2012年6月26日星期二

Diplomatic relations of the three elements of the recovery strategy in Europe | Council of Europe


Three elements of the recovery strategy in Europe
Author: Sebastian Dullien - 12 June 21
In the past few weeks, a long time before the dynamic debt arithmetic tell us the lesson to finally penetrate the minds of European politicians: no growth, there would be a solution of the debt crisis in Europe. Therefore, the term "growth" to jump out everywhere in the debate. The newly elected French President François Hollande want to grow, the German Social Democratic Party would like to grow, even if the conservative German Chancellor Angela Merkel also hope to grow.

Policy to promote economic growth and shouting slogans, however, it is easy but the design is not then the matter. Conservatives reiterate their mantra: Growth should come from structural reforms. After all, the crunch has paved the way for growth. According to them, without any necessary modifications, from the Greek crisis in 2010, followed by involvement of other euro area neighboring countries which developed policy tightening. German Social Democratic Party, like the Health-friendly growth policies, such as invest more in the areas of research and development of education, but they lack the truly groundbreaking recommendations and do not want to be considered to be squandered financial, so the change in Europe has taken the basic financial indecision on the policy. From the past few years, experience tells us that these two methods in the prompt start of the European economy, and lead us into the possibility of a sustained recovery is minimal.

Therefore, we really need for the European development program to do what? In my eyes, all to get involved in the marginal growth program are not what will really help. Instead, we need three elements to return to a new medium-and long-term growth trajectory:

Soften the extreme austerity policies: the first element of the neighboring countries more time to achieve and consolidate their own goals. For example, research by investment bank Goldman Sachs suggested that there may be to "consolidate the speed limit. According to IMF data, the fixed exchange rate countries (such as the euro-zone countries face to face European partners), the maximum actual deficit could be amended if the planned budget amendment amount annually accounts for about 1.5% of GDP according to the structure of the terms. Any attempt to strong fiscal tightening will only lead to more delays in the correction of the actual deficit is lower. (Economist: According to the Laffer curve adjustment a year at most 1.5% of GDP). European stability program for Spain and Greece have gone far beyond the speed limit, the planned deficit correction of 3 percentage points or more. The new program should remember these lessons, and next year's plans to merge. Please note that - allegations, with the European Central Bank Joerg Asmussen, this demand does not necessarily mean higher financing needs of the surrounding countries. If the Laffer curve relationship between an attempt to cut the budget and actual results, plans crunch slowed down and even may actually increase the debt sustainability, thereby reducing financing needs. Please also note that this does not mean the conservative view "more and more economic growth in debt, which has been proven to not work. This means not only to win more time for the final with less debt on economic growth. So, here's motto is "to reduce debt growth.
More public investment: in the new European fiscal framework, reflecting the so-called "six pack" and the next decade, European countries, a severe financial crunch. First, the state will be forced to substantially reduce its current deficit. Then, in the medium term, the state will be forced to run in accordance with a balanced budget. Although this rule is sometimes known as the "golden rule", it has nothing to do with traditional fiscal policy of the golden rule. Traditional golden rule claim that the government should not be to run a budget deficit through the consumption or transfer, but by investing to do so - just like any well-run private company. However, Europe's fiscal rules distinguish between two types of government spending. In addition, past experience shows that if the overall goal of tightening public investment, education and R & D spending is the first to be cut. Public investment in Europe, is now at a very low level. Almost no public investment in Europe in the medium and long term, the new framework. This will slow economic growth, not only from the demand side, but also from the supply side, due to infrastructure and human capital will deteriorate. Therefore, we need to find a solution, according to the European fiscal rules, even in the absence of space we should also put more public investment budget. One possibility is that a European - national, public-public partnership: European Investment Bank can be used to allow national and regional governments hire public infrastructure and investment in education. In this mode, if a government wants, such as the establishment of a new university, but lack of funds, European Investment Bank will lend money to it to retain ownership of the university, but leased to the government of the country. The survival period of the building, the National Government will pay, including the European Investment Bank's interest rate and depreciation costs. This proposal has many advantages: Firstly, in accordance with the existing EU fiscal rules, even if a country has no extra room for borrowing, or it can invest, but only the rental fee will be calculated in the national budget. Second, non-productive public investment, such as military equipment, or representative buildings (which can easily be excluded from the scheme), and productive investment can be a clear distinction. Third, it will allow the design of expenditure on education as an investment calculation rules. Fourth, it will allow some degree of macroeconomic management, the European Investment Bank funding can be allocated based on the macroeconomic situation of the applicant countries to the leasing business.
Solve the problems of finance and banking: Unfortunately, at this moment is just around the steering tight, is not enough to rekindle economic growth. One problem is that in many countries in crisis, the banking system in deep trouble. In addition, sovereign debt yields are usually the lending rate of the private sector is an important yard stick. Therefore, as a deepening economic recession and the neighboring countries on whether to break up and the euro, hovering high risk premium of private sector borrowing, firms and households have to pay very high interest rates. These higher financing costs stifle investment. The only way to solve this problem is to solve the liquidity problems of the banking crisis and external government. At the moment, there is a downward vicious circle, trapped in those countries with fragile banking system. New demand for funds in the banking system more and more obvious, the market suspected the government's new financial problems. Therefore, investors sell bonds of the countries concerned. Therefore, bond prices fall, the National Bank (which tend to hold a lot of government bonds) as their forced endorsement of their holdings, creating new demand for funds. If the bank recapitalization is transferred to the European level, it can break this vicious cycle. Such as accession to the European stability mechanism. Of course, only the European level supervision of the right of supervision of the National Bank, this shift is feasible. In addition, in the medium term, such a solution is only the European level are some of your own income, this solution is feasible, such as profits tax levied on the company, otherwise, the funds required for the reorganization of assets easily exceed by Governments committed themselves to the sources of funding. Secondly, the external government to solve liquidity problems, new ways to provide them with funds, need to introduce at least some degree of joint and several liability. Of course, the introduction of European bonds (ie, the recommendations of the blue bonds / bond red Brussels think tank Bruegel) will be a solution. In addition, the firm commitment of the banking license of the European stability mechanism and the European Central Bank's refinancing facilities to stabilize the country bond prices may also work. In addition, the debt redemption fund may work, if it is with the bank unions jointly launched Like the above said.
I know very well that such a growth package is far greater than any politician discussed the three-point plan would be totally unrealistic and ignored. This may be true. However, this is very bad news for the euro area. Europe now has more than two years to try to use low-cost solution to the crisis. The result has been the same: a deterioration of the situation and the huge increase in the cost of the rescue. Do not cheat yourself: like the present circumstances, the implementation of marginal policy measures will not create growth, unless the present policy is to be corrected.

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