Macroeconomic Imbalances in the EU

The new EU surveillance mechanisms are now in operation.  The first “Alert Mechanism Report” is available here, while a background paper is here.

11 thoughts on “Macroeconomic Imbalances in the EU”

  1. Graphs 2 and 3 are striking.
    Share of exports seems a bit disappointing.
    For me the numbers don’t look great here but am not an expert

  2. The Commission’s presentation is like Hamlet without the Prince. To bring him back on stage, a reading of the OECD report released on the same day is essential.

    http://www.oecd.org/document/63/0,3746,en_21571361_44315115_49646463_1_1_1_1,00.html

    The Commission’s decision not to include Germany has already come in for some criticism. (The Google translation is intelligble).

    http://www.ftd.de/politik/europa/:wirtschaftliche-ungleichgewichte-bruessel-vertuscht-deutsche-suenden/60168919.html

    In this instance, however, the situation is best assessed in terms of the reaction by Berlin to the OECD report. There can be little doubt that the arbitrary ceiling (6%) with regard to current account surpluses was deliberately chosen on German insistence. Such a balance is not tolerable as long as the major part of it is with the other countries of the EA. The policy challenge for Berlin, therefore, is to do something about this.

    To quote the OECD;

    “Given the weight and importance of Germany’s economy for Europe, growth-enhancing structural reforms can make an important contribution to stronger and more balanced growth perspectives not only in Germany but also in the Euro area”.

  3. @DOCM

    I … er .. absolutely agree.

    These macroeconomic imbalances in Germany are shocking – really shocking …

    Sounds like a good idea. Now, where can I find the info on ‘dodgy capital flows’? …. scanning …. scanning … hmmmm

  4. @DOCM,

    Mr. Bond was right. Traffic is light on this thread. PNs/ELA dominate the airways, but the mood music at the EU level is changing with more and more focus on these ‘growth-enhancing structural reforms’. I’m not saying that the distinguished academics who pitched up before the relevant Oireachtas Cttee believe it for a moment, or would advance it, but there is a growing public expectation that some relief on this egregious Anglo/INBS legacy burden will put Ireland on the road to salvation – and that these structural refroms are for others. Sure is ireland considered one the most open, flexible small economies in the whole wide world.

    It would be wonderful if the case were pitched that relief is needed on these PNs/ELA to free a hand that is tied so that these structural reforms may be tackled effectively.

    And it will be difficult to convince Germany and the other broadly aligned creditor nations that they also need structural reforms – of the economy re-balancing variety. They believe structural reforms are only for the sclerotic PIIGS.

    And, insofar as it might be persuaded to contemplate structural reforms of this nature, Germany will examine them in terms both of what might be required to stabilise the EU and of what its global strategic position demands. And these pull it in opposite directions.

    But, whereas politicians and policy-makers in most other member-states are being forced to contemplate structural reforms – if only to oppose or modify them – Irish politcians and policy-makers seem to view them as embellishments to the optical illusion they wish to project.

  5. @ Paul Hunt

    I was not unduly surprised. As the action is elsewhere, this does not much matter. The OECD report was presented in Berlin which is, in itself, a good sign. There is also the irony that the most recent figures show the French economy still growing, if only just, while the German is contracting. (This may be a repeat of what happened in 2008 where the French economy, being more integrated and better balanced than the German, suffered a lower drop, if I am not mistaken. On the other hand, I see that some media are attributing the rise in the French figures to delayed booking of some Airbus contracts).

    There is also the point that the German budget may not be able to carry the burden of a major downturn, given the restrictions that have now been agreed.

    On the PN/ELA debate, I find it quite bizarre. In terms of the way it is presented at a technical level, we may be on the way to discovering a new form of central banking; the Irish version. To quote from the paper on the other thread from Karl Whelan “concerns about insolvency of central banks are unfounded provided it prints a fiat currency that people wish to hold”. Very true! But the last proviso is a big one and we are not the sole holders of the euro.

    However, as the saying has it, “success has many parents, failure is an orphan”. Progress has been reported from so many sources and on so many fronts that one assumes that something is in the works and the obvious is likely to happen viz. a front-loaded repayment schedule for a debt foolishly accepted by the previous government will be back-loaded in some manner to make it more likely that the debtor will find the necessary economic growth to settle the debt in full.

  6. @DOCM,

    We seem to have this thread to ourselves. Nothing unusual in that. Navel-gazing and ranting seem to be the order of the day here.

    Interesting piece also in this week’s Economist:
    http://www.economist.com/node/21547837
    on the need for sectoral structural reforms in Germany. It is interesting that, similar to Ireland – and from among the entire rogues’ gallery that could be fingered, the doctors, lawyers and pharmacists are getting it in the neck.

    As you’ve noted, it appears that Prof. Monti has unfinished business on this front – even after two terms as Competition Commissioner. The mood music is changing and this is an area that would enhance the role of the Commission.

    It’ll be interesting to see how long our Government will be able to persist with the optical illusion it is projecting with regard to structural reforms. It’s the kind of thing that could blow the Coalition apart. Labour prevented FG doing what needed to be done on the fiscal front in the ’82-’87 government. This time Labour has signed on – and been forced to sign on – for fiscal adjustment. It would be both sad and ironic if its role in this coalition was to prevent the implementation of structural reforms that are the sole remaining means of re-invigorating the domestic economy.

  7. Threads about Europe rarely attracts comments about what can be learned from other countries, what is common in the comments is faultfinding of other countries. It is always possible to find faults in others, but it is not a productive way to improve the situation in ones own country.

    The ones who keep complaining about other countries should do their complaining where it can have some effect. I.e. the constant complaining about Germany should be done in forums that are predominantly read by Germans.

    Macroeconomic imbalances will continue for as long as someone is willing to finance it. The finance industry was willing, for a cut of the action, to provide that finance. Most of the finance industry have now realised that it is no longer sustainable. What is suggested is that EU institutions, for a cut of the action, would channel the money (fiscal union). I really do not see that as sustainable either. Why bother to handle ones economy with care if doing that will end the flow of free money?

    I’ve read the executive summary of an OECD report on Greece.
    Greece: Review of the Central Administration
    Executive summary
    http://www.keepeek.com/Digital-Asset-Management/oecd/governance/greece-review-of-the-central-administration/executive-summary_9789264102880-6-en

    If that report is an accurate description of the reality in Greece and nothing is done to improve it then I believe that Greece will continue to have macroeconomic imbalances no matter what happens in the rest of the world.

    Either Ireland focuses on the necessary reforms in Ireland or it can continue with faultfinding of others (which in my opinion is no different than navelgazing) and go the way of Greece.

  8. @DOCM,

    He is a formidable campaigner and he might as well go for broke. Trimming and tacking won’t cut it. Large tranches of the comfortable ‘insiders’ and rent-seekers are in the Hollande camp. He won’t make any inroads with them, so he might as well go for them and attract the support of the small town Poujadists and, particularly, younger, excluded and disaffected voters with whom le Pen is flirting. The traditional left is losing a lot of the latter to le Pen, but they’re still in play.

    In addition, the French seem to retain an affection for a ‘little corporal’ dedicated to the honour and glory of France and who can bed beautiful women and attempt to seduce politically a powerful foreign queen.

    Now that the Italian clown has been deposed and replaced by someone of huge intellectual and, surprisingly, political stature (and Cameron has decided to go outside for a while) there is a convenient convergence of intellectual, political and economic factors to drive the structural reforms so badly required – and with which he previously flirted shamelessly.

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