Comments on "Economic Policy for the European Community - the Way Forward"
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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Giersch, Herbert et al. Working Paper — Digitized Version Comments on "Economic policy for the European Community - the way forward". Selection of comments prepared for a Kiel Symposium on the report of the Group of Rome Kieler Diskussionsbeiträge, No. 38/39 Provided in Cooperation with: Kiel Institute for the World Economy (IfW) Suggested Citation: Giersch, Herbert et al. (1975) : Comments on "Economic policy for the European Community - the way forward". Selection of comments prepared for a Kiel Symposium on the report of the Group of Rome, Kieler Diskussionsbeiträge, No. 38/39, Institut für Weltwirtschaft (IfW), Kiel This Version is available at: http://hdl.handle.net/10419/48004 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu KIELER DISKUSSIONSBEITRAGE KIEL DISCUSSION PAPERS Comments on "Economic Policy for the European Community - The Way Forward' Europe's Role in the World Economy Herbert Giersch • Gottfried Haberler • Jan Tumlir Juergen B. Donges • Bela Balassa Roads to Monetary Union Fritz Machlup • Johann Schollhorn • Norbert Walter Pascal Salin • Roland Vaubel Fiscal Harmonization Willi Albers • Fritz Neumark • Carl S. Shoup • Dieter Biehl The Scope of a Common Regional Policy Dieter Biehl • Bela Balassa • Claus Noe • Sebastian Schnyder New Approaches to Structural Policy? Agricultural Policy: Adolf Weber • Tim Josling » OTj » Industrial Policy: ^ . Gerhard Prosi • Gerhard Fels • Klaus Stegemann INSTITUT FOR WELTWIRTSCHAFT KIEL JUNE 1975 ^Comments on 'Economic Policy for the European Community The Way Forward" Selection of Comments Prepared for a Kiel Symposium on the Report of the Group of Rome* *Economic Policy for the European Community - The Way Forward, by Sir Alec Cairncross, Herbert Gieisch, Alexandre Lamfalussy, Giuseppe Petrilli, Pierre Uri, London, 1974, Macmillan. - German Edition: Wirtschaftspolitik fur Europa - Wege nach vorn, Munchen, 1974, R. Piper &. Co. - Editions in French and Italian are forthcoming. Contents Page Address by HerbertjGiersch 5 I. Europe's Role in the World Economy 13 Chairman: HerbertjGiersch Gottfried Haberler 13 Jan Tumlir 14 Juergen B. Donges . 17 Bela Balassa 24 II. Roads to Monetary Union 27 Chairman: FritzJMachlup Johann Schollhorn 27 Norbert Walter 30 Pascal Salin 33 Roland Vaubel 38 III. Fiscal Harmonization 43 Chairman: WilliJAlbers Fritz Neumark 43 Carl S. Shoup 48 Dieter Biehl 51 IV. The Scope of a Common Regional Policy 55 Chairman: Dieter^Biehl Bela Balassa 55 Claus Noe 57 Sebastian Schnyder 59 V. New Approaches to Structural Policy ? 63 a. Reforming the Common Agricultural Policy 63 Chairman: Adolf Weber Tim/Josling 63 b. Industrial Policy, Competition and Social Progress 67 Chairman: Gerhard Prosi Gerhard Fels 67 Klaus Stegemann 69 Participants 77 Address by HerbertlGiersch to the Trade Policy Research Centre, London Over the last two years or so, the Institut fur Weltwirtschaft in Kiel has been sponsoring a study group on the economic future of the European Community (the Group of Rome). The Report of the Group, entitled Economic policy for the European Community - The Way Forward, is being published here tomorrow. The members of the Group who prepared the Report were Sir Alec Cairncross, Master of St. Peter's College, Oxford; Dr. Alexandre Lamfalussy, Chief Executive of the Banque de Bruxelles; Professor Giuseppe Petrilli, President of the Istituto per la Ricostruzione Industriale, Italy; Professor Pierre Uri, Counsellor at the Institut Atlantique des Affaires Internationales, Paris, who, as most of you know, has played a prominent role in the formation and development of the Community; and myself. My purpose this evening is to tell you something of the Report. It contains chapters on a great many different policy issues: monetary unification and fiscal integration, regional policy, agricultural policy, industrial and competition policy, social policy and external economic policy. Obviously, time does not permit an exhaustive presentation of the analyses, conclusions and recommendations on which we have agreed in all these fields of economic policy. I shall therefore concentrate on three areas which happen to be my personal pre- occupations: European monetary unification, European regional policy and European external economic policy. Monetary Unification. - Let me start with an explanation of the conclusions we have reached on European monetary integration. There is no way of achieving monetary union on the cheap. What matters is making genuine progress towards it rather than simply insisting on the desirability of getting there. We recognize that in the long run monetary union, in some sense, is necessary in order to give permanence to European integration. Without monetary union there is a risk that convertibility may be restricted. Moreover, monetary union would bring conveniences in payments of all kinds. However, if monetary union were pushed through prematurely, and without complementary policies to reinforce it and complementary powers and common institutions to give effect to those policies, the result might well be needless unemployment and waste of resources. The existence of separate national currencies ipso facto provides a powerful weapon in the form of depreciation for bringing a country's trade and payments back into balance when for any reason it runs into deficit; and when it is in chronic surplus, appreciation of the currency can be equally effective in restoring balance. But to abandon exchange-rate changes completely and finally without indicating how imbalances will be dealt with in future would be to run serious risks in relation both to economic stability and to that political will without which economic union will not hold. Further, under a regime of fixed exchange rates and free trade, inflation in one country exerts an upward push on price levels in other parts of the European Community. To this extent the pressure on the inflating country to redress its external balance by deflation is reduced. This implies for the Community as a whole that some countries may end up with more inflation than they want and others with more unemployment than they are prepared to tolerate. It would be part of the business of common management to assign responsibility for demand management to a Community-wide authority; and it would be one of the aims of this authority to establish a single monetary unit and pursue a single, harmonized monetary policy. In the Remark: This address was held on December 4th, 1974 on the occasion of the Report' s publication in English. The speaker has made free use of the contents of the Report, and hence also the ideas of his co-authors. light of these considerations, we have asked ourselves what is the optimal strategy for monetary unification in the European Community. It is evident that the first, the apocalyptic solution, namely the immediate replacement of national currencies by a single European currency without any transitional phase is incon- ceivable in present circumstances and possibly too abrupt to ever be adopted. A second approach - endorsed by the Werner Report - concentrates on exchange rates and envisages a gradual narrowing of margins for fluctuations in rates and of the scope for changes in parities. This process would lead ultimately to a locking of exchange rates and can be thought of as "exchange-rate unification. " The first step in the process, which was supposed to be completed by the end of 1973, has not been reassuring. Ever since the Werner Report was prepared, rates of exchange have become progressively less stable. In our view, the strategy of approaching monetary union through a progressive narrowing of margins is misguided. It ignores the complex conditions that are necessary for the maintenance of monetary equilibrium between the member countries. A third possibility would be to try to meet these conditions directly and aim at a progressive coordination of monetary policies throughout the European Community as a precondition for fixing exchange rates. The approach recognizes the danger that a premature fixing of exchange rates may serve only to bring about a suspension of convertibility and put an end to the free flow of goods and services as well as of capital and labour. If the common political will is strong enough against divergent national trends, coordination of monetary policy will lead eventually to constant rates of exchange;