Workshop: Experiences with the current EU economic governance framework

The European Parliament’s ECON Committee host Eurozone governance failures workshop

11 Dec 2014

Please note that this does not constitute a formal record of the proceedings of the meeting. It is dependent on interpretation and acts as an unofficial summary of the debate.

First Session: Surveillance of Macro-structural policies

  • Economic policy surveillance and coordination under the European Semester since 2010 (6-pack)
  • The Macroeconomic Imbalance Procedure since 2011, in particular, the design of the scoreboard and the policy recommendations based on the in-depth reviews (6-pack)
  • Surveillance of euro area Member States with serious financial difficulties since 2013 (2-pack, note already covered by Troika report and supporting documents)

Presentations by speakers:

Xavier Ragot (Observatoire Francais des Conjonctures Economiques)

The speaker explained that human capital is considerably below its optimum potential level in all European Member States except Germany, where only a small gap between actual levels and optimum potential exists. He said that investment levels are affected on the demand side, which impacts the supply side, adding that it will be expensive to close the comparative investment gap with the US.

Discussing the causes of Eurozone “supply side” problems, he said that structural reform is not the primary cause for a strong German performance but instead the country benefits from a low weighted labour cost. German performance in this area is comparatively low compared to the US, France, UK and Spain.

The Annual Growth Survey report will tackle the question of “equilibrium”, to stabilise Eurozone activity and debt, he explained, adding that an enormous internal devaluation is needed in the single currency area to achieve this. He said that wage cuts are not the solution as they risk bringing about deflation; instead the global wage discussion must focus on how to allow countries to converge.

A period of low investment needs to be addressed he said. He conceded that the Juncker plan is a good start this, albeit too small an amount to be significantly helpful, adding that it should help offset net debt. He said that national balance sheets should look at net, rather than gross, debt and exclude investment from the debt side on the basis that investment constitutes an asset. He concluded that the 60% debt target is out of reach under the projections.

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