Professor Stefan Collignon Makropolitik Workshop 2006 European Integration in Crisis 27/28 October 2006 Stefan Collignon www.stefancollignon.de

Plan Some facts The Logic of the SGP The Policy Mix Monetary policy Professor Stefan Collignon Some facts The Logic of the SGP The Policy Mix Monetary policy Fiscal policy Labour cost What to do with the Eurozone?

Euroland’s weak economic growth Lisbon Workshop Professor Stefan Collignon Euroland’s weak economic growth

Lisbon Workshop Employment Growth Trends Professor Stefan Collignon USA Euroland

Lisbon Workshop Professor Stefan Collignon Labour Productivity growth

Lisbon Workshop Total factor productivity growth Professor Stefan Collignon Total factor productivity growth

Lisbon Workshop Professor Stefan Collignon Capital deepening

Lisbon Workshop Gross Investment Trend Growth Professor Stefan Collignon Gross Investment Trend Growth

Horizontal vs vertical flexibility The revised SGP Lisbon Workshop Professor Stefan Collignon 2. The logic of the SGP Money and economics Price stability Fiscal coordination Optimal policy mix Horizontal vs vertical flexibility The revised SGP

The facts Professor Stefan Collignon

The facts Professor Stefan Collignon

The facts Professor Stefan Collignon

The facts Professor Stefan Collignon

The facts Professor Stefan Collignon

The facts Professor Stefan Collignon

The facts Professor Stefan Collignon

The facts Professor Stefan Collignon

Lisbon Workshop Graph: The Policy Mix deflation Balanced budget Professor Stefan Collignon Graph: The Policy Mix Real interest rate deflation Balanced budget Efficiency line A Indifference curve A positive supply shock shifts the efficiency line up Inflation – +

Lisbon Workshop Monetary policy USA Euroland 4 3 Professor Stefan Collignon Monetary policy USA Euroland 4 Pro-cyclical tightening: 8 3 Counter-cyclical loosening: 9

Lisbon Workshop Fiscal policy USA Euroland 8 5 Professor Stefan Collignon Fiscal policy USA Euroland 8 Pro-cyclical tightening: 6 5 Counter-cyclical loosening: 5

Policies Professor Stefan Collignon

Lisbon Workshop Fiscal-Monetary Mix USA Euroland 6 8 10 6 Loose/loose Professor Stefan Collignon Fiscal-Monetary Mix USA Euroland Tight/tight Clinton/Greenspan policy mix 6 8 1996-2000 1990-93 Loose/loose 10 6 More active macroeconomic policy in USA: Positive supply shift in second half of 1990s Restricted macroeconomic policy in Europe: demand shocks dominate, no supply effects

Unit Labour Cost Inflation Professor Stefan Collignon Lisbon Workshop Unit Labour Cost Inflation

Professor Stefan Collignon Lisbon Workshop Unit Labour Costs

Professor Stefan Collignon Lisbon Workshop Unit Labour Costs

Exchange rate policies US-Current Account Deficit The role of Asia Professor Stefan Collignon Lisbon Workshop Exchange rate policies US-Current Account Deficit The role of Asia Development by undervalued exchange rate Negative role of exchange rate volatility Creating a Eurasian currency bloc

Policies Professor Stefan Collignon

Exchange Rate Policies Professor Stefan Collignon Development by undervalued exchange rate

Exchange Rate Policies Professor Stefan Collignon Exchange rate volatility The US/DM example

Europe’s policy tools are insufficient Conclusion Professor Stefan Collignon Europe’s policy tools are insufficient Lack of European government impedes defining and implementing coherent policies Europe needs a proper European government

Policies Professor Stefan Collignon