The financial crisis affecting banks and Governments is no more than a symptom of a deeper problem. That problem is a loss in relative competitiveness of both Europe and North America vis a vis  the emerging economies of China, India, Brazil and others over the past  twenty years. The loss of competitiveness was accompanied by an unwillingness to face up to long term problems like the  eventual  cost of ageing societies, and the ephemeral nature of some of the innovations of the so called  “new economy”.

The   boom- driven expansion of credit was like an anaesthetic that concealed an underlying loss in competitiveness from us   until 2008. Now that the anaesthetic has been withdrawn, after such a long time, the pain is acute. The human cost is all too real.

The answer to this for all European  countries  is, I believe, to work to increase what economists would call the total factor productivity of our economy, the productivity of the way in which we use all our resources, public and private,  capital and labour, tangible and intangible. We need a new  way of thinking , an enhanced  orientation towards  finding ways to earn a living  from meeting  the needs of the  rest of the world .

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The massive, unprecedent fiscal and monetary stimulus undertaken by almost all governments and central banks in the last two years has prevented the 2008-2009 recession from turning into a second Great Depression. Policymakers and economists did not forecast the crisis, but they have been able so far to take it under control. So we should at least rejoice; the great depression of the 1930’s was not anticipated as well, but it was because of subsequent mistakes by authorities that it became so great!

This said, the current picture is not bright at all. GDP in many countries is well below its previous levels, and some of the likely causes of the crisis are still there, waiting for a long-term appropriate remedy.

A main concern for the next future consists in the ‘exit strategy dilemma’: on one side, early exit from public spending and monetary easing would slowdown the recovery and threaten deflation and long-term unemployment. On the other side, keeping a high deficit spending and an accommodating monetary policy would trigger concerns about fiscal sustainability and expected inflation, with the consequent increases in long-term rates and therefore in lending rates on personal and corporate loans, thus leading to a crowding out of consumption and investment from the private sector. Read the rest of this entry »

Recognizing the need to expand the U.S. broadband network to ensure America’s infrastructure and economic development, Congress tasked the Federal Communications Commission (FCC) with developing a national broadband plan by February 17, 2010.[1] During the current financial crisis EU as well as the Member states wish to show that work is continuing despite the institutional deadlock of the Lisbon Treaty. Commitment to the European project is a risky path, but it is the only one that is capable of sustaining economic growth, of generating the support of the citizens, and of creating innovative jobs. New European Commission presided by José Manuel Barroso would need concrete projects and provide tangible benefits for citizens and support innovation and long term economic growth.  

In the field of the broadband access, for want of a unifying political plan and a strong economic vision, we have reached an impasse without an effective political blueprint. After the progress made by the European Union in the 1980s and 1990s, not least as a result of the Delors Commission’s initiatives, the EU has succeeded in opening up national markets. However, a true opening-up of the European market and the establishment of a single market is yet to be achieved. Read the rest of this entry »

Even though the current recession is not the Great Depression, certain parallels can be drawn.  As learned from the 1930s, during economic recessions protectionist measures become more likely.  There is a high awareness of this threat both in politics and the public, and the WTO is closely following crisis responses of its member states, publishing reports on protectionist barriers.  In the 1930s the leading industrialized nations responded to the crisis by imposing trade barriers on imports and raising the tariffs. This time protectionism has been kept at bay, at least when it comes to tariff barriers. However, the economic stimulus packages passed by major industrialized countries contain subsidies and buy-local clauses that have the potential to seriously distort competition and thus harm international trade.

Not all subsidies are bad.  There are different forms of subsidies with different effects on domestic markets and international trade. They are necessary to stabilise consumption and production, help weakened economies to recover, stabilize international trade, etc. However, some of them pose a great danger to distort trade by creating unequal conditions of competition.  Contrary to limiting the use of tariffs, the WTO’s toolbox to controlling subsidies is less well equipped. Within the EU, subsidies are causing tensions but the European Commission has more advanced instruments and more power to intervene than the WTO has in the global context. Read the rest of this entry »

The landscape of technological innovation across the world is changing, and doing so rapidly. The extent of competitive challenge faced by European enterprises in the knowledge economy from the emergence of Asian technology powerhouses, and in particular by the likes of China and India, is a genuine reflection of the changes now taking place in the international economy.

European politicians and business leaders need to become more aware of the current and future innovative capacity that these countries are creating for themselves. To be sure, Europe continues to enjoy singular competitive advantages in the sophistication of its knowledge industries, but this is most certainly no time for complacency. Instead, an outward facing strategy is required in order to grasp opportunities for partnership with Asia, whilst also recognising and responding to potential threats to Europe’s current advantage in innovation from Asia. Read the rest of this entry »