Euroland and the World Economy

Transcription

1 Euroland and the World Economy

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3 Euroland and the World Economy Global Player or Global Drag? Edited by Jorg Bibow and Andrea Terzi

4 * Selection and editorial matter Jiirg Bibow and Andrea Terzi 2007 Individual chapters Contributors 2007 Softcover reprint of the hardcover 1st edition All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WlT 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act First published in 2007 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y Companies and representatives throughout the world. PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin's Press, LLC and of Palgrave Macmillan Ltd. Macmillan is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN ISBN (ebook) DOI / This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Euroland and the world economy: global player or global drag? I edited by Jiirg Bibow and Andrea Terzi. p.cm. Includes bibliographical references and index. ISBN (alk. paper) 1. Monetary unions - Europe. 2. International finance. 3. International economic relations. I. Bibow, Jiirg.11. Terzi,Andrea, HG925.E '42-dc Transferred to Digital Printing 2011

5 Contents List of Tables List of Figures Notes on Contributors vii ix xi Introduction: Euroland and the World Economy - Global Player or Global Drag? 1 Jorg Bibow and Andrea Terzi Part I Euroland on a Collision Course 1. Global Imbalances, Bretton Woods II, and Euroland's Role in All This Jorg Bibow 2. Wage Divergences in Euroland: Explosive in the Making Heiner Flassbeck 3. Can the Euro Area Playa Stabilizing Role in Balancing Global Imbalances? Philip A res tis and Malcolm Sawyer Part II Policy Coordination and Increased Integration as Means to Properly Steer Euroland 4. Whatever Happened to 'Policy Coordination'? James Forder 5. The Economic Rationale of the EMU and the Euro C. Sardoni 6. Righting Global Imbalances: Recession, Protection or Reflation? 104 Alex Izurieta and George Irvin Part III Reforming Euroland's Institutional Framework and Macroeconomic Policy Governance Replacing the Stability and Growth Pact? C. A. E. Goodhart 135 v

6 vi Contents 8. Fiscal Policy and Macroeconomic Performance in the Euro Area: Lessons for the Future Eckhard Hein and Achim Truger 9. Germany's Choice and Lessons from Japan: Supply vs. Demand Policy, Fiscal vs. Monetary Policy Richard Werner 10. You Can't Always Get What You Want: Why Europe is Not Keynesian-able While the US New Economy is Driven by Financial Keynesianism Riccardo Bellofiore and Joseph Halevi Part IV Prospects and Limits of the Euro as a Global Currency 11. 'Not my fault' or Would Spreading the Maastricht Wisdom beyond Europe Really Do Much Good at All? Fabrice Capoen and Jerome Creel 12. The Role of the Euro in the International Monetary Arena: Present and Prospects 266 Sergio Rossi 13. International Payments Imbalances and the Prospective Role of the Euro 288 Andrea Terzi Name Index Subject Index

7 List of Tables 3.1 Ranking of labour-market reforms and GDP in the 12 Euro Area countries EC expenditure in the early years following the introduction of a single currency and comparison with the 1992 budget Real GDP growth, growth contributions of demand aggregates, unemployment rate and inflation rate in the Euro Area countries and the United States, average values for Average government budget balance and primary budget balance for the Euro Area countries and the United States from in per cent of GDP Gross government debt for the Euro Area countries and the United States from in per cent of GDP Excessive deficits in Euro Area countries from in per cent of GDP Indicators for fiscal policy in the Euro Area countries and the United States, average values, Indicators for monetary and wage policies in the Euro Area countries and in the United States, average values, Current account balances as a percentage of GDP in Euro Area countries, Sweden, Japan, the United Kingdom, and the United States, Nominal growth rates of GDP, trend GDP, selected categories of government expenditures and total revenue for the Euro Area countries and the United States, average in per cent Data on German economic performance Contribution to nominal GDP growth in the 1980s and 1990s Estimation results of private demand model Linear restriction test of ineffectiveness hypothesis Euro-dollar exchange rate volatility Standard deviations of monthly variations in exchange rates expressed in dollars EU shocks and euro-us dollar exchange rate volatility Benchmark case: loss function parameters 249 vii

8 viii List of Tables 11.5 Benchmark case: effects of different shocks Benchmark and variant cases compared: values expressed as deviations from steady-state Countries with exchange rate regimes linked to the euro Exchange rate strategies of the Barcelona partner countries 281

9 List of Figures 1.1 US current account balance: US budget and current account balances, US private households on a borrowing binge US personal saving rate and current account The growing US-Chinese trade imbalance, Countries with huge current account surpluses The US as global growth engine US-Euroland bilateral trade imbalance Germany pushing Euroland apart (Germany's soaring trade 35 imbalance with its Euroland partners) 1.10 Diverging real exchange rates inside Euroland (1999=100) Cumulative GDP growth and its composition ( ) Nominal unit labour costs in Germany and other EMU-member countries Nominal unit labour costs in four European countries Nominal unit labour costs in Germany and other EMU-member countries since 1999 SO 6.1 Aggregate demand leakages: US Corporate and Public Sectors (Increments of expenditure net of income over two-year cycles as per cent of GDP) Financial balances of the external and personal sectors in the United States (per cent of GDP) Aggregate demand leakages: 'EU-15' corporate and public sectors (Increments of expenditure net of income over two-year cycles as per cent of EU-15 GDP) Leakages in France, Germany, Italy and the United Kingdom: corporate and public sectors (Increments of expenditure net of income over two-years cycles as per cent of GDP) Rates of economic growth in main blocs (Three scenarios compared: baseline, protection, reflation) Trade balances in main blocs as per cent of GDP (Three scenarios compared: baseline, protection, reflation) Government budget balance and primary budget balance: Euro Area in per cent of GDP Government budget balance, cyclically adjusted budget balance (CBR) and output gap: Euro Area ix

10 x List of Figures 8.3 Government budget balance, cyclically adjusted budget balance (CBR) and output gap: United States in per cent of (pot.) GDP Short-term real interest rate minus real GDP growth rate in the Euro Area and in the United States, , percentage points Nominal GDP, nominal trend GDP, government expenditure and revenue: United States, , growth rates in per cent Nominal GDP, trend GDP, government expenditure and revenue: Euro Area, , growth rates in per cent German trade balance (annual moving sum) Average real annual GDP growth, The number of cartels and economic growth in Japan Nominal private demand and government expenditure, absolute growth rates Private demand and fitted model. Evaluation of empirical tests Bank lending in Germany Bond-funded fiscal expenditure with credit rationing Net effect of credit-funded fiscal expenditure Actual and potential growth, Euro Area Current account, as a percentage of GDP, Euro Area US dollar vs. euro exchange rate Benchmark case: demand shock in France Benchmark case: supply shock in the United States Variant case: demand shock in France Variant case: supply shock in the United States The three-tiered banking system The circular flow of international money Global financial imbalances: (per cent of world GDP) 290

11 Notes on Contributors Philip Arestis is University Director of Research, Cambridge Centre for Economics and Public Policy, University of Cambridge, UK; Visiting Professor, University of Leeds and SOAS, University of London, and Adjunct Professor, University of Utah. He is also Senior Scholar, Levy Economics Institute, New York, US; and Vice-Chair of the ESRC-funded Macroeconomics, Money and Finance Research Group. He has published a number of books as sole author or editor, as well as co-author and co-editor; contributed in the form of invited chapters to numerous books; produced research reports for research institutes; and has published widely in academic journals. Riccardo Bellofiore is Professor of Political Economy, 'Hyman P. Minsky' Department of EconomiCS, University of Bergamo, Italy, and Research Associate in the History and Methodology of Economics Group at the Faculty of Economics and Econometrics, University of Amsterdam, The Netherlands. His current research interests include the economics of globalization, monetary macroeconomics, endogenous theories of money, Marxian value theory, and economic philosophy. ]6rg Bibow is Assistant Professor of Economics at Skidmore College, New York, USA. Previously he held lecturing positions at the University of Cambridge, Hamburg University, and Franklin College Switzerland. He is a Research Associate at the Levy Economics Institute, New York. He is the author of numerous articles and co-authored volumes published in Europe and the United States on European integration, central banking, financial systems, and the history of economic thought. Fabrice Capoen is Assistant Professor of Economics at the University of Caen, France. He has written on international macroeconomics and, in particular, on policy coordination in dynamic models, transmission effects of monetary and fiscal policies, and central bank independence. Jerome Creel is Deputy Director of the Research Department at Observatoire Fraw;:ais des Conjonctures Economiques (OFCE), Fondation Nationale des Sciences Politiques, in Paris. His works have dealt with economic policies in the EMU, the economics of EU enlargement, and institutional economics, notably related to the Constitutional Treaty and delegation issues. Heiner Flassbeck is Honorary Professor of Hamburg University and Director, Division on Globalisation and Development Strategies, UNCTAD secretariat. He is the leader of the team preparing the Trade and Development Report. xi

12 xii Notes on Contributors Previously he was Vice-Minister of Finance in Germany and Chief Economist of the German Institute of Economic Research in Berlin. James Forder is a Fellow of BaHiol College, Oxford, where he has taught economics and politics since He has written on central bank independence, questioning the data and rationales supporting it, and on European integration. Charles Goodhart, is a member of the Financial Markets Group at the London School of Economics, having previously, , been its Deputy Director. Previously he taught at Cambridge and LSE, and was Adviser to the Governor of the Bank of England. He has published on monetary history, on monetary policy, financial stability, and financial markets. Joseph Halevi is Senior Lecturer at the Faculty of Economics and Business, The University of Sydney, Australia, where he teaches political economy. Previously he taught at the universities of Grenoble, Nice, Connecticut, and at the New School for Social Research in New York. He is a co-editor, with David Laibman and Edward Nell, of Beyond the Steady State and, with Jean Marc Fontaine, of Restoring Demand in the World Economy. Eckhard Hein is Senior Researcher for Macroeconomic Policies at the Macroeconomic Policy Institute (IMK) in the Hans Boeckler Foundation, Duesseldorf, and Visiting Professor at Carl von Ossietzky University Oldenburg, Germany, and at Vienna University of Economics and Business Administration, Austria. George Irvin is Professorial Research Fellow at the Development Studies Faculty of SOAS, The University of London, and is currently visiting research fellow at ICER in Turin, Italy. Previously he was at ISS, The Hague, where he taught, researched and did consultancy in Africa, Asia and Latin America. Alex Izurieta is Senior Economic Affairs Officer, UN/Department of Economic and Social Affairs (DESA). His contribution was written while at the Cambridge Endowment for Research in Finance (CERF), University of Cambridge. Previously, he was at the Levy Economics Institute of Bard College, New York, and the Institute of Social Studies, The Hague, where the collaboration with his co-author George Irvin started. Sergio Rossi is Associate Professor of Economics at the University of Fribourg, Switzerland. He has a DPhil degree from the University of Fribourg and a PhD degree from the University of London (University College). His research interests are in the area of monetary macroeconomics. He has authored and edited a number of books, contributed several chapters to books, and widely published in academic journals.

13 Notes on Contributors xiii Claudio Sardoni is Professor of Economics at the University of Rome 'La Sapienza'. He has worked on the Classical and Keynesian traditions of thought. In recent years, he has concentrated his attention on monetary theory and policy. Malcolm Sawyer is Professor of Economics, University of Leeds, UK, and Pro-Dean for Learning and Teaching for the Faculty of Business. He is managing editor of International Review of Applied Economics and the editor of the series New Directions in Modem Economics published by Edward Elgar. He is the author of 11 books, has edited 18 books and published nearly 150 articles and chapters. Andrea Terzi is Professor of Economics, Franklin College Switzerland, and a Lecturer of Monetary Economics, Universita Cattolica, Milan, Italy. He is the author of numerous articles and co-authored volumes published in Europe and the United States in the areas of money and macroeconomics, financial market behaviour, and international financial instability. Achim Truger is Senior Researcher in Public Finance and Tax Policy at the Macroeconomic Policy Institute (IMK) in the Hans Boeckler Foundation, Duesseldorf, Germany. Richard A. Werner is Chair in International Banking at the School of Management, University of Southampton. He holds a D.Phil. in Economics from the University of Oxford and a degree from the London School of Economics. He has spent over a decade in Japan and published widely on monetary, macro and development economics. His books include 'Princes of the Yen' (2003) and 'New Paradigm in Macroeconomics' (2005). In 2003, the World Economic Forum named him 'Global Leader for Tomorrow' in Davos.