Presentation on theme: "Presentation to TURI Seminar ‘European Responses to the Crisis"— Presentation transcript:
1Presentation to TURI Seminar ‘European Responses to the Crisis Fiscal stimulus packages in Europe in response to the crisis – a quantum of solace?Presentation to TURI Seminar ‘European Responses to the Crisisand Alternatives to GDP as an Element of a Paradigm Shift’, Brussels 29 June 2009Andrew WattEuropean Trade Union Institute
2The studyQuestionnaire sent to national expertsMostly members of the TURI networkReports from 18 of EU27 plus NorwayRepresent more than 90% of EU GDPCut-off early April 2009Excludes support for banks and (largely) measures decided before on-set of crisis
4Size of stimulus packages by country (% GDP) ATBEDKFIFRDEHUITLUNLNOPTESSEUKOverall size of fiscal package184.108.40.206.512.640.24.6in 20090.41.20.71.750.450.7220.127.116.11in 2018.104.22.168.511.15-0.1expenditure side3060206446508084753410
5Main findings in aggregate Overall size of packages much too small: around 1% 2009 and 0.6% 2010 against size of shock (6-7 p.p. of GDP)Even allowing for larger automatic stabilisers, less stimulus than US – inappriopriate given global imbalances and initial fiscal position and (now) sharper downturn in EUBroad expenditure/revenue side balance – but major differences between countriesSubstantial variation in size of packages between MS. Germany makes a substantial overall contribution (ca p.p. of EU27 GDP, but more in 2010).But not obvious that small countries are free-riding
6Factors influencing size of packages Country size: positive correlation between size of economy and size of stimulus, but very weak (0.1): no strong evidence of free riding in EUSize of shock: quite strong negative correlation between output gap (estimate by COM) and size of package (-0.4): plausible and appropriate responseSize of automatic stabilisers: weak negative correlation between size of stabilisers (OECD estimate) and size of package (-0.2): plausible and appropriateFiscal ‘room for manoeuvre’: substantial negative correlation between level of government debt and size of package (-0.5) and somewhat weaker one with last year’s fiscal deficit: major concern that EU countries feel constrained in running cyclically appropriate fiscal policies by debts/deficits that are not high in historical terms (lack of fiscal federalism)
7Qualitative features of the packages Substantial national variation and use of wide range of measures (in principle appropriate). Some notable features:Focus on business tax and contributions in many MSVAT cuts less frequentNot clear that tax cuts have targeted low-income groupsIncreases in public investment central plank in most MSSubstantial sector-specific supportSome limited productivity/efficiency raising measures (R&D, green measures)Very limited focus on active labour market measures and improvements in unemployment benefitsMissed opportunity in terms of green investment and ecologically dubious measures (cash for clunkers)Explicit protectionism seems to have been avoidedTrade union involvement (and support) varies widely
8ConclusionsThe fiscal packages in the EU are too small they offer a ‘quantum of solace’ to Europe and fail to address global imbalances. Current self-satisfaction by policymakers completely inappropriate.The distribution across countries varies considerably. On the positive side, to some extent this is justified economically and widespread free-riding seems to have been avoided (success for EU). However, the supposed ‘fiscal room for manoeuvre’ seems to be a binding constraint on more cyclically appropriate policies. Particularly problematic in eastern Europe (IMF). Failure of European fiscal solidarity.Mixed picture in terms of content of the packages. Considerable focus on public investment, but concerns about distribution, lack of attention to labour market crisis and missed opportunity on green issues.