The Future of Europe
Alberto Alesina
Barcelona
May 2008
Acknowledgments

Much of the material is from “The
Future of Europe: Reform or Decline”
Alberto Alesina and Francesco Giavazzi
MIT Press 2006, Spanish Translation
forthcoming, Antoni Bosch
Since the late 1980’s Europe is loosing ground
Income per person relative to the U.S.
1950
1960
1970
1980
1990
2006
France
58
70
82
86
82
76
Germany
32
53
56
59
79
71
Italy
41
58
72
79
79
70
Spain
27
32
49
58
61
70
Euro area
42
56
67
71
75
73
Why has the European miracle
stopped sometime in the 1980’s

Policies



the answer to social demands of the 1960’s. Effects on
 Meritocracy
 Inflation
 Public Finance
industrial policy to help incumbents: firms, workers.
New firms, consumers never entered the picture
Technology

an economy able to imitate but not to innovate (like
Japan)
What explains differences
in income per person?
Differences in:

fraction of the population employed

hours worked per person employed

hourly productivity
Decomposing the growth rate of income per person
(growth rates, 1980-95)
income per
person
employment
rate
hours worked
per employee
hourly
productivity
U.S.
2.2
0.5
0.1
1.4
Germany
1.7
- 0.1
- 0.9
3.3
France
1.6
- 0.4
- 0.7
3.1
Italy
2.1
0.0
- 0.3
2.5
Spain
2.6
- 0.1
- 0.6
3.9
Decomposing the growth rate of income per person
(growth rates, 1995-2006)
income per
person
employment
rate
hours worked
per employed
hourly
productivity
U.S.
2.4
0.2
- 0.3
2.6
Germany
1.4
0.3
- 0.6
1.8
France
1.9
0.6
- 0.7
2.1
Italy
1.3
1.0
- 0.2
0.4
Spain
4.2
4.9
- 0.2
- 0.2
Annual
hours
Worked
Over
Time
Hours worked
per person
employed
per year
(1950-2006)
2,400
2,200
us
2,000
italy
West Germany
Germany
1,800
France
Spain
1,600
1,400
04
20
01
20
98
19
95
19
92
19
89
19
86
19
83
19
80
77
19
19
74
19
71
68
19
19
65
19
62
19
59
19
56
19
53
19
19
50
1,200
30
Weekly hours worked per person vs. marginal tax rates
Ore settimanali per persona
20
25
Islanda
Nuova Zelanda
USA
Canada
Messico
Austria
Rep. Ceca
Regno Unito
Danimarca
Irlanda
Grecia
Norvegia
Rep.
Slovacca
Svezia
Spagna
Francia
Olanda
Italia
Germania
Belgio
15
Portogallo
Finlandia
.3
.4
.5
.6
Tasso marginale di tassazione
.7
Media Ore Annuali tra Impiegati Full Time
1400
1600
1800
2000
2200
Annual hours worked per full time employee vs. share of
workers covered by collective wage agreements
Giappone
Australia
Nuova
Zelanda
Spagna
USA
Canada
Regno Unito
Portogallo
Svizzera
Finlandia
Svezia Belgio
FranciaAustria
Germania
Norvegia
Olanda
20
40
60
80
Copertura da Contrattazione Collettiva
100
Job creation: Europe vs. U.S.
US
Euro
area
Germany
France
Italy
Spain
1980-95
total number of jobs (mil.)
25,9
14,5
jobs (annual growth rate)
1,3
0,9
hourly productivity
1,4
0,3
0,2
0,2
0,2
3,3
3,1
2,5
3,9
1,4
1,0
1,2
5,1
1,8
2,1
0,4
- 0,2
1995-06
total number of jobs
18,3
18,0
jobs (annual growth rate)
1,3
1,3
hourly productivity
2,6
What can be done?
1.
Liberalization of goods and services markets: then
it will also be easier to liberalize the labor market
2.
Labor Market: less judges, more generalized
unemployed protection networks
The lack of competition affects the labor market
Source: Giuseppe Nicoletti et al, OCSE, 1999.
What can be done?
3.
Welfare: taking from someone and giving to others
(often to the same ones) is often a waste and it
does not reduce inequalities and poverty: you’d
better tax people less
Expensive but ineffective welfare systems
per cent of households at risk of poverty before and after social transfers (2003)
before
after
Sweden
29
11
Finland
28
11
Holland
22
12
Denmark
32
12
Source: Eurostat
before
after
Germany
24
16
France
26
12
Belgium
29
16
Italy
22
19
Spain
22
19
Greece
24
21
U.K.
26
18
What can be done?
4.
University & Research: different rules, more incentives, more
competition among universities (the legal recognition of the
degree should be abolished)
5.
Reduce market entry barriers and the cost of doing business
6.
An inefficient civil justice is an entry barrier
Could the EU be a solution?

The EU has two “souls”:


a pro market one (single market polices, protection of
competition, harmonization of rules of commerce)
a dirigiste one: “Lisbon agenda”, harmonization of social
policies, imposition of common social goals to all member
countries
Could the EU be a solution?


Single market, competition, euro: YES
Rhetoric of coordination, social policies harmonization, Lisbon
agenda: NO
So what should the EU do?


Do relatively little but do it well: single market, competition,
encourage structural reforms
Stay out of areas where differences of opinions amongst
members are much more important than the benefits of
coordination
Are European anti-market? Yes !
Would you agree with a market economy?
(results of a survey by the University of Maryland)
France
36%
Germany
65%
Argentina
44%
Canada
65%
Russia
44%
Nigeria
65%
Turkey
46%
UK
67%
Brasile
55%
Indonesia
68%
Kenya
56%
India
70%
Italy
59%
Korea
70%
Mexico
59%
USA
73%
Poland
62%
Philippines
74%
Spain
65%
China
75%
Why ?


Incorrect perception that any market oriented reform
generate injustice, and inequality
This is wrong. Often in justice and inequalty are
created by distoretd socila and wlefare polcies
Current Events



Major Credit crunch avoided
The new seventies?
Oil, wages and monetary polciy
Risks





Anti market sentiments on the rise.
Protectionism in US?
Protectionism in Europe?
Inflation on the rise: ECB in a bind
Adjustment in Portugal Italy and Spain,
strain on EMU.