the elusive recovery - ugtportal.ugt.org/fflc/ambitos/iags_2017_madrid_19_01_2017... · 2017. 3....

iAGS2017

independent Annual Growth Surveywww.iags-project.org

The Elusive Recovery

Madrid, 19th January 2017Andy Watt (IMK), Georg Feigl (AK)

press contact : [email protected]@iags-project.org

[email protected]

mailto:[email protected]



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


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


Overall €A underperformance & serious internal divergences


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 (?)


Adressing imbalances – economic governancereform


– 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


Sustainable competiveness adjustments shouldbe symmmetrical and substantial


Adressing imbalances – ad hoc measures


– 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


– 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?

http://ec.europa.eu/economy_finance/publications/eeip/ip034_en.htm?utm_source=Publications&utm_medium=email&utm_campaign=ip034



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

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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


iAGS2017

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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


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Underemployment even worse

Euroarea: Underemployment remains high


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-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.


risk of poverty and social exclusion

Source: FEPS 2015 – The Social Reality of Europe after the Crisis (S. 27).

http://www.feps-europe.eu/assets/bd29ab09-7518-4791-9763-7734e7f90929/the-social-reality-of-europe-after-the-crisispdf.pdf


iAGS2017

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severe material deprivations is increasing as well, especially for children

change in severe material deprivation rates, 2008-2015

Note: *latest data available for 2014.


Share of people who think the economicsituation is good or very good

Source: Friedrich-Ebert-Stiftung 2016.


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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


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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

the elusive recovery - ugtportal.ugt.org/fflc/ambitos/iags_2017_madrid_19_01_2017... · 2017. 3....

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