If at one point it was considered possible that the UK snap election would send a clear signal about London’s relation with EU, it was short-lived. Yesterday’s UK election was not an election about Europe, it was rather a very European election.
Giuseppe Scognamiglio • Saturday, 10 June 2017 10:33
This week Saudi Arabia, the United Arab Emirates, Egypt and Bahrein closed all diplomatic relations with Qatar. Within a few hours, these four countries were joined by Yemen and the Maldives. This is not just an interruption of diplomatic relations, as took place in 2014, but an actual geographic isolation of Qatar, that calls for the expulsion of all its citizens currently located in the participating countries, a stop to all air and sea traffic and the closure of all borders. According to the official motivation, the closing of relations is due to "support for terrorist activities" provided by Qatar to terrorists in the region. The accusation of "supporting terrorists" in actual fact means that the countries of the Gulf coalition want to bring Qatar back in line with Saudi politics, straining the power relations in the region.
GIUSEPPE SCOGNAMIGLIO • Wednesday, 07 June 2017 11:44
Donald Trump won the US presidential election in a stunning victory, that sent shockwaves around the world. The New Yoork tycoon , who has defeated the expert prognosticators for almost 18 months, did it one more time, and on the day that counted the most.
GIUSEPPE SCOGNAMIGLIO • Wednesday, 09 November 2016 11:48
How we defeated the terrorism of the Red Brigades in Italy. Italian Antimafia is a success story, so much so that nowadays the Antimafia prosecutor’s office is also responsible for anti-terrorism. Is there complicity between our countries and Islamic terrorism?
GIUSEPPE SCOGNAMIGLIO • Wednesday, 27 July 2016 11:31
A) A lot has been said on the international press on Turkey and while the majority of researchers' analyses are correct, we can’t help noticing a substantial one-sided coverage of the coup by western media. While it’s true that the government reaction to the coup has been impressive, western media seem to be focused only on one side of the story while overlooking other aspects. For instance while Erdogan's call to reinstate the death penalty or suspend the European Convention on Human Rights may be concerning at first sight, then it is clear its connection with the state of emergency, which is nothing new to countries that face internal threats of this magnitude. The US has done similar things in the past and not for a coup d’état; more recently, France has established the same limitation of rights as a consequence of terrorism and for a longer time.
GIUSEPPE SCOGNAMIGLIO • Friday, 22 July 2016 15:45
- The '80s like attempt is failed exactly because we are not any longer in the '80s: the army is not the same, the Heads are appointed by the Government, the soldiers are not any more the ignorant young that obeyed blindly to their chiefs. In fact they refused to shoot against the people;
Giuseppe Scognamiglio • Saturday, 16 July 2016 13:46
The UK has voted to leave the European Union, with the Leave campaign securing around 51.9% of the vote vs 48.1% for the Remain. David Cameron has resigned as Prime Minister in an emotional speech outside 10 Downing Street. While England voted overwhelmingly for Brexit, Scotland and Northern Ireland backed Remain. The pound crashed to the lowest level since 1985 as sterling fell below $1.35. I think the risk of political contagion is high, but the EU will not disintegrate. There is a chance that the British departure will be an opportunity to push the EU into further integration.
Giuseppe Scognamiglio • Friday, 24 June 2016 08:38
TRANSATLANTIC TRADE AND INVESTMENT PARTNERSHIPBy Giuseppe ScognamiglioThe United States and the European Union share a large, dynamic, and mutually beneficial trade and economic relationship. The two sides account for 50% of world GDP, 25% of worldwide exports, 31% of worldwide imports, 57% of foreign investments stocks. The economic relationship with the EU is the largest in the world, generating goods and services trade flows of about €1,5 billion a day. In 2013 the total trade reached € 484 billions (EU imports: €195 billions; EU exports €288 billions). Many observers nevertheless assert that the relationship has not reached its full potential due to a range of regulatory, technical, and other barriers. US and EU negotiators have sought to address some of these issues through various forums over the years but concerns about the slow economic growth, since the start of the financial crises in 2008, have prompted calls by public and private stakeholders for a renewed, intensive focus on eliminating and reducing tariff and non-tariff barriers to US-EU trade and investment. No single EU country would be able to negotiate a deal with the US on the same terms as the EU as a bloc can.The elimination/reduction of (already low) tariffs and (but there is still no agreement on this) non tariff barriers. It could add as much as $120 billion to the european economy by driving Foreign Direct Investment and creating new market opportunities for SMEs and Mid-Market firms on both sides of the Atlantic.Negotiations cover: 1) market access, comprising elimination of tariffs for goods and new access to services and public procurement; 2) regulatory convergence and NTBs (non tariff barriers); and 3) rules for global trade. March 2014 talks reportedly saw progress on all three but obstacles to a deal are still present.Tariffs are considered the easiest issue to tackle, as they are low (3-4%), although higher in some sensitive sectors (dairy products, sugar, meat,tobacco, textiles).Services, by addressing long-standing barriers, while recognising the sensitive nature of some sectors. Disagreement on financial services is visible: the EU aims to include financial regulatory cooperation in TTIP, besides market access, but the US is concerned this might affect restrictions in the Dodd-Frank law and prefers separate discussions.Regulatory NTBs to trade (e.g. divergent standards, sanitary requirements) are seen as the core of the deal, yielding most benefits, but among the most difficult issues to address. The negotiators are discussing how to ensure compatibility of existing and future regulations, so as to reduce unnecessary costs and red-tape, while "achieving the levels of health, safety, and environmental protection each side deems appropriate." In particular, five aspects are highlighted: sanitary and phytosanitary; technical barriers to trade (technical regulations, conformity assessment and standards); specific sectors of goods and services; cross-cutting discpilines and transparency; and a framework for future regulatory cooperation. However, observers already conclude there is deadlock on regulatory issues. The US stresses the horizontal and transparency issues, while the EU prioritises the sector-specific pillar.In September 2013, the European Commission published a paper explaining the overall economic impacts that would emerge from TTIP. An ambitious TTIP deal would increase the size of the EU economy around €120 billion (or 0.5% of GDP) and the US by €95 billion (or 0.4% of GDP).According to the study, EU exports would increase in almost all sectors as a result of TTIP, but the boost in total EU exports outside the Single Market would be particularly significant in metal products (+12%), processed foods (+9%), chemicals (+9%), other manufacturing good (+6%), other transport equipment (+ 6%), and especially motor vehicles (+41%).Consumers will also benefit from cheaper products. The study estimates that in total, the average European household will see its disposable income increase by around €500 per year, as a result of the combined effect of wage increases and price reductions.The European Commission published also a paper illustrating the benefits that would emerge for SMEs through TTIP. This paper explains that SMEs are disproportionately affected by trade barriers: since they have fewer human and financial resources to overcome those than larger firms, the costs for SMEs to export or invest outside the EU often outweigh the gains.Moreover:1. Larger market implies higher competition (higher standards).2. To the extent that trade is intra industry, there is an important dynamic effect from an increase in labour productivity.Long term consequences on Foreign Direct Investments (FDIs):3. attraction of new flows, also from countries outside agreement.4. Increase in home exports implies an increase in outsourcing (offshoring); Home firms can outsource low value added parts of Global Value Chains (GVCs); foreign firms increase their role as suppliers5. Intracompany trade becomes more important.In conclusion: the EU will continue to push for financial services to be part of the TTIP, but now it seems very difficult that the EU will succeed. However TTIP's gains are several and their impacts could go beyond the numbers (productivity, labour market, less regulatory arbitrage, enhanced transparency and others). Benefits will differ by country (States), sector, workers.Latest update: On 18 July 2014, EU and US officials ended the sixth round of TTIP negotiations in Brussels. The following points were discussed:- Classic market access issues: This encompasses the areas of tariffs, services and public procurement. For the EU, procurement is one of the most fundamental elements of these negotiations and both sides set as objective to substantially improve access to government procurement opportunities at all levels of government on the basis of national treatment.- Regulatory agenda: This is considered to be the most economically significant part of TTIP. For those issues that cut across sectors, officials have continued to discuss how to ensure close regulatory cooperation between their respective regulators on different areas of regulations including standards and conformity assessment and on everything that has to do with sanitary and phytosanitary matters. Officials are discussing nine sectors, amongst which pharmaceuticals, cars, chemicals and engineering.- Engaging with stakeholders: Chief negotiators engaged intensively with over 400 representatives of civil society, trade unions, public health and businesses. Presentations were made by representatives from SMEs such as the UK Federation of Small Businesses, Chamber of Commerce of Rhône-Alpes or the Association of German Chambers of Commerce and Industry. These presentations illustrated how TTIP could bring concrete benefits to SMEs, not only through the specific SME chapter, but also how other chapters of TTIP could be of relevance.On 18 September: Meeting of the Transatlantic Trade & Investment Partnership Advisory Group. The discussion focused on the sanitary and phyto-sanitary standards and the regulatory coherence between the two regions.In 2013 Italy reported an export share destined to the US of only 7% of total Italian exports and a trade balance's surplus with US of more than 15 billion Euro (Italian exports: € 27 billion; Italian imports: € 11 billion). US represents the third market for Italy exports after Germany and France.The sector suffering from the higher trade tariffs in US is the fashion industry: with 9% of goods value compared to an average of 2,7% for all goods exported. Non tariff barriers are even higher, with an average of 25% of goods value. In the NTBs, beside fashion system the other industries mainly hit are machinery and agrifood.In the optimistic scenario of elimination of all tariff and non tariff barriers, three years after the trade liberalization there will be an increase of 0,5% of GDP and 1,6% of exports with an increase of employment of about 30.000 workers (+0,2%). In the case of a cautious scenario with the mere elimination of the tariff barriers the impact on the Italian economy is still positive but smaller, again three years after the trade liberalization: +0,2% GDP, +0,9% exports, employment +0,1%.
Giuseppe Scognamiglio • Thursday, 25 September 2014 12:34
A seguito della pubblicazione in Gazzetta Ufficiale n. 221 del 20 settembre 2013 del decreto del ministro dell'Economia e delle Finanze del 16 settembre 2013, che modifica il decreto attuativo dello scorso 21 febbraio 2013, si definisce il quadro normativo relativo alla Tobin Tax italiana.
Giuseppe Scognamiglio • Monday, 22 September 2014 17:27
The outcome of 2014 European elections is a call for change. New policies are necessary, a new strategy needs to be adopted.
Giuseppe Scognamiglio • Wednesday, 02 July 2014 11:47
The rise of global cities. Nonetheless, there is another important phenomenon which is more and more thoroughly questioning the supremacy of the post-world war II international order and challenging nowadays' geopolitical and economic balance.
Giuseppe Scognamiglio • Tuesday, 17 June 2014 12:16
This paper attempts to address firstly the question of whether Europe is still a right place to invest by providing an analysis of what makes it an attractive location. Secondly, it offers a political and economic overview of the Middle East and North Africa (MENA) countries to understand the investment prospects that the region offers. And, it concludes that the advanced economies (including Europe) remain the main leaders of the current global activity growth. However, stronger policy efforts are still needed to fully restore confidence.The global recovery is becoming broader. According to the IMF's World Economic Outlook (April 2014) global activity has broadly strengthened, and is expected to improve further in 2014–15. Therefore, global growth is expected to average 3.6% in 2014 -up from 3% in 2013 - and to rise to 3.9%in 2015 (see the table below).In particular, the growth coming from advanced economies is expected to record more impetus. In this regard, a major impulse to global growth comes from the United States (UniCredit forecasts = 2.4% in 2014 and 2.6% in 2015; IMF forecasts = 2.8% in 2014 and 3% in 2015; see below the table on Comparison of annual GDP forecasts), thanks to more moderate fiscal consolidation, accommodative monetary conditions, a recovering real estate sector, and higher household wealth. As for the Euro area which has finally emerged from recession, growth is expected to turn positive (UniCredit forecasts = 1.4% in 2014 and 1.7% in 2015; IMF forecasts = 1.2% in 2014, 1.5% in 2015; see below the table on Comparison of annual GDP forecasts) due to less fiscal drag, some impetus from private domestic demand, and increase in net exports. In addition to the growth expansion in the advanced economies, global growth will continue to be driven also by developing countries: emerging and developing Asia (IMF forecasts = 6.7% in 2014, 6.8% in 2015), followed by Middle East and North Africa (Mena) countries (IMF forecasts = 3.2% in 2014, 4.5% in 2015).In particular, in this year's more optimistic picture of the global economy, Europe as a whole has been able to overcome the most difficult phase of the crisis, and 2014 is likely to be a turning point. Thus, following two years of contraction, the economic recovery in Europe started during the last quarter of 2013, and is expected to continue spreading across countries and gaining strength.More positively, despite the last years' recession, Europe remains an attractive destination for the Foreign Direct Investments (FDI). Indeed, the latest Ernst & Young attractiveness survey confirms that 2013 was a record year for FDI in Europe with 3,955 projects (+4% from 3,797 in 2012) and 166,343 jobs (-2% from 2012, still 15% below pre-crisis levels - 195,000 jobs in 2004-08) in 42 European countries. This confirms a sustainable confidence in the region among the business community.Such a positive trend of the investments in Europe was recently confirmed also by the A.T. Kearney Foreign Direct Investment Confidence Index 2014, which ranked 11 European countries among the top 25 global economies where investors' appetite is higher. In particular, four largest European Union economies – the United Kingdom (4th), Germany (6th), France (10th) and Italy (20th) – improved their score in comparison to 2013 ranking. Moreover, despite its headwinds, Spain ranked 18th, while Switzerland 14th, Sweden 16th, Belgium 21st, the Netherlands 22nd, Denmark 23rd and Turkey obtained the 24th position (see the table below).In this context, the latest joint Global business barometer of Economist/Financial Times (2Q2014) shows that the increase in investors' confidence is in direct proportion with global business conditions' improvement. The graphic below demonstrates how in Western Europe the investors' confidence improved - starting from the last quarter of 2013 - together with the economic recovery and better global business conditions.However, the factors influencing investors' choices on the locations where establishing their business activities has changed over the last few years. In fact, the recent economic crisis has adversely affected appetites for risk. As a result, nowadays, in order to ensure the security of their investments, investors mainly prefer:- stability and transparency of a market's political, legal and regulatory environment;- investing in regions with large and sustainable domestic demand;- opting for locations where they might achieve productivity-related gains due to reduced input costs, as well as creativity and innovation;- choosing locations where labor costs are lower.As for Europe, the investors continued to choose the region mainly due to its following attractive features:- stable and predictable business environment;- presence of suitable investment requirements thanks to the large and rich consumer market that the continent offers;- capacity of European markets for innovation and the quality of their labor forces represents additional factor for fresh investments.Most importantly, a more integrated Europe with an ecosystem-related approach to innovation and entrepreneurship remain essential for the investors demanding access to skills and labor mobility within and outside Europe, with fewer regulations. Furthermore, making European cities more innovative and "smart" is one of the best ways to demonstrate Europe's attractiveness to the world. As for the latest point, a recent research of fDi Intelligence - a division of the Financial Times Ltd. – showed that cities focusing in key areas as research, development and innovation to promote investment are ranked at the top in "European Cities and Regions of the Future 2014/15".Finally, the competitiveness remains key to sustainable growth and a more attractive Europe. The figure below shows a comparative analysis between Europe and the large emerging BRIC economies, which in recent years have rapidly become global players and, in spite of their slowing growth, are still regarded as a global benchmark. Overall, the 13 countries that have joined the EU since 2004 and the BRIC economies perform in a similar fashion, especially in terms of developing smart economies, most notably in the enterprise environment and innovation pillars. The biggest difference among the two groups appears in the social inclusion pillar, where emerging economies still face a considerable gap.As for a comparison between the EU and its comparator economies (see the figure below), the EU continues to benefit from comparatively high levels of social inclusion. However, it is trailing its comparator economies in creating gainful employment for a large share of its population, and it is significantly outdistanced in laying the foundations for smart growth, as other economies press ahead.Overall, maintaining momentum for economic growth, new investment opportunities and investors' confidence will of course depend on a series of factors. Indeed, the global recovery is still fragile despite improved prospects, and important risks - both old and new - remain. Risks identified previously include finishing the financial sector reform agenda, high debt levels in many countries, stubbornly high unemployment, and concerns about emerging markets. New worries on the horizon include persistently low inflation in advanced economies, a weaker outlook for emerging markets than thought in the second half of last year, and recent geopolitical strains (e.g. developments in Ukraine).As regards to Europe, stronger policy efforts are needed to fully restore confidence and ensure a durable and sustained recovery. In this context, measures to increase potential growth – such as rethinking the shape of labor market institutions, increasing competition and productivity, rethinking the size of the government, examining the role of public investment - become crucial.Almost four years since the Arab uprisings, the political uncertainty and security issues have again emerged as the dominant analytical framework through which events in the Middle East and North African (MENA) region are being judged and interpreted by the outside world. The initial optimism that many had welcomed the spread of popular protests with in 2011 is gradually being replaced by a more somber realization that the slow, and in some cases non-existent, pace of socio-political reform in Arab transitional countries is creating a breeding ground for resentment amidst the flourishing of sectarianism, extremism, and political violence across the Arab world, as recently seen once again in Iraq or in Libya.The hopes and ideals that had sparked the toppling of longstanding authoritarian regimes in Tunisia, Egypt, and Libya seem like a distant memory as the promise of a new "Arab awakening" collides with the harrowing scenes coming from Syria's civil war (the recent presidential elections - June 2014 - which confirmed al-Assad as the country's President, might hamper the prospects for political solution that Syria so urgently needs), and a deep political and security vacuum in post-Gaddafi Libya. As for the latter, despite the recent political elections (June 2014) are seen as a fresh start, the underlying divisions involving political and armed groups, which are seeking to overrule each other, remain. Until a compromise is not reached, the tangible progress many hope for will stay out of reach.On the other hand, positive results in the political sphere were achieved in Tunisia due to the approval of the new Constitution and the formation of an interim Cabinet which will lead the country to new elections until the end of the year. Similarly, in Egypt a new Constitution was approved and, in 2014 elections the former head of armed forces al-Sisi became President, paving hopefully the way for a more smooth transition. These positive developments in the political scenario of the transition countries combined with the global economic recovery, might set the stage for gradual improvements also in the economic prospects in the MENA countries, provided the necessary reforms are advanced.Following the Arab revolts (2011), growth has been tepid across the region. In 2013, declines in oil production held back growth in the oil-exporting countries. Weak private investment, amid political transitions and conflict, continued to take a toll on economic activity in the oil-importing countries.However, growth in the MENA countries is expected to strengthen this year in line with an improved global outlook. Indeed, compared with the previous three years, 2014 seems hopeful and 2015 might be a turning point for these countries (growth is expected to be 3.2% and 4.5% in 2014 and 2015 respectively - please see page n.2; while for single countries' growth forecasts see the table below) and, many of the region's countries will likely start to benefit from stronger external demand in the high-income economies, as the global economy is set for a rebound in 2014.Regional growth is expected to boost and current spending to rise, thanks to the large stimulus packages in the GCC countries together with the flow of funds to the rest of the region, particularly Egypt and Jordan.However, the pace of economic recovery will vary across countries within the region:Oil exporters countries: especially the GCC countries are expected to lead the regional recovery with growth exceeding 4% in 2014 and 2015. Growth in Iran is expected to turn positive after two years of contraction that resulted from the sharp decline in oil production and trade following the tightening of international sanctions.Oil importer countries: the economies including Egypt, Tunisia, Lebanon and Jordan, remain fragile but a slight rebound in growth is expected in the next two years (from 2% in 2012 to 2.7% in 2013-14, and 4.2% in 2015). Between 2011-13 nearly $21.5 bn has been pledged by GCC countries (mainly Saudi Arabia, UAE, Kuwait and Qatar) to countries in transition (especially Egypt which obtained more than half of the pledge). Indeed, growth in Egypt is expected to be supported in particular by the Gulf funds, and Tunisia and Morocco could benefit from the recovery in the Euro Zone.Despite positive growth expectations, high debt and current account and fiscal deficits leave the MENA economies vulnerable to economic and external shocks.Here below the major challenges of the MENA economies:- Oil exporters countries: they face a longer-term challenge of reducing reliance on oil. Indeed, in recent years declining oil revenues have contributed to a downward trend in fiscal surpluses, as did increased public spending, including spending on wages and energy subsidies.- Oil importer countries: unresolved structural problems and governance issues weigh on the business environment, and sometimes hinders the full realization of gains to exports, tourism, and FDI. High unemployment is inciting social tensions, often manifested in labor strikes. Domestic security concerns and regional economic and social spillovers from the conflict in Syria, have also negative impacts on FDI.Moreover, the current political and social tensions represent an important risk for the economies of the region. According to the Ernst & Young attractiveness survey Africa (2014), in 2013 the number of new FDI projects in Africa declined for the second consecutive year, by 3.1%; and the job creation resulting from FDI projects slowed. This was largely caused by the decline in North Africa, due to regional political uncertainty.Before the Arab Spring, political instability was not among the top concerns in the MENA (see the figure below on the left hand side). During the 2000s, corruption and taxes were most widely cited as major constraints to private sector growth. After the Arab Spring, concerns about corruption have become even more pronounced, while political instability has become the second most cited problem plaguing the business environment. According to the most recent set of World Bank enterprise surveys conducted in the region, nearly 65% of business owners in MENA complained about political instability and institutional weaknesses. Crime and violence have also become more of a concern after the Arab Spring, with 35% of firms complaining about these issues as constraints to their operations.Oil exporters countries: Economic diversification would not only reduce volatility of output and fiscal revenues but also strengthen economic growth potential and create private sector jobs for the rapidly growing labor force.Oil importer countries: Structural reforms would help boost confidence and tap into the region's vast potential for high and sustained non-oil growth and jobs. Realizing this potential requires a credible reform agenda with broad public support, spanning a multitude of areas, to create better conditions for entrepreneurship and achieve higher living standards. The region represents a vast market with a young population and a large labor force. Government partnerships with large investors to reform vocational training and align skills with job market needs, particularly for women and the youth, could help tackle persistent unemployment (see the table below) while improving productivity. At the same time, reducing large energy subsidies (while improving the targeting of social support) could help re-orient production away from energy-intensive industries towards those that promote job creation.As for the investments, recent efforts of the governments have been seen with new initiatives in this sector. Moreover, exports and tourism will likely strengthen thanks to higher demand in trading partner countries, particularly Europe and the GCC. Indeed, the public investment is expected to rise thanks to donor financing and recent subsidy reforms. In this regard, GCC financing enabled Egypt to launch public and social infrastructure projects and clear arrears. Moreover, Morocco, Tunisia and Jordan plan to increase public investment while reducing generalized subsidies and improving the targeting of social assistance. As for the private investments, they are expected to increase gradually and conditional on reform implementation and improved confidence. As political transitions have started to mature in some countries such as Egypt and Tunisia, uncertainty is expected to decline. In fact, recently adopted Constitutions in these countries, the formation of a unity Government in Lebanon, and stable Governments in Jordan and Morocco are undoubtedly positive signs. In addition, recent structural reforms are starting to signal governments' future policy direction. For example, Morocco's diversification efforts have helped increase exports and FDI in high-value-added industries.2014 is a very important year, considered that many countries of the region face elections (presidential elections were held in Algeria and Egypt, and political election in Libya, while Tunisians will go to polls by the end of the year). The region is in a constant process of reshaping. In this context, the economic problems, the social unrest and the security will continue to represent the main hurdles that the governments of these countries will have to tackle.That said the longer-term outlook could turn favorable if the countries implement the important reforms and tackle the urgent challenges. In political terms, they should complete the transition toward democracy, and implement the institutional reforms. In economic terms, they have to reduce the unemployment, improve competiveness, foster economic diversification, strengthen financial intermediation, and generate more inclusive growth. Finally, the security concerns remain a crucial issue in order to ensure the peace in the region.The above mentioned challenges are structural and interconnected. They can be addressed only through a coordinated and comprehensive strategy that involves governments, the private sector, civil society, and the international community.
Giuseppe Scognamiglio • Thursday, 15 May 2014 16:46
Beginning of the political crisis. Protests in Kiev broke out after President Viktor Yanukovych's government suspended in November 2013 the signature process which would have led to a far-reaching Association Agreement with the European Union, thus leading to three months of protests which ended with the Ukrainian Parliament removing in February 2014.
Giuseppe Scognamiglio • Monday, 28 April 2014 14:58
Russia and the EU represent two very important poles and regional powers in the current world especially from an economic point of view. Several data support this assumption, such as for example: European Union: -The European Union has a large domestic market with an average population of 503.7 million (European Parliament data), on a geographic surface of 4,284,730 sq km. - According to 2012 figures (Eurostat), the EU stands as the largest economy in the world, bigger than the US's, with EU GDP (nominal) amounting in 2012 to € 12,945,402 million. -The EU is a trading power. Figures confirm that the EU is the world’s largest importer and exporter, as well as the largest trading partner of all five BRICS Countries and the largest host and recipient of foreign direct investment. With just 7% of the world’s population, the EU's trade with the rest of the world accounts for around 15% of global exports and imports in goods in 2012. Trade has been hit by the global recession, but the EU remains the world’s largest player accounting for 16.4% of global imports in 2011. The EU was also the biggest exporter, accounting for 15.4% of all exports. In 2012 it still stands as the world’s largest importer and exporter (see figures below). Russia: - Russia also stands as a large domestic market with 142.5 million inhabitants, as well as being the world’s largest state entity, with 17,098,242 sq km. - According to the World Bank’s most recent ranking, in 2012 Russia’s economy (nominal GDP) stands as the 8th largest economy in the world, with a GDP equalling $ 2,014,775 million. - Russia is also one of the world’s most important energy power, as it is a major producer and exporter of oil and natural gas. Russia holds the largest natural gas reserves in the world and was the second-largest producer of natural gas in 2012 (second to the United States). Russia's proven oil reserves were 80 billion barrels as of January 2013 (according to the Oil and Gas Journal).Most of Russia's resources are located in Western Siberia, between the Ural Mountains and the Central Siberian Plateau and in the Volga-Urals region, extending into the Caspian Sea. Russia was the third-largest producer of liquid fuels in 2012, following the United States and Saudi Arabia. - Russia as a regional power. It wants to ambitiously develop a new Regional Organization with its former Soviet partners as Kazakhstan and Belarus (starting from a 2010 Customs’ Union among Kazakhstan, Belarus and Russia which has already been transformed into a common economic space as of 2012) with the goal of creating by 2015 a Eurasian Union (for the moment other than these three countries, also Armenia and Kyrgyzstan are expected to join soon – by 2014-2015 – the regional integration process). This new reality has to be taken into account as it creates further opportunities for enhancing trade and economic relations and for economic and business operators. Russia and EU economic relations Hence, all these figures demonstrate that both Russia and the EU are two big powers and players in the world’s economy, which cannot ignore each other. On the contrary, they are very well placed (in terms of geographical proximity, shared history and values, but also strong economic and trade relations) to seize the opportunities of continuing further enhancing their bilateral relations, especially given their strong bilateral trade and investment relations, as well as energy interdependence. Bilateral economic relations, main figures: - Russia is the third trading partner of the EU and the EU is the first trading partner of Russia. After a brief interruption between 2008-2009 (when the trend was interrupted by the economic crisis and unilateral measures adopted by Russia, which had a negative impact on EU-Russia trade), since 2010 mutual trade has resumed its growth reaching record levels in 2012. In particular, EU-Russia trade totalled €335.9 billion in 2012. - EU exports to Russia are dominated by machinery and transport equipment, chemicals, medecines and agricultural products. - EU imports from Russia are dominated by raw materials, in particular, oil (crude and refined) and gas. For these products, as well as for other important raw materials, Russia has committed in the WTO to freeze or reduce its export duties. - Russia’s main EU partner countries. Among the EU28 Member States, Germany accounts for €37.9bn (31%) of EU exports representing by far the largest exporter to Russia in 2012, followed by Italy (€10 bn or 8%) and France (€9.1bn or 7%). Additionally, in 2012, the EU Member States exported €28.2bn of services to Russia, while imports amounted to €15.2bn, meaning that the EU had a surplus of €13bn in trade in services with Russia, compared with +9.8bn in 2010 and +9.6bn in 2011. In particular, Italy represents Russian fourth commercial partner (after China, Germany and Netherland). Indeed, in 2012 their bilateral trade relations accounted for €28.2bn of which €9.9bn of exports and €18.3bn of imports. - The EU is also the most important investor in Russia. It is estimated that up to 75% of Foreign Direct Investment stocks in Russia come from EU Member States. Energy relations. Oil. The majority (79%) of Russia's crude oil exports went to European countries in 2012 (including Eastern Europe), particularly Germany, Netherlands, and Poland Gas. As for natural gas exports, Europe represents a fundamental customer. Russia sent in 2012 about 76% of its exports to customers in Western Europe, with Germany, Turkey, Italy, France, and the United Kingdom receiving the bulk of these volumes. Smaller volumes of natural gas are also shipped via the Gazprom pipeline network to Austria, Finland, and Greece Why Russia and the EU need each other - Relations between Russia and the EU are currently regulated by the Partnership and Cooperation Agreement in force since 1997, which establishes the political, economic and cultural framework for their relations. Furthermore, in 2005, in order to strengthen cooperation, Russia and the EU agreed to create Four Common Spaces that cover economic, freedom, security, justice, research and education issues and in the meantime in 2008 negotiations were launched to conclude a new enhanced Partnership and Cooperation Agreement (still ongoing). In particular, the Common Economic Space, if implemented, would establish a more open and integrated market between the EU and Russia, giving additional new opportunities to economic operators and reinforcing cooperation in the energy, transport, agriculture and environment sectors. - Therefore, given the already strong bilateral ties existing between Russia and the EU (especially from an economic, trade and energy point of view), going on with the development of the Common Economic Space between Russia and EU (which seeks to establish an open and integrated market between the EU and Russia) is crucial as it is clear that such a partnership would offer important commercial and investment opportunities both to Russian and European economic players - since they could easily access to their respective markets and given the fact that they are already important economic partners (bilateral trade amounting in 2012 to €335.9 billion). - In this regard, the prospect of bringing the EU and Russia closer together within a Common Economic Space fits within this scenario and confirms the fact that the EU and Russia should both continue to strategically work for the benefit of it. On the other hand, given Russia’s project of a Eurasian Union, the European Union should certainly also start to dialogue more intensively with the new Regional Organization Russia is building with its former Soviet partners as Kazakhstan and Belarus, at the moment (now Common economic space but with the goal of becoming a Eurasian Union by 2015). Hence, starting from further strengthening economic and trade ties with one another, would certainly open up a huge set of reciprocal opportunities. All this makes the continuing of a sustainable bilateral dialogue between EU and Russia of utmost importance. Russia and EU ties in the aftermath of Ukrainian crisis - The recent crisis in Ukraine could, on the one hand, have a negative impact on the bilateral economic relations between Russia and the EU, especially if the EU were to adopt a third set of sanctions with far reaching economic consequences (current sanctions adopted so far concern asset freezes and visa bans for a number of Russian officials). On the other, bilateral relations have suffered at the moment, due to the crisis, a temporary setback (EU Council recently decided to cancel the next EU-Russia Summit to be held on June 3, 2014 in Sochi). Nevertheless, these measures are temporary and this is why it is of utmost importance that the EU maintains an open dialogue with Russia in order to avoid any further hindrance to their partnership, which could lead to a gradual isolation of both economies from their respective partnership. - But to do so, it is of utmost importance for the EU to act as a single actor and to speak with a single voice as well as understand that Russia is crucial in this process of agreements and "dependencies". This is a concept which has been also clearly stated by the European Commission Vice President Tajani, on March 25, when he argued that it is legitimate for Europe to defend its ideals but that it would be a great mistake for Europe to close its dialogue with Russia, considering that "there are too many Russian investments in Europe, and too many European investments in Russia".
Giuseppe Scognamiglio • Thursday, 24 April 2014 15:11
Similarly to the EU, also the US represent an important regional power, able to deeply influence the balance of the international scenario. In particular: - The United States have a large domestic market with an average population of 317.8 million (according to Census Bureau Population clock), making it the third-most populous country in the world and a geographic surface of 9,629,091 sq km. - According to the World Bank’s most recent ranking, in 2012 US’ economy (nominal GDP) stands as the 1st largest economy in the world, with a GDP equalling $16,244,600million. - The US are also a developed trading power. In particular, in 2012, total US trade with foreign countries was $4.9 trillion of which around $2.2 trillion in exports and $2.7 trillion in imports of both goods and services. In particular, more than two-thirds of US exports are material goods ($1.547 trillion) such as capital goods and industrial supplies, whilst the remaining third of exports are services ($632 billion) such as travel passenger services and Government and military contracts. On the contrary, more than 80% of US imports are goods ($2.275 trillion) of which a largest category is industrial machinery and equipment, whilst the remaining 20% are services ($437 billion) such as miscellaneous and primarily financial services. That said, figures confirm that in 2012 the US are the world's third largest exporter, after the EU and China, and the world's second largest importer, after the EU. Unfortunately, the spirit of the US-Russian strategic partnership of the early 1990s has been replaced by an increasing tension and a mutual recrimination during the succeeding decades. In particular, there are a number of international issues on which the two countries have different ideas and are causing a number of different disagreements such as: 1. the Syrian conflict; 2. the Magnitsky Affair; 3. the NATO’s missile shield project in Europe and 4. the Snowden’s asylum dossier.Nevertheless, the two countries continue to cooperate on a number of fronts. In particular, the first Obama Administration focused on a new “re-start” with Russia, by signing - in April 2009 - joint statements on “opening nuclear weapons talks” and on a “to deal as equals” relation, and more recently - on June 2013 - a joint statement on “countering terrorism” which pledged both sides to strengthen cooperation. Anyhow, US-Russia relations appeared to sharply deteriorate following Russia’s deployment of military forces to Crimea with President Obama cancelling plans to attend a G-8 meeting in Sochi in June 2014, halting some bilateral trade talks and suspending planned military-to-military contacts as well as exploring sanctions against Russia. Put it simply, trade ties between the US and Russia are not that consistent. Indeed, Russia is currently the US 23rd largest goods trading partner with $38.1 billion in total (two way) goods trade during 2013, with goods exports totalling $11.2 billion and goods imports totaling $27 billion. The US goods trade deficit with Russia was $15.8 billion in 2013, a 15.4% decrease ($2.9 billion) over 2012 whilst goods deficit accounted for 2.3% of the overall US goods trade deficit in 2013. In particular: - US exports to Russia. Russia was the US 28th largest goods export market in 2013. In particular, US goods exports to Russia in 2013 were $11.2 billion, up 4.3% ($465 million) from 2012. The top export categories in 2013 were the machinery’s and transport’s sectors (58% of total exports) with: 1. Machinery ($2.3 billion); 2. Vehicles ($2.0 billion), 3. Aircraft ($2.0 billion), Electrical Machinery ($674 million), and Optic and Medical Instruments ($660 million). Moreover, US second largest category of exports to Russia was the food and agriculture one (19% of total exports) which totaled $1.2 billion in 2013. Leading categories included: 1. poultry meat ($310 million), 2. tree nuts ($172 million), 3. soybeans ($157 million), and 4. live animals ($149 million). - US imports from Russia.Russia was the US 18th largest supplier of goods imports in 2013. US goods imports from Russia totaled $27 billion in 2013, a 8.2% decrease ($2.4 billion) from 2012 and accounted for 1.2% of total US imports in 2013. In particular, the five largest import categories in 2013 were: 1. Mineral Fuel – oil - ($19.4 billion); 2. Iron and Steel ($1.6 billion); 3. Inorganic Chemical - enriched uranium - ($1.4 billion); 4. Fertilizers ($815 million) and 5. Precious Stones – platinum - ($813 million). Moreover, US imports of agricultural products from Russia totaled $40 million in 2013. - Foreign Direct Investments. US foreign direct investment (FDI) in Russia (stock) was $14.1 billion in 2012, up 20.7% from 2011. Reported US FDI in Russia is led by the manufacturing, banking, and mining sectors. On the other hand, Russian FDI in the US was $6.3 billion in 2012, down 3.0% from 2011. - Energy sector. The US is slowly overtaking Russia as the world's largest producer of oil and natural gas. Indeed, the US produced the equivalent of about 22 million barrels a day of oil, natural gas and related fuels in July 2013 (according to figures from the EIA and the International Energy Agency). In particular, US imports of natural gas and crude oil have fallen 32% and 15%, respectively from 2008, narrowing the US trade deficit. Moreover, since the US are such a big consumer of energy, the shift to producing more of its own oil and gas has left substantial fuel supplies available for other buyers. - The recent crisis in Ukraine has also had a negative impact on the bilateral economic relations between Russia and the US, especially after the US government’s decision to freeze assets and ban travel visas to all Russian officials deemed responsible for the events in Ukraine and the Crimean peninsula. Moreover, relations became even worse once Moscow has been suspended from all diplomatic events such as the G8 as well as from military and space cooperation with the US. - However, if the situation is to get worse, the imposition of further economic sanctions could also have a long-range negative effect on global energy security. In particular, it is worth mentioning that the EU relies on Russia for about a third of its oil and gas, and tensions with Moscow have heightened concerns among its 28 members about the security of their energy supplies. On this topic, many members of the US Congress are pressing the Obama administration to use energy as a diplomatic weapon and to speed permits for natural gas export terminals to ease Europe’s and Ukraine’s heavy reliance on Russian supplies - but the cost of getting US gas supplies to Europe and the lack of infrastructure on both sides of the Atlantic remain major obstacles. Also in this case, and given the escalating tension in Ukraine, it would be desirable to achieve a common agreement allowing all parties involved - amongst which the US - to maintain the respective trade relations. Nevertheless, recent events in south-east of Ukraine immediately aroused the reaction of Obama’s administration determined to impose further and tougher sanctions against Russia - if the latter fails to take action in favour of a peaceful resolution of the crisis. South-East Ukraine different from Crimea.Overall, the crisis in Ukraine seems to have reached a new peak point, with the rising fear of a new potential Crimea-scenario in the south-east regions of the country. Nonetheless, it is important to understand that the Crimean “model” cannot be thoroughly applied to Eastern and Southern Ukraine as there are some consistent differencies. (1) First of all, if ethnic Russians account for about 60% of the population in Crimea (according to the latest 2001 census), the same is not true for Eastern and Southern Ukraine, where there is a consistent majority of ethnic Russians but not the absolute one, which means that their sense of allegiance and attachment to the Russian state is not as overwhelmingly shared in those regions as it was in Sevastopol. (2) Furthermore, compared to Crimea where the Black Sea Fleet was stationed there, there are no permanent Russian forces stationed in Eastern Ukraine. (3) Finally, idelogically speaking, it is believed that if President Putin never considered Crimea to be part of Ukraine - being his mission there twofold: reunifying Russia and correct two historical injustices (Nikita Khrushchev’s transfer of the peninsula to Ukraine from Russia in 1954; and the break-up of the Soviet Union in 1991, which left Crimea in now independent Ukraine) – eastern and southern Ukraine are considered differently. The Kremlin’s main objective there lies mostly in helping the country’s Russophile southeast to assert itself and create a new political balance within Ukraine, especially as for “acceptance for official use of the Russian language where it is spoken; direct election of governors, which would create regional elites accountable to their Russian-speaking constituencies and form a counterweight to the pro-western elites in Kiev; continuing economic relations with Russia, especially in the defence industrial area; and, lastly, for Ukraine to maintain a neutral relationship with Nato”. No coincidence that Russia’s main conditions in the international arena as possible solutions to the crisis are for pushing for greater federalization of Ukraine and military neutrality (for which the growing unrest in the east appears to be strengthening its bargaining position). On the other hand if until Tuesday 15 April, when Kiev began a military operation in Ukraine’s east, a Kremlin’s direct military intervention was believed to be the least-likely scenario, the deployment of Kiev’s backed “anti-terrorist” operation in the eastern regions increases the likelihood that any bloodshed resulting from attempts by the Kiev authorities to retake control of eastern Ukrainian cities could now prompt direct military intervention by Russia. No coincidence that at the meeting of US, the EU, Russia and Ukraine Foreign Ministers on April 17 in Geneva - discussing the possible diplomatic progress in the conflict and the de-escalation of the crisis - Russian President Vladimir Putin has reiterated his readiness to deploy troops in eastern Ukraine if diplomatic efforts fail to resolve the escalating crisis there. More specifically, he underlined that he hoped for a political resolution to the crisis but warned that the campaign for Ukraine’s May 25 presidential election was “being run in an absolutely unacceptable way”. He also called on Kiev to withdraw its forces from southeastern Ukraine and engage in dialogue on the country’s future with pro-Russia protesters in the region. Is peace still possible? Hence, when coming to the question of whether a peaceful solution is still possible, it is important to address the recent unfolding of the crisis through these lenses. Hence, to reach a sustainable peaceful solution it is of utmost importance to take into account these socio-historical factors, as well as the real reasons behind these uprisings in the east. This means that the aforementioned peaceful solution necessarily passes through two dimensions: (1) the international one – all the main actors involved, first and foremost Russia, on the one hand, and the US on the other, need to keep on dialoguing but with an approach aimed at seriously taking into consideration the fact that being Ukraine a country effectively torn between Russia and Europe, there is no need to pull the rope only on one side, as the solution lies mid-way; (2) local one, which means for the current interim government engaging, as it was already announced, in a reasonable dialogue with pro-Russian groups in the east, in order to find a sustainable compromise to meet their demands (more decentralization of power and guarantee of minority rights protection – use of the Russian language etc.). In this regard, PM Yatseniuk decision to instruct a newly-formed “constitutional commission” to swiftly draft constitional changes delegating more governing power from Kiev’s central government to regional legislatures and administrations, represents a first step in the right direction.
Giuseppe Scognamiglio • Wednesday, 23 April 2014 15:14
The supporters of the AKP who often use the term “New Turkey” believe that the 12-year rule of Prime Minister Erdogan has opened a new phase in Turkish history.
redazione • Wednesday, 16 April 2014 14:40
An opportunity for political stability and economic prosperity in Europe. The European Union (EU) has long viewed the enlargement process as an extraordinary opportunity to promote political stability and economic prosperity in Europe.
Giuseppe Scognamiglio • Wednesday, 09 April 2014 14:32
In the context of the current crisis, return to growth is for Europe a challenge which is difficult to address because of the mutually reinforcing interaction among several aspects, amongst which: a) the combined effects of the financial and economic crisis; b) the limited productivity of some countries; c) the protracted deleveraging demanding for higher risk premia; d) fragmentation and structural weaknesses of the financial sector, e) distorted relative prices.At the same time, the problems of growth in Europe date back well before the crisis, which mainly unveiled that growing macroeconomic imbalances and low productivity, along with the overall challenges of globalisation (such as ageing populations, increasing limitation of resources, climate change, etc.), were structural problems of the European economy – and that of the Eurozone in particular.Since the beginning, the European strategy against the crisis mainly focused on the priority to promote fiscal consolidation at the national level and structural reforms to increase the competitiveness of national economies. This was considered as the first necessary step to create pre-conditions for sustainable economic growth and job creation, as well as to ensure macroeconomic stability. Moreover, the strategy relied on the belief that, after an initial period of economic correction and contraction, growth would have come as a result of a complete and ambitious implementation of those reforms.Against this backdrop, the Commission launched the 'Europe 2020 strategy for smart, sustainable and inclusive growth'. This strategy fixes guidelines aiming to address the shortcomings of the European growth model and create the conditions for a smarter, more sustainable and more inclusive growth. The 'Europe 2020' strategy indicates five key targets for the EU to achieve by the end of the decade, covering employment, education, research and innovation, social inclusion and poverty reduction, climate change and energy sustainability.Two years later, with Europe still being in the midst of an unprecedented crisis, the full implementation of this strategy by the Member States was lacking. In a political and economic context where attention of some national leaders (in particular the Italian and the French) to the need of boosting growth was growing, the June 2012 European Council agreed on a 'Compact for Growth and Jobs'. Amongst other things, the 'Compact' outlined a EUR 120 billion investment package, providing:- the increase of the capital of the European Investment Bank (EIB) by EUR 10 billion with a view to increase its overall lending capacity by EUR 60 billion, which could unlock up to EUR 180 billion of additional investment across the EU;- the Project Bond pilot phase bringing additional investments of up to EUR 4.5 billion for pilot projects in key transport, energy and broadband infrastructure;- the reallocation of European Structural Funds in support of innovation and research, SMEs and youth unemployment and a further 55 billion devoted to growth measures.One year later, with a further deteriorating economic situation, the European Council (27-28 June 2013) agreed on a comprehensive approach to combat youth unemployment, as well as to boost investments and improve access to credit by calling for the mobilisation of European resources, including that of the EIB, to support SMEs and boost the financing of the economy.Given the need to restore normal lending to the economy and to facilitate the financing of investment as well as the importance of SMEs for the economy, the European Council mainly agreed on:- stepping up efforts by the EIB to support lending to the economy by making full use of the recent increase of EUR 10 billion in its capital. The European Council called on the EIB to implement its plan to increase its lending activity in the EU by at least 40% over 2013-2015. To this effect, the EIB has already identified new lending opportunities of more than EUR 150 billion across a set of critical priorities (such as innovation and skills, SME access to finance, resource efficiency and strategic infrastructures);- the expansion of joint risk-sharing financial instruments between the European Commission and the EIB to leverage private sector and capital market investments in SMEs. The Council, in consultation with the Commission and the EIB, will specify the parameters for the design of such instruments co-financed by the Structural Funds, aiming at high leverage effects. These instruments should begin operating in January 2014;- extending the European Investment Fund's mandate to increase its credit enhancement capacity;- expanding the EIB's trade finance schemes to favor SME business across the EU;- strengthening cooperation between national developments banks and the EIB to increase opportunities for co-lending and exchanges of best practices;- developing alternative sources of financing in close cooperation with Member States.The impact of these measures on the European economy depends now on how swift and effective the decisions will be implemented.Today, the top priorities of the European strategy for growth are: pursuing differentiated, growth-friendly, fiscal consolidation; restoring normal lending to the economy; promoting growth and competitiveness; tackling unemployment and the social consequences of the crisis; and modernising public administration. In our view, the major drivers at the disposal of the EU are:- the full exploitation of the potential of the Single market, by deepening it and removing the remaining barriers. To this regard, the Commission has recently put forward ambitious reform packages (including proposals on EU patent, public procurement, reform of insolvency laws, high-speed broadband infrastructures, etc.) . Even if this would have huge potential benefits for the European economy, until now the commitment of the involved institutions and Member States to quickly put these tools on track, is weak and ambiguous.Tax policy can also contribute to fiscal consolidation and sustainable growth. For this reason, the Commission's Country-Specific Recommendations for the year 2013 pay lots of attention to the reform of national tax systems. At the same time, closer cooperation between national tax administrations can deepen fiscal integration. The fight against tax fraud and evasion, which is increasingly gaining attention, can be an opportunity in this sense.Trade is another important driver for growth. In addition to ongoing negotiations with a number of key international partners (such as Japan), negotiations has just been launched with the US to establish the so called 'Transatlantic Trade and Investment Partnership'. This agreement has a huge potential in terms of growth and jobs: it would be the biggest ever negotiated and could add around 0.5% to the EU's annual economic output.Since stability is a precondition for sustainable growth, strengthening the architecture of the Economic and Monetary Union (EMU) is regarded as essential.The current reform process of the EMU governance aims to a deeper integration of the financial regulation in the short term, and of fiscal and economic policy in the longer term, to be complemented by political integration to provide legitimacy and accountability to the Union.In the context of the current crisis, addressing the weaknesses of the European financial sector is an urgent priority. Financial intermediation, which is of central importance, is centered on banks here in Europe. Bank-based credit growth in the majority of EU countries, which was weak since 2008, worsened in the current crisis (particularly in the south of Europe). In this context, as repeatedly highlighted by the European Central Bank, monetary policy action cannot be properly transmitted to all Eurozone countries. This impairs the provision of credit to the real economy.Today, the objective of a deeper financial integration is mainly pursued through the commitment for the setting up of a European Banking Union (BU). The quick establishment of a genuine BU should aim at separating banks from the sovereigns and reversing the on-going fragmentation of financial markets along national borders by fostering financial integration. This in turn would contribute to restore the proper functioning of the monetary policy transmission mechanism and thus, by improving the financing conditions within the Monetary Union, to boost growth. At the same time, by allowing a better management of the risks of booms and busts in the financial sector, the BU would make them more sustainable and less dangerous for the overall financial stability of the Eurozone, with direct benefits also for the EU.We hope that the boundaries of the BU go beyond the Eurozone, to coincide with the EU boundaries as much as possible . In fact, since the setting up of the BU is a crucial step to increase confidence in the health of the banking sector, then in the overall ability of Europe to address the crisis and its challenges, the more it is extended, the wider are its benefits for Europe and its Single Market.Since the onset of the Euro sovereign debt crisis, unprecedented policy measures have been undertaken at the European level to guarantee the stability of the European Monetary Union and stem contagion. Whereas this has been done at the European level, at the individual country level, Eurozone economies, especially the debt-stricken ones, have committed themselves to a programme of fiscal consolidation. Yet, as growth rates have been further declining and unemployment has been rising, Eurozone has found itself confronted with the specter of a never ending crisis. This brings up important questions:Can fiscal rectitude work alone in helping countries achieve both sustainable finances and lift growth?Or should also countries commit to painful wide-ranging reforms to boost their economic growth potential?And how can fiscal rigor or structural reforms alone be sufficient to sustain growth if investors continue fear the risk of sovereign default?These are questions many Euro Member States will have to answer to fully address their problems. Clearly, individual countries can implement important steps to foster and revive growth. Yet, forgetting that the original design of European Monetary Union was incomplete is to ignore the root cause of the Euro sovereign debt crisis. Not surprisingly, today's lack of growth is a symptom of a bigger Eurozone malaise but also the tangible result of an unfinished architecture.The Euro sovereign-debt crisis and the lethal interdependence between banking and sovereign crisis are, "as economist Martin Neil Baily has put it, 'symptoms, not causes' of a Eurozone unable to achieve convergence". Over the last ten years, different growth patterns, which resulted in persistent trade imbalances, and divergences in competitiveness across countries led to fall in Eurozone potential growth. Indeed, growth performance was disappointing even in the past decade. The European Central Bank calculates that Germany has been gaining competitiveness against all other members of the Eurozone since 1999. Since 2000, German productivity-adjusted wages have been rising in line with labour productivity so modestly, that their rise amounted to 5% only. This was possible because German unions in coordination with government and employers representatives accepted modest wage increases in exchange for job security. These factors increased Germany's international competitiveness thus leading to big surpluses which in turn made possible for the Country to experience a lower unemployment rate and a growth in real wages. Germany's competitiveness against non-Eurozone countries was also facilitated by the relatively poor performance of southern Europe, which avoided the appreciation of the Euro against other currencies.In contrast, in other European nations, improved confidence and lower interest rates which were the direct result of the entrance into the Monetary Union, fuelled a jump in domestic demand as foreign capital flowed in. The domestic demand boom induced prices to go up and wages, particularly non-tradable sectors, to rise faster than labour productivity. Since 2000, while productivity-adjusted wages have increased only 5% in Germany, in peripheral Euro countries, they have increased by between 25% and 35%. This resulted in a dramatic loss in competitiveness of those countries against other advanced economies. The strategy of southern Eurozone countries was to boost domestic demand while cheap credit promoted a credit boom and real estate bubbles. Not surprisingly, peripheral countries underwent a shift of 4% of GDP from industry to financial services and real estate from 1997 to 2007, compared to 2 % shift in northern economies. If in the short run this strategy seemed to work, in the longer one, it was false success. These countries started to build up increasing trade deficits, until the global financial crisis brought to an end this growth pattern. As recession started to kick in and tax revenues decreased abruptly, public spending resulted in unsustainable fiscal deficits. Confronted by years of competitiveness decline, peripheral countries were unable to turn to exports to lift their growth prospects. Absent the Euro, to service their debts, weak economies would have been facilitated by a big devaluation, but within the Single Currency this instrument was no longer available. What has come afterwards has been a period of "internal devaluation": with stagnation and prolonged high unemployment.Because this disappointing performance has a lot to do with different patterns of growth across countries and increasing competitiveness differentials, the implications in terms of policies are straightforward. In other words, the problems of many peripheral economies are so deep that reflect a profound capital misallocation of resources, which to be solved requires the implementation of comprehensive reforms than just deficit reduction. Fiscal austerity is necessary, but it is not something that can compensate for declining competitiveness, price misalignments, rigidities in labour market, lack of reform in product markets, slow productivity growth, excessive regulation to name a few. After all, if not properly addressed in a timely manner, the severe challenges many Eurozone countries are confronted with, will remain obstacles to growth. Addressing structural deficiencies on the other hand can allow economies to grow at their full potential. Italy, for instance, is a striking example for limited competition and inadequate infrastructure in the electricity sector. For Italians, electricity is about 50% more expensive than for the average industrial European consumer. Spain, on the other hand, which notoriously has one of the highest jobless rate of the Eurozone - especially among the young - is another striking example for persistent rigidities in the labour market and significant differentials between wage setting and productivity levels.However, any sensible strategy has to acknowledge that for structural reforms to deliver their potential, time is needed. Product and services market reforms, as well as reforms to the labour market and pension systems, should be put in place immediately. In a recent working paper, the OECD has analysed the impact of some wide-ranging structural reforms implemented over the past thirty years by 30 advances economies. The main finding was that while long-term gains took at least five years to materialise, some short-term benefits appeared sooner. The study also showed that despite concerns about possible transitional short-term costs exist, they seem exaggerated, since "structural reforms seldom involve significant losses and often deliver gains already in the short run." "A well designed package of labour and product market reforms" - the working paper suggests - "would deliver the largest gains and alleviate the transitional costs of certain individual reforms – for instance, liberalising product markets alongside job protection or unemployment benefit reforms can mitigate possible real wage declines associated with the latter".According to another working paper by the IMF, longer-term growth-enhancing supply-side policies should be advanced in conjunction with shorter-term demand-sided macroeconomic policies to support demand in the near term. Drawing on numerous data, the IMF estimates that implementing labor, product market, and pension reforms could boost growth in the Euro area by 4.5% over five years. 2¼ % of this gain is expected to derive from product and service market reforms alone, a sign of the importance of addressing vested interests and regulated professions. Another quarter of this gain is on the other hand expected to stem from cross-country reform spillovers, underlining the importance of a simultaneous implementation of such growth-enhancing reforms across countries.When it comes to structural reforms, there is no one-size-fits-all method. Each country must design its own reform agenda, tailoring it to the specific challenges it faces. Even within the group of southern peripheral economies, each country is faced with unique challenges, which require specific policy measures to be properly addressed. Yet, common to them all is the need to tackle long-standing rigidities and improve the competitiveness in the tradable goods sector, especially through labor and product market reforms. Some of the far-reaching structural reforms many countries could implement, include:Labour market reforms. Labor market reforms should address the duality of the labor market, making it more inclusive. Policies should also be aimed at enhancing the workforce participation through incentives to increase the working age and effective measures to facilitate school-to- work transition. Increasing the portability of pensions and healthcare are among the structural measures that could address Europe's lack of internal labor mobility. Wage-setting systems should also be made more effective at preventing wages from rising steeply.Product market and taxation reforms. In heavily regulated countries, product market reforms aimed at increasing competition in the market for good and services and reducing the barriers to entry created by unnecessarily restrictive regulations can raise the potential for job creation. To this end, Eurozone countries, especially the surplus economies such as Germany should ease barriers to competition in the service sector.This would facilitate investment and domestic activity. Other countries such as France, Italy, Greece, Spain for instance should reduce regulatory barriers to competition. Reducing the costs for companies to start up or close down, and simplifying the fiscal systems, will also promote greater competitiveness.Public sector reforms. For some countries such as Italy, reforming the justice system, would be critical in order to attract foreign direct investment (FDI).Human capital reforms. Strengthening the role of secondary education would be functional to employment, especially in countries whose economies rely on unskilled work force.With regard to macroeconomic policy, other measures could include a better budget composition and "smart fiscal consolidation". Considering that in many European countries tax revenues are close to 50% of GDP, the concretionary effect of additional tax hikes could be very detrimental to growth prospects. Where financing allows, preference should be given to spending cuts which are less recessionary than adjustments achieved through tax increases. It is undeniable that fiscal consolidation can stifle growth. While fiscal consolidation is necessary for the most debt-stricken economies, advancing at the right pace is crucially important as well, especially considering the current economic outlook of anemic growth and weak employment. Additionally, as suggested by the IMF, "while consolidation will have to proceed rapidly where market pressures remain high [..] consideration should be given to modifying the current pro-cyclical nominal targets for structural deficit objectives".Against a general backdrop of anemic growth and increasing unemployment rates, southern European countries should aim for higher net exports. Regaining competitiveness for them becomes crucial to boost export driven growth and also sustain and create jobs for the unemployed. This holds equally true for countries, such as France, Italy, Spain to name a few, where reforms should focus on labor market duality, relative price misalignments, reduction in non-wage costs, reform of wage setting mechanisms, deregulation of the services sectors and reallocation of resources - both employment and capital - towards the relatively more productive tradable sector. While countries with current account deficits will have to carry the majority of reforms, reversing competitiveness differentials within the Eurozone requires somehow an increase in domestic demand in countries with current account surpluses. In northern "surplus" economies, such as Germany, where competitiveness is not even a problem, some reforms could help increase the labor force participation while others could increase the productivity in the service sector.Reviving growth is no easy task. Improved European mechanisms , fiscal rigor or structural reforms alone cannot be enough to boost growth if investor's still fear the risk of sovereign default. Risks that affect growth should be solved at the European level, with a comprehensive approach towards a common view of the Eurozone's long term economic governance. This means that to take full advantage of reforms implemented at the national level, EU policymakers will have to take further steps toward a more comprehensive fiscal and banking union. Whereas, greater financial integration would serve to complement the efforts made by individual countries and resolve the problematic correlation between banks and sovereigns; deeper fiscal integration would help restore investors confidence in the Eurozone stability.Inevitably, progress in locking in these efforts and restoring growth not only will rest on the ability of the European policymakers to advance with the process of strengthening and completing the Monetary Union, but it will also depend on the ability of each individual country to stay committed to the path of reforms.In this respect, individual countries will have to make important efforts in explaining the rationale of reforms to their public opinion. The danger of a public opinion being seduced by simplistic recipes and Eurosceptic rhetoric, at a time of widespread reform fatigue, is high. Not only this would frustrate the efforts so far accomplished but it would also negate the more than 50 years of European economic, political and social integration and the 14 years of European Monetary Union, something Eurozone countries cannot dare to risk.
Giuseppe Scognamiglio • Monday, 13 January 2014 16:39
It is undeniable that the world has been going through in these very last decades major changes and profound transformations which today are challenging the post-world war II international order.
Giuseppe Scognamiglio • Friday, 13 December 2013 15:58