reform of dismissal laws, such as the CPE recently passed in France, can have any significant impact on employment and unemployment rates. From that respect, such a reform should not have been submitted to parliament in the first place. However, if the reform is reversed in the coming weeks, there is a significant risk for a long awaited and more ambitious reform of employment protection to be neutralized for several years. The CPE must be held, not because this is the best reform ever to improve employment and unemployment performances, but rather because if it is reversed the opposition to any more ambitious reform will be durably reinforced.

  • 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.

  • March 4, 2006

    Germany is on the right track

    By voting for a new federal government led by the Christian Democratic Party (CDU), German voters underlined their readiness for economic and social reforms. The election results allow for the interpretation that a vast majority of voters support the continuation of reform policies with higher speed and broader scope. Hence, the new “Grand Coalition” of Christian and Social Democrats can be seen as a “companionship of destiny” condemned to success and confronted with high expectations by the German people.

  • March 2, 2006

    Angie in Germany: 100 days later

    Around the world, a glass is always either half-empty or half-full, depending on how you look at it - and how thirsty you are. In depressed Germany, people have a habit of seeing things more empty than they are, and the economic outlook is no exception. Yet things have begun to look better in the last few months: stock market, a tried-and-true predictor of a recovery, is booming; the DAX index is up by about 30% relative to a year ago. Investment is picking up, and foreign hedge funds have become increasingly sanguine about Germany. According to the Ifo Institute survey, managers are more optimistic now than any time since reunification fifteen years ago. Industrial production in the former East is up by 30% since 2000 (compared with only 4% in the West!) Even German analysts are even talking about a «Merkel-Boom.» Are good times right around the corner?