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Commentary & analysis with a focus on European economic policy

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Unemployment in the Euro Area passes a milestone

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With the latest unemployment figures from Eurostat, for November 2017[1], the Euro Area has passed a milestone: for the first time the unemployment rate, at 8.7%, is below the average of the “normal times” prior to the economic crisis. This provides a good occasion to evaluate the current state of the labour market, as far as unemployment rates are concerned, in the Euro Area and its member states. To what extent have the scars of the crisis healed? Where do the most serious challenges remain?

Figure 1 shows the labour market recovery from the double whammy of the global financial and then the Euro crisis: it begins in the spring of 2013, in the wake of the belated “whatever it takes” announcement by the European Central Bank. Unemployment fell from its peak of 12.1% and by January 2017 it was below its average for the entire history of the common currency to date (9.6%). By November the continued improvement had brought the figure down below the average recorded up to the crisis (8.8%). Over the last 12 months the unemployment rate has fallen at an average of almost 0.1 percentage point – around 130 000 persons – a month. [Read more…]

Deepening EMU: Commission makes limited steps (mostly) forward

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Today the EU Commission launched a long-awaited set of concrete proposals to deepen European Monetary Union (EMU). The proposals are voluminous and in some areas detailed. Here’s a summary of the most important points and a first evaluation.

First, the European Stability Mechanism, currently intergovernmental, is to be transformed into a European Monetary Fund as a fully-fledged EU institution. Beyond the legal change – which is surely welcome, the intergovernmental solution having been chosen under the pressure of imminent crisis – the Commission envisages few functional changes. The main task of crisis-lending to Member States in need and the related ability to issue bonds to raise finance remain. New is that the EMF is to back-stop the Single Resolution Fund as part of the Banking Union. By providing guarantees or a credit line, and in parallel by reducing the policy areas subject to unanimity, the EMF will be able to offer swift assistance in the case of banking crises, plugging a notable hole in the policy framework. By underpinning confidence in financial stability, this should reduce the likelihood of its having to be used.

Reference is made to the possibility for the EMF develop new financial instruments “over time”. This is a door left open to a future extension of borrowing – and thus stabilization – capacity in the future.

Equally important, unlike in the vision of now-departed German finance minister Wolfgang Schäuble, the EMF is not foreseen to play a key role in disciplining member states and ensuring the implementation of structural reforms. Oversight responsibility is to remain unchanged (i.e. divided between the Commission and the Council). [Read more…]

Bernd Lucke and the shifting sands of liberalism, nationalism euroscepticism and populism

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(Sie können eine deutsche Version dieses Textes bei Makronom, der Online-Zeitung für Wirtschaftspolitik, lesen: hier)

Just over a week ago Bernd Lucke came to Düsseldorf to give a lecture drumming up support for a new party. Bernd who? Well, the former member of the CDU – for 33 years no less – was very much in the German and indeed European news from 2013 to 2015, as the face of the euro-critical, liberal-conservative Alternative für Deutschland. After a power struggle with right-wing nationalists and racists who increasingly came to dominate the party, he and other members of the liberal wing left to form ALFA, the Alliance for Progress and Renewal. Declining to contest the recent German federal election – perhaps the acronym was just too dreadful – it mutated into the LKR, which stands for liberal-conservative reformer. This is the same name as the group in the European Parliament for which Lucke sits, having gained his seat as an AfD candidate in 2014.

I relate this party-political musical chairs, because Lucke’s background and recent political biography, and also his lecture and the subsequent discussion with 75 or so citizens who attended are telling about current trends in German, and beyond that European, liberalism, nationalism, euroscepticism and populism.

I’ll begin by accentuating the positive. Bernd Lucke, a former professor of economics, is certainly knowledgeable about EU and German affairs, especially economic issues. He is personable and, while conservative in outlook, I genuinely believe he personally has no truck with racists. This begs the question of why he has found himself in their company: I will attempt an answer. His analysis of the Euro is not far from the dominant strain of thinking within German (but not international) economics. He deploys arguments expressed in scientific language; however he does so in a very one-sided way. Again, I think I have an explanation.

Let me give you a flavor of Luckerian discourse, focusing on the Euro. [Read more…]