Economic disintegration of the European Union: Not unavoidable, but probable

Abstract It is argued that European integration has not fulfilled its chief economic promises. Output growth has been increasingly weak and unstable. Productivity growth has been following a decreasing trend. Income inequalities, both within and between the EU member states, have been rising. This sorry state of affairs is likely to continue – and likely to precipitate further exits, or eventually, the dissolution of the Union. However, this outcome is not unavoidable. A better integration in the EU is possible, at least in theory. Also, the negative consequences implicit in the existence of the common currency could be neutralised. However, the basic paradigms of the economic policies to be followed in the EU would have to be radically changed. First, the unconditional fiscal consolidation provisions still in force would have to be repelled. Second, “beggar-thy-neighbour” (or mercantilist) wage policies would have to be “outlawed”

Labour productivity growth slowdown: An effect of economic stagnation rather than its cause?

This paper reports the results of an econometric examination on the links between labour productivity and output growth for 22 countries (for which long-term data are available). It turns out that, generally, labour productivity does not “cause” output. In more cases, the causation seems to be running in the opposite direction: from output to productivity. This finding, though inconsistent with the “mainstream” ideas on the sources of long-term economic growth, is reminiscent of the classical Kaldor-Verdoorn Law. The progressing slowdown in output growth on the global level, initiated around the mid-1970s (when the process of discarding the earlier economic policy paradigms set in), may have been mirrored by the progressing slowdown in productivity growth (and that despite the hardly disputable acceleration of technological progress)

FURTHER EVIDENCE ON THE VALIDITY OF THIRLWALL’S LAW

A simple equation is considered whose empirical analysis could confirm – or reject – the validity of Thirlwall’s Law. Autoregressive Distributed Lags (Bounds) approach is used to establish the empirical adequacy of the Law. The analysis, working with data for 58 countries and covering the years 1960-2012, suggests that the Law may not hold for the decisive majority of countries considered

Why is food cheaper in rich (European) countries?

Relative to non-food items, food tends to be cheaper in rich, as compared with poorEuropean countries. This tendency cannot be explained in terms of cost developments or foreign-trade considerations. A positive explanation proposed focuses on demand-income-supply interaction. An analysis of a cross-country price-augmented modification of Engel Law, econometrically specified, indicates that the relative price offood is related positively to the supply of food items and negatively to that of non-food items. This finding is consistent with "agricultural price scissors", and also casts a different light on the nature of economic development and structural change

GROWTH SLOWDOWN ENDANGERS THE ECONOMIC COHESION OF THE EUROPEAN UNION

It is argued that European integration has not fulfilled its chief economic promises. According to official documents and in compliance with post-Keynesian economic interpretation of major long-term trends characterizing the Euro area, the output growth has been increasingly weak and unstable. Productivity growth has been following a decreasing trend. Income inequalities, both within and between the EU Member States, have been rising. This sorry state of affairs is likely to continue – and likely to precipitate further exits, or eventually, the dissolution of the Union. However, this outcome is not unavoidable. A better integration in the EU is possible, at least in theory. Also the negative consequences implicit in the existence of the common currency could be neutralised. However, the basic paradigms of the economic policies to be followed in the EU would have to be radically changed. First, it follows from considerations presented that the unconditional fiscal consolidation provisions still in force would have to be repelled. Second, ‘beggar-thy-neighbour’ (or mercantilist) wage policies would have to be ‘outlawed’

Transition Countries Resist Global Slowdown: Productivity Gains Offset Effects of Appreciation

After satisfactory performance of the transition countries in 2000, their growth slowed down in 2001 as the external conditions deteriorated. This tendency was checked in the second half of 2002. Industrial production and exports have generally strengthened since then - though in some countries apparently only temporarily. Expanding consumption was the major factor supporting growth in the year 2002 as the capital formation was generally weak in the more advanced countries and only moderately strong in the less advanced ones. The contribution of foreign trade to GDP growth in 2002 seems on the whole positive, excepting Russia and most post-Yugoslav countries. Despite weak growth in the EU, exports of the accession countries (and of Ukraine) performed quite well. This must be attributed to the ongoing growth in labour productivity and related cost improvements in industry which kept exports competitive. Gains in labour productivity are generally associated with some cuts in employment, adding to unemployment which is generally high, or very high, and unlikely to go down significantly even in the medium run. There has been a continuous decline in inflation. In most cases the disinflation is gradual and appears to be little affected by the monetary and fiscal policies. Inertial cost-price adjustments are likely to continue in the foreseeable future. The remarkable strength of the national currencies appears to have had a fairly limited impact on the performance of trade and production so far. The recent years' exchange rate trends may have reflected financial (or even speculative) developments so that a potential for adjustments, involving devaluation, may be there. But the likelihood of major adjustments seems rather small because the solid capital inflows will continue even in the medium term, especially in view of the prospective EU membership of the candidate countries. The general concern over potential loss of competitiveness due to overvaluation remains still valid. However, the productivity and efficiency gains may offset the negative consequences of real appreciation and the process has been associated with quality and price gains in export activities. It is not clear yet how sustainable the process of productivity improvements will be. Most probably high levels of investment (including green-field FDI) are needed to maintain its momentum. Growth acceleration in 2003-04 is possible provided the business climate in the EU improves. Otherwise growth rates will be roughly the same as in 2002. In any case the average rate of catching-up vis-à-vis the EU will stay at about 2 percentage points per year.Central and East European transition countries, Bulgaria, Croatia, Czech Republic, Hungary, Macedonia, Poland, Romania, Russia, Slovakia, Slovenia, Ukraine, Yugoslavia (Serbia and Montenegro), forecast, East-West trade, European Union, EU enlargement, exchange rates