AGORA Economic Conference 4th Athens Biennale 2013 12/10/13

1. Paolo Manasse
University of Bologna, Italy
Athens, Biennale, 12 October 2013
with Isabella Rota Baldini, forthcoming on CEPR Policy
Insight Discussion Paper and Voxeu.org

2. 1.
2.
3.
3.
4.
5.
The Eurozone, unlike the US, is not
recovering from the crisis (persistence)
Some countries are more vulnerable than
others (heterogeneity): Why?
«Demand shocks»
- Fiscal austerity (the Troika)
- Credit crunch (Sovereign default)
«Supply Factors»:
- Wage and Price rigidities
«EU Institutions»: Europe’s «upside down»
What should be done?

4. Cumulative growth in GDP pc
0.06
0.04
0.02
0
-0.02
-0.04
-0.06
0
2
4
6
8
10
12
Cumulative growth in GDP pc
Figure 3.2: More Divergence in
USA
Figure 3.1: Less Convergence in
Eurozone
0.08
0.035
0.03
0.025
0.02
0.015
0.01
0.005
0
-0.005
10
Eurozone
11
11.5
Initial per capita GDP
Initial per capita GDP
2007-2000
10.5
2000-2007
2012-2007
USA
2007-2012
12

7. Figure 6.1: Divergence of
unemployment in Eurozone
Figure 6.2: Divergence of
unemployment in US
10
5
0
-5
0
5
10
15
Ave Unempl. 2000-08
Eurozone
20
5
4
3
2012-2008
15
Cumulative increase in unemployment
Cumulative increase in
unemployment 2012-2008
20
2
1
0
-1
0
USA
2
4
6
Ave Unempl. 2000-08
8

8. 0.15
0.1
0.05
2008-12
Cumulative pc GDP Growth
Figure 5: TFP and crisis in the Eurozone
0
-0.05
-0.1
-0.15
-0.2
-0.1
0
0.1
0.2
0.3
cumulative TFP growth 2000-08
0.4

9. Deficits
Debts

10. Cumulated change in pc GDP 09-12
Figure 10: Fiscal Adjustment and pc GDP in Eurozone
20
15
10
5
0
-5
-10
-15
-20
-25
-2
0
2
4
6
Cumulated Change in the Budget/GDP 2009-12
8

11. Table 1: Net contributions to the EU budget
Net contribution (€
% GDP
Millions)
Belgium
-1369
-0,36
Bulgaria
725
1,94
Czech Republic
1455
1,01
Denmark
-836
-0,34
Germany
-9002
-0,34
Estonia
350
2,31
Ireland
383
0,31
Greece
4622
2,22
Spain
2994
0,29
France
-6405
-0,31
Italy
-5933
-0,38
Cyprus
6,8
0,04
Latvia
731
3,62
Lithuania
1368
4,63
Luxembourg
-75
-0,24
Hungary
4418
4,67
Malta
67
1,15
The Netherlands
-2213
-0,36
Austria
-805
-0,27
Poland
10975
3,10
Portugal
2983
1,81
Romania
1451
1,08
Slovenia
490
1,40
Slovak Republic
1160
1,71
Finland
-652
-0,34
Sweden
-1325
-0,33
UK
-5565
-0,32
Source: Eu commission, 2011 data
Country

14. 




No Budget for Stabilization against aggregate
shocks/ No Redistribution-insurance
Fiscal Policy at country level + ineffective
contraints (GSP, fiscal compact)
Bail-out system: costly and ineffective
(ex-post)
No Debt restructuring mechanism
(Threat of Exit)

15. Each Country:
Fix Supply Side: Restore convergence and
resilience
- reduce market power of firms and
unions, banks (supervision /regulation);
improve productivity growth
Fix Demand Side:
- Budget Deficit
(Corruption, Burocracy, Political
Fragmentation and Electoral Rules, Fiscal
Rules)


16. EU architecture
 EU Budget for Stabilization/Insurance
(e.g.backed by VAT)
 Fiscal Rules at country level (No
Troika, please) + No bail out commitment
 Debt restructuring mechanism
Difficult! But alternative is Euro disintegration:
risks of widespread insolvencies, competitive
devaluations, restrictions on movements of
goods, services, people