CEPII, Recherche et Expertise sur l'economie mondiale
Jeudi 14 juin 2012

Changing the rules of the game

Franco-German workshop on the Euro Area organised by CEPII, SWP, Club du CEPII,CAS and EADS.

Taking into account the renewed leadership of the Franco-German couple in the crisis resolution process and the deepening of the European Monetary Union, SWP, CEPII, Centre d’Analyse Stratégique  and the Club du CEPII have decided to gather forces to bring together economists and political scientists of both countries in Berlin and Paris to tackle these very important issues. Two half-day meetings are taking place: one in Paris on 21st March 2012 and one in Berlin on 14th June 2012.

Fiscal rules in Europe: anchor or straitjacket?
The crisis of the Eurozone is not a simple consequence of the global financial crisis and the resulting increase in national debt. It finds its root in the Treaty itself, which prohibits the bailing out of a Member State by its partners and the monetization of the debt by the Central Bank, without considering the logical consequence of these two prohibitions: the default of a member state. This danger was supposed to be reduced by fiscal rules as laid down in the Stability and Growth Pact. This approach neglected powerful factors, the combination of which resulted in the current crisis: (i) the capacity of the governments to dissimulate the real situation of their public finances, (ii) the huge off-balance sheet risk that resulted from too-big-to-fail banking groups, and (iii) the impact of the accumulation of external liabilities which resulted from negative real interest rates in the most inflationary countries of the Eurozone given the absence of an exchange rate risk and of discrimination in European Central Bank’s collateral policy. 
The answers to the current crisis had to be found in urgency and without an explicit long-term perspective. The European Council of December 9th 2011 marked a turning point, with a frank discussion on the political organization of the zone, the role of the European institutions and the need to endow them with new competencies. The Fiscal Pact based on an intergovernmental treaty is a step towards the new governance structures of the Euro area. But further steps both in crisis management and in governance reform will have to be taken.
Different conceptions in particular between Germany and France are likely to surface in this course of action. While the December 9th summit brought an important agreement on fiscal discipline, other disagreements remain, in particular on growth policies in Europe, banking regulation, debt pooling not to mention political integration.

Chair : Agnès Bénassy-Quéré, Director, CEPII ; Professor, University Paris 1 Panthéon-Sorbonne

Session 1: Fiscal adjustment and fiscal rules

The fiscal adjustment strategies of the various Member States and the implementation of the new fiscal rules will be discussed from both an economic point of view (credibility of the adjustment, implementation of the rule in the long term) and an institutional and political point of view (constitutional or not, role of the European court of justice, sanctions,…).
  • Christian Kastrop, Deputy Director General, Director Public Finance, Macroeconomics and Research Department, Federal Ministry of Finance, Berlin
  • Martin Luck, Chief Economist, UBS Germany, Frankfurt am Main
  • Laurence Boone, Managing Director, head of European Economics Research, Bank of America Merrill Lynch, London, Paris 
  • Philippe Gudin de Vallerin, Head Macroeconomic  Policies and European Affairs, Direction générale du Trésor ,  Paris

Chair: Daniela Schwarzer, Head of Research Division, EU Integration, German Institute for International and Security Affairs

Session 2: Fiscal adjustment and economic growth

Up to now, European discussions have focused mainly on fiscal discipline. However, without growth, Member States’ efforts to adjust their public finances are likely to fail. This session will specifically address the short and medium-run growth perspectives and the ways to sustain growth without infringing on fiscal discipline. The role of European tools such as structural funds and the European Investment Bank will especially be discussed, together with the impact of stricter capital rules in the banking sector.
  • Daniel Gros, Director, The Centre for European Policy Studies, Brussels
  • Ansgar Belke, Professor, Chair of Macroeconomics, University of Duisburg-Essen, Research Director International Macroeconomics, DIW
  • Charles Wyplosz , Professor of Economics, The Graduate Institute, Geneva
  • Jean Pisani-Ferry, Director, Bruegel, Brussels