IF ECONOMIC GOVERNANCE IN THE
EU IS THE PROBLEM …. IS POLICY
CO-ORDINATION THE SOLUTION?
IAIN BEGG
European Institute, LSE
Probably
Probably
not
ECONOMIC GOVERNANCE
It combines the philosophy and architecture of economic policy-making with
the institutions, machinery and practices
that shape the evolution of the economy
WHAT IS AT STAKE?

EMU as a system of governance
– Spluttering and at risk of falling into disrepute
– Process overkill; strategic void
– What was it Harry Truman said?
The spectre of China (and India etc.)
 Reform of European social model

– But towards what?
GOVERNANCE CHALLENGES
Doubts about the policy paradigm
 Is methodology of policy-making effective?

– Including which level of governance…
Accountability and legitimacy
 Transparency and communication
 Participation by actors

– Is the degree of plurality appropriate?

…and, of course, key question: does it work?
LISBON FAULT-LINES

Strategic aims not really contested
– But shifting priorities undermine consistency
– Few demonstrate case for Community level

Policy instruments have been inadequate
– Problems with incentives & means
– Action plan fatigue? Target proliferation?

Delivery failings
– Targets missed or ignored
– Pervasive effects of sluggish growth rate
– Large disparities among the Member States
Cumulative Growth in GDP, 2000-06, %
Latvia
Lithuania
Ireland
Greece
Poland
Czech Republic
Portugal
FR. Germany
Euro area
EU-25
0.0
10.0
20.0
30.0
40.0
50.0
60.0
TRAJECTORY OF ECONOMY
The reform ‘j’-curve
Performance
With extensive
reforms
Without major
reforms
A
B
Time
RATIONALE FOR CO-ORDINATION

Spillover effects across economies
– Mutually reinforcing policies: common interest
– The example of fiscal policy
» Avoiding undue pressure on monetary policy etc.
– Does it apply to Lisbon strategy? How?
The vincolo esterno argument
 Policy learning and improvement

– Adoption of a preferred, common ‘model’
– Exchange of experience & good practice - EES
AND WHAT WAS/IS LISBON?

General, if loose agenda for economic reform
– Common aims, but national priorities

Could …..be
– A process that engenders positive externalities
» Axiomatically true if growth is enhanced, but …
– A procedure that stimulates policy learning

But is it only a synonym for structural reform?
– If so, case for co-ordination ‘not proven’
AND THE RE-LAUNCH?
Another accurate diagnosis
 Another re-statement of the imperatives

– Though less ‘breathless’ in tone
Another obligation to produce action plans
 Another commitment to community action

– …but scant means, and possibly budget cuts

A fresh call for MSs to take ‘ownership’
– …but no naming, blaming and shaming
FIRST IMPRESSIONS
Integrated guidelines largely uncontroversial
 Majority of MSs miss NRP deadline

– Trivial, perhaps, but…

Very diverse content in five NRPs
– Degree of consultation
– Explicit linkage to the IGs
– Statement of new policies / existing practices

Realism of what is proposed
WHAT NEXT?

Re-launch of sustainable development strategy
– Principles set out in June; deal in December?
– Should restore longer-term focus
– ‘Smart growth’: stress economic opportunities

Major challenge is implementation
– How to engage national actors more convincingly
– Whether delivery can keep pace with wish-lists

Ideas needed for moving up the j-curve
GORDON BROWN’S RECIPE
Pamphlet published 13/10/2005
‘We had no idea that Europe now has to compete in global
markets. Not even the Germans, with their $157bn
(€131bn) trade surplus’
‘Imagine our relief when you set out a plan to save Europe:
“greater flexibility in product markets, labour markets and
capital markets” and “a framework for macroeconomic
stability that supports stability and growth”.’
[Letter of response from other Finance Ministers - FT]
CONCLUDING COMMENTS

Member States broadly know what’s needed
– But have to overcome inertia & resistance
– Perhaps requires a perception of crisis

Far from clear how co-ordination adds value
– Losing credibility in fiscal policy
– Still searching for a rationale on supply-side
Demand-side not pulling its weight
 Yet governance challenge remains central

IF ECONOMIC GOVERNANCE IN THE
EU IS THE PROBLEM …. IS POLICY
CO-ORDINATION THE SOLUTION?
IAIN BEGG
European Institute, LSE
iain.begg@lse.ac.uk