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GROWTH, EUROZONE AND AUSTERITY. The exclusive interview with Michael Spence Nobel Prize in Economics 2001

29 Giugno 2012 - Autore: Redazione

In your recent book, The Next Convergence (published in Italy by Laterza as “La convergenza inevitabile”, 376 pages) there is a focus on the importance of growth. Recently the Australian Prime Minister and the President of the Republic of Korea talked about “the Gospel of growth”. However, this word is wearing out because some politicians use it without a specific meaning behind. What’s your definition of “growth” now?

Growth is not really an objective, meaning the end goal for most people.  But in many parts of the world, it is a crucial requirement for achieving things that really matter to people.  In the developing world it is a route to less poverty and expanded opportunity to be productive and creative.  In many advanced countries including here in Europe, it is an important part of restoring fiscal stability and of generating employment opportunities for young people. It is true that growth needs to kept in perspective.  It is not everything.  There is equity, stability, sustainability, and lots of things that matter to people that are not captured in income or consumption.  It is really a matter of keeping things in proportion rather than accepting of rejecting a signal goal.


Even in the last G-20 in Mexico, growth has been identified as “the absolute priority”. What do you think about the purposes of this Forum? 

At this point in history, having had a crisis based in part on defective and unsustainable growth models or patterns, it is a high priority to restructure and rebalance our economies so that they do have the capacity to generate a sustainable pattern of inclusive growth.


Enrico Tommaso Cucchiani, Intesa Sanpaolo’s CEO, in the introduction of your book and even in a recent conference, invited the Italian Government to profit from your experience and global knowledge in economic matters, considering that you live in Italy the most part of the year. What is your opinion? Has someone of Monti’s staff already called you? 

That was nice of Enrico.  He is a friend and a very talented business leader.  I have tried to understand growth in developing and advanced countries and in a number of them have tried to help with difficult challenges relating to growth and development.  I am not looking for work, but would be happy to share thoughts and experiences here with members of the government and their advisers, if they thought that would be useful.  I did recently receive an invitation to talk about growth with a senior person in government of another European country. 


Last November you wrote a commentary in which you asked: “Can Italy be saved”? You made references to the Italian sovereign debt (the world’s third largest) and to our low growth rates, but also to our strengths (aggregate debt, the industrial efficiency of northern and central Italy). You also mentioned that we could overcome the crisis thanks to three variables: resources, competence and will.  After seven months, what’s your opinion? Can now Italy be saved? 

My answer is still definitely yes.  I should amend the above briefly.  Italy sovereign debt market is the third largest in the world.  It’s debt to gdp ratio among significant economies is the second highest next to Japan. On the domestic front in Italy, the reforms need to be completed and that will require the support of the political parties or a significant subset.  It is always difficult.  The successful German reforms 6 or 7 years ago were not at all easy.  So there is no question of resources or competence.  I guess will is still to be determined.


The one additional critical thing is that Italy (and Spain) need time for the reforms to be completed and to have an effect.  Private capital is not flowing into the sovereign debt markets of these countries, or when it does it is at high and rising yields.  This yield increases if allowed to persist will defeat the reforms and eventually lead to very bad results including the dissolution of the Eurozone.  Therefore, Italy and Spain need help in the form of transitional financing of its sovereign debt from the Eurozone core (the Ecb, the Fsf and Esm, Germany) and the Imf.  This is not a bailout, but a mutualization of the short term risk so as to keep the yields down. 


This is clearly a two scenario world.  There are two equilibria.  We need the sharing of short term risk to increase the odds of getting to the good equilibrium – reforms work, yields come down, Eurozone holds together (maybe without Greece).


In your book you argue that innovation, leadership and sustainability can help development. How could this “recipe” be applied to the European situation?

Advanced countries grow largely on innovation.  Sometimes they grow on defective unsustainable grow models.  That happened in the Usa, Southern Europe, the Uk and it has happened before.  Leadership is required to set these economies on a new more sustainable course.  Without it, you tend to get very slow recoveries and persistent poor economic performance and related problems like high unemployment.  That eventually leads to a loss of social cohesion and that spills over into political life – usually with bad results. We have to try to get better at identifying various kinds of sustainability challenges and self-limiting growth models early on before they do a lot of damage. 


Many economists think that there are only two possibilities for the future of the Eurozone: break up or superstate. What do you think about it? And about Eurobonds?

If the Eurozone survives the current crisis, there will be a move to some kind of federal governance.  That doesn’t mean a superstate with all power centralized.  Provinces in Canada and states in the Usa have quite a lot of fiscal and other power and autonomy.  If we get to that point, we will also have Eurobonds because it makes good sense.  But right now, Eurobonds are premature.  People are attracted to them because they do produce a kind of risk sharing that I referred to above.  But they do it without the kind of conditionality that Germany and others want.  So in the short run, I think we will need other mechanisms for sharing risk and keeping the yields down, and once things are stabilized and alternative governance structures are in place, my guess is we will then see Eurobonds.


What is the role of the Developing Countries - that you know well - for the growth of the rest of the world? China in particular actually hopes that the impasse of Europe will end very soon…

China definitely would like nothing more than a return to stability and growth in Europe.  As does pretty much everyone else.  China and  other developing countries would also like to see a return to more vigorous growth and less risk in America.  they would like to see the political and policy making process work in a pragmatic fashion and not get grid-loacked. China is the third largest economy in the world after Europe and the Usa.  It is about half the size of each.  Still relatively low in per capita income but large.  So its continued growth is of huge importance to all other developing countries and indeed the global economy.  When china grows at 8%, in terms of global demand, that is the equivalent of 4% growth in Europe or America.  China is entering the very complex middle income transition.  It has well-worked out plans for the structural transformation of the economy.  The challenge is now implementation.  But that is a big challenge.


You recently wrote: «What of the much-discussed conflict between austerity and growth? I believe that it is based on a fairly serious misunderstanding. For Germans, austerity, in the form of sustained wage and income restraint, was an important part of the growth-oriented reforms that their country completed in 2006. But, on the receiving end of the message in southern Europe (and across the Atlantic), “austerity” is interpreted largely in fiscal terms». What’s the correct interpretation of this word? And what is its relationship with the other fundamental topic “growth”?

It is a word that has too many meanings.  In this context it means making choices that restore fiscal balance and it means choices that affect productivity, competitiveness and growth.  They are both important.  But when one group thinks about one part and another thinks about the other, it can lead to confusion, communication problems and that hinders a cooperative effort to extract ourselves from the present risky and unstable situation. Germany restored its competitiveness and growth in a much different environment, with the global economy growing and the Eurozone quite stable.  Now, that is not the case, and that is the basic reason why countries with reform challenges cannot get it done alone and why cooperative far sighted collective action is needed.


Your “colleagues”, economists and also Nobel Prizes winners, have recently occupied the first pages of important newspapers with their vitriols or with their apocalyptical premonitions. Your analyses are not sensationalistic, but contained and descrete. How do you consider the attitude of some of  these “colleagues”?  

Well we are all worried and I guess we express it in different ways.  Mistakes are made, but I tend generally not to see villains or stupidity, mostly.  There are exceptions.  The truth is we are living in a very complex period of transition in the global economy, in the advanced and developing economies.  Much of it is in fact confusing.  We have a collective interest in figuring it out together.  Generally the answers aren’t obvious even when there are some fairly bad ideas and proposals.  So I tend to think and write about it in those terms


Our community of readers nominated you as the most influent economist of the year for our magazines. What is your comment on that? 

That is very nice and quite a large compliment and I appreciate it very much. 


Alessia Liparoti


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Ultimi commenti degli utenti

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20 Agosto 2012 ore 01:54:48 - magmag

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