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CAN THE CRISIS ENDAGER EU?. Jože Mencinger EIPF and University of Ljubljana International Conference on Economic Policies in the Global Crisis Belgrade, September 24-25, 2009. SUMMARY. The roots of the crisis: (1) Owners of companies are replaced by owners of assets;
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CAN THE CRISIS ENDAGER EU? Jože Mencinger EIPF and University of Ljubljana International Conference on Economic Policies in the Global Crisis Belgrade, September 24-25, 2009
SUMMARY • The roots of the crisis: (1) Owners of companies are replaced by owners of assets; (2) Financial inventions create virtual wealth; (3) Worker are turned to “labour force” (4) globalization of “casino” capitalism (5) changes in income distribution, savings and investments; • The “Solutions” • EU ability to cope with the crisis: (1) reactions of EU institutions to crisis (2) what keeps EU together, (3) danger of long lasting crisis - “Yugoslav syndrom”
GLOBALIZATION OF “CASINO” CAPITALISM Investments x Savings Acquisitiona Speculations Financial investors Privatizations
WORLD LEADERS STATEMENTSG20 - London, April 2009 • ‘We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met, which affects the lives of women, men and children in every country, and which all countries must join together to resolve. A global crisis requires a global solution.’ • ‘We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of a resilient, sustainable and green recovery.’ • ‘We have committed ourselves to work together with urgency and determination’.
AGREED UPON MEASURES 1 1. Fiscal Stimulus USA, no new money in EU, $5 trillion $ ofcumulative government borrowing 2008-2010 in excess of 2007 borrowing 2. Financial Regulation - Financial Stability Board; renamed and expanded FS Forum (set up 1999); - coordination of regulators around the world, - collaboration with IMF to provide early warning of macroeconomic and financial risks - extending regulation to all important financial institutions, instruments and markets, including hedge funds, • tough new principles on pay and compensation, • improving quality, quantity and international consistency of capital requirements; prevent excessive leverage; ensure reserves are built up in expansions; • take action against non-cooperative tax havens (list published by OECD),extend regulatory oversight of Credit Rating Agencies 3. International Institutional Reform • strengthening of IMF • review of IMF quotas by 2011 • heads and senior managers of IMF & World Bank to be appointed by open process;
AGREED UPON MEASURES 2 • Multilateral development banks • $100bn announced, mainly financed by borrowing in international capital markets • Commitment to assist poorest countries • reaffirm historic commitment to meeting the Millennium Development Goals • provide $6bn additional concessional aid (gold sales and surplus income) Commitment to refrain from raising new barriers to investment or trade, - will not constrain world wide capital flows; - committment to conclusion of DohaRound QUESTIONS - adding to existing debt of 3.8 times GDP in USA, • regulating wrong system, • strenghtening an institution which assisted in the creation of theo crisis; • who gains from WTO agreements, multinationals and national elites rather than people
REACTIONS OF EU TO FINANCIAL CRISIS First phase: confussion • Confussion – mantras on Lisbon strategy which consists of empty talks on knowledge based society and which is based on irrelevant supply side economics; Second phase: normal EU reactions • EU disregards the Stability Pact and ends empty talks on Lisbon strategy; • EC begins to ignore the competition rules; subsidies to banks are suddenly consistent with competition; • The privatization religion is replaced by provisional nationalizations • ECB discovers that deflation is worse than inflation, lowering interest rates, pumping money to the banking system, EC proposes fiscal package (130 billions €)
WHAT CAN EU DO? Questions ? EU is association of the countries rather than association of citizens? EU budget amounts to 1 percent of GDP; is there a room for fiscal intervention? • Who identifies himself as a European? • What will increased diversity in the level of development bring? • Is there a danger of Yugoslav syndrom? Who is exploiting whom? The pillars of EU stability? - The dependence of a member on EU; • Inertia (CAP, Stability Pact) • Ability to disregard or adapt its own rules (Stability Pact, competition rules) • Democratic deficit (refusal of EU constitution) • Constant creation of new rules and new institutions (vested interests) • Empty talks (Lisbon Strategy, neoliberalism and supply side economics)
DISPERSION OF THE DEVELOPMENT LEVEL IN EU27 GDP/capita 000 €
WHAT CAN A COUNTRY DO ?IS A MEMBER COUNTRY AN ECONMIC ENTITY? A country as economic entity should be able: • 1. to print money; • 2. to collect taxes; • 3. to control the flows of goods, labor, and capital over its borders; • 4. to create rules of the game – economic system. Indeed, 1. monetary policy is shifted to ECB; 2. fiscal policy is restricted by Stability Pact and EU regulations; 3. countries cannot control flows of goods and capital; 4. EU directives form economic system 5. majority of flows are linked to EU
CRISTOPHO COLOMBO ? He was the first economist. He did not know, where he goes, when he was there, he did not know where he is, and he was traveling for public money. How could I know where we are going ? I only know where I would like that we go THANK YOU !
