Is Europe doing better now? Between optimism and caution
On 6 November 2017, the Rafael del Pino Foundation organised the Keynote Lecture "Is everything better in Europe now? Between optimism and caution" by Juergen B. Donges, Emeritus Professor at the University of Cologne (Germany). Donges, Professor Emeritus at the University of Cologne (Germany).
Juergen B. Donges is Emeritus Professor of Economics and Director of the Institute for Economic Policy and the Otto Wolff Institute for Economic Studies, both located in Cologne.
Professor Donges was Vice-President of the Kiel Institute for World Economics and Chairman of the Commission for the Deregulation of the Economy, set up by the German Federal Government. From 1995 to 1997 he was a member of the German Federal Government Commission on Public Sector Reform and subsequently Chairman of the German Council of Economic Experts.
Juergen B. Donges is scientific advisor to several institutions and trustee of several scientific and cultural foundations, including the Fundación ICO, Madrid, corresponding academician for Germany of the Real Academia de Ciencias Económicas y Financieras, Barcelona. - Member of the Academy of Sciences of the Land of North Rhine-Westphalia, Düsseldorf and advisor to the Rafael del Pino Foundation.
On 6 November 2017, the Rafael del Pino Foundation hosted a lecture by Juergen B. Donges, Professor Emeritus at the University of Cologne. Donges, Professor Emeritus at the University of Cologne, reviewed the state of the European economy. In his opinion, the European economy is going through a good period, which is a new diagnosis. Some problems still persist, but their intensity has been mitigated, as with Brexit, where it is now uncertain whether the British want to leave the EU or stay. At the same time, Trump's protectionist threats have faded. Political risks, such as North Korea, Venezuela or Turkey, are not causing the risk premium to rise either. And Catalonia is seen as an internal Spanish issue. No one supports it and 155 gives some peace of mind. The only thing there is in this respect is a certain nervousness among international organisations, such as the IMF and the OECD, that if the Catalan situation is prolonged it could create a certain economic and political insecurity that could last for a long time. The positive aspects of the European economic situation refer to the pace of activity and inflation, while the worrying aspects are related to the low productivity in the Eurozone and the economic policy tasks pending in the countries that are part of the euro. The European economy continues on the path of growth, which is more balanced across countries, in the sense that none of them is lagging behind in the recovery. Moreover, growth is accompanied by significant job creation and a reduction in unemployment. What is most pleasing in Europe is Spain's good economic data, because it was a country with many difficulties in which fiscal consolidation policies and structural reforms have worked. However, if after 21-D there is no return to normality, the risk premium will return and could have a possible contagion effect on other European economies. The factors underpinning growth in the Eurozone are the ECB's expansionary monetary policy, which will continue, and fiscal policies, which are moving more in the direction of easing after the adjustments that have taken place in public accounts. Among the risk factors there is an unusual one, which could be Germany, because the results of the general elections have made it much more difficult to form a stable coalition government. Merkel has the problem of launching a proposal that is credible and acceptable to the Liberals and Greens, the potential members of the coalition government alongside the CDU. However, the differences between the three parties are abysmal and may lead to a policy agreement at the minimum that is not good. As far as inflation is concerned, the question is whether its rebound will encourage the ECB to change its policy. Interest rates, at the moment, are too low. According to the Taylor rule they should be at 21Trp3T, not 0.51Trp3T, and in Germany at 31Trp3T. This is going to create problems in the form of bubbles. Therefore, the ECB would have to abandon debt purchase programmes etc., but it is in doubt whether the inflation outlook is sufficiently anchored. Possibly we will have to get used to less inflation in the future, due to global competition. In fact, it is efficiently possible and socially desirable to have low inflation. The issue of productivity is a very serious one, because productivity is what defines the resources available to an economy to achieve its fundamental objectives. We have a measurement problem, but also an underlying problem because digitalisation is not spreading evenly throughout society. This creates discomfort and a feeling that many people feel displaced from the technological society, and those people vote. To address these problems we need to continue with structural reforms. However, the low interest rates have not been taken advantage of to do so. Many governments are confident that the ECB will continue to finance them with its monetary policy. This is bad news for the stability of the eurozone. Many also hope that because there are new players on the European scene, economic integration can be boosted. But this can only work if the pending structural reforms are carried out beforehand.
The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio González, are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of the authors.
The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference, written for the Rafael del Pino Foundation by Professor Emilio J. González, are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.