Europe needs all of us to build its future.

the second European Economic Lunch-debate of our conferences cycle on "For a Social Market Economy: Reconciling Competitiveness with solidarity".

What does competitiveness mean?
Macroeconomic indicators in debate

Isabell HOFFMANN and Philippe HERZOG introduced the lunch-debate

with the participation of

Giuseppe COCO, Economist, Università di Bari, and Fondation Astrid

Markus SCHULTE, DG ECFIN, European Commission

Caroline WILLEKE, Head of Division, External Developments, European Central Bank

Guntram WOLFF, Research fellow, Bruegel

And with the support of our network composed of companies, trade unions and local representatives

Contact : Yan Dupas
Tel : 01 43 17 32 90 - This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

Issues

Today: something has changed in all Member States: we recognise the fact that the crisis was not born solely of speculation, it was also caused by problems that need to be resolved through structural reforms”, declared Angela Merkel in the aftermath of the European Council of March 2011. The crisis that erupted in 2008 highlighted the internal differences and imbalances in the EU, and pushed the notion of competitiveness to the top of the political agenda. Both at a European level and within the scope of the G20, finance ministers are working on the indicators that will be used to monitor macroeconomic imbalances.

What does the concept of competitiveness imply exactly, and why is it considered so important for growth and employment? It is an elusive concept, referring to the ability of a State (or group of States) to maintain and renew its capacity to produce and innovate in an open economy to meet domestic needs and to export. In operational terms, various indicators are needed to successfully understand and measure this concept. The debate surrounding the definition of these indicators is the focus of much tension, and is pushing not only European and world leaders but also the entire civil society and citizens to question the effectiveness of the existing national economic models. A pivotal, constructive and regularly renewed debate on these indicators is called for to encourage their adoption and effective implementation.

Within Europe, Germany and certain other countries are exporting more than they are importing, while the current account balances of many other countries vis-à-vis the ‘outside’ world are in deficit. How can such differences be explained? The proposed indicators rely on differentials in unit labour costs (wages/productivity) but, in addition to structural problems relative to payroll, is there not a risk of this placing unilateral pressure on wages? Competitiveness indicators for innovation and investment are lacking, yet these are the fundamental levers of productivity and growth.

What’s more, can we live with such deficits indefinitely? They must still be financed by other countries. Germany is a creditor of other European countries (passive solidarity). Default fears surrounding debtor States such as Greece are resulting in the imposition of stringent austerity policies. Should we not be questioning the effectiveness of financing and the benefits of proactive solidarity in the field of innovation/investment (performing loans, loans for training, etc)?

Globally, current account imbalances are at the heart of the debate. The U.S. Treasury Secretary Tim Geithner had proposed, unsuccessfully, to limit deficits or current account surplus to 4%. This amounts to demanding that the major exporters, namely China and Germany, increase their imports and domestic consumption, which leads to questions regarding the symmetry of the work to be done within the Union and at G20 level to reduce economic imbalances.

To this end, we believe it imperative to encourage further reflection on new forms of solidarity. As summarized by Jean-Claude Trichet, “we need to pool our efforts to win as a team, like a pack of cyclists pedalling at the same rhythm”. This does not mean that we should unify our policies; not everyone can adopt the German model, and our cultural and economic diversity may prove an asset that we should nurture. As he said himself, we cannot address underlying economic imbalances without a breakthrough in the move towards budgetary and fiscal federalism. But we must not forget that solidarity has a price, and it is perfectly legitimate that competitiveness efforts be a prerequisite for support.

More information on the November 2011 European Economic Debates (Entretiens Economiques Européens or EEE
More information on the LUNCH DEBATE CYCLE: For a Social Market Economy: Reconciling Competitiveness with solidarity