Seminar in Brussels, March 10th, 2010.
Professor Lars Oxelheim, chairman of the Network for Research on Europe, now entering its 14th year of operations, introduced this year’s very timely annual report, ”The European Union and the global crisis”, and greeted everyone welcome.
Ulrika Stuart Hamilton, deputy Managing Director, made a short presentation of Swedish Entrepreneurship Forum, the organisers of the event and introduced the first session: ”Managing the Crisis and Challenges to the European Cohesion”.
Ulrika Stuart Hamilton and Lars Oxelheim
Participants in the first panel were Maria Oskarsson, assistant professor, political science, Gothenburg University, Lars Pehrson, professor of law at Stockholm University and Jonas Ljungberg, professor, economic history, Lund University.
Maria Oskarsson discussed the dichotomous opinion concerning the Swedish EU membership, and how the recent crisis had influenced that.
– There are some visible tendencies that the attitudes towards the EU have become more positive, maybe as a consequence of how the Union initially took on the crisis, but more importantly how the Swedish government managed the presidency during the second half of 2009. At the same time, less educated in sparsely populated areas, particularly women, are more negative towards the European Union, whereas men with academic degrees in towns are considerably more positive, according to Maria Oskarsson.
Her conclusion is that this is a lesson for politicians to deal with. What do the various groups gain from EU in the long run? That is the question that needs a more pedagogical answer than has so far been the case.
From left to right: Lars Pehrson, Maria Oskarsson and Jonas Ljungberg
Jonas Ljungberg argued that the Euro had contributed negatively to the crisis in Europe. Monetary policy had been good for Germany, whereas Ireland and Spain suffered.
– Their lack of possibilities of influence competitiveness and the cost level through flexible exchange rates have hit some EU-members hard, said Jonas Ljungberg.
This applies also to the Baltic states which by pegging their currencies to the Euro have ended up in a precarious situation. Poland, having chosen a different path, is much better off. The Greek crisis is caused by bad fiscal policies and a generally corrupt system, according to the economic historian.
The moderator wanted to know what Jonas Ljungberg thought about the flexibility measures in some recent labour market agreements in Sweden, where the two parties have agreed on lower monthly pay and fewer working hours. Isn’t that a better way of introducing flexibility than devaluations?
But professor Ljungberg did not see this as a fruitful way out of the crisis.
– To compete with low wages has never been a recipe for success. On the contrary. High wage economies are those who in the longer run have shown the best growth figures, according to Jonas Ljungberg.
Jonas Vlachos, assistant professor, who also contributed a chapter in the volume, pointed out that he did not see any major difference between a policy with flexible exchange rates (leading to devaluations in this case) and voluntary agreements about lowered wages. The results would be the same.
As for Greece, the suggested solution by Jonas Ljungberg is the idea of a European Monetary Fund. At the end of the day the EU will have to help Greece out with loans anyway. Thje problem will become a lot more difficult if Italy, its economy being about seven times that of Greece, would run in to the same kind of crisis.
Objections to professor Ljungberg’s analysis were voiced from the audience: it is not relevant to blame the problems in the Baltic countries on their exchange rate regimes. At least as important an explanation is the strong dependency on Sweden and the Swedish banks that totally dominate the financial system.
Professor Lars Pehrson commented on how the financial system in general and the institutional arrangements in particular had withstood the financial crisis. Lars Pehrson considered that the ”new” rules, Mifid (Directive on Markets in Financial Instruments), had managed the crisis a lot better than expected. Some confusion had emerged though over where the exact responsibilities lie when the mother company is in one member state and the subsidiary in another (the Icelandic example). Who exactly is responsible for which credit losses?
Another aspect of the crisis is the limits for state aid, which have been stretched much further than before during this crisis. The researchers present did not agree whether this also is a sign of more protectionist tendencies in general. Most probably there will be modifications in competition policy at global level after the crisis. Whether such changes would be helpful when the next crisis comes along is however more uncertain.
After the break Ulrika Stuart Hamilton welcomed a new panel to the podium to discuss ”Post-Crisis EU: The Future of European Business, the Future of Financial Integration and of EU as a Global Actor”.
Assistant professor Jonas Vlachos from Stockholm University and the Research Institute of Industrial Economics, Sophie Nachemson-Ekwall, PhD student at the Stockholm School of Economics and journalist, and Richard Bengtsson, assistant professor and deputy head of Centre for European Studies, Lund university.
From left to right:: Jonas Vlachos, Rickard Bengtsson and Sophie Nachemson-Ekwall
Jonas Vlachos began by stating that the regulators hardly can be expected to have a better knowledge about ongoing processes than the actors on the market. That is why the financial regulatory systems will always fail in the long run.
– The idea of introducing stricter rules on capital quotas for the financial institutions is a good one. But that in itself will not prevent future financial crises, according to Jonas Vlachos.
He argued in favour of market discipline and self regulation, rather than politically decided rules. Thus, the politics of president Obama in the US is not a role model to the EU in this respect.
The policy implications of the chapter submitted by Jonas Vlachos are, to mention but a few, that the content and substance of the regulations are very important and that it is vital that they are not applied the wrong way. The best thing would be to decide on regulations of these markets at global level. That way there would not be a number of differing sets of rules in the financial markets.
– There will always be a strong innovative pressure from the markets, with new instruments and new solutions and those innovations will always be designed to find the loopholes in the rules and regulations. That is why it is more important that the financial industry itself creates the rules, in order to avoid very constantly more creative instruments.
In response to questions from the floor, Jonas Vlachos answered that it is totally wrong that the rating institutes with their insufficient analytical methods have been given such a big influence on highly indebted companies’ possibilities on achieving a high ranking and continuing to develop new and riskier instruments.
Sophia Nachemson-Ekwall suggested that rules for corporate governance be harmonised, and in the direction of an Anglosaxon – American direction. Today’s European system with a number of different models for governance only make some markets, e.g. Sweden and the UK, much more open to takeovers than e.g. Germany and Italy.
The moderator wanted to know how these rules would develop after the crisis. Sophia Nachemson-Ekwall predicted a whole lot of quite profound changes – hopefully in a more transparent direction.
Jonas Vlachos emphasized that during the last crisis, firms with a more widespread ownership took greater risks than those with a few dominating owners.
Rikard Bengtsson stressed the importance of the EU having its own seat in the G20 group. That means that all 27 EU members states and not only those four with their own representation based on their size can influence the decisions of the G20 group. The EU representation means that some issues are given a clearer EU profile, e.g. the climate issue (though not at the top of the agenda in G20).
But in general, the EU profile lacks strength in international fora, said Rikard Bengtsson. – And the recent choice of the first two posts as chairman of the Council of Ministers and EU ”foreign minister” (Herman Van Rompuy and Catherine Ashton) do not imply that there is great interest from the member to give EU a stronger profile at the expense of the member states.
There are signals from both USA and RUssia that EU ought to strengten its international profile. Also the newly founded alliance between hte US and China, sometimes called “G2”, there is sscope for a stronger EU role, in order form a ”G3”.
Lars Jonung, professor in economics and advisor, DG ECFIN, European Commission, summarized and commented on the two panels. He found it “a well-written and timely report”, and compared it to the analysis of the crisis recently carried out by DG ECFIN, even though the report by the Network for Research on Europe also included broader aspects of policitics and law. Both reports conclude that the “financial meltdown had been avoided thanks to political initiatives”. Thanks to monetary policy that was aggressively eased, a substantial fiscal stimulus, no large scale protectionism and international cooperation – not least the EU and the Euro zone, the severe problems of previous financial crises had been avoided.
Afterwards the fiscal stimulus might prove to have been too expansive and indebtedness grown too fast. On the other hand, the protectionist measures or tendencies had been fewer than one might fear.
Lars Jonung, professor of Economcs and Advisor to DG ECFIN, European Commission in Brussels.
Lars Jonung emphasized the role of the Euro as a positive part of the stabilization process and askeded, rhetorically, ”How would Europe have managed the crisis without EU and the Euro?”. As a perpetual optimist, professor Jonung declared that he thought the EU had drawn the correct conclusions from history this time, and that the ending would be a happy one this time round.
As for the second panel, professor Jonung thought that the analysis of Jonas Vlachos about the financial regulations was a balanced one, but that new regulations always make the foundation for new financial crises. For the European Union the challenge is to find common roads ahead when it comes to regulations.
The chapter by Sophie Nachemson-Ekwall about corporate governance inspired Lars Jonung to pose another rhetorical question: ”Who should own Europe”? Each EU member state will create mechanisms to protect its firms and assets. He also noted that some people consider the financial markets as an evil and that the only positive invention ever on those markets is the ATM machine. .
The high growth in the period before the crisis was thanks to globalization. The wuestion is whther history will repeat itsel this time round and the pendulum now swing to a period of increased nationalism or even protectionism. Probably the EU will manage the crisis better than the US this time, professor Jonung concluded on a rather optimistic note.
The chairman, professor Lars Oxelheim, got the last word and declared that he is not an optimist but rather pessimistic. “Have we really learnt the lesson this time round?”.