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iAGS2017
independent Annual Growth Surveywww.iags-project.org
The Elusive Recovery
Madrid, 19th January 2017Andy Watt (IMK), Georg Feigl (AK)
press contact : georg.feigl@akwien.atpress@iags-project.org
xavier.timbeau@sciencespo.fr
The 5th independent Annual Growth Survey
– Commissioned by S&D groupof European Parliament
– Conducted independently byconsortium of 4 researchinstitutes
– Offers alternative analysis ofEU economy and economicpolicy to EU CommissionAGS
– Reports available from iags-project.org
00. Monat 0000 Titel der Präsentation, Autorin/Autor 2
Overview of report structure
00. Monat 0000 Titel der Präsentation, Autorin/Autor 3
Elusive recovery: GDP forecast & contributions
– Recovery once austerityrelaxed, boosted byexpansionary monetarypolicy
– Tailwinds from € XR and oil
– Output gap narrowed 2014-16
– But tailwinds easingreversing, limit to C/A surplus; small Brexit effect
– Growth dynamic and pace ofOG reduction slowing
– Labour market healing: 7 years00. Monat 0000 Titel der Präsentation, Autorin/Autor 4
Unemployment: labour market healing slowing
00. Monat 0000 Titel der Präsentation, Autorin/Autor 5
Overall €A underperformance & serious internal divergences
00. Monat 0000 Titel der Präsentation, Autorin/Autor 6
Policy mix – monetary policy valuable but QE exhausted
– Despite weak investmentrecovery unconventionalmonetary policy has beeneffective, but to a very limited extent. Largely because onlyrecently deployedaggressively (effects lagged)
– No evidence of bubbles
– But limitations on additional bond purchases esp if fiscalconsolidation
– End of exchange-rate channel (?)
00. Monat 0000 Titel der Präsentation, Autorin/Autor 7
Adressing imbalances – economic governancereform
00. Monat 0000 Titel der Präsentation, Autorin/Autor 8
– Two-handed approach needed• Demand management to keep domestic demand
in line with potential (leaning against centrifugaleffect of real-interest rate)
• More direct control of nomnal wage and pricedevelopments to ensure balanced trajectories(e.g. „augmented“ golden wage rule)
– Not easy to organise in the context of national policy-making autonomy, including „free collectivebargaining/Tarifautonomie)
– Need for symmetry– Runs counter to fiscal rules– Macroeconomic imbalance procedure ambiguous
Asymmetric, costly unsustainable adjustment ofc/a imbalances
00. Monat 0000 Titel der Präsentation, Autorin/Autor 9
Sustainable competiveness adjustments shouldbe symmmetrical and substantial
00. Monat 0000 Titel der Präsentation, Autorin/Autor 10
Adressing imbalances – ad hoc measures
00. Monat 0000 Titel der Präsentation, Autorin/Autor 11
– Reform MIP to make it symmetrical• Pressure on surplus countries to make fiscal
stance more expansionary than they would like– EU-financed investment programme in
„south“/regionally targeted Juncker Plan – Take steps to strengthen wage-setting institutions in
particular wage floors and stregthen wage coordination
Adressing imbalances – comprehensive strategy
00. Monat 0000 Titel der Präsentation, Autorin/Autor 12
– Revitalise the Broad Economic Policy Guidelines (Article121 TFEU)
• Evaluation of national policy mixes within a consistent framework in which economic policy recognised as a „common interest“
• National commitment to orient policy towards agreed goals, withthreat of sanctions
– The mandate of the European Fiscal Council broadened tothe entire policy mix based on a symmetrical indicator setreplacing MIP
– National productivity boards (purely advisory) also to have a policy-mix remit (“convergence boards“)
– Substantial strengthening of Macroeconomic Dialogue (€A MED plus MED for each MS) for policy consultation amongMS govts and social partners in the light of technicalexpertise from EU and MS „boards“
Fiscal possibilities to increase aggregate demand: multipliers important
taxes social securitycontributions
publicconsumption
publicjobs
militaryexpanditure
publicinvestment
…the neglect of (net!) public investment
wien.arbeiterkammer.at
fiscal policy requirements (Nov. 2016)
Troika-requirements: GR (until 2018),
EDP, deadline 2016: PT, [GR]; HR
EDP, deadline 2017: FR, ES; UK
Mid-term objectives: IT, BE, AT, IE, FI, SK, SI, LV, CY, MT; PL, DK, RO, BG, HU;
Fiscal space: DE, NL, LU, LT, EE; SE, CZ
wien.arbeiterkammer.atSource: EU-Commission 2016 (The 2016 Stability and Convergence Programmes: An Overview and Implications for the Euro Area Fiscal Stance).
budgetary plans 2016-2019: come-back of austerity policies?
wien.arbeiterkammer.at
new EU-commission‘s approach: economic and fiscal goals, balanced
Source: EU-Commission 2016 (The 2016 Stability and Convergence Programmes: An Overview and Implications for the Euro Area Fiscal Stance).
www.iags-project.org
iAGS2017
18
This year AGS and iAGS are quite similar in the diagnosis: the EA should have a positive fiscal stance magnitude differ (AGS: 0.3 to 0.8 % of GDP; iAGS: 1 to 2 % of GDP) projections do not indicate a positive fiscal stance However, fiscal rules imply a negative fiscal stance of -0.45 % of GDP (with DE&NL
using there fiscal space, -0.1%; accounting for exceptions, slightly positive)
fiscal policy: contradiction between rules and economic necessities
Projected fiscal stance, % of GDP
solution: golden rule for public investmentEvaluation of fiscal rules with deduction of net publicinvestment, because it should be credit-financed
the reasons: intergenerational fairness & growth
net public investment increases the public/social capital stock
future generations inherit higher capital stock, productivity and growth
pay-as-you-use principle: future generations contribute tofinancing via the debt service
otherwise present generations have to pay all of the burden
otherwise: incentives for underinvestment, particularly in times of budgetary pressure
20
Ex ante-simulation: results
21
8 ways to boost fiscal policy and strengthen public investment
www.iags-project.org
iAGS2017
22
Without better economic performance, social situation will worsen
0
5
10
15
2014 2015 2016
Number of years to reach 2007 rate of unemployementat current speed of reduction, smoothed over 6 months
Euroarea: 2023
EU-28: 2020
Time to reach pre-crisis employment rates
www.iags-project.org
iAGS2017
23
Underemployment even worse
Euroarea: Underemployment remains high
www.iags-project.org
iAGS2017
24
-0,5
-0,2
0,1
0,4
0,7
1,0
1,3
1,6
1,9
S6/S1 S10/S6
inequality is rising, mainly due to labour market developments
change in income interdecile ratios, 2008-2015
Note: *latest data available for 2014.
wien.arbeiterkammer.at
risk of poverty and social exclusion
Source: FEPS 2015 – The Social Reality of Europe after the Crisis (S. 27).
www.iags-project.org
iAGS2017
26
severe material deprivations is increasing as well, especially for children
change in severe material deprivation rates, 2008-2015
Note: *latest data available for 2014.
wien.arbeiterkammer.at
Share of people who think the economicsituation is good or very good
Source: Friedrich-Ebert-Stiftung 2016.
www.iags-project.org
iAGS2017
28
Well-being has to be at the centre of economic policy (as given by the TEU) European Semester guided by the Magic Polygon combined with a reformed Scoreboard Broad and more democratic economic debate to agree on short-term goals (Euro-MED) National Level: convergence boards
In general: better European Economic Governance for better outcomes
www.iags-project.org
iAGS2017
29
1. Political: legitimacy (more democratic Europe), scope (what is the role of the union, responsibility of Member States):
not answering to that will generate distrust and paralysis Better European Economic Governance: 5 president report is a first step, but the
debate must move forward and in the right direction
2. Macroeconomic agenda: active demand management Golden Rule of Public Investment Golden Rule of Wages:
ensure stability of wage share in VA using levers available (minimum wages, detached workers, trade union legislation)
lock inflation expectations and ease internal disequilibrium
3. Social: active social spending, education, redistribution
4. Financial and Banking system: clear NPL, insure bank functioning improve financing through less banking and less fragmentation (long term)
5. Environmental: iAGS 2015, carbon price push
No magic bullet but a broad response
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