• 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?

  • Feb. 20, 2006

    How to make globalization work for Europe?

    The ability to source and locate globally is one facet of the ongoing process of integration of world markets. Like globalization, relocation offers important opportunities to our companies who can cut costs and improve quality. The increased efficiency enables them to improve their competitive position in world markets. It also offers benefits to consumers, through lower prices for goods and services and access to a wider range of choice. -->However, many doubt whether this brave new world is equally enticing for our workers. Many fear the impact delocalisation and outsourcing may have on employment, especially on those with lesser skills. And increasingly, even those with advanced skills fear being exposed to competition, as developing countries move up the value chain and into services.

  • Feb. 14, 2006

    GMO’s, WTO and the EU

    Over the past week, I have been amazed, and occasionally horrified, by the media and civil society response to the EC - Biotech Products dispute currently pending before a WTO dispute settlement panel in Geneva. In this dispute about trade in GMOs between the US, Canada and Argentina (complainants) and the EC (respondent), the WTO Panel sent its preliminary conclusions to the parties on 6 February 2006. The conclusions reached by the Panel in the EC - Biotech Products dispute will not alter the system or framework within which the EU takes decisions on GMOs'. Articles, reports and statements suggesting the contrary are mistaken and were definitely much ado about little.

  • Feb. 13, 2006

    Energy Security: Why Markets Can Help

    «Energy security, in various interpretations, has become a standing issue on the G8 agenda», says the G8's chair, ahead of the St-Petersburg summit next July. This is indeed quite topical: Recent events have shown that we cannot take for granted that our houses will be correctly heated next winter, that power supply will not be rationed or that petrol stations will be open. To name but a few: when hurricane Katrina devastated some of the largest US refineries, European and Asian refiners were not able to compensate the loss of supply, thus, shortages happened; when Gasprom, Europe's biggest natural gas supplier, stopped gas supplies to Ukraine, the gas pressure fell in Poland, Germany, Italy and many other European countries; when Iran decided to resume its nuclear fuel program, markets shivered at the idea that the global oil supply could be reduced by 3 million barrels per day (3.8% of global production), as already happened in 1979-1980.

  • Jan. 30, 2006

    Regional wages: a solution to the lack of regional mobility

    Regional disparities among EU countries remain substantial. In the second half of the nineties, the coefficient of variation of income per capita across 50 regions in the EU was almost double than across the 49 states of the continental US. Policy makers will then need to make a clear choice, in favour of greater labour mobility or higher wage flexibility. Otherwise, the combination of wage rigidity and limited labour mobility will continue to lead to unacceptably high unemployment differentials among regions.

  • Jan. 25, 2006

    Davos, Globalization and the Poor

    Are the poor made better off by globalization, as most orthodox economists and certainly the IMF and World Bank believe? Or are the poor hurt by global competition, as many anti-globalization activists would suggest? The orthodox view (the so-called «Washington Consensus») is frequently wrong: at best, openness to trade needs to be accompanied by many other policies that will allow the poor to take advantage of what globalization has to offer. New evidence suggests that there are four important lessons world leaders need to take into account.

  • Jan. 16, 2006

    Protectionists without borders

    Representatives from 150 member countries of the World Trade Organization met in mid-December in Hong Kong, aiming to expand trade flows and improve trade rules. The city's enormous convention center welcomed thousands of delegates representing governments, the private sector, NGOs, journalists, and multilateral organizations. Outside the huge facility, tens of thousands of anti-globalization activists once again protested, against neo-liberalism and trade liberalization. An unnecessary protest, since the gathering proved there is no great conceptual difference between the views of those inside and outside the great WTO bi-annual media theater.

  • Jan. 12, 2006

    The Value-Added Contribution: A Flawed Strategy

    During his seasonal greetings to the press, President Chirac revealed that he had asked the cabinet to review the tax base of employers' social contributions. The reform he proposes would penalize capital intensive industries relatively to labour intensive ones; in the long term, it would backfire.

  • Jan. 6, 2006

    The Gas War: A Monumental Russian Mistake

    Early on January 4, Gazprom and Ukrainian gas officials reached an agreement on gas deliveries to Ukraine in Moscow. This was in many ways an excellent agreement, but most of all so for Ukraine. -->First, it is a five-year agreement lasting till the end of 2009, which means that stable conditions for gas deliveries should have been accomplished. Amazingly, Russia is offering Ukraine five years of stable natural gas prices at a time of rising gas prices and increased gas scarcity, while most countries face annual price revisions.

  • Dec. 24, 2005

    British Presidency: the sad final act

    The long battle over the EU budget ended last week with an agreement that leaves everything unchanged. It was a rare display of hypocrisy. The horsetrading involved just peanuts for some of the major actors involved in the deal. Governments running yearly budgets of the order of 700 billion euros or more were fighting over a few million Euros. The final result is a six-year, 2007-13, financial package largely concentrated on transfers to agriculture (42 per cent of the budget) benefiting roughly 3 per cent of the EU population. Another 35 per cent of EU spending is allotted to structural funds whose effectiveness is highly controversial.

  • Dec. 12, 2005

    Chile, Mexico & Brazil: the triumph of pragmatism

    In December, the Chileans celebrated a new round of elections. However, beyond this event, there is yet another point worth celebrating: the profound and subtle transformation which is taking place in Chile and in Latin America stemming from the surge of economic pragmatism outside the predetermined paths of any rigid ideological model. -->The example of Chile The Chilean example is, from this point of view, exemplary (and perhaps unique), where the privatization of pension funds remained within the framework of a jewel of regulation of top quality institutional craftsmanship. Year after year, the system was modified and adjusted in order to improve. Today, the Chilean regulation body, the Superintendencia, is one of the most credible, technically prestigious and highly esteemed institutions in the country, making it a strong institutional mast.

  • Dec. 12, 2005

    Security and Defence: the mediocre balance sheet of British presidency

    With the EU in a deep malaise as a consequence of the French and Dutch rejection of the constitutional treaty, much is being made of the new role of European Security and Defence Policy (ESDP), suddenly recast as the one moving part of an otherwise paralysed European integration process. The establishment of the EU’s “battle groups” as Europe’s rapid action force, the vital role of the EU in keeping the peace first in Bosnia and now in Atjeh, the ramping-up of the European Defence Agency: these and others can be cited.