1. Advocating reforms of E(M)U economic governance Jérôme Creel (OFCE & ESCP Europe) Measuring Development in Turbulent Times Bucarest, 28 November 2017

2. Release of a new independent Annual Growth Survey (iAGS)

3. Outline of the presentation
Europe’s current economic situation
Four reform proposals for the E(M)U
Fiscal policy
Macro imbalances
Monetary policy
Social policy
N.B.: there is no priority order, a comprehensive package is required

4. Europe’s current economic situation

5. Europe’s current economic situation

6. Europe’s current economic situation

7. Europe’s current economic situation

8. Europe’s current economic situation

9. Reform #1 – Golden rule of public finance
The EU has on average low inflation and low productivity
Arguments on secular stagnation rest on the low-inflation environment
Arguments on low potential growth rest on low productivity growth
A boost on potential output is required
The adoption of a golden rule of public finance (or a spending rule related to real potential and the inflation target by the ECB) at the domestic level would stimulate public investment
Meanwhile, a Minister of Finance for the Eurozone might manage the provision of ‘European public goods’ (transnational investments, refugees’ policies)

10. Reform #2 – More symmetry in the management of macro imbalances
The Eurozone has a large current account surplus, which feeds euro’s appreciation and Eurozone deflationary trends
We recommend the adoption of the golden rule of wages
Nominal wages would grow with productivity growth plus the ECB inflation target, with differentiated paces according to the CA balance

11. Reform #3 – Continuation of APP by the ECB with a change
ECB APP policy draws on the ECB capital key in its purchases’ allocation
Non risk-sharing argument
However, this is non-neutral as regards sovereign yields as it benefits more those which require less. It can create scarcity of the safest assets
Why not another breakdown of geographical purchases?

12. Reform #4 – Improving well-being
Tie in the strong
Improve the participation of the wealthiest to the funding of European public goods, combating tax evasion, taxing the GAFAMs, etc.
Take care of the middle-class
Should not bear all the costs of tax and social burden without a better access to health, education and family allowances
Reducing poverty
Back the ‘European Pillar of Social Rights’ with ambitious funding by increasing investments in the EU Youth Employment Initiative and in efforts to upskill and reintegrate the unemployed

13. The sun has been shining only recently…
Conclusions
The sun has been shining only recently…
Some imbalances vanish (e.g. current accounts)
The European project deserves more than a ‘business-as-usual’ agenda
There are still large remaining imbalances (e.g. debts, unemployment)
Time is ripe for ambitious reforms!