Session 2: How is Europe coping with the current phase of the crisis

Jul 2nd, 2010 | Category: Session 2

June 11 2010

The session looked at the current phase of the crisis focusing on the evolution of sovereign debts and on intra-EMU real and nominal divergences. In particular, the discussion revolved around the following themes:

• The breath and nature of the sovereign debt crisis

• The divide between North and South and the need for internal adjustment

• The risks ahead with special reference to fiscal consolidation

• The solutions to improve surveillance as well as the enforcement procedures

Greece is not an isolated case. Most European countries have displayed disappointing public accounts after the financial crisis with debt to GDP ratios increasing by about 20 pp of GDP in three years. Not only were all budgets affected but EU countries were also exposed to other countries’ risks. The exposure of French and German banks to the four periphery countries, for example, amounts to around 15% of their GDP. The cross-country exposure through banks was such that the direct and indirect risk of contagion was present. The rescue package agreed on 9 May had indeed the main objective of muting contagion risks. The measures adopted are substantial considering the annual financing needs of Greece, Ireland, Portugal and Spain, which are estimated to be about €200bn, or €145bn excluding Greece.

Macroeconomic imbalances and the prospects for internal adjustment. Not all problems are fiscal or not only fiscal. The countries with the highest debt ratio to GDP also had high private indebtedness, sharp losses in competitiveness, and resulting large current account deficits. In this respect, the divide between South and North is clear-cut with the former highly indebted to the latter. Here, the most worrying aspect consists of the persistence of external imbalances, which the crisis has only partially reduced. True, in the crisis, current accounts have somehow converged due to a fall in domestic demand in deficit countries and a fall in exports in surplus countries following the global trade slump, but this effect is likely to be only cyclical in nature.

As for the prospects of internal adjustment, equal attention should be devoted to Greece, other deficit countries and surplus countries.

Greece.

• It was suggested was suggested that debt write-down might be in the end necessary. The IMF/euro area bail-out is not a bail out of Greek citizens, but a bail-out of the lenders. The burden is passed to taxpayers in other euro-area countries and the IMF, but the programme may not work without economic growth. Debt write down would be necessary, but not enough, because gain in competitiveness is needed.

• There was a debate whether private sector wage cuts should be enforced to improve competitiveness. Some argued that the Asian financial crisis clearly demonstrates that recovery from financial crises and successive fiscal retrenchment can only come from real exchange rate depreciation and export-led growth. Considering Greece, perhaps a 30% wage cut may be necessary. To achieve that, Greece needed a new social contract to allow for changes in the wage-setting process.

• But others suggested that after considering carefully the Greek situation, it was not at all a mistake that the lending conditions to Greece have not required measures to foster private sector wage cuts (in addition to public sector wage cuts, which were an integral part of the programme), such as abolition of bonuses or the 14th month salary, change in overtime remuneration or in the minimum wage. Reasons: 1. there is already a large disruption in economic activity and with a general private sector wage cut fiscal consolidation would have been even more difficult; 2. the oligopolistic nature of several sectors of the Greek economy would have implied that private sector wage cuts would have been absorbed by increased mark-ups with little impact on external competitiveness; 3. forced private sector wage cuts would have affected the income distribution negatively. 4. Wages in the private sector tend to be lower than in the public sector and generally more flexible than the latter, which speaks in favour of a differentiated approach to wage developments depending on the sector. Instead of forced cuts in private sector, the programme focuses on the strengthening of the wage-setting mechanism that will support adjustment through normal market forces. Also, greater coordination may be required across sectors so that if a wage cut is agreed in the public sector, the private sector will soon follow suit resulting in some real depreciation. The remark was made that coordination is important but that it does not necessarily equate with an across-the-board cut.

Other deficit countries. Other deficit countries such as Spain and Portugal should also devise measures to improve their competitiveness, mainly through structural reform on labour markets. However, the entire burden of adjustment is imposed upon deficit countries, as aggressive wage cuts and retrenchment may risk undermining the very notion of the European welfare state.

Surplus countries. Some adjustment would be also needed in surplus countries. Countries such as Germany would need to find ways to boost domestic demand or to convert financial savings to investments. Germany is the centre of the euro area and all country watch its spread against Germany. But Germany did not behave as a leader, but as a ‘normal’ country following its self-interests.

The risks that lie ahead. In the short-term, synchronized fiscal adjustment across Europe is likely to put the recovery at risk. First, retrenchment should be gradual as the evidence suggests that large fiscal adjustments take at least two years. Second, because explicit devaluation is not an option in the monetary union, the euro area must find ways of i) engineering an internal devaluation for those countries in need of competitiveness gains, and ii) getting the support of the euro area and the rest of the world demand, to compensate somewhat for the decline in domestic demand. Additionally, it is important that a strict fiscal policy stance is accompanied by a relatively loose monetary policy. Third, a crucial political decision will concern the composition of fiscal adjustment as it will determine on what categories the burden of adjustment is expected to fall on.

Enforcement procedures. The following solutions were put forward for improving enforcement:

• Shorter time span between assessment of fiscal positions and decisions

• Stronger incentives should be provided, such as administrative support or easier payment of funds

• Some suggested more automatic sanctions, but others emphasized that when the budget balance can move from a two percent surplus to a 10 percent deficit in two years time, sanctions can not work Instead, private sector imbalances and their risk to the government budget should be scrutinised.

Surveillance. The following solutions were put forward for improving surveillance:

• Closer look at imbalances also in the private sector by extending the analysis to include a larger set of indicators pointing towards imbalances.

• Budgetary positions should be evaluated by a body other than the Council

Rapporteur: Benedicta Marzinotto and Zsolt Darvas, Bruegel


• Laurence Boone,“Euro Area Sovereign Crisis”

• Nikos Christodoulakis, “North South Asymmetry in the Eurozone”

• Guntram Wolff, “Surveillance of Intra-Euro-Area Competitiveness and Imbalances”

• David A. Vines,“Internal adjustment in the euro-zone. Greece and the vulnerability of the European Monetary Union”

Seminar Photos

Jun 28th, 2010 | Category: Photos

[flickr album=72157624251105701 num=33 size=Small]

Articles

Jun 28th, 2010 | Category: Articles

The following articles were published in European newspapers by journalists who participated in the seminar:

Κατερίνα Σώκου, Kαθημερινή, (27/6/2010), “Στο τραπέζι μια «έξυπνη διαχείριση του χρέους”

Κατερίνα Σώκου, Kαθημερινή, (12/6/2010), “Σε αναζήτηση κοινής ευρωπαϊκής γραμμής”

Federico Fubini, Corriere della Sera, (18/6/2010), “L’Europa ora alza le tasse Grecia, trattativa sul debito”

Eric Le Boucher, Les Echos, (18/6/2010) “La fausse victoire allemande”

EU Seminar Papers

Jun 28th, 2010 | Category: Papers

Session 1: How did Europe cope with the first phase of the crisis?

• Session Report on How Europe coped with the first phase of the crisis by Benedicta Marzinotto..

• Daniel Daianu, “NMS’s Hard Landing But No Breakdown”

• Donato Masciandaro, “Reforming Regulation and Supervision in Europe: Five (Missing?) Lessons from the Financial Crisis. “

Session 2: How is Europe coping with the current phase of the crisis?

• Session Report on How Europe is coping with the current phase of the crisis by

• Laurence Boone,“Euro Area Sovereign Crisis”

( to view ppt presentation please click here.)

• Nikos Christodoulakis, “North South Asymmetry in the Eurozone”

( to view ppt presentation please click here.)

• Guntram Wolff, “Surveillance of Intra-Euro-Area Competitiveness and Imbalances”

( to view ppt presentation please click here.)

• David A. Vines,“Internal adjustment in the euro-zone. Greece and the vulnerability of the European Monetary Union”

( to view ppt presentation please click here.)

Session 3: The politics of crisis management: common institutions and national policies

• Session Report on the political crisis management by Jens Bastian

• Manfred Neumann,“The role of Germany redefined? Economic and political dimensions”

• Wolfgang Proissl, “The Role of Germany redefined?”

( to view ppt presentation please click here.)

Session 4: Political and social consequences of the crisis

• Session Report on the political and social consequences of the crisis by Ruby Gropas

• Iain Begg, “Social Policies after the Crisis”

• Anton Hemerijck, “The End of an Era: economic crisis and welfare state transformation”

Session 5: Adjustment in the Euroarea

• Session Report on the Adhustment in the Euroarea by Benedicta Marzinotto and Zsolt Darvas

• Carlos Mulas-Granados, “Fiscal Policy in Debt Ridden Countries”

( to view ppt presentation please click here.)

• Zsolt Darvas,“Fiscal Federalism in the crisis: lessons for Europe from the US”

( to view ppt presentation on “Euro Area Enlargement” please click here.)

Session 6: Economic Governance in the Monetary Union

• Session Report on the economic governance in the monetary union by Benedicta Marzinotto

• Peter Bofinger,“Economic Governance in the Monetary Union: The shape of Economic Governance”

( to view ppt presentation please click here.)

• Antonio Missiroli, “The Debate about Political Union”

• Jean Pisani-Ferry,“The Euro Area Governance: What went wrong? How to repair it?”

Session 7: Concluding Panel

• Loukas Tsoukalis,“The Euro in uncharted waters: Cave, Hic Dragones!”

• George Pagoulatos,“The Euro after the crisis”

Session 6: Economic Governance in the Monetary Union

Jun 28th, 2010 | Category: Session 6

11 June 2010

The session addressed the issue of economic governance focusing on the following three questions:

I. What went wrong?

II. How is it possible to repair it?

III. How is EU policy-making changing and expected to change further in the new context?

The weaknesses in EMU economic governance. European integration is at a crossroad. It has reached an intermediate position between national policy-making and full coordination that does not represent a stable equilibrium. It will either progress towards economic governance or fiscal and monetary nationalism. A large part of the problem is that national policy-makers have failed to internalize the change that was coming about with EMU with the result that there was little policy coherence and in turn a weak sense of ownership of EMU rules.

There are three areas in which stronger and better coordination is needed. These are: i) fiscal policy, ii) private sector financial imbalances, and iii) wage developments.

• The euro-area lacks a common fiscal policy meaning that no institution is responsible for determining the size of the aggregate fiscal stance. This resulted in a very weak response to the crisis with respect to the US. In addition, no clear assignment of obligations favoured free-riding which adds to the lack of an aggregate fiscal stance.

• The problems are not only fiscal in nature. There has been also a neglect of private sector financial imbalances. Bail-outs of the financial sector by the government may result into severe fiscal imbalances and thus represent an important source of instability.

• Finally, wage developments have been quite diverse, which lead to severe competitiveness divergences.

Finding solutions. To a large extent, weaknesses in EMU economic governance are due to lack of enforcement rather than to the lack of actual rules. But they also signal underlying tensions that can only be addressed if the entire policy framework is re-define in a way that makes it more effective but at some time realistic.

The failure of the Growth and Stability Pact is to be ascribed to weak enforcement but also to the fact that there is no attention to the aggregate fiscal policy stance and that its distinctive deterministic approach is in contrast with the stochastic nature of the world. A few possible improvements to fiscal governance were suggested:

• The EU Commission together with the Council should define a target for the aggregate fiscal stance over the medium-term.

• Countries should be forced to behave fiscal also in good times.

• Besides deficit levels, the Pact should also introduce expenditure rules.

Competitiveness developments need also closer monitoring. It was suggested that the EU Commission provide guidelines to make sure that wage growth is line with productivity and consistent with the ECB’s inflation target. It was noted that the feasibility of this mechanism is a function of the national wage formation regime and may even require cross-country coordination in wage bargaining, which might be at this stage unrealistic.

Surveillance should be extended beyond budgetary positions. For example, it might be necessary to put in place an early warning mechanism that detects financial unstable positions before they turn into severe busts. The ECB seems the best candidate to fulfil such a function and its mandate should be extended from price to financial stability.

More generally, it was stressed that EMU objectives have a better chance of being achieved in a more decentralised system. Some others noted that decentralization is not a solution to the problem. For example, financial regulation is not apt to be decentralised. In the fiscal realm, instead, it is an unrealistic target insofar as national parliaments show little interest and knowledge of EU policy-making. But an alternative and equally realistic scenario is that institutional reforms at the domestic level and market forces operate in such a way that the system becomes even more asymmetric with Germany acting as an anchor. It was observed that a system in which Germany plays the role of the hegemon might not be realistic over the medium-term.

Whatever the direction taken, it will be necessary to redefine the relationship between ex ante surveillance, to which the previous regime was mostly geared, and ex post resolution.

The changing face of EU policy-making. Economic governance has been a neglected chapter in the Lisbon Treaty but it came back to the forefront as a result of the crisis. The crisis revealed the inefficiency of the Eurogroup in addressing the emergency, thereby confirming that EMU is still far from being an area of shared competences. The handling of the crisis suggests something about the direction EU policy-making is taking.

Firstly, the ECOFIN and the Eurogroup have been mostly out of the picture with decisions being mostly taken at the Presidency-level. Secondly, we witnessed an increasing role for the European Parliament. The Parliament increased its legitimacy and visibility but remained subject to various constraints and veto points. Thirdly, the original triangle of institutions has been replaced by a quadrangle that includes the European Council. This Brussel-isation of policy-making was curiously accompanied by the (re)-emergence of politics, not only standard electoral but also symbolic politics.

As to future prospects, the indication is for a hybrid-isation of decision- and policy-making with the growing importance of intergovernmental bargaining not least because the Lisbon Treaty’s provisions require additional negotiations to be implemented.

Rapporteur: Benedicta Marzinotto, Bruegel

• Peter Bofinger,“Economic Governance in the Monetary Union: The shape of Economic Governance”

• Antonio Missiroli, “The Debate about Political Union”

• Jean Pisani-Ferry,“The Euro Area Governance: What went wrong? How to repair it?”

Session 5: Adjustment in the Euroarea

Jun 28th, 2010 | Category: Session 5

25 June 2010

The session looked at two main topics:

1. adjustment issues focusing on the fiscal consolidation challenge,

2. euro area enlargement prospects.

How much is too much public debt? For example, after the World War II, UK’s public debt reached 230 percent of GDP, which did not cause a problem. But in late 2008 Latvia could not finance its budget deficit from the market despite the fact that its public debt was a mere 15 percent of GDP. The question remained unanswered, because neither economic history nor theory provides a reference value, but the discussion highlighted several factors to consider. For example,

• market perceptions (markets have been inconsistent with respect to public debt levels);

• the ability to act by the government;

• whether residents (as eg in Japan) or non-residents are the main holders of the debt;

• whether private debt carries a significant danger to turn to be public debt;

• fiscal dominance (monetary policy is determined by the fiscal situation).

Regarding the high debts after WW-II, it was emphasized that this period was characterised by low interest rates and price controls. The current crisis has shown that low public debt levels can easily also easily explode: eg Irish public debt was 25 percent of GDP in 2007, which is seen to increase to 87 percent by 2011 according to current forecasts.

Fiscal consolidation – other aspects to consider:

• whether the actual deficit is the result of a permanent output loss, or a temporary negative output gap;

• whether the sacrifice required by fiscal adjustment is socially sustainable;

• whether non-Keynesian effects may be at work;

• accompanying structural reform measures are inevitable.

Probability of success:

• Fiscal adjustments that cut public wages and current spending have higher probability of success

• Increase the share of tax revenues = higher probability of success

• Increase the share of public investment = higher probability of success

• Accompanied by structural reforms = higher probability of success

Spain versus Greece. It was suggested that the case of Spain was very much dissimilar to that of Greece. The latter suffered from high deficit and debt levels. The Spanish fiscal position was under control before the crisis, but relied heavily on revenues related to real estate activities, and a large share of such revenues are permanently lost. The sharp rise in unemployment causes significant expenditure rise.

Spain has announced consolidation measures in three main waves: in September 2009, in March 2010, and in May 2010; the latter was primarily motivated by contagion fears from Greece. Most of the correction is achieved on the expenditure side of the budget, including an average five percent cut in nominal wages in the public sector in 2010 and a freeze in subsequent years, and curbs in various social expenditures. The consolidation is augmented by a major labour market reform and restructuring of the financial sector, which increase the probability of success.

EMU enlargement

Estonia will join the euro area in 2011 as the 17th member.

Should the door close after Estonia joins? There was a debate whether the door can be closed at all: enlargement is largely a legal process, and without a Treaty change, it can not be made neither harder, nor easier. But there are still rooms for subjective decisions:

• According to the Treaty, the convergence criteria must be met in a sustainable way, which involves an assessment. The Commission has the right to make the proposal to the Council based on its and the ECB’s assessment. Eg in 2006 Lithuania, which missed the inflation criterion by only 0.1 percentage point and easily met all others, was not proposed by the Commission and therefore the Council did not have a chance to form an opinion.

• Applicants must respect the normal fluctuation band of the ERM-II regime for at least two years prior to examination, which is interpreted as the necessity of ERM-II participation (though there were three applicants so far that have not spent two years in ERM-II prior to their examinations, but were allowed to join the euro). The ECB has a decisive power on the admission to ERM-II. Eg Bulgaria that wanted to enter ERM-II right after it has entered the EU has not yet been allowed to enter. Being a member of ERM-II, Bulgaria would have likely joined along with Estonia (inflation fell due to the crisis, public debt is below 15 percent of GDP, and just a small additional adjustment would have been needed to meet the deficit ceiling, as the 2009 deficit was at 3.9 percent).

• The Treaty sets the benchmark for the inflation and interest rate criteria on “the three best performing member states in terms of price stability”, but does not specify hot to determine the three best performers. The current practice (the three countries with the lowest, but not negative inflation rate) is highly questionable, and nothing would prevent the ECB and the Commission to interpret the Treaty in a more meaningful way.

• The Treaty allows (if fact: obliges) the Council to change the Protocol (that describes the measurement of the convergence criteria) with a unanimous decision, ie the measurement can be changed without a Treaty change.

Considering the points of view of current euro area members, the main argument for not letting countries new candidates to join is the potential of Eastern newcomers to became a “new Spain”, ie to undergo a severe boom-bust cycle, or to become a “new Portugal”, ie not be able to adjust competitiveness within the euro area and deliver low economic growth even in good times. Other popular arguments are not well founded (eg to avoid importing countries that have a potential for a Greek-type fiscal crisis; ‘we are in the midst of governance reform’, high inflation in newcomers will require low inflation in the old to meet ECB target; lessen the credibility/stability of the euro). Further, keeping countries out would deliver an unacceptable political message and could cause instability at the border of the euro area. Furthermore, new EU member states are still seen to by more dynamic than the current euro area, which would bring benefits.

Should outsiders rush to join? The potential to repeat the experience of Spain (unsustainable housing booms followed by a deep recession with severe impact on unemployment) is a real danger. Several Central and Eastern European countries have suffered from such a development even outside the euro area.

Countries that face fast economic catching up and consequently price level convergence may find it better to stay outside the euro till a higher level of real convergence is achieved.

Pre-crisis credit booms. There was an interesting debate about the responsibility for the huge pre-crisis credit booms in some of the new EU member states. Many agreed that the financial sector had a key role in these booms, and also that home authorities have not done much when they observed that their banks expand credit at an unsustainable rate in the East. But there was a disagreement on the role home authorities. Some argued for the complacency of local central banks, while others questioned complacency and instead emphasized the lack of instrument in a financially integrated environment, in which the local banks are dominantly foreign owned. Croatia, for example, tried to limit lending (and foreign currency lending in particular) in various ways, that was not done by many new EU member states, but Croatia’s efforts proved to be rather ineffective.

Differentiation with the group of new EU member states. It was also highlighted that the new member states constitute two very distinct groups. The ‘bubble-economies’, ie Baltics, Bulgaria and Romania, and the central European economies (Hungary is at the border line of these two groups). The previous bubble-countries should adjust their earlier growth model, but in the second group the growth model seems largely sustainable and desirable. Interestingly, countries in the more troublesome first group wish to join as soon as possible, while after the entry of Slovenia and Slovakia, the remaining three countries in the second group (Czech Republic, Hungary, and Poland) are not in a hurry.

Path dependency. Countries with fixed exchange rates and huge € liabilities should not risk a floating regime due to devastating balance sheet effects (as a result of a possible sizeable exchange rate overshooting). These countries should aim to join, but only if labour market adjustment proves to be sufficient, plus they can redirect the growth model of their economies from ‘bubble’-based growth to competitive manufacturing sector based growth.

Traditional optimum currency area criteria vs the convergence criteria. A shared conclusion was that the traditional optimum currency area criteria matter, which is supported by the experience of both euro-area members and outsiders. Yet the current convergence criteria may be partially rehabilitated: those countries suffered the most and ended in weak competitive positions both inside the euro area and outside that had high inflation. But certainly, the current measurement, one year compliance (that can be easily manipulated) and using the three lowest inflation EU member state as a benchmark (that does not make sense) should be reformed.

Rapporteur: Benedicta Marzinotto and Zsolt Darvas, Bruegel

• Carlos Mulas-Granados,“Fiscal Policy in Debt Ridden Countries”

• Zsolt Darvas, “Fiscal Federalism in the crisis: lessons for Europe from the US”

Session 4: Political and social consequences of the crisis

Jun 28th, 2010 | Category: Session 4

11 June 2010

The session concentrated on the following questions:

• Are we witnessing the end of an era as regards Social Europe?

• Does the crisis necessitate a renegotiation of the domestic social contract in individual member states?

• If so, then what may be the role of the EU in all this?

The current economic crisis is exacerbating tensions and weaknesses that already existed in Europe and it is pressing policy-makers to react and manage rapidly unfolding, inter-related economic and political aftershocks unleashed by the 2008 credit crunch and ensuing ‘deglobalisation’. It is redrawing the boundaries between states and markets and challenging issues of economic governance that were taken for granted over the past few decades of EU integration (monetary and fiscal policy, financial regulation, welfare provision, labour market rights and entitlements, etc). The question therefore is whether it will lead to yet another reinvention of welfare capitalism? In response, the need for ‘social pragmatism’ and for far-reaching and forward-looking social policy reform was underlined during this session.

The broader social and political consequences of the economic crisis have been a long time coming and it seems that neither the crisis nor its consequences will be over any time soon. Evident internal differences and asymmetries within the EU mean that the ‘shape’ of the recovery will be uneven in different Member States. Some economies may rebound with a ‘V’ shaped recovery, others may undergo an extended ‘U’ shaped stagnation or ‘W’ double-dip before recovering, other still risk a longer ‘L’ shaped pattern with longer and more painful losses. In all cases, adjustment is likely to take longer than expected, and in many cases it will probably be even tougher than expected.

With a population that is ageing, Europe is facing challenging times as it has pressing choices to make regarding:

• reviewing its pension and care funding;

• its choices in managing its labour supply and employment policies;

• and, the need to trim its public sector, including its social spending.

With growing unemployment, particularly youth unemployment, and more limited opportunities for social mobility, social exclusion and poverty are likely to be on the rise. Yet with increasing austerity measures, the challenge for European states is not only to be able to respond to these growing social demands, but to be able to fund the necessary changes in order to achieve the desired transformations to achieve medium and long term recovery and growth. Domestic social contracts will inevitably evolve, and it seems in some cases they will evolve quite radically.

In reaction to this, it was argued that fiscal deficit problems should not be allowed to become an excuse to cut back on the welfare state. Less is not more. European states should reform aiming at increasing the efficiency of social spending and investing in research and skills-creation in order for Europeans to be well equipped to face growing competition (particularly from Asia) on the global labour markets.

The EU has a key role to play and four dimensions in particular were highlighted. It can: contribute to reinventing flexicurity; facilitate policy learning; monitor and scrutinise Member States and put forward recommendations; and build governance.

The key messages put forward could be summarised as:

• Reforming the welfare state is inevitable. The challenge is what sort of reforms are necessary in order to make it more efficient and more effective in what its meant to be doing/ providing, and in order to make it sustainable and more inclusive;

• European countries should stop being complacent and invest in innovation and skills-creation in order for their citizens to be competitive on the global labour markets.

The question to pose in this context is how will European societies react to these changes?

We are witnessing a growing mistrust both within societies and among Member States. Moreover, the attractiveness of the markets and of the neo-liberal philosophy that dominated the last two decades appears to be waning. The public’s disenchantment with the market forces/ actors and with politics is evident and is spreading across most EU countries. And, it is being accompanied by a rhetoric that builds on a myth of an (idealised) ‘welfare-state paradise’ that is being lost to current global competition and insecurity. This is already translating into newly emerging right-wing populism that is pro-welfare state and vehemently anti-immigration. And it may translate into further support for ‘anti-systemic’ political parties that will try to fill in the political vacuum. It is also translating into a growing protectionist and introvert nationalism.

If this is the case, then it is important to consider how this may affect attitudes towards the EU? Might it be considered irrelevant? Or a threat? Or will it be able to present itself as an ‘innovator’ of ideas and break out of the current impasse?

The EU and its Member States must reflect on the roles that each should take on in order to address and respond to the implications of the crisis. They must deal with the short-term effects of the crisis while at the same time make the necessary adjustments to pave the way for the longer-term priorities. They must equally reflect on the common values and principles that are keeping them together.

And in this challenging context, it is important for the EU and its Member States to understand that working for ‘stability’ alone is not enough. It is certainly necessary, however, ‘stability’ alone is unable to address the internal and external challenges that Europe faces today. ‘Growth’, ‘equity’, ‘innovation’ and ‘cohesion’ are just as necessary and are as pressing as ever.

Rapporteur: Ruby Gropas, ELIAMEP

• Iain Begg, “Social Policies after the Crisis”

• Anton Hemerijck, “The End of an Era: economic crisis and welfare state transformation”

Session 3: The politics of crisis management: common institutions and national policies

Jun 28th, 2010 | Category: Session 3

11 June 2010

The third session chiefly addressed three key issues:

I. Are common institutions at the European level being marginalized in the course of the developing euro zone crisis?

II. Why should we exercise solidarity towards states that do not play according to the commonly agreed rules?

III. To what degree are the rules of engagement changing at the EU level as a result of the IMF’s expanded role and responsibility in crisis rescue operations?

Common solutions and common institutions: It was argued that we distinguish different phases in the euro zone’s crises evolution. An appropriate roadmap for this evaluation concerns the involvement of different actors and institutions, e.g. the IMF, ECB, European Commission and Euro-Group (Eco-Fin) during different stages of the crisis’ evolution.

More specifically, the issue raised inquiries if certain institutions were circumvented or not made use of enough during the euro zone crisis, e.g. regarding the Eco-Fin, European Parliament, or the rotating presidency of the EU? In this debate existing and changing power balances between institutions at the European level play a substantial role.

In this regard, criticism was voiced towards Germany not having taken a European perspective on issues such as fiscal stimulus measures. Moreover, we are witnessing a convergence of economic ideas and policies at the European level, in particular regarding austerity packages. However, there is a simultaneous discussion about what forms the basis for cooperative behavior and solution finding at the European level. Most agreed that this basis is rather rules-based and increasingly less trust-founded.

In conclusion, the crisis management of the past months has contributed to a profound reform debate at EU level, with national solutions and/or economic governance options being advocated in the van Rompuy working group.

Solidarity and Germany: Don’t only blame Greece for fiscal profligacy while ignoring to point fingers towards Brussels for having accepted such behavior far too long. The Greek international financial rescue package is hardly of any use to Greece. Instead, most of the resources (according to some observers roughly €80 billion out of €110 billion package) are for non-Greek banks holding the country’s sovereign debt. The three-year agreement with the so-called ‘troika’ should be used to prepare the insolvency case for Greece because the magnitude of the fiscal adjustment required is insurmountable for the country.

The French obsession with economic governance is regarded as a real problem by some, namely because of its focus on state intervention and management of the business cycle. Instead, an alternative to economic governance would focus on joint fiscal policies and rules such as institutionalizing the German debt brake at a European level.

A different take on Germany argues that it is the anchor country in the euro zone (benchmark bund spreads, GDP level, constitutional debt requirement). In this perspective, Germany’s refusal to assume leadership responsibilities in the EU despite its economic weight and crisis management capacity is particularly striking. What has changed in Germany during the past decade in order to explain this reluctance?

1. Merkel is not interested in the ‘vision thing’ of European affairs. Rather, the focus is on effective, day-to-day management.

2. Germany’s attitude among the public, political, legal and economic elites has dramatically shifted against continuing to be seen as being “Europe’s paymaster”.

3. In Merkel’s view, Germany has achieved its strategic aims in Europe (Lisbon treaty, national unity, internal market and an increase in the country’s weight in the EU). Hence, with the onset of the Greek crisis, her government was unprepared and initially politically unwilling to adopt crisis management mode.

4. A process of de-legitimization of EMU in Germany is gaining ground, reconnecting with fears (Angst) a decade ago about abandoning the Deutschmark.

The IMF’s crisis management interventions and the changing role of the EU: During the past two years the EU has turned from a lender (€150 billion) to the IMF to a net borrower (€307 billion) from the Washington-based institution. At the moment 21 stand-by arrangements with the IMF exist, with the three largest coming from within the EU (Greece, Romania and Hungary). In total, five EU member countries have borrowed from the IMF since November 2008.

In three of the cases (Romania, Hungary and Poland), 2/3 of the borrowing was provided by the IMF and almost 1/3 came from the EU. In the cases of Latvia and Greece this ratio is precisely inverse. Two key challenges follow from this development:

1. Are we witnessing a new model of IMF engagement, where the Washington-based institution engages in lending to individual countries within regional arrangements such as the EU? Put otherwise, to what degree can the IMF ignore regional conditions and economic implications when dealing with an individual country inside such groupings?

2. While the shift in financing and lending is moving towards European countries, the voting balance inside the IMF does not correspond with these developments. This creates a paradox that the solvent Asians still don’t have the [voting] powers and the near-insolvent West still rules.

‘Food-for-thought during the discussion:

• There is considerable German self-interest to bail out Greece, not least for German banks.

• How could one navigate between no bailout for Greece and Greece not going insolvent in March/April 2010? Was it a decision between ‘pest and cholera’ for the European Commission and the ECB?

• Spain entered its EU presidency with a view to be part of the solution but it quickly realized that it became part of the problem.

• Decisions in the euro zone where always taken with a view to 16 members plus (Poland, UK and Sweden).

• European Commission and ECB: Constant back tracking, shifting red lines, running behind events, high degree of improvisation.

• Is the challenge more about stabilization rather than solidarity inside the euro zone?

• Greece has to manage its weakness with its European partners. The same holds for Germany, which has to use its power with/through its EU partners.

Rapporteur: Jens Bastian, ELIAMEP


• Manfred Neumann,“The role of Germany redefined? Economic and political dimensions”

• Wolfgang Proissl, “The Role of Germany redefined”


Session 1: How did Europe cope with the first phase of the crisis

Jun 28th, 2010 | Category: Session 1

11 June 2010

The session looked at the responses to the financial crisis in the new Member States (NMS) and at the responsibility of and challenges for financial regulation.

Downturn but not breakdown in NMS. Amongst emerging economies, NMS have been the mostly affected, even if the banking sector’s exposure to toxic assets was minimal. Still, this did not lead to the breakdown that some had predicted. The intensity of the crisis was here correlated with the size of the previous imbalances. Most NMS have been going through a boom-bust cycle as a consequence of the crisis. They benefited from sustained growth rates before the crisis and suffered from significant negative growth after the outbreak. Latvia was a case in point.

Structural and macroeconomic conditions explain the dramatic economic downturn. In particular:

• Financial integration played an important role in the spreading of the crisis from core Europe to the NMS. EU financial assistance had the perverse effect of supporting just subsidiaries.

• Heavy reliance on capital imports was part of the problem. It was premature.

• Monetary and exchange rate arrangements may have not been appropriate. Currency boards are useful in that they guarantee price stability but also facilitate boom and bust cycles due to capital imports.

• There was a steady appreciation of the exchange rate with a Dutch disease in some of the new MS. Some had macroeconomic imbalances with a similar divide between creditor and debtor countries that is present in old Europe.

• Some others were pursuing pro-cyclical fiscal policies.

The worst case scenario was avoided due to the fact that the banking sector was relatively sound, financial assistance prevented a liquidity crisis, in Romania in particular, the IMF accepted larger budget deficits. As to the future prospects, it will very much depend upon the pace of EU recovery, which in fact remains uncertain.

Financial regulation. Part of the problem is that there is not an optimal general model in financial regulation and supervision. Without a theoretical benchmark it is more likely that the whole system becomes victim of capture by politicians. It is now generally accepted that the drivers of the crisis were a too relaxed monetary policy and bad regulation supervision, both were very much intertwined in the US.

The lessons one can learn from the crisis are as follows:

• Common accounting rules are needed to get rid of shadow banking systems.

• Missing markets should be taken care of meaning that it is necessary to regulate markets for any financial transaction starting with markets for derivatives. These types of markets provide in fact no information, with the result that incentives are misaligned.

• Prudential regulation failed. Banning is not the solution.

• As to the regulatory architecture, there was a trend towards consolidation before the crisis but then it stopped. By way of example, the US introduced a new authority for consumer protection. Lack of consolidation creates serious coordination problems. The US approach is that by having more authorities we increase competition. It was observed that the crisis showed we need more consolidation.

• The ECB was highly specialised. It was purely in charge of monetary policy. The responsibility for financial supervision rested instead with national central banks. The crisis has put a halt to this specialization. Some noted that central banking and regulation should in fact go together but it was objected that the whole EMU project would have not gone ahead if the ECB was given supervisory powers.

The EU was largely unprepared in the face of the type of crisis we had. From an institutional perspective, the crisis was dealt through a combination of ad hoc intergovernmental coordination and community instruments. But there was no integration of community instruments and the EU failed the opportunity to clean up the banking sector in the second half of 2009. It remains to be seen what the European Systemic Risk Board will fulfill its mandate as its functioning seems dependent upon its ability to gain power over tax policies.

Rapporteur: Benedicta Marzinotto, Bruegel


• Daniel Daianu, “NMS’s Hard Landing But No Breakdown”

• Donato Masciandaro, “Reforming Regulation and Supervision in Europe: Five (Missing?) Lessons from the Financial Crisis.”

Keynote speech by Dr. George Papaconstantinou, Minister of Finance, Greece

Jun 28th, 2010 | Category: Keynote speech by Greece's Minister of Finance Dr. George Papaconstantinou

Saturday, 12 June 2010

[Transcription of speech]

Many thanks for the invitation. It is a pleasure to be here. I see a number of faces around this room that I recognize, including my ex-boss. I will try to give you a sense of what has been happening from our perspective in the last eight months, where we go from here, and link this to the more general discussion about the challenges facing the EU at the moment. This is an eight month old government. It feels like eight years, but it has been only eight months. It has been a very interesting time, for the finance minister as well as for the rest of the government, but perhaps particularly for the finance minister.

We were elected back in October to discover a fiscal mess, a deficit having been budgeted for 2009 at 3%, having been reported in September one month before the elections at 6% and actually ending up to be 13.6 %. At the same time, a debt dynamic, one which was and is extremely worrying and dangerous, with a debt over 115 % of GDP. Obviously this was not just a result of one or two years, this is the kind of deficit and debt that we inherited, and has its roots further back. However, we can safely say that what happened in the last two years was pretty catastrophic in terms of upsetting a very delicate balance between the growth of the economy and the sustainability of public debt. Next to that were more deeply rooted problems, having to do with the competitiveness deficit of the economy. Double digits deficits in the external account, the last 5 years doubling of the deficit of the external account, and last but not least a terrible credibility deficit. Basically, we were in a situation where nobody believed our numbers, nobody believed our policy pre-announcements; nobody believed that we could actually turn things around.

What we started was a race against time, a race to convince that the new government had different priorities, had the will and the capacity to deal with the deficit, deal with the debt and do so in an honest and straightforward way. We knew that a lot of these problems, the root causes of these problems lay in the political structure, in the system of clientelism and patronage, a highly inefficient bloated bureaucratic state with structures that needed to be urgently changed. We knew that the competitiveness problems lay in the structure of an economy that for a long time had been producing things that the rest of the world was not particularly interested in buying. Where a growth paradigm based on construction had run its course, and needed a quick move to a new growth paradigm and with issues of transparency and accountability very high in our agenda.

Unfortunately, we did not have the time to address these things, we were not given the time, the markets didn’t give us the time to actually be able to consistently and slowly try to readdress these things. We were in a race to convince the markets that we were actually not going to be defaulting. And by March this year, the markets completely closed out on us. So, luckily, and of course it’s not just a question of luck but also preparation, by that time the EU had put together the 110 billion facility together with the IMF, to help Greece, on the basis of course of a very specific and very rigorous three year economic and financial programme.

This is where we are now, this is the programme we are implementing, and this is perhaps the first time after a very, very long period when I can actually be a little bit optimistic about where we are and how we are going. The cornerstone of this programme is of course fiscal consolidation, in a space of three-four years, we need to reduce the deficit from 13.6% in 2009 to less than 3% by 2014. And from 2013 the debt-to-GDP ratio is supposed to be on a declining trend. It’s a very aggressive programme and aggressively front loaded. In 2010 the reduction of the deficit is going to be 5.5 percentage points, on the back of measures which actually exceed 8 percentage points.

And if you look at the measures that have already been translated into law, they are unprecedented, certainly for this country and my guess is for most countries. You have a reduction in nominal wages in the public sector of roughly 15% in one year. If you add to that the reform in the tax system which abolished autonomous taxation and various exemptions public servants look at nominal wage reductions exceeding 20% before you incorporate inflation. You have a 10% reduction in pensions, in both public and private sectors. You have a 10 % across-the-board reduction in operating expenditures of government, VAT is up 4 percentage points, excess taxes are roughly up 30% in three successive steps in alcohol, tobacco and petrol.

This is a serious fiscal consolidation effort, with of course, as was to be expected an impact on growth, which is expected this year according to the programme – I’ll have more to say about that – to be minus 4% of GDP.

There has been a lot of discussion of “was there another way?” and the answer is no! We were up against a wall, to avoid bankruptcy we had to take these very difficult measures, what we tried to do is “cushion” parts of the population that were not at all to blame, for the mess that we are in, and which were particular hurt. […]

Now a programme like this may or may not be successful. This one is already and I’ll say something about that but if you don’t put it in a wider context and if you don’t supplement it with structural reform three years from now you are going to be in the same position. It will be very quickly undone.

So, a big component of the programme, perhaps, not what is immediate in the public debate but a big component of the programme has been the structural reforms that are in place. And when you’re facing a credibility deficit you start with the credibility issues. So one of the first things we did was to change the status of our statistics service making it to an independent agency guaranteeing full operational and administrative responsibility. We went on an international search and we will be appointing with a four-fifths majority of parliament its new head before the end of this month.

We embarked on a wide-ranging tax reform […] which makes the system fairer, more accountable, goes after tax evasion in a big way, introduces presumptive taxation, stiffer penalties, changes the way that corporate profits are taxed by making a differentiation between taxation of dividends and re-invested profits, and introduces a number of administrative changes which will be followed by a second wave of changes in the whole structure of taxes.

At the same time we pushed through a big change, a big reform in public administration with a complete overhaul of the architecture of the system. Basically we abolished one layer of administration, collapsed local administration from 1000 to 325 municipalities and in the process pledged to cut down about 4000 public entities in the broader public sector, from 6000 to 2000. This is a huge reform, which has very large potential savings but also which will allow the local administration and the services to be closer to the citizen.

At the end of this month we are bringing to parliament what we call a fiscal responsibility bill, which overhauls the budget process, a new procedure for preparing and following the budget. It introduces fiscal rules, we are one of the three EU countries, the other two are Malta and Cyprus, that do not have fiscal rules which brings more accountability, puts caps and tightens much more the control on spending, which has been going completely out of control in the last years.

Next on the agenda, is pension reform. At the end of this month we will be bringing to parliament a large reform of the pension system, which if left untouched, would have taken the expenditures for pensions to 25 % of GDP by 2050, obviously completely unsustainable, much higher than any other EU country. We are moving, we are abolishing all incentives for early retirement, increasing average retirement age, calculating pensions based on full life- time earnings rather than the best five years, as is the case, and getting rid of obvious injustices in the system, with blatant inequalities that have existed for a very long time.

Together with that there is labour market reform, trying to put some flexibility into what is in Greece a very dual labor market because in effect you have a very rigid part and you have a large part of the labor market which in effect completely ignores what is going on in the official market and finds ways around it, but we are trying to rationalise that.

And finally, privatisations. A privatisation agenda, which we unveiled a week ago, which spans everything from roads, ports, airports, water and real estate and which uses a very flexible approach; everything from concession agreements, strategic investors. We are keeping stakes in what we consider important sectors of the economy, we are withdrawing completely from others. It is the broadest ever agenda of privatisation which we have had in this country.

Last but not least, we are making it easier to do business in Greece. We are notorious for our bureaucracy, the difficulty in setting up business, the difficulty of attracting investments. There are a number of legislations coming to parliament in terms of reducing the steps of setting up a business, the steps to make it operational. We are repeating the Olympics experiment with a fast-track process for large investments, which seemed to work very well then, and we are repeating that now. And we seem to be seeing some first interest across a wide spectrum, particularly in energy, where there are a number of countries in the region which have been interested in large energy projects.

Now this is what we have tried to do, it has not been easy, it’s been fighting against a very hostile international environment; they didn’t want to hear about Greece and were convinced that whatever we did we were doomed. But there are a number of questions out there, which I think are very reasonable and I’ll try to answer those and then I will move to some European issues. People ask: how is implementation going? They ask: is it “doable” or are you going to buckle under social unrest? And of course they ask: does the math add up or will Greece – take your pick – leave the Eurozone, default, or restructure instead. These are all reasonable questions and they require answers.

Implementation: well, in the first five months of the year the budget deficit is down 40 % compared to last year – 40%, fully on target. Revenues are up over 8%, slightly below target, but that is expected because we are in a recession; and expenditures are down more than 10%, way above the target set. So we are fully on track.

That doesn’t mean that we’ve won the bet here but we all know that in the second semester of every year there are potential overruns in expenditures. However, remember that these numbers are before most of the measures that we’ve taken take bite, it’s before the additional 2 percentage points of VAT, it’s before the cut backs in the public sector salaries and pensions feed into the system. So there is a lot of potential that allows me to be reasonably optimistic that by the end of the year we will get to the 8.1% target that we have set.

At the same time, in all the structural benchmarks and the milestones we are ahead. Take pension reform; pension reform, according to the MOU that we have signed with the EU and the IMF, we are not supposed to be doing this before the fall. But we have decided to front load it, for very simple economic and political reasons. If you want to have a big reform effort you do it in the first 6, 8, 10 months of your government, and you get that out of the way in order to be able to then implement and show the progress. So we are ahead.

What is also interesting is that if you look at the macroeconomic variables at the moment the picture is better than what you would think. First quarter GDP was down by 2.5 % whereas over the year we are expecting a 4 percentage point drop. And in that period you see an increase in exports, you see an increase in private consumption, public consumption is down a lot so that brings down the overall consumption, you see a slight pickup or rather a smaller reduction in investment and you see an increase in the volume of retail trade. So, it’s too early to say that we have turned the corner, but we may say that we are at the bottom of the U curve faster than we thought. That is something which is interesting.

Second question; can you do this or are you going to be swamped by protests and have to back down? Well, I often say that obviously Greece has had a lot of problems – we have had this terrible murder of three bank employees by extremist groups. But I often say that a burning trashcan on Syntagma Square makes great CNN footage but it doesn’t reflect what is going on in this country. There are protests, understandably so, people are hurt by what’s happening.

But if you compare Greece with other countries, the severity of the measures are in complete disconnect with the kind of reactions that we are getting. Until now, and of course nobody knows how things will develop, but until now, we’ve managed to keep a balance.

And this for two very simple reasons; one, there is a very clear understanding amongst Greek citizens, that this is necessary, that there is no way that we could continue in the same way and that we are trying hard, not always succeeding, but we are trying hard to make it a fairly balanced approach. They are telling us a couple of things. They are telling us, one, make sure this is not in vain, and two, some people have to pay for what happened to this country in the past. Tax evaders: we have had a very high profile attempt to name and shame doctors that are evading and other professions that have clearly not been paying there dues.

If you look at the numbers, because every politician looks at poll numbers as well, 8 months after an election which was won with a landslide of 10 %, this is where we are again now. We are 10 percentage points ahead. I do not want to underestimate the real difficulty, the pain that is out there, the general distrust of the political system in Greece and everything that that means. But what I am saying is that this is a government with a very clear mandate for change, and that’s what it will do. And it will not turn back, it will not be distracted from what it has to do. We have an absolute majority of 10 seats in parliament. I talk to my colleagues in ECOFIN, who are in coalition governments that have to squeak through with one vote, have to get difficult coalition agreements. We decided the measures on Tuesday and on Wednesday we passed them through a fast track process in parliament.

So, we are going to do this!

Now, the third question has to do with the famous default, exit, restructuring: these are not the same questions. I think it’s much easier to dismiss the question and the issue of the default and exit. I think that people who seriously talk about these things really do not understand the way that the EU works. They do not understand the capacity of the EU, even with delays, (I’ll talk about that in a second) to actually rally around the troops and defend itself. So there is no issue of defaulting. There is no issue of getting out of the Eurozone, obviously.

We have 110 billion euro, assuming of course that we implement the programme, which means that we can stay out of the market if we chose to, up until the beginning of 2012. We are not choosing to stay out of the markets until then. Next month we will be coming out with Treasury bills, and we hope that much sooner than what the markets expect we’ll be out with normal issues, as soon as the situation is a little bit normalised.

The banking system which has been under tremendous stress has an unconditional liquidity support from the ECB for the time being. It’s not forever, but particularly 10 billion out of the 110 are to go to a stabilization fund that will help Greek banks. They obviously need to do their own moves, they need to think about how they make strategic moves as we go on, they cannot continue to operate in the way they are now. But it is clear that the fears, the worse in terms of erosion of the deposit base and the like is now behind us.

Perhaps the last question to answer is the question of restructuring. It’s completely off the table. It would be disastrous. It would be bad for the economy, it will be bad for those particularly weak and it will send a really bad signal and produce a flight-to-safety effect that would completely destabilize the eurozone.

The real answer to the question depends on parameters. The most notable of which is growth. Is growth going to resume faster? And therefore, will Greece be able in 2014-2015 to meet its debt obligations – because everybody can do the math and they can see that around 2014-2015 you have a hump. So the question is: can you go over the hump? Well whether or not you can go over the hump or not depends on how fast you are growing, and we think that through the programme there are tremendous opportunities that will increase the growth potential of the country. So, our sense is that strictly adhering to the programme, being able to re-invigorate a growth cycle that ended abruptly will be able to put to rest the fears of the scenarios that are being discussed.

Now, I want to turn to some European issues. Because as a member of the Eurogroup and ECOFIN in the particular seat that I am, meaning being behind a sign that says Greece, it’s been very instructive and there are some broader lessons. I have tried to codify what I have learned in four very simple lessons.

One; things tend to catch up with you. And this is true for a country like ours, that has had lax fiscal policies and weak institutions but it also has to do with EU. And an institutional framework that we all knew had a missing ingredient and at some point sooner or later would have to face it.

Two; even if you do everything right, you’re still not out of the woods. Because the markets work with different timetables, different agendas, different motives and I have been struck by the frustration of the EU institutions to not be able to be ahead of the markets. In fact if I look at us, the only time we were successful was back in March, when the markets and the EU were expecting us to do a correction and announce measures of an additional 1 percentage point. We actually trumped that by saying, well we will take 2 percentage points of measures. And there was a moment when the markets went “oh, ok these guys are serious” and were expecting then the EU to do the counterpart, which would be to create that backstop and it didn’t. So that’s my second lesson.

Third lesson, time is expensive. 110 billion in May was 40 billion back in February, March. 750 billion in May was much less before. You delay, and we all understand why there was a delay, but you delay at your own cost and sometimes you delay beyond the point of repair.

Finally, fourth lesson; ad hoc solutions are fine to put the fire out, but they are not enough. And this is what we have at the moment. We have an ad hoc solution for Greece and we have an ad hoc solution for Europe. And it’s been a very interesting discussion trying to balance between a community approach and the absolute determination of some countries to keep the inter-governmental approach.

There is as you know a discussion which has started around the Van Rompuy group. It has started with an agenda which is fairly narrow around the fiscal issues. Hopefully, it will expand. At least my understanding of the mandate is that it should expand to look also at financial issues and the growth question, because if we all get into a beauty contest about who is going to cut the fiscal deficits faster and the most then we will find ourselves in a recession.

As far as the first element, the discussion until now has some fairly obvious points, for example placing more importance to the debt criteria, with a number of countries around the table including us, saying let’s look at private debt as well as public debt because the last few years have shown that this is an important component. The issue of sanctions, where there is a lot of self-flagellation going on around the room. Sanctions, yes, economic possibly political in terms of no voting rights, although there is a very big question about how you are going to do that and why, but of course nothing in the direction of what has been very politely called an ‘orderly exit’. Which even if adopted as a potential element would send the absolutely wrong signal to the market, simply by telling people that if you push people, there is an exit door. This is what they have been doing for Greece the last few months and this is what they will do to any other country if we institutionalize this.

And then the broader issues having to do with financial reform and the growth agenda which as I have said have not really been discussed but clearly, to my mind at least, we have not collectively taken the lessons of the financial crisis. We have not moved fast enough, we have not had the courage to find solutions which are common solutions. […] As Greece we have supported for example the ban on naked CDSs by Germany, but we haven’t done the same because we are a small country and it’s not a very good idea if you are a small country with our kind of spreads that you have to do so. It’s something that Germany can do but it would be much more interesting to do in a common decision, in a common framework.

So there are a lot of issues around financial instruments, how you bring more transparency, how you stop certain practices without stifling the roles that they can play, and of course the discussion around things such as a transaction tax, carbon tax, the bank levy, are all very important.