Stadtentwicklung, Weltwirtschaft, Wettbewerb, Deutschland, Europäische Wirtschafts- und Währungsunion, Vereinigte Staaten, Urban development, World economy, Competition, Germany, European Economic and Monetary Union, United States

Christian Ude

Hans-Werner Sinn

Horst Teltschik

English

Research Papers in Economics

CESifo Forum 2/2003 3
Introduction
Welcoming Address by
CHRISTIAN UDE
Lord Mayor, City of Munich 
Ladies and gentlemen,
distinguished guests,
In my capacity as Mayor of Munich, I am proud to
be able to welcome you to the second Munich
Economic Summit in our city.
In the light of current developments, maybe I
ought to begin my speech by talking about the role
of the European cities in promoting peace.
After World War II, nearly 60 years ago, the
European continent and its cities lay in ruins. But
soon afterwards, the cities of Europe were taking
practical steps to bring people together by entering
twinning relationships with other cities.
To give an example, the City of Munich has mean-
while developed international partnerships with
seven sister cities. On the basis of these relations
we are engaged in intensive dialogue and coopera-
tion with international networks like EUROCI-
TIES and the network of the International Union
of Local Authorities (IULA).
And, we may say that the cities of Europe have
turned out to be engines of growth, innovation and
social cohesion in the past decades of the
European unification process.
Europe is established and built in the cities, no
doubt.More than 80 percent of the EU citizens live
in urban areas. And the lion’s share of gross value
added is generated in cities, showing strong growth
potential in the European economy, especially in
the service sector.
In order to improve the living conditions of the
people and promote the competitiveness of local
companies,Munich has invested billions of euros in
public infrastructure, such as the new Trade Fair
Centre, the new Airport and the extension of pub-
lic transportation.
Munich is one of the leading business locations in
Europe, no doubt. Growth clusters of world-wide
importance have settled here in a variety of key
branches, like biotechnology/life sciences, informa-
tion technology, nanotechnology and the media.
In international benchmark reports, Munich has a
high reputation due to its famous universities, its
highly skilled labour force and research and devel-
opment facilities. This is one of the main reasons
why the relations between US companies and
Munich firms are so strong.
Most of the German subsidiaries of US enterprises
are located in or around Munich. The exports of
Munich firms to the US are strong, the BMW
Group, for example, is selling many cars to
America, and established a manufacturing plant at
Spartanburg.
In the United States,Munich is competing with top
metropolitan areas like Boston or Silicon Valley.
These US city regions are our benchmark.
The Department of Labour and Economic
Development of the City of Munich seeks to pro-
mote close connections with prosperous US
regions by presenting Munich in the United States
as a German Centre of Excellence.
With the 2006 Soccer World Championship to be
held in Germany, Munich has seized a unique
opportunity to further upgrade its business loca-
tion and international reputation.
We are doing this by hosting the opening of the
Games in the newly built Soccer Arena and mak-
ing the new Media Centre available for world-wide
press activities.
In times of economic difficulties, the capital invest-
ments made by the cities should help to overcome
the showdown of the economy.Munich,for example,
EUROPE IN THE GLOBAL ECONOMY:
MATCHING THE U.S.?
MUNICH ECONOMIC SUMMIT 2–3 MAY 2003makes great efforts to maintain a high level of capi-
tal investment in infrastructure projects, even and
especially in times of declining public revenues.
As a precondition for healthy cities, we need a
solid financial system, however. A system which
helps to make the cities less vulnerable, and pro-
vide long-term financial stability. It should be
implemented on the national as well as on the
European governmental level.
If we and the European Union want to be locations
of innovation in years to come, the European
Community and national governments should
undertake all they can to strengthen the cities and
their prosperity potentials. And this would also be
a solid strategy to strengthen the competitiveness
of the whole continent.
Ladies and gentlemen, I hope this summit will
show the way how this present economic crisis can
be overcome and how competitiveness can be
strengthened on a European level.
In this spirit, please accept my best wishes for a
successful conference and fruitful discussions.
Thank you for having come to Munich once again,
have a pleasant stay in our city and enjoy these
meetings.
CESifo Forum 2/2003 4
IntroductionCESifo Forum 2/2003 5
Introduction
Welcoming Address by
HORST TELTSCHIK
Chairman of the Board of Directors,
BMW Foundation Herbert Quandt,
President Klaus,
Prime Minister Medgyessy,
Dear Minister-President Stoiber,
Deputy Prime Minister S ˇ lesers,
Excellencies,
Ladies and gentlemen,
I should like, on behalf of the BMW Foundation
Herbert Quandt, to welcome you most cordially to
the second Munich Economic Summit in the
Bavarian capital. After the successful premier last
year, the Summit has become an attractive brand
name.The fact that there are 140 participants from
23 European countries speaks for itself, not to for-
get our American friends and participants.
I would like to thank the Sponsors of this
European Summit who have contributed signifi-
cantly to its success. Their generous financial sup-
port deserves special mention in these times when
burdens are increasing for the private sector, and
the overall level of economic activity is declining.
Ladies and gentlemen, the theme that the two
organisers, CESifo and the BMW Foundation
Herbert Quandt have given to this year’s summit
“Europe in the Global Economy: Matching the
US?” might be a bit provocative nowadays.
“Matching the US?” – the Summit’s subtitle draws
attention to both the close economic ties and the
global economic competition with the United
States. How can Europe increase its competitive-
ness? Does the American economic model lead the
way? Can the Europe of 25 some day match the
economic power of the US? 
It is quite obvious that the Europeans cannot and
will not have the political will to match the military
power of the United States. They have just small
alternatives to international crisis settlement.
Economic power could be a convincing alternative
of the Europeans and this would be highly respect-
ed by our American partners.
Let me add a personal word: This year, we have
had two American ministers visit Germany. The
first was Secretary of Defense Donald Rumsfeld,
and tomorrow we will welcome Bob Zoellick, the
Secretary of Trade, and they both come and came,
respectively, to Munich and not to Berlin. We are
proud of that. This is hopefully a contribution to
improve German-American relations from the
Munich territory.
Now in particular, with the end of the Iraq war,
Europe has the chance to contribute significantly –
together with the United States – to the recon-
struction of Iraq and to a peaceful development in
the whole region and thus, once again, to put com-
mon goals and values in the foreground of transat-
lantic relations.The free competition of ideas, con-
cepts and products can develop only on the basis of
a strong Atlantic partnership.
I hope that we will all find today’s and tomorrow’s
discussions extremely stimulating. The special
characteristic of this conference is the mix of eco-
nomic professors with business executives, politi-
cians and economic experts from the media.
Therefore, it is with great pleasure that Professor
Sinn, President of CESifo in Munich and I open
the second Munich Economic Summit.
Welcome to Munich, and Professor Sinn you now
have the floor.Introduction by
HANS-WERNER SINN
Professor of Economics and Public Finance
President of the Ifo Institute for Economic Research
and of CESifo Inc.
President Klaus, Prime Minister Medgyessy,
Minister-President Stoiber,
Deputy Prime Minister Slesers, Mayor Ude,
excellencies, colleagues, ladies and gentlemen,
The war is over, tensions have subsided, and it is
now clearer than ever that the United States is the
world’s superpower. Even though the US economy
has lost steam in the past few years, US GDP per
capita last year still was nearly 50 percent above
the EU average, and even in absolute terms it was
10 percent above EU GDP, although US popula-
tion size is nearly a quarter lower. In this year, the
US economy is expected to grow by another
2.4 percent while the EU growth rate is a meagre
1.1 percent, according to ifo projections.
Next year, Europe will have 450 million inhabi-
tants while the US will only have 280 million or so,
and still US GDP will be similar to that of Europe.
There must be something special about the US
economy that has generated this enormous eco-
nomic success.What is it? 
Is it the common government, the political unifica-
tion of the continent? 
Is it the political power that has helped the US
shape the world trading system according to its
preferences? 
Is it the fact that they have a market economy with-
out an adjective, as Vaclav Klaus has argued? 
These are some of the questions we want to discuss
at this Summit. I am glad that we have been able to
assemble an excellent group of specialists who can
provide answers and help clarify the matter.
From my personal perspective, the ultimate goal is
to see what Europe can learn from the US to
achieve similar productivity growth.
One of the clues might be the capital market, and
that is the question to be discussed in the first
panel. It is true that, with the introduction of the
euro, Europe has established a new capital market
for interest bearing assets. The rapid interest-rate
convergence that the announcement and introduc-
tion of the euro has brought about will reshuffle
the savings capital to its most productive uses
towards countries that previously were disadvan-
taged. This will surely boost economic growth in
Europe in the next two decades.
However, Europe still does not have good markets
for risk capital. Here the US has an outstanding sys-
tem with its venture capital markets and its stock
exchanges, something that is worth imitating in
Europe despite the recent cracks that the system has
shown. Except for Great Britain, joint stock compa-
nies play no particular role in the economies of the
continent,and attempts to change this situation,such
as the opening of the new market for young joint
stock companies in Frankfurt, have failed miserably.
Even more important than the capital market, howev-
er, is the labour market. While the US economy has
created 40 percent more jobs during the last twenty
years, Europe has performed poorly, and its unem-
ployment remained intolerably high. Western
Germany has even experienced a shrinkage in the
number of hours worked,unable to provide additional
jobs for the immigrants who,in net terms,amounted to
6 percent of the west German population.Immigration
in Germany, therefore, was immigration into unem-
ployment,even though it was the domestic inhabitants
who went into unemployment and the immigrants who
took their jobs.Many other European economies have
performed better than the German economy,but none
has been able to match the US.This is the field where
the title of the conference fits best.
I share Vaclav Klaus’s view that the reason for the
poor European development is indeed the adjec-
CESifo Forum 2/2003 6
IntroductionCESifo Forum 2/2003 7
Introduction
tive that we have added to the market economy. It
is the social dimension that we have added to the
labour market that has caused the problems.
Job tenure laws have increased the power of trade
unions and allowed them to carry out an extreme-
ly aggressive wage policy. If the customer is forced
to buy the product, the seller has all incentives to
increase the price.
The welfare state is expensive and requires higher
and higher taxes that discriminate against work.
And, what is more, by paying replacement incomes
to those who have no jobs the welfare state has
become a fierce competitor of the private economy
in the labour market that, together with the Asian
low-wage competitors in the product markets,
takes away the air that the private economy needs
to breathe.
I am eager to hear what the speakers in the second
panel have to say on this issue.
When we designed the conference we did not know
that the conflict between the US and some
European countries about the legitimacy of the
Iraq war would escalate to the extent it did. Given
this escalation, I hope that we will be able to pre-
vent a new cold war in transatlantic political rela-
tions. The future of the World Trade Organisation
and the challenges for the Doha Round will be
intensely discussed in the third panel. In the past,
the US has not been overly co-operative when it
came to international agreements. This at least is
the feeling that most Europeans have when they
think of the Kyoto protocol, which the US did not
ratify, and the International Court of Justice in the
Netherlands to which the Americans do not want
to submit themselves. I wonder what prospects our
speakers will be able to offer in the area of trade
negotiations.
The last panel is on the future of the European
Growth and Stability Pact. Matching the US does
not quite seem the right title in this context,since the
US is likely to have changed its budget by 6 percent-
age points of GDP, from a surplus of 2 percent to a
deficit of 4 percent in only four years (2004).This is
the opposite of what the pact requires, which impos-
es a ceiling of 3 percent on the budget deficit.
However, you will have noticed that we have
added a question mark to the title of the confer-
ence. This is more appropriate now than ever,
because I believe that the Americans are having a
problem here. The American households do not
save, the American government does not save, but
the American economy needs the funds for invest-
ment. These have been increasingly coming from
abroad, as can be seen by the huge current account
deficit in the order of more than 4 percent of GDP,
but they will not be coming for ever. There is the
risk of a sharp depreciation of the dollar with neg-
ative repercussions on world trade, in particular
the competitiveness of the European economies.
This development is anything but healthy,and here
the US should try to match the Europeans instead.
Unfortunately, as you know, the Europeans no
longer take the pact very seriously since a number
of countries, including France and Germany, will
violate it. Minister Eichel has announced that he
will borrow 2.8 percent of GDP, and Chancellor
Schröder has recommended that local communi-
ties borrow another 0.35 percent from the German
Bank for Reconstruction and Development. If we
add these two numbers it follows that the govern-
ment has already declared implicitly that it will run
a deficit of 3.15 percent of GDP and hence violate
the pact in 2003. These are no good signs for
Europe either. Let us listen to the experts whom
we have invited to speak on this issue in panel 4.
This is all I have to say at this stage. I am sure we
will all have an exciting and stimulating two days
here in the Bayerischer Hof and in the Residence
of Bavaria where Minister-President Stoiber will
receive us tonight.I now cede the floor to Minister-
President Stoiber and President Klaus, to a lawyer
and to an economist, both of whom, I am sure, will
have important messages for us, and I thank you
for your attention.

Europe In The Global Economy: Matching The U.S.?

http://www.cesifo-group.de/portal/page/portal/DocBase_Content/ZS/ZS-CESifo_Forum/zs-for-2003/zs-for-2003-2/forum2-03-introduction.pdf

Europe In The Global Economy: Matching The U.S.?

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics