Alexandra Zeitz (Global Economic Governance Programme, University of Oxford)
Speaker:
Boris Vujčić, Governor, Croatian National Bank
Chair: Gillian
Edgeworth, Wellington Management and St. Antony’s College, Oxford
What will it take to boost the EU’s competitiveness and firm up a
shaky economic recovery? In late November, PEFM hosted Governor Boris Vujčić of the Croatian National Bank, who presented his views on the
roadblocks to productivity in the EU and argued for structural reforms to encourage
convergence among different European regions and increase competitiveness.
There are many explanations for Europe’s competitiveness woes,
particularly for why it lags behind the United States across indicators of
productivity. Indeed, Jeffrey Franks’ PEFM presentation in October outlined how
the IMF accounts for Europe’s flagging competitiveness.
In his account, Governor Vujčić stressed
the importance of the revolution in information and communications technology,
which has made huge contributions to private sector productivity in the US, but
lagged in Europe. He also highlighted the problem of financing – without well
developed equity markets and venture capital funders, young European
entrepreneurs often lack the investment to get their ideas off the ground.
Europe has also been slow, Governor Vujčić argued,
to bring research and expertise from academia into the private sector. While
Europe’s universities are well represented on global league tables, transfer of
knowledge into business is still lacking.
Ultimately, however, Governor Vujčić argued
that structural factors are the chief impediment to European competitiveness. In
pointing out the striking divergences between Europe’s different subregions –
Northern, Southern and Central and Eastern Europe – Governor Vujčić made the case that structural reforms are necessary to bridge
the gaps between EU members. These structural reforms could help to attract
foreign direct investment, he argued, driving exports and facilitating
knowledge exchange through multinational firms.
In pointing to Southern European economies as lagging in terms of
their structural competitiveness, Governor Vujčić touched
on one of the central political questions of European integration: how much
convergence can be expected among EU member states? The remarks also hinted at
the political economy of regional splits within the EU. As the Greek debt
crisis made clear, the EU’s newer members, several of whom introduced
structural reforms under the guidance of the IMF, have often had little
solidarity with their Southern neighbors.
Governor Vujčić’s remarks on
regional divergence in competitiveness sparked debate in the audience. Some argued
that Eurozone membership has been a serious constraint. Without the possibility
of devaluing their currency, these economies can only engage in competitive
disinflation, and requiring structural reform in times of austerity may push
publics past their breaking point.
In making the case for structural reforms, Governor Vujčić issued recommendations in line with the conventional wisdom of
the IMF: reforms need to be appropriately sequenced, coordinated across
sectors, properly targeted and effectively communicated to the public in order
secure both short- and longer-term benefits. But this pragmatic advice may risk
brushing over the fundamental and valid disagreements that often underlie
political conflicts over structural reform. Opposition to liberalization of,
for instance, employment regulation comes not only from entrenched or corrupt
elites.
In Croatia itself, the recent November 2015 elections may usher in
the sorts structural reforms Governor Vujčić was
advocating. A new centre-right party, the Bridge of Independent Lists (MOST),
came in third place with an unexpected 19 seats on the basis of a platform that
promised reform of the public sector and public finances. With coalition talks
still ongoing, MOST are considered the king-makers and may see their structural
reform proposals implemented in the next government.
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