Growth compact

Eurocrisis Conversation with Peter Bofinger

Note: Peter Bofinger and Sony Kapoor wrote the original Growth Compact for the EU in late 2011, which was then adopted albeit in a very watered down format. Download as PDF.

Sony: Peter, the markets are quiet, but the Eurocrisis is still with us, No?

Peter:  Well, the crisis is continuing and the recession is getting worse, especially as it is affecting more and more counties. It has spread from the peripheral countries into the core of Europe.  It has affected France, which is in recession, and it has also affected Germany, which has seen a severe decline in output in the fourth quarter of last year and more or less stagnated in the first quarter of this year. 

Sony:  When we were talking earlier you mentioned that this may bring new realisation in Germany and may change the debate in Germany somehow.  Up until now the crisis has not actually been felt in Germany, it has just been on the TV.  But is there not a danger that this may make a solution harder?

Personally, I can see it going both ways.  On the one hand, Germans could realise that it is a systemic crisis and they are not immune, and therefore need to do something different. Or, on the other hand, ‘oh my God, we are in trouble ourselves and here are these countries asking us for help; we cannot actually afford to help them’. This could make it less likely that Germany does anything to help them.  Which way is it more likely to go?

The EU's self-defeating approach must end now

As the depressing economic and unemployment picture from the European Commission's growth forecasts makes clear, we at Re-Define have been right to be heavily sceptical of the current strategy being pursued by EU policy-makers.

As we warned in July 2012 in our analysis on Spain, the fiscal multipliers being used were highly underestimated. We warned that on the path being pursued, the Spanish economy and employment would be pulled downwards by a combination of fiscal adjustment and related emergent banking problems. This is exactly what has happened. Our analysis was later confirmed by the IMF, when it issued a Mea culpa on having underestimated fiscal multipliers.

An IMF Program for the Eurozone

Note: This piece appeared as an Op-Ed in the Financial Times and was co-authored by Re-Define MD Sony Kapoor & Advisory board member Charles Goodhart

 

Whether or not Greece has to leave the eurozone, and whether or not a growth compact is added to the fiscal treaty, there is likely to be a further call – or calls – on the International Monetary Fund for help with funding firewalls to protect the eurozone from meltdown. The IMF should take this opportunity to be more robust than it has been in the past in dealing with Europe’s problems.

Unless the EU adopts a growth compact soon...

Re-Define's efforts for the Eurozone to adopt a Growth Compact are succeeding, albeit haltingly. Having first laid out such a compact to sit aside the Fiscal Compact in January when we are a lonely voice, we have now been successful in getting most EU institutions and several key leaders to come out in support of such an agreement at least in principle. This post, which frist appeared on Business Insider on Thursday the 3rd of May reminds EU policy makers about what the esstential elements of an agreement to try kickstart growth need to be.

Unless the EU signs up to a Growth Compact soon, we face social, political and economic disaster. Swift action on tax, banking and investment is the way out of the crisis.

Europe can't cut and grow

By Re-Define Managing Director Sony Kapoor and Peter Bofinger, member of the German Council of Economic Advisers. This appeared as an oped in Financial Times Deutschland, NRC Handelsblad, Politiken, The Guardian, Die Presse in the first week of February 2012.

The EU needs a growth compact, not a fiscal one. Swift action on tax and jobs is the way out of the crisis

Overspending by governments, we have been told, triggered this crisis. The cure thus lies in immediate austerity, hence last month's German-led push for a eurozone fiscal compact and the UK's pursuit of similar policies.

But, as demonstrated by the experiences of Greece, Portugal and Spain, this course leads to biting, deep recessions and worsens public indebtedness. The IMF acknowledged as much last week. A focus on growth, not austerity, is the correct answer for Europe's ills.

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