OESTERREICHISCHE NATIONALBANK EUROSYSTEM 39th ECONOMICS CONFERENCE 2011 The Future of European Integration: Some Economic Perspectives ECONOMICS CONFERENCE 2011 th 39 Contents Ewald Nowotny Welcome Address 4 Rudolf Hundstorfer The Future of European Integration – Some Economic Aspects 10 Session 1: Regaining Fiscal Strength, Restoring Growth Olli Rehn Keynote Address 16 Martin Wolf The Euro After the Crisis 22 Panel 1: Reforming Fiscal Policy Rules for the Euro Area Ernest Gnan Introductory Remarks 32 Wolfgang Franz Reforming Fiscal Policy Rules for the Euro Area 36 Daniela Schwarzer Legislative and Institutional Dynamics in Response to the Crisis 42 Klaus Liebscher Award Klaus Liebscher Award for Scientific Work on European Monetary Union and Integration Issues by Young Economists 50 Session 2: Banking and Financial Architecture in the EU Andreas Ittner Introductory Remarks 54 Lorenzo Bini Smaghi Macro-Prudential Supervision and Monetary Policy – Linkages and Demarcation Lines 58 David T. Llewellyn A Post Crisis Regulatory Strategy: The Road to “Basel N” or Pillar 4? 70 Panel 2: Enhancements in EU Financial Regulation: Have We Done Enough? Martin Summer Introductory Remarks 94 Hans-Helmut Kotz Enhancements in EU Financial Regulation: Have We Done Enough? 98 Andreas Pfingsten A Critical Assessment of the New Capital and Liquidity Requirements 110 2 39th ECONOMICS CONFERENCE 2011 VOWI_Tagung_2011.indb 2 03.10.11 08:25 Contents Session 3: Addressing Macroeconomic Imbalances Wolfgang Duchatczek Introductory Remarks 122 Anne O. Krueger Formulating International Economic Policy in the 21st Century 126 Thomas Wieser Macroeconomic Imbalances within the EU: Short and Long Term Solutions 134 Panel 3: A New Growth Strategy for Europe Harald Badinger A New Growth Strategy for Europe? 146 Stefan Collignon A New Growth Strategy for Europe 154 Contributors 164 39th ECONOMICS CONFERENCE 2011 3 VOWI_Tagung_2011.indb 3 03.10.11 08:25 Ewald Nowotny Governor Oesterreichische Nationalbank VOWI_Tagung_2011.indb 4 03.10.11 08:26 Welcome Address Ladies and Gentlemen, its visibility, which are well known I am very pleased to welcome you to from monetary policymaking, are also the 39th Economics Conference of the present in organizing a monetary policy Oesterreichische Nationalbank here in conference. Sometimes a topic that ap- Vienna. I am proud that we have once pears to be timely and urgent in the again managed to prepare a highly inter- planning phase of a conference has lost esting program featuring distinguished some of its appeal by the time the event speakers and discussants from different actually takes place. This year, how- backgrounds in academia, policy-mak- ever, it was almost the exact opposite. ing and policy-commentating who have When we first thought about a possible in common a vital interest in economic topic for the 2011 Economics Confer- issues. I should like to thank all of them ence last fall, we did not expect – and in advance for coming to Vienna and could not have expected – how signifi- for contributing to this year’s Econom- cant and intensively debated this very ics Conference. I would also like to topic would be in May. The debt crises take the opportunity to thank the staff and institutional reforms, we have ob- members of the OeNB for their great served over the recent months have efforts in organizing this event. moved the topic of the future path of My particular welcome goes to Fed- integration to the top of both the Euro- eral Minister Rudolf Hundstorfer, who pean and the international agenda. I am will address the participants of this therefore looking very much forward year’s conference as our first speaker. I to our discussions, which promise to be am very honoured to welcome Olli lively and – hopefully – also fruitful. Rehn, Commissioner for Economic and Monetary Affairs of the European Commission, who will join us today. I am also very grateful that Lorenzo Bini Smaghi, Member of the Executive Board of the European Central Bank, has found the time to be with us today. Lorenzo Bini Smaghi is not only a dear colleague of mine on the Governing Council of the European Central Bank, he has also been one of the most elo- quent commentators on the future of the European project over the last few months. Thank you very much for join- ing us today. Finally, I would like to add that I am very glad to see such a densely packed audience here today. This confirms that this year’s conference topic – “The Fu- Ladies and Gentlemen, ture of European Integration” – strikes From its beginning, Europe has been a chord with many people from differ- characterized by alternating periods of ent walks of life. As you all know, a integration and disintegration. This, conference of this size is not arranged however, is not to say that every step within a couple of days. In fact, the lags toward more integration has to be fol- of transmission between a decision and lowed by a step in the opposite direc- 39th ECONOMICS CONFERENCE 2011 5 VOWI_Tagung_2011.indb 5 03.10.11 08:26 Ewald Nowotny tion. Historica progress does not follow Let me start by saying that I see a “dou- such a simple pattern. In the 66 years ble heterogeneity” as one of the main since the end of World War II, a model causes of our present constellation: a of European integration has developed heterogeneity of national economic de- which is – for the first time – neither velopments and a heterogeneity of su- based on strategic alliances nor on pranational institutions. Let me begin involuntary association. The connec- with the latter – the heterogeneity of in- tions between countries have become stitutions. On the one hand, a majority closer and closer over the years, even of EU Member States have handed over though this process has not been linear the responsibility for monetary policy but has had its ups and downs, its to an independent supranational insti- “speed-ups and slow-downs” so to say. tution: the European Central Bank. On Every setback, however, was typically the other hand, there is economic pol- followed by a further leap forward. If icy, which still is – in large part – the the picture of circular movements is at responsibility of the individual Member all accurate, one should think of Euro- States. This set-up follows from the pean integration not as a wavelike pro- subsidiarity principle, which aims to cess but rather as a spiral stair where respect and support local policy deci- each cycle is accompanied by an up- sions wherever they are reasonable. ward movement. We have had to realize, however, that it In recognizing this pattern, I do not is often not easy to specify the optimal wish to diminish the challenges we are level of policymaking. The lack of more facing today. Nor do I wish to suggest centralized economic governance is es- that it will be easy to find the right an- pecially noticeable when the second swers to these challenges. We have heterogeneity – the one between coun- heard many different assessments of the tries – becomes visible, as has been the causes and underlying mechanisms of case in the recent past. the current situation and equally many Cross-country heterogeneity is, in the proposals, suggestions and solution first place, a structural phenomenon. strategies. Politicians, economists and Individual countries have reached dif- commentators are in disagreement on ferent stages in their economic develop- many of the issues currently at stake. It ment; they are specialized in different is rather telling that this disparity of areas of economic production; they are positions is also reflected in the public characterized by different sets of insti- opinion and in noneconomic news- tutions and they have different prefer- paper articles. Two well-known Ger- ences regarding the reach of the market man-speaking authors, for example, and role of the welfare state. While recently expressed their views on the these structural differences reflect na- European project – and they have come tional histories, national institutions to almost diametrically opposed con- and national preferences, they are clusions. While one of them talks about nonetheless not a strictly national affair. the “Gentle Monster Brussels,” the They are not, because the idiosyncratic other praises the qualification and dedi- situation in one Member State can eas- cation of its bureaucracy. ily spill over to other countries and to In light of the already existing mul- the EU as a whole. A fiscal crisis typi- titude of opinions, let me offer just cally only breaks out at the end of a lon- some brief observations on our current ger process of unhealthy and unsustain- situation and on a possible way forward. able development, although budgetary 6 39th ECONOMICS CONFERENCE 2011 VOWI_Tagung_2011.indb 6 03.10.11 08:26 Ewald Nowotny distress is sometimes – but not always sible. A correct account of the crisis pe- – visible earlier on. riod is not only important for economic Cross-country differences are now- historians. It is even more important adays clearly reflected in almost any for today’s policymakers as it enables macroeconomic and financial time se- them to identify the main weaknesses ries, starting from interest rate spreads and to tackle them in an adequate way. to economic forecasts. In fact, the sig- In many respects the chronology of the nals coming from the most recent fore- recent contraction has followed the casts for the European Union are quite prototypical sequence of events charac- positive and the first quarter of 2011 teristic for severe financial crises. The has shown improvements that were main preconditions were a number of larger than expected. The outlook for slowly emerging disequilibriums on the the global economy has also improved, real side of the economy, accompanied and this synchronicity might lead to by suboptimal behavior and regulation further positive reinforcement effects in the financial sector.