Extract from Enrico Cucchiani's speech on 12 October in Washington, Italian Embassy, on the occasion of the annual meeting of the International Monetary Fund. Cucchiani's speech opened the discussion of the round table moderated by Bill Emmott, former Director of the Economist, which was also attended by Martin Feldstein, the well-known Harvard economist, who was part of Bill Clinton's entourage, and Arrigo Sadun, former International Monetary Fund".
“THE EUROPEAN PARADOX” (“The European Paradox”)
Europe, in theory, has all the ingredients needed to be successful.
– It enjoys solid macroeconomic parameters superior to those of the other major economic blocks
– It represents the first market in the world in terms of size
– It has large companies and brands admired in every corner of the planet
– Has very high average educational standards
The paradox is that, despite these extraordinary strengths, the European economy is experiencing an unprecedented period of recession/stagnation; the unemployment rate is at unacceptable levels and is growing further and youth unemployment, in particular, constitutes an alarming problem, very serious from both an economic and social point of view (at least in the European region). In 2012, the Eurozone's growth gap with respect to the world average was 4 per cent and 3 per cent with respect to the United States (see Annex 1).
How do you explain the “European paradox”? What are the causes of the growth gap? At the basis of the current economic crisis there is a sharp drop in investments (about -15 percent in Europe compared to the pre-Lehman era and about -25 percent in Italy). At the root of the decline are the low level of "economic freedom" and "competitiveness" (see Annex 2) of some of the most important countries (Italy, Spain and France) compared to the countries of the North, the United Kingdom and the Germany. Welfare, the pride of Europeans, constitutes a further handicap from a competitive point of view: Europe, in fact, has a population, as Ms Merkel often recalls, which is worth 7 per cent of the world population while, on the same scale, the GDP is equal to 25 percent and welfare spending accounts for 50 percent. The underlying theme is obviously not the usefulness of welfare but its sustainability. If these spending levels were not sustainable, there would be the risk of handing over to the next generations a future without employment and without welfare.
In a context of low competitiveness and low economic freedom, it is therefore not surprising that investments are directed outside Europe and, we reiterate, this is the fundamental cause of the EU's prolonged recession. The process of "integration" currently underway is certainly a positive development for a group of individually undersized countries but, by itself, it is not sufficient to solve the problem of growth.
“Integration”, with the notable exception of the Banking Union (being implemented thanks to the enlightened and authoritative leadership of the ECB) is a slow process. This process is slow both for the technical complexity of its implementation and for the understandable (although not fully justifiable) political resistance. Performing economies, in fact, fear the cost of subsidies to countries in difficulty and these fear being strangled by the austerity measures imposed by the North. The transition towards shared sovereignty (another way of describing the integration process) is, in my opinion, appreciable but it is happening too slowly and, in the meantime, the economy is struggling to get out of this prolonged stalemate and the citizens - the young people in particular – continue to pay a too high and unsustainable social cost.
So what should Europe do to realize its tremendous potential and build on its extraordinary strengths? What should be done to accelerate the recovery and resume a path of growth and progress? In addition to "integration", there is a need for an "alignment" process (in Italian, perhaps less effectively, we could translate "alignment", "adaptation") to tested international best practices, selected from among those of the virtuous countries of the European Union but also among those of non-European countries which are part of the 75 per cent of the world economy growing at high rates. In the global economy, if you want to be competitive, you can't afford to limit your horizon to your backyard. In practice this means:
– Reduce public spending, which is currently at unsustainable levels in many countries. This requires the elimination of layers of bureaucracy that inhibit both investment and the development of a new generation of entrepreneurs
– Rebalance public spending to encourage greater investments in Education, Research and Development and Infrastructure – Privatize everything that is not strategic (making sure that the term strategic is not used as an excuse for doing nothing) in order to recover resources to be allocated to reduction of public debt and to ensure citizens products/services of better quality, at a lower price
– Carry out structural reforms (labour market, pensions, tax system according to the priorities and specificities of individual nations)
The "Alignment", in reality, is not only complementary to the "integration": it is preparatory as it is difficult for the "integration" to be achieved and to stand in the absence of "policies" and "practices" aligned and harmonized. Not only. While the "integration" process requires the consent of all countries, the "alignment" is the responsibility and interest of each member state: it is not a question of the "homework" assigned by Brussels or some northern country but of a autonomous and conscious choice to ensure the competitiveness and growth of the national economy. One last area of intervention. Europe is a continent with a rapidly aging population and young people have little political clout. Youth unemployment is not just an economic and social problem: it is also a moral problem and as such it should be experienced by each of us! Something extremely simple could be very effective and have positive implications for everyone. In the United States, geographical mobility is 15 times higher than in Europe. In Europe, the biggest constraint to geographic mobility is language barriers.
A second mandatory language throughout the Union could solve the problem. This second language can only be English, the universal language of business. An adequate diffusion and practice of the second language would allow, for example, young Catalans and Calabrians, who share unemployment rates of 50 percent, to find an easy place in Denmark, a country where there is a shortage of manpower . One last thought. The term "New Normal" has entered common parlance. It is widely believed that the "New Normal" is and must be worse, much worse than the "old normal" (the one of the pre-Lehman era). I think it is appropriate to revisit this cliché. There is also a "good New Normal", a "positive" New Normality measurable in terms of economic growth and improvement in the standard of living of the populations. This "good New Normal" is palpable in Silicon Valley, Singapore, Hong Kong, Shanghai, Tel Aviv, Dubai. Perhaps the time has come for Brussels and other European capitals to start thinking outside the traditional box and broaden their horizons. In the interest of the new generations!
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