Article 138§2 of the TFEU prescribes that “the Council may adopt appropriate measures for ensuring a unified representation (of the EU) in international financial institutions”.

The recent reshuffle of seats and voting rights within the IMF was a unique occasion to trigger that clause in the obvious interest of EU monetary union.

It is therefore unfortunate that neither the European Commission nor the European Parliament have raised this issue. Particularly so in present circumstances, when EMU is faced with a dire existential crisis and in urgent need to prove its cohesion and unity to the global financial community.

Jean-Guy Giraud

President

UEF France

Regarding ‘IMF lambasts inconclusive euro talks‘:

What Germany has been saying for several weeks now is simply :

1. That the ever increasing size of emergency bailouts of eurozone countries cannot be pursued under present Treaty rules that actually FORBID such operations.

2. That bailing out as such will not work unless new rules of economic governance (including a European Monetary Fund issuing eurobonds) are adopted which also necessitate a Treaty revision.

A common Franco-German initiative (possibly joined by the Benelux countries) to engage the eurozone countries in such a Treaty revision would perhaps not only reassure the markets of the Eurogroup’s determination to strengthen the system, but also at last put the euro zone on the right track.

Ideally a timeframe for this revision should be announced : 2014 (when a new European Commission and a new European Parliament will be in charge) would be a suitable date.

Jean-Guy Giraud

Concernant ‘L’UE et l’Irlande se mettent d’accord sur le fonds de sauvetage‘:

Certes l’Union a les moyens de sauver de la banqueroute ce mauvais élève de la classe européenne.
Car les difficultés irlandaises ne sont pas seulement dues à ses banques, mais bien à la politique économique et fiscale de son gouvernement.

Voila un pays, qualifié il y a peu encore, de “tigre celtique”, qui a construit sa croissance des dernères années, en solitaire, aux marges de l’Union, comme une porte d’entrée sur le marché intérieur européen.

Une fiscalité digne d’un paradis fiscal exotique (12,5% d’impot sur les sociétés), une absence de régulation bancaire sérieuse, une politique économique de cow-boys ont ainsi réussi, dans un premier temps, à attirer sur son territoire un flot d’implantations grace à un code d’investissements qui relève davantage du dumping que de la normalité européenne.

Mais cette croissance artificielle n’a pas généré les recettes escomptées.

Les conséquences d’un tel laxisme étaient inévitables: bulle immobilière, surchauffe et croissance artificielle du niveau de vie.

Puis vint l’heure de vérité dans la crise, avec l’effondrement des prix immobiliers, des foyers endettés, 14% de chomeurs et des banques étranglées sous perfusion de la Banque centrale européenne (jusqu’à 130 milliards d’Euros avancés).

Le gouvernement irlandais a garanti l’ensemble du système bancaire, soit un engagement de 480 milliards d’Euros, c’est-à-dire trois fois son PIB (164 milliards) ce qui le conduit à un déficit public de 32%!
Il réclame aujourd’hui la solidarité européenne qu’il n’a jamais vraiment pratiquée.

Chaque fois que les Etats membres ont voulu rapprocher leurs fiscalités, condition nécessaire d’une meilleure gouvernance de la zone Euro, l’Irlande s’y est opposée.

Bloquant souvent les décisions de ses pairs, elle a été un obstacle vers une intégration plus poussée des économies européennes, de ses politiques budgétaires, de sa fiscalité, de sa gouvernance, de sa sécurité, de ses institutions, bref autant de signaux forts qui auraient pu etre donnés à l’extérieur et contribuer à accroitre la confiance dans l’Euro dont elle a pourtant beaucoup bénéficié.

Aujourd’hui elle veut le beurre et l’argent du beurre.

L’Union européenne ne doit pas accepter de l’aider à n’importe quel prix et remettre de l’ordre dans la maison, n’en déplaise à l’ombrageux sentiment national irlandais.

L’Irlande devra démontrer que son sauvetage est nécessaire à l’Euro et à l’Europe.

Elle devra accepter de s’aligner sur les pratiques européennes et renouveler son engagement à poursuivre collectivement une plus forte intégration politique, économique et budgétaire .

L’Union ne peut plus faire l’économie d’une régulation bancaire partagée et renforcée, d’un controle de la fiscalité, des politiques économiques et des budgets nationaux, c’est-à-dire d’une véritable gouvernance de l’Euro.

On espère que les grands argentiers auront à coeur de lui rappeler cette exigence qui doit être désormais, pour elle comme pour tous, une ardente obligation.

Editorial paru sur mon site: www.jd-giuliani.eu

Amitiés,

Jean-Dominique Giuliani

Président

Fondation Robert Schuman

Concernant ‘L’Acte sur le marché unique attire les foudres du forum public‘:

L’article d’EurActiv.com paru suite au débat public organisé par Confrontations Europe ce jeudi 18 novembre est inacceptable. Alors que tous les participants ont souligné la formidable opportunité qu’ouvre cet Acte pour le marché unique, le titre laisse penser que nous sommes opposés au document présenté par la Commission. Dès l’entrée du débat, Philippe Herzog a montré le caractère novateur de ce texte et appelé à l’engagement pour faire aboutir cette entreprise, sachant les obstacles auxquels elle ne manquera pas de se heurter. Si beaucoup ont formulé des suggestions pour améliorer le texte, ce n’est donc évidemment pas contre lui mais au contraire dans un esprit constructif, sans surenchère et avec un esprit de compromis et de responsabilités. Est-il anormal que lorsqu’on donne la parole aux élus du Parlement européen, aux acteurs de la société civile, ils demandent des précisions et formulent des propositions ? C’est ça la démocratie. Il est inadmissible de ne pas avoir saisi avant tout l’esprit profondément positif et constructif de cette réunion.

Quant à la demande adressée au président de la Commission pour qu’il s’engage publiquement lui-même pour expliquer l’importance de ce texte et appeler les citoyens à participer à relever le défi, elle relève du même souci : réunir toutes les conditions de la réussite. En effet, les panelistes sont parfaitement conscients des grandes différences et contradictions qui divisent les Etats-membres, et de la nécessité d’un compromis politique parfaitement soulignée par Mario Monti. L’engagement de la Commission et du Parlement européen est sans aucun doute une condition décisive en ce sens.

Le commentaire de la réunion est suivi de positions de diverses organisations sociales. Et l’article entretient donc un amalgame entre ce qu’ont dit les acteurs présents à l’assemblée générale de Confrontations Europe et des positions exprimées par ailleurs. EurActiv nie les efforts de l’association pour rassembler 300 participants autour de Michel Barnier et d’acteurs prestigieux (Franco Bassanini, Lord Leon Brittan, Pascal Canfin, Louis Grech, Philippe Herzog, Othmar Karas, Mario Monti, Joachim Vannahme) pour exprimer leur volonté commune de se mobiliser afin de faire du marché intérieur le socle d’une nouvelle croissance.

Claude Fischer

Présidente de Confrontations Europe

Now the EU is awake at last, it should deal with debt workouts for EU and developing countries.

With the Greek financial crisis rocking the foundations of European Monetary Union, the EU has finally realised it needs to agree on debt mechanisms. With regard to the Council’s conclusions on a ‘permanent crisis mechanism’, EU leaders need to remember that debt workout mechanisms are not only about economic stability but also about people.

Civil society has long pointed out that action to improve debt workout mechanisms for countries in financial difficulty is urgently needed. It took a debt crisis on its doorstep for the EU to wake up and take the issue seriously.

The Greek crisis has demonstrated once again that in the end it is vulnerable groups – in which women are overrepresented – who suffer from the impacts of anti-crisis measures the most. This has been a reality for developing countries for decades.

The EU needs to implement existing proposals which reduce the negative impacts of debt crises on the most vulnerable people and it must apply them to both member states and third countries. EU solidarity with countries in financial trouble cannot end at the Union’s borders.

Relevant agencies with expertise (UNCTAD, the international financial institutions and within civil society, etc.) need to develop a binding, independent and predictable framework for arbitrating on sovereign debt claims alongside standards for responsible lending and borrowing, which should be speedily adopted.

Such a framework would help to reverse the adverse impacts of a sovereign debt crisis on vulnerable groups and would fill the current vacuum in global sovereign debt governance.

Jean Saldanha

Policy and Advocacy Officer

CIDSE (an international alliance of Catholic development agencies)

Regarding ‘Parliament backs 20-week maternity leave‘:

Europe’s leaders must use Thursday’s EU summit to fight against the introduction of new laws on maternity leave, voted on by MEPs last week, that will increase maternity leave from the current EU minimum of 14 weeks to 20 weeks, all of which will be on compulsory full pay – costing the EU €121 billion between now and 2030.

For small businesses, maternity and paternity leave in their current form are perceived as barriers to employment. For businesses without employees, these two pieces of legislation attract the highest levels of concern when they are thinking of taking on an employee.

We all want adequate, flexible maternity and paternity leave but it should be for elected governments in dialogue with parents and their employers to decide how much their economy can afford to give and how it is to be delivered. These proposals should be about setting minimum EU standards for the health and safety of pregnant workers – not adding new payroll costs for overburdened companies and national social security systems.

This is yet another example of how well-intentioned EU employment law is actually exacerbating our unemployment crisis. In the present economic climate we should be making it easier for people to gain employment, not placing obstacles in their way.

Yours,

Tina Sommer – European Small Business Alliance (ESBA), President
John Walker – Federation of Small Businesses (FSB), National Chairman
Hendrik-Jan van Oostrum – Dutch Retail Association, Head of Brussels Office
Dr. Gunay Cerkez – KTTO (Turkish Cypriot Chamber of Commerce), President

Regarding ‘Bio-economy poses new competitiveness challenges for Europe‘:

Innovation Commissioner Máire Geoghegan-Quinn has highlighted an area where the EU is missing out compared to other countries – particularly the USA. It need not do so, for it actually needs to address it through a different emphasis.

Firstly, the EU should seriously consider removing the ridiculous subsidies to Biomass-burning Power Stations, which we read about across the EU and which are built by a variety of energy companies. These subsidies also include massively expensive incineration plants that countries like Ireland, Croatia, the UK or Italy cannot afford.

It is iniquitous on the one hand that subsidising companies which do not need subsidising only for these same companies to use these massive subsidies to fill shareholders’ pockets. (Remember this has been around before, as the EU has already made it known that this is not acceptable for companies such as ALCOA in the issue reported on in Sicily or for the others that may be heard have similar equal issues elsewhere – where these subsidies end up in shareholders’ pockets as magnificent dividends! (If this was not the case then consider the issue of why so many of these facilities get sold off even before they are working.)

What Máire Geoghegan-Quinn is seemingly saying is that this wasted money could be better spent on bio-refineries and the developments we now see with those that are seriously looking at changing the perception of dealing with converting biomass from sustainable sources (such as Non Food and Waste and Macroalgae). They are currently being followed and engineered by pioneering companies that never get the credence that is due to them. All that happens is the mega-big companies grasp the issue head on, gaining these huge subsidies at the others’ loss.

If it wants to address this issue fully and square on, the EU (and those that can make the decisions, like EU Innovation Commissioner Máire Geoghegan-Quinn and others, right up to Mr. Barroso) should take note.

Karel Yurian

Private citizen

Regarding ‘Barroso drops financial taxes from draft G20 wish-list‘:

It is shocking to see the European Commission backtracking from pushing for financial taxes to be on the agenda at the forthcoming G20 summit in Seoul in November. A global bank tax to help poor people survive the economic and climate crisis must be urgently agreed.

Just a couple of weeks ago, we saw the Commission put its head above the parapet as it published a paper proposing a Financial Transaction Tax (FTT) at global level to raise money for development and climate change. The report also proposed that Europe should move unilaterally to a tax on financial activities, which could definitely also mobilise tens of billions of euros to tackle these pressing international challenges.

The EU cannot afford to bury its head in the sand just at the moment of truth. Shrinking away from taking bold steps will have an impact on both the lives of poor and vulnerable people and Europe’s international credibility.

EU heads of state, meeting this week in Brussels, must now take up this mantle and put financial taxes high up on their wish-list for the G20 summit if Europe is going to set the standard in Seoul.

Yet, as Oxfam underlines in its latest report ‘The Making of a Seoul Development Consensus: The essential development agenda for the G20′, it is not only by delivering on the FTT that Europe and the G20 can make a difference for developed and developing countries alike at this G20 summit.

The G20 should capitalise on Korea’s support to include development issues within the agenda to make progress on forging the right type of development consensus: one that uses growth to reduce inequalities, commits to tackling tax havens and fighting tax evasion and demonstrates leadership in advancing the fight against climate change.

European leaders can help make sure this happens.

Elise Ford

Head of Oxfam International’s EU office

After a sharp (about 40%) drop in foreign trade during the 2008-2009 crisis, the ongoing economic recovery in most Central and East European countries (CEECs) has been associated with a strong revival of exports. By mid-2010, the pre-crisis export levels have been reached again in most CEECs. External demand recovered, but what have been the internal driving forces of CEECs’ current export revival and what strategies are the individual countries following in order to restore/maintain/foster competitiveness?

This note looks at recent developments of Unit Labour Costs (ULCs) in the region and analyses the individual components of labour cost competitiveness. Different responses to the crisis, productivity developments and the role of the exchange rate regime are discussed as well.

Rapidly rising unit labour costs (and thus deteriorating cost competitiveness) have been a characteristic feature of most CEECs during at least the previous decade. Aggregate international ULC (at GDP level, adjusted for the exchange rate – see Box 1 for definitions) have nearly doubled in the majority of countries since 2000, irrespective of the exchange rate regime (Figure 1).

There have been two major exceptions to this trend: Poland (with a floating exchange rate) and Slovenia (with a traditionally stable exchange rate and a ‘fixer’, using the euro since 1 January 2007). In both countries, the exchange-rate adjusted ULC increased by less than 30% between the years 2000 and 2010.

During the boom years immediately preceding the crisis (2005-2008), ULCs were growing at double-digit average annual rates in the majority of CEECs (and even faster in Russia and Ukraine), exceptions being Hungary (5.6% p.a.) and Slovenia (1.8%). As the only country in the region, Slovenia even managed to improve its competitive cost position relative to Austria in that period (the latter’s ULC grew slightly faster, by 2.5% p.a. during the period 2005-2008).

The international competitive cost position (relative ULC) of all other CEECs deteriorated as their ULCs grew much faster than in Austria in that period. Obviously, such developments cannot be sustainable in the medium and long run – although the CEECs’ ULC levels are still relatively low: according to our estimates less than 50% of the Austrian level in 2010, with the exception of Slovenia and Croatia (Figure 2).

The global crisis resulted in a temporary and uneven (both across countries and in time) fall in ULC during 2009-2010. It is interesting to note that the time pattern of individual countries’ ULC adjustment differed – not least according to their exchange rate regime.

In countries with floating exchange rates (the Czech Republic, Hungary, Poland, Romania, Russia and Ukraine – ‘floaters’), ULC dropped in 2009 as compared to 2008 (by as much as 15% in both Poland and Ukraine) – largely thanks to a devaluation of the national currency (see Figure 3).

On the other hand, countries with fixed exchange rates (either on a currency board such as Bulgaria, Estonia, Latvia and Lithuania or using the euro such as Slovenia, Slovakia and Austria – ‘fixers’) have been deprived of the devaluation option. This lack of exchange rate flexibility initially resulted in an increase in their ULC in 2009 (by as much as 15% in Bulgaria, 10% in Slovakia and Slovenia, 5.6% in Austria) as their GDP and aggregate labour productivity (GDP per employed person) was falling while wages increased (the latter with the exception of the Baltic states).

A – partial – restoration of competitiveness (a reduction of ULC) is expected only for 2010 in countries with fixed exchange rates (as opposed to an increase in ULC expected for the ‘floaters’).

Figure 1
Aggregate ULC (at GDP level), EUR-adjusted
2000 = 100
‘Floaters’ ‘Fixers’

Source: Author’s estimates based on wiiw Database incorporating Eurostat and national statistics; forecasts: wiiw.

Figure 2
International comparison of aggregate ULC (at GDP level)
Austria = 100
‘Floaters’ ‘Fixers’

Source: Author’s estimates based on wiiw Database incorporating Eurostat and national statistics; forecasts: wiiw.

Apart from the varying spatial and time dimension of ULC adjustments between ‘floaters’ and ‘fixers’, it is also interesting to look at ULC adjustment patterns by their individual components (apart from the exchange rates these are wages and labour productivity, the latter decomposed into changes in output and employment – see Box 1 for details).

As mentioned above, countries with flexible exchange rates managed to reduce their ULC in 2009 to a large degree thanks to exchange rate adjustments (currency depreciations). The latter usually more than compensated the adverse effects of declining labour productivity. Labour productivity dropped due to the falling GDP while employment cuts were initially kept in check. ‘Competitive’ devaluations even permitted a modest increase in nominal wages in some countries (Poland and Ukraine are extreme examples, where devaluations captured most of ULC adjustment in 2009 – see Figure 3, ‘floaters’).

Figure 3
ULC growth and contributions of main components average annual changes in %, 2005-2010
‘Fixers’

Source: wiiw Annual database incorporating national statistics and Eurostat

Figure 4
ULC growth and contributions of main components average annual changes in %, 2005-2010
‘Floaters’

Source: wiiw Annual database incorporating national statistics and Eurostat

Box 1 Definition of Unit Labour Costs (ULC)
Assuming that individual ULC components are defined on a comparable basis (in time and across countries/industries, respectively, or both), ULC can be defined as follows:
ULC = LC / LP
where LC are labour costs or gross wages (per employed person) and the labour productivity (LP) is defined as real output per employed person:
LP = OUT / EMP
Thus, unit labour costs can be rewritten as:
ULC = LC/LP = LC / (OUT / EMP) (1)
Accordingly, any change (?) in unit labour costs (?ULC, measured either in logarithm or per cent) can be decomposed in the following way (time or country subscripts are omitted):
?ULC = ?LC – ?LP = ?LC – ?OUT + ?EMP (2)

ULC will rise (that is, labour cost competitiveness will decline) when the labour cost increase is higher than the corresponding increase in productivity and vice versa. In turn, productivity changes are determined by the relative growth rates of output and employment: For instance, LP will increase if (real) output growth is faster than employment growth. And, with given labour costs, this will lower ULC and increase the cost competitiveness of the respective country or industry. Formula (2) is basically valid for comparisons in both time (ULC growth rates) and across countries (ULC levels).

In practice, it is much easier to compare growth rates rather than levels (especially productivity level comparisons are problematic) since the available statistical data tend to be more consistent over time than across countries. In international ULC comparisons over time, the ‘national’ ULC in formula (2) are frequently adjusted for the relative movements of exchange rates (ER). Labour costs in national currency are therefore converted into euro (at current exchange rates) and fluctuations of exchange rates have an impact on ULC as well. The exchange rate effect has been substantial – see the differences in ULC performance of ‘floaters’ vs. ‘fixers’.

On the other hand, the ‘fixers’ lack by definition the exchange rate tool for restoring ULC competitiveness and have to resort to other policy instruments: either to cut nominal wages or to reduce employment in order to compensate the falling output (so-called internal devaluation). As Figure 4, ‘fixers’ shows, it is usually employment which bears the main burden in restoring ULC competitiveness in the absence of exchange rate flexibility (in the Baltic States, nominal wages are being cut as well).

In sum, one can see that flexible exchange rates not only permit a faster ULC adjustment for restoring competitiveness in times of crisis (note that ‘floaters’ were able to reduce ULC already in 2009), but the country can achieve this with much less adverse effects for employment. This is one of the reasons why it is argued that flexible exchange rates turned out to be the preferable option of exchange rate regime (and countries with this option should not rush to abandon it) in times of crisis.

A similar picture is provided by a decomposition of ULC in industry: in countries with fixed exchange rates, the main burden of ULC adjustment is shared by employment. And even major employment cuts (such as in Slovakia during 2009) do not prevent ULC from rising. The latter policy, that is a major reduction of employment, was ‘successful’ only in Latvia and Lithuania, and even there at the cost of severe recession. Again, the competitive position of industry in ‘floaters’ improved in 2009 by a combination of a sizeable exchange rate adjustment and relatively less pronounced employment cuts.

Regards,

Peter Havlik

Vienna Institute for International Economic Studies (wiiw)

Our Swiss institution has just completed MoUs and cooperative agreements in Vietnam (at deputy prime minister level) and Kazakhstan (National Innovation Foundation). This is in the sphere of independent leading-edge advice and joint-ventures dealing with new world-leading technologies and their distribution and sale.

The reason why these countries have engaged with our institution is because they see that we are a totally independent advisory group with no vested interests or harebrained pet projects that go nowhere and cost millions. Now we have the indelible trust of these nations.

I therefore have just one thing to say to industry ministers meeting on 15 July in Louvain-la-Neuve: change your thinking or the EU’s economies will decline at an alarming rate over the next 20 years. For the present EU thinking is that of the past and not of this century.

In this respect, what we really need is long-term strategic objectives to create whole new high-tech industries: nothing else will preserve our economies in reality.

I have just returned to Britain from Ho Chi Minh City, and some of my fellow board members have just got back from Astana. In this respect our eastern counterparts have the ideal strategy in place: although still a communist country, the Vietnamese for one are forming major strategic alliances and joint ventures with large international groups, many of which are now run by their highly-educated diaspora.

But the most important factor is that they are engaging with international ‘think-tanks’ that think ‘outside the box’, unlike the fixed mindsets of Europe. Indeed, the Vietnamese believe in taking on board the ‘independent’ thinking of others, whereas the EU is still trapped in the old university-business model, which does not work as time has clearly shown.

The reason for this, which the Vietnamese and Chinese have realised, is that ‘independent’ minds are the real source of eventual economic dynamism in the new reality world of the 21st century, as was the case in Britain and Western Europe during the Victorian era.

Therefore I implore the EU’s industry ministers to listen and to adopt the thinking of independent minds and not those of the establishment systems that have failed Europe miserably over the last century. For Vietnam and others in the region are now starting to boom because they have ‘open minds’. Let us hope therefore that EU ministers and their governments will now start our economic growth on similar lines, for in reality it is our only long-term hope.

Considering this huge sea-change, we have to get back to basics, where in the 19th century Europe ruled supreme through its application of pre-eminent independent innovators, inventors and creative industrialists. The EU has forgotten in this respect that independent thinkers were the ones who made us great.

Adopting anything else is therefore totally fooling ourselves. If change is not undertaken as a vital prerequisite now, European people will eventually pay in blood. For this vital change is the most important decision for the EU’s long-term future. Harsh words but unfortunately true with the EU’s present mindset!

Dr. David Hill

Executive Director

World Innovation Foundation Charity

Bern

Switzerland