1. Professor Stefan Collignon 1 The Lisbon Process tomorrow

2. Professor Stefan Collignon 2 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE II. MANAGING EURO’S MACROECONOMY III. POLICY RECOMMENDATIONS CONTENT

3. Professor Stefan Collignon 3 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Introduction Lisbon Agenda 2000: to “become the most competitive and dynamic economy in the world within a decade” –Fighting unemployment –Reform the welfare system What have we achieved?

4. Professor Stefan Collignon 4 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Growth of per capita income has fallen

5. Professor Stefan Collignon 5 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Growth of per capita income depends on: –Employment growth –Productivity growth

6. Professor Stefan Collignon 6 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Employment is up: from 2000-2007 –Europe +0.4% p.a. –USA-0.3% –Spain+1.7% –Italy+0.4% –Germany +0.1% –France-0.1%

7. Professor Stefan Collignon 7 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Unemployment is down

8. Professor Stefan Collignon 8 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE But labour productivity growth has slowed down –Euroland: 1.7% for 1990-99 1.0 % for 2000-2007 –Italy is at the bottom with 0.4% –Labour market reforms have created flexibility to employ low skilled workers –Structural reforms have not improved the productivity of workers

9. Professor Stefan Collignon 9 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Why? We find: The Lisbon indicators have little or no significance for TFP Reforms necessary to improve TFP are not implemented The problem: no one is in charge to look after Europe’s collective interest

10. Professor Stefan Collignon 10 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE But even more important for labour productivity: The accumulation of capital per worker (capital intensity) has slowed This explains the main difference between Europe’ and America’s performance

11. Professor Stefan Collignon 11 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE What Europe needs: High job creation and high productivity High overall rates of investment and more investment per worker

12. Professor Stefan Collignon 12 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE High overall rates of investment follow consumption demand –Accelerator model –Capacity enlarging investment Higher consumption requires higher wages

13. Professor Stefan Collignon 13 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Consumption is clearly higher in USA than Euroland

14. Professor Stefan Collignon 14 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE Investment per worker (higher capital intensity) requires higher wages –Substitution effect –Over the last decades wages have fallen relative to capital in Europe, but not in USA –This must stop –But higher wages must not cause inflationary pressures

15. Professor Stefan Collignon 15 I. EUROPE’S DISAPPOINTING ECONOMIC PERFORMANCE The wage share has fallen since 1980

16. Professor Stefan Collignon 16 II. MANAGING EURO’S MACROECONOMY To increase overall investment and capital accumulation, Europe needs growth supporting macroeconomic management –Monetary policy to keep price stability –Fiscal policy that keeps debt sustainable –Income policies that benefit ordinary households But Europe’s institutional framework is not conducive to such policy mix

17. Professor Stefan Collignon 17 III. POLICY RECOMMENDATIONS What to do?

18. Professor Stefan Collignon 18 II. MANAGING EURO’S MACROECONOMY The Lisbon strategy objectives remain valid –We need more growth –We need more employment –We need higher productivity Only higher productivity will allow sustainable wage increases –Microeconomic reforms need to be matched by efficient macroeconomic management But Europe’s institutional framework is not conducive to such policy mix

19. Professor Stefan Collignon 19 III. POLICY RECOMMENDATIONS Institutional reforms: the taboo Europe after France and Netherlands Europe’s problem: output legitimacy is not enough –Collective action problem (CAP) –Free riding –Difficulties augment with number of member states Lisbon Treaty keeps Europe’s boat afloat

20. Professor Stefan Collignon 20 III. POLICY RECOMMENDATIONS Europe needs more democracy Jaures: “democracy is the humus of socialism” Citizens want to have the possibility to choose the general orientation of policies We need a large debate about policy options The election of the European Parliament is the opportunity to return power to the people

21. Professor Stefan Collignon 21 III. POLICY RECOMMENDATIONS The next President of the European Commission should be –Nominated by political parties Social Democrats should nominate their candidate soon –Elected by the European Parliament as the candidate who has a majority for his/her policies in parliament –The European Council must appoint the candidate that emerges victorious from elections No more shady backroom deals

22. Professor Stefan Collignon 22 III. POLICY RECOMMENDATIONS European politics need a new vision A “European government” to manage our common affairs Concrete steps to improve daily policy making This must be the purpose of a new strategy after the Lisbon agenda