CAN THE CRISIS ENDAGER EU

1
CAN THE CRISIS ENDAGER EU?

• Joe Mencinger
• EIPF and University of Ljubljana
• International Conference on Economic Policies in
  the Global Crisis
• Belgrade, September 24-25, 2009

2
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

3
THE ROOTS OF THE CRISIS 1 (J.Huffschmid)
4

THE ROOTS OF THE CRISIS 2 (J. Huffschmid)
5
FINANCE DRIVEN CAPITALISM (J.Huffschmid)
6
GLOBALIZATION OF CASINO CAPITALISM

• x

Investments
Savings
Acquisitiona
Speculations
Financial investors
Privatizations
7
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.

8
AGREED UPON MEASURES 1

• 1. Fiscal Stimulus
• USA, no new money in EU, 5 trillion of
  cumulative 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

9
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 Doha Round
• 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

10
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 )

11
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)

12
THE END OF CONVERGENCE?GDP GROWTH IN EU15 AND
EU10 (NMS)
13
IS THERE THE END OF MACROECONOMIC CONVERGENCE
14
DISPERSION OF THE DEVELOPMENT LEVEL IN EU27
GDP/capita 000
15
DIVERGENCE IN YUGOSLAVIA
16
THE DEPENDENCE OF SLOVENIA ON EUGDP growth
17
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

18
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 !