THE CHALLENGE FOR EUROPE IN A NEW AGE

Jan Fagerberg University of Oslo, lborg University & University of Lund

The Ulysses Conference, Lisbon, 9.12.2012

Main points
The times they are changing ( and will continue

to) EU policy needs to adapt, not in a defensive, but in a proactive way But the EU has a tradition for trying to solve yesterdays problems with outdated means This holds even today, in a times of crisis, with policies totally void of concern for growth and employment That has to change

What has happened?

1980s onwards: The ICT revolution & radical innovation in

transport technologies led to the development of new methods of production and distribution (global production networks) Industrialization and catch-up in Asia based on these changes: The tigers, China, India 1990s onwards: Dismantling of the Soviet empire: Unleashing talent and resources, rapid growth/catch-up in Eastern Europe: The Baltics, Poland, 2000s: The climate challenge emerges: The world needs to get off the addiction to carbon otherwise But how? And who will take the lead?

Growth of GDP per capita 1995-2008

10,00 9,00

China
8,00

Annual growth 1995-2008

7,00 6,00 5,00 4,00 3,00

Latvia Lithuania, Estland

y = -0,9837x + 11,991 R = 0,4209

India

Slovakia Russia Poland Bulgaria Slovenia Korea Romania Greece Hungary Turkey Spain Portugal

Ireland Finland

2,00
1,00 0,00 5,00

Denmark Italy

6,00

7,00

8,00

9,00

10,00

11,00

Log GDP per capita 1995

Data Source: World Bank

Growth of GDP per capita 2008-2011

10

China
8

y = -1,3265x + 12,252 R = 0,2789

India

Annual growth 2008-2011

Indonesia
4

Poland Turkey Brazil

Korea

Germany, Sweden
0 6 7 8 9 10 11 12

Portugal
-2

Estland Romania

Spain, Italy -Slovenia Ireland

-4

Latvia Greece

-6

Log GDP per capita 2008

Not one periphery in Southern Europe: Three (quite different) cases

Unsustainable policy
Greece Relatively high growth 1995-

Stagnation

Italy, Spain and Portugal

Modest or low growth 1995-

2008 Fueled by private consumption (70-80 % of GDP) and high wage growth Accompanied by increasing external deficits & eventually economic collapse (after 2008 )

2008 Low wage growth in Italy and Spain, modest in Portugal Spain and Portugal get increasing external deficits, Italy too, but less Negative growth after 2008

Growth ( in spite of the crisis): Turkey

10

Current account surplus

(as percentage of GDP 1990-2010)
Germany Ireland

0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Italy -5 Spain

-10

Portugal

-15

-20

Would this have occurred without the Euro? Probably not.

Greece

A Growth Program for Europe

Current macro economic policies remind one about the

1920s and are unlikely to lead to growth A Growth Program for Europe required The climate challenge has to be dealt with but by whom and how? US? China? Why should not Europe lead the world in getting off the carbon addiction? Would require massive investments in innovationdiffusion and infrastructure and be good for growth and employment Best chance to get Europe including the South - out of the crisis?