competere nell’economia globale

Competere nell’economia globale

Jean-Paul FitoussiProfessor, IEP Paris

President, OFCE

Prato, October 14th 2005

©Jean-Paul Fitoussi/2

I - Outlook

II – The long run: assessing European

economic perfomances

III – Macroeconomic policies & industrial

strategy

IV – The economic cost of a non-political

Europe


Where are we?

PIB 1986-2000 2001 2002 2003 2004

Developped countries 3.1 1.2 1.6 2.1 3.6

U.S. 3.3 0.8 1.9 3.0 4.3

Euro zone 2.4 1.6 0.8 0.5 1.8

Japan 2.5 0.4 -0.3 2.5 4.0

Other developped countries 3.8 1.7 3.0 2.3 3.8

Developping countries 4.0 4.0 4.8 6.1 6.6

Consumers prices 1986-2000 2001 2002 2003 2004

Developped countries 3.0 2.1 1.5 1.8 2.1

U.S. 3.2 2.8 1.6 2.3 3

Euro zone 7.0 2.4 2.3 2.1 2.1

Japan 1.0 -0.8 -0.9 -0.2 -0.2

Other developped countries 3.8 2.1 1.7 1.8 1.9

Developping countries >40 6.8 6 6.1 6

- Strong growth without inflation- The euro area lags behind


The increase in the prices of primary goods seems to have had no « secondary rank » effects

60

80

100

120

140

160

180

200

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 20050

10

20

30

40

50

60

701985=10

0

Pétrole(ech. droite)

Alimentaires(ech. gauche)

Industrielles(ech. gauche)

Cours des matières premières (dollars courants)

par baril, moyennes mensuelles


Forecasts 2005/2006Weight 2004 GDP (in volume) 2005 2006

Germany 4.4 1.0 0.8 0.8

France 3.2 2.0 1.7 2.3

Italy 3.1 1.0 0.2 1.3

Spain

Pays-Bas

1.8

0.9

3.1

1.7

3.3

0.7

2.8

1.9

Euro Zone 15.7 1.8 1.3 1.8

England 3.1 3.1 2.5 2.2

European Union (15) 19.7 2.0 1.6 2.0

10 new countries 1.8 5.0 4.4 4.4

European union (25) 21.5 2.2 1.8 2.1

U.S. 21.2 4.2 3.3 3.1

Japan 7.1 2.6 1.8 1.5

Industrial countries 54.2 2.9 2.2 2.4

Russia 2.7 7.1 6.0 5.5

China 12.7 9.5 9.1 8.1

Other asiatic countries 13.5 6.4 5.6 5.7

Latin America 7.9 6.2 3.8 3.4

Africa 3.2 5.1 5.0 5.4

Middle East 3.1 5.5 5.0 4.9

World 100.0 5.0 4.1 4.0


Outlook

These forecasts are grounded on the following assumptions:

- A moderate slowdown of world growth due to the reduction of the

US deficits

- An accomodating monetary policy for the US, Japan and the

euro area (the euro area still lagging behind)

- A relative stability of the exchange rate of the dollar (since 2004

the dollar has depreciated by 10% vis-à-vis the currency of asiatic

countries, and has recently depreciated vis-à-vis China)

- An inflation rate under control

- A widening of the short term interest rate differential between the

US and the Euro area


Relative stability of the dollar?

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1999 2000 2001 2002 2003 2004 2005

x dollar pour 1 euro

Corée du sud

Singapour

Taiwan

Chine

Japon


The US current account deficit

2004 2002-2004 2003-2004

Current account -666 -192 -135

Services 48 -13 -3

Goods -666 -183 -118

Industrial products -550 -121 -80

Energy -187 -82 -45

Other 72 20 8

2004 2002-2004 2003-2004 Poids

Current account -666 -192 -135 100

With Canada -68 -17 -14 23

Latin America -90 -33 -21 21

Europe -131 -30 -15 24

Japan -77 -5 -9 6

Asia -276 -80 -51 22


Why one can assume a relative stability ?

-The US current account deficit is huge (almost 6% of GDP). All economic

agents are indebted and there is a continous pressure towards a depreciation of

the dollar.

But the asiatic banks are financing this deficit preventing interest rates from

increasing.

- The banks are loosing because of the low interest rate and the

exchange rate risk

- But the economies are winning because the exchange rate stability

allows a strong export-led growth (in these countries internal demand

is still too weak)

This framework resemble the one of the golden thirty:

- Asia play now the role that Europe played at that time

- In short there is an implicit Bretton Woods system


Pressures and risks

The US current account deficit

Brutal depreciation of the dollar and increase of interest rates?

Slow appreciation of asiatic currency (already happening) and of the Yuan (to happen)?

The control of the US deficit imply the control of exchange rates, difficult coordination but until now successfull.


Pressures and risks

Inflation

The risk of inflation is contained by productivity

gains allowed by outsourcing, delocalisations,

restructurations and harsh competition.

All these factors mitigating inflation put a heavy

burden on workers and lead to an increase in

inequality and social unrest.


Pressures and risks

Asiatic risks

Very rapid growth may lead to overinvestment, bad

loans and inflation.

But on the medium to long run term growth should

continue as shown by the exemple of the past asiatic

crisis.


II – The long run

1. If we look ahead, the most likely evolution would be the following:

The share of Asia in the world GDP will importantly increase

The share of the US wil increase in the OECD GDP

The share of the euro area will decrease at the world level, at the OECD level and at the European level


GDP trends 1990-2004

* Asia includes China, India, South Corea, Taiwan, Hong Kong, Singapour** Average growth 1990-2004


GDP Trends


Assessing European economic performances

Can such evolutions be avoided ?

The increase of the share of Asia is utterly

normal, but the decrease of the share of the

euro area is pathological. What are the reasons

and how can it be avoided?



Since the beginning of the 1980s, European

Economic performance has been poor. The

catch-up process vis-à-vis the US has come to

a term in the mid-seventies.


GDP per capital at current market prices and PPS

1950-2000/EU-15 & Japan, US = 100



Looking at the most recent period it seems that

the gap between the US and the euro area has

widened.


Growth of real GDP ten years average

1985-94 1995-2004

United States 2,9 3,2

Euro area 2,4 2,-

European Union 2,4 2,2

Japan 3,4 1,3

Other advanced economies

3,8 3,3


The inheritance of the 1990s:Monetary policy & strangulation

TThe Critical Gap

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Real interest rate (3 months)

Real GDP growth rate



The Critical Gap and Public Debt

50

55

60

65

70

75

80

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

%

-2,0-1,00,01,02,03,04,05,06,0

%

Critical Gap

Debt/GDP


And now ? The monetary policy of the ECB

Apparently, the monetary policy of the ECB has been successfull

01/9

9

04/9

9

07/9

9

10/9

9

01/0

0

04/0

0

07/0

0

10/0

0

01/0

1

04/0

1

07/0

1

10/0

1

01/0

2

04/0

2

07/0

2

10/0

2

01/0

3

04/0

3

07/0

3

10/0

3

01/0

4

04/0

4

07/0

4

10/0

4

%

ECB Refinancing Rate

CPI Inflation

CPI Core Inflation

Source: ECB

Core inflation


And now?But in actuality, it has been a policy of benign neglect vis-à-vis the exchange rate

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

1999 2000 2001 2002 2003 2004 2005 20060.8

0.9

1

1.1

1.2

1.3

1.4

ECB Refinancing Rate

En % $/€Taux de change et taux d'intérêt


And now?

The result has been a tightening of monetary conditions in the euro area in a period of a slowdown of growth

Index of monetary conditions

-300

-250

-200

-150

-100

-50

0

50

100

150

200

250

300

350

Q19

9

Q39

9

Q10

0

Q30

0

Q10

1

Q30

1

Q10

2

Q30

2

Q10

3

Q30

3

Q10

4

Q30

4

Q199 = 100

Euro zone

US

Source: OFCE


III – Macroeconomic policies & industrial strategy

This monetary strategy seems all the more

detrimental that the level and the evolution of

the exchange rate impact on the industrial

structure.

One of the main determinant of industrial policy

is the exchange rate, especially in sectors

characterised by increasing returns.


- De-industrialisation (in relative terms) in developped

economies is a normal process brought about by three

factors:

- The expansion of the service sector

- The increase in productivity of the industrial sector

- The restructuration of the industrial sector towards the

production of more sophisticated goods.


But a wrong exchange rate policy may speed-

up the three processes imposing huge

adjustment costs, slowing investment and

increasing unemployment.

The problem is all the more acute in the EU that

harsh competition is coming both from inside

(enlargement) and from outside (Asia)


The difficulty is compounded by the fact that

Europe has no growth policy, and in particular

no policy to react to the slowdown of internal

demand.

Fiscal policy is a case in point.


Reactivity of fiscal policy

GDP Growth 2001 2002 2003 2004 2001-2004

United States 0,3 2,5 3,0 4,3 2.5

Euro Zone 1,6 0,9 0,5 1,7 1.2

UK 2,1 1,7 2,2 3,4 2.4

Budget Deficit 2001 2002 2003 2004 2001-2004

United States - 0,5 - 3,4 - 5,0 - 5,5 -3.6

Euro Zone - 1,6 - 2,2 - 2,7 - 2,7 -2.3

UK 0,7 - 1,5 - 2,8 -3,2 -1.6

Fiscal Impulse 2001 2002 2003 2004 2001-2004

United States 0,6 2,7 1,6 - 0,7 1,1

Euro Zone 0,3 0,4 - 0,4 - 0,5 - 0,1

UK 0,8 1,6 0,5 0,2 0,8


The economic cost of the non-political Europe:The European economic government

-The European contradiction lies in the following : no policy to sustain internal demand; so growth can only be export led; but appreciation of the euro. It is as if the EU did not draw the consequences of being a big country, and continues to behave as if it were a small economy, or a developing country. Why it is so ?

- A federal economic government

- The composition of the European economic government


The lack of a European polic-mix

-Two different views :

Substitutability

Complementarity


Structural reasons for the lack of reactivity

- Limited national sovereignty

Lack of legitimacy for the European government,

once discretionary action exceeding its mandate

is required


Proposals for reform

The stability and growth pact

Exclude investment from deficit figures (golden

rule)


- In the present context one component of growth policies

appears as fundamental and urgent: Public Investment

- It has both the short and long term features that are

needed in Europe

Short run: Sustain aggregate demand

Long run: Increase the stock of capital of the economy and

hence productivity and employment


- The one item I want to discuss is infrastructures (in

particular network infrastructures)

A recent study (Morrison and Schwartz, The American

Economic Review, Dec 1996) shows that in the “golden

decades” (1945-1970) the boost in productivity was

associated with a huge amount of investment in

infrastructures

EU productivity growth averaged more than 4% per year

over that period, over half of it being due to infrastructure

investment


-This is hardly surprising:

Infrastructures have the public good characteristics of

being non rival and non excludable

By lowering transportation and production costs they

serve as a powerful positive externality for the private

sector.

In addition, the enlargement requires attention to the

connection between eastern and western Europe

Since at least 1990 the expenditure in infrastructures, in

all of Europe, was largely insufficient



The ECB

Accountability : Political determination of the

inflation objective and political determination of

exchange rate policy



Competition doctrine

Political guidelines for competition doctrine, in

order to allow the conduct of industrial policies.

competere nell’economia globale

Documents

exchange rate stability

us deficits

inflation rate

developped countries3

euro arearelative stability

rate differential

euro zone7

euro zone2