La crisi dell’euro e il futuro dell’economia europea

OECD: the euro crisis, Padoan is optimistic

The euro crisis: at what point is it? To answer this question, a conference was held in Rome on “The euro crisis and the future of the European economy”. The conference, organized by the Istituto Affari Internazionali and the Centro Studi sul Federalismo on December 3 2012 at the main office of the Monte dei Paschi di Siena bank, made it possible for IAI members and friends to interact with Pier Carlo Padoan, deputy secretary general and head economist of the OECD, on the growth prospects of Italy and the Eurozone.

Other speakers at the conference, chaired by Ettore Greco, director of the IAI, included Giorgio Gomel, head of the research department and international relations of the Bank of Italy; Daniel Kraus, deputy director general of Confindustria; Alberto Majocchi, professor of finance at the University of Pavia (as well as member of the board of the Centro Studi sul Federalism) and Marcello Messori, professor of economics at the University of Rome, Tor Vergata.

“The euro is still the greatest risk factor for the European economy,” said Padoan. But there are also concerns linked to the ‘fiscal cliff’ in the United States, the growing unemployment in European countries (which the OECD predicts will increase further) and the transition in emerging countries.

The global economy still has a long way to go to exit the crisis. The deputy secretary general of the OECD listed what he considers the factors that will most influence the time it takes to exit the crisis, by slowing it down. They include deleveraging (or the reduction of debt) in the private sector, which is lagging behind in the euro zone, the negative effects of the austerity policies and the slowdown of the emerging economies, which can be traced back in part to the vicissitudes of the Eurozone. In particular, the inadequate economic policy adopted in the United States and Europe are not fuelling trust in the business community (which is postponing investments) and among consumers.

Padoan did not limit himself to analyzing the situation, but went on to outline the steps involved in a possible adjustment process. In the long term, structural reforms aimed at strengthening competitiveness will be required while the weaker strata of society will have to be safeguarded. Equally important will be a budget discipline that is more consistent with growth. In the medium term, the competitive differentials measured by unit labour cost will have to be corrected and measures will have to be introduced to jump start consumption again (similar to what Germany is already doing, even though Padoan notes that it, “can do more”).

The short term is the most problematic. It takes time for the benefits of structural reform to materialize, at least a few years. Thus, there has to be enough confidence to sustain them. This, Padoan suggests, could be strengthened by “outside support”.

In the end, the head economist of the OECD expressed his conviction that an optimistic scenario in Europe is not unrealistic. It is credible that the debt / GDP ratio will decline in 2015, that the structural reforms will start producing visible effects, that the strengthening of the monetary union proceeds rapidly and that the recovery is more sustained in the United States and the emerging countries. But in order for all this to happen, appropriate political decisions will have to be taken.