Advocating reforms of E(M)U economic governance Jérôme Creel (OFCE & ESCP Europe) Measuring Development in Turbulent Times Bucarest, 28 November 2017

Release of a new independent Annual Growth Survey (iAGS)

Outline of the presentation Europe’s current economic situation Four reform proposals for the E(M)U Fiscal policy Macro imbalances Monetary policy Social policy N.B.: there is no priority order, a comprehensive package is required

Europe’s current economic situation

Europe’s current economic situation

Europe’s current economic situation

Europe’s current economic situation

Europe’s current economic situation

Reform #1 – Golden rule of public finance The EU has on average low inflation and low productivity Arguments on secular stagnation rest on the low-inflation environment Arguments on low potential growth rest on low productivity growth A boost on potential output is required The adoption of a golden rule of public finance (or a spending rule related to real potential and the inflation target by the ECB) at the domestic level would stimulate public investment Meanwhile, a Minister of Finance for the Eurozone might manage the provision of ‘European public goods’ (transnational investments, refugees’ policies)

Reform #2 – More symmetry in the management of macro imbalances The Eurozone has a large current account surplus, which feeds euro’s appreciation and Eurozone deflationary trends We recommend the adoption of the golden rule of wages Nominal wages would grow with productivity growth plus the ECB inflation target, with differentiated paces according to the CA balance

Reform #3 – Continuation of APP by the ECB with a change ECB APP policy draws on the ECB capital key in its purchases’ allocation Non risk-sharing argument However, this is non-neutral as regards sovereign yields as it benefits more those which require less. It can create scarcity of the safest assets Why not another breakdown of geographical purchases?

Reform #4 – Improving well-being Tie in the strong Improve the participation of the wealthiest to the funding of European public goods, combating tax evasion, taxing the GAFAMs, etc. Take care of the middle-class Should not bear all the costs of tax and social burden without a better access to health, education and family allowances Reducing poverty Back the ‘European Pillar of Social Rights’ with ambitious funding by increasing investments in the EU Youth Employment Initiative and in efforts to upskill and reintegrate the unemployed

The sun has been shining only recently… Conclusions The sun has been shining only recently… Some imbalances vanish (e.g. current accounts) The European project deserves more than a ‘business-as-usual’ agenda There are still large remaining imbalances (e.g. debts, unemployment) Time is ripe for ambitious reforms!