ZEW Economic Forum 1999: Economic Prospects and Policy in Europe

Within the context of the first Economic Forum of the Centre for European Economic Research (ZEW) in Mannheim, Prof. Dr. Wolfgang Franz welcomed some 200 participants. "The purpose of this ZEW event, which will take place annually from now on, is to offer a forum of discussion on current economic policy issues", emphasised the president of ZEW. "Economic prospects and policy in Europe" were a major topic discussed at the first ever ZEW Economic Forum, which started off with two insightful and informative presentations on two key aspects of European economic policy by Prof. Dr. Dr. h.c. mult. Otmar Issing, member of the Executive Board of the European Central Bank (ECB), and Karel Van Miert, EU Commissioner for Competition.

Issing: Stable euro

In his presentation on the euro, Issing emphasised that the newly introduced currency had started off strong and that the euro's subsequent declining trend was due to economic reasons. However, the Chief Economist of the ECB underlined his conviction that the price stability within the EU zone would eventually find expression in the euro’s external value and that there was no doubt about the currency’s appreciation potential. The full benefits of the euro would only be reapedif a reasonable financial policy was embarked on and structural distortions prevailing in a number of EU member states were rectified. Especially the labour market problem remained a topic of major concern. It was therefore strictly necessary to impose valiant measures to reform the labour market and to deregulate the product markets -whether by sealing an employment pact or not is of secondary importance. According to Issing, there was no recognisable loss of confidence in the euro on the financial markets as suggested by the press. Instead, the development of long-term interest rates in the euro area and the USA indeed betrayed a certain confidence in the single currency. The speaker clearly emphasised the ECB's main objective was to maintain price stability. An on-going devaluation would therefore result in problems since it would sooner or later have an impact on prices. However, according to analyses carried out by ECB, it takes longer for a devaluation to have an effect on the prices than in the former national currency areas. If dangers for the price stability were to unfold, the ECB would have to reconsider its current strategy, whereby short-term developments would not be taken into account. Issing warned of premature judgments about the euro. The new currency only exists for slightly more than five months now, and despite the complexity of the European economic area, things went normal. It is therefore a positive experience to consider how fast the Governing Council of the ECB managed to think in the dimension of the new currency area. There was no room for national argumentation patterns. He warned not to underestimate the determination of the ECB to defend price stability. "We will do anything to convert the euro into a stable international currency."

Van Miert: Competition policy

The subsequent presentation by EU-Commissioner Karel Van Miert showed that, apart from a healthy currency, a reasonable competition policy is essential in order to create dynamics, growth and innovation as well as to ensure a successful performance of European businesses in global competition. "Protectionism has never been a good option", emphasised Van Miert, "for it causes slackness as well as delays in structural change, and has damaging effect on consumers and tax payers." The euro would be of particular advantage to financial service providers as well as to businesses which up until now had been limited to the national sales network and were now trying to expand across the whole Eurozone. Surely there would be attempts to undermine the greater transparency of prices in the Eurozone by making price arrangements. However, the increasing economic interconnectedness was not only a European but a global phenomenon entailing risks for the competition. It would therefore be important to provide for stable framework conditions not only within the European domestic market but also internationally in order to guarantee a fair competition. For this purpose, an international cooperation on competition policy would be indispensable. Admittedly, an antitrust division on a global basis may still be a long way off; however, agreements such as the bilateral cooperation in competition matters between the EU and the USA played a much greater role than it was perceived by the public. On the whole, the number of cases concerning state aid and merger control on an EU level had increased significantly over the years. In most cases there were no problems at all. However, every now and then a merger or state aid payments had to be inhibited – even though this was to result in major debates and political headwind. "If we caved in to that pressure, these rules would be obsolete with the result that the strongest in the international arena would always end up as the winners or as being more equal than others."

Panel discussion

The presentations were followed by a panel discussion with Dr. Michael Heise, chief economist of DG-Bank, Dr. Eberhard Leibing, President of the Statistical National Office Baden-Württemberg, and Ludwig Schubert, Deputy Director-General of the European Commission's Directorate-General II. The panel discussion was hosted by ZEW president Franz and concerned the economic prospects for the European domestic market. Schubert argued that in Europe one should not allow oneself to be guided too much by temporary developments. Instead, a clear-cut, long-term economic policy would be necessary to overcome growth and employment problems. Leibig urged to finally undertake much-needed structural reforms in Germany. Admittedly, with a growth rate of 3.8 per cent Baden-Württemberg performed well in 1998; however, only 10 000 new jobs were created. This made clear that more effort would be necessary to solve the labour market problem in particular. According to Heise, growth in Europe has to become more labour-intensive in order to achieve lower unemployment rates. In fact, the employment threshold was no default figure since it depended on the factor prices and, in the case of Germany, especially on the wage development, and this was, according to Heise, exactly what must be addressed in the context of unemployment. The estimates of the participants in the panel discussion concerning the economic growth in Germany for 1999 varied between 1.6 and 2 per cent.  

ZEW's research findings

The panel discussion was followed by three lectures on current ZEW research projects. Prof. Dr. Dr. h.c. mult. Otto H. Jacobs (University of Mannheim and ZEW) presented the European Tax Analyzer (ETA), a computer-based model for the computation and international comparison of the tax burdens of corporations. Currently, the ETA contains the tax systems of Germany, France, Great Britain, the Netherlands as well as the USA, and includes tax benefits for investments. Dr. Thomas Cleff (ZEW) and Wolfram Fendler (Heidelberger Druckmaschinen AG) presented a jointly created software tool for the analysis and selection of international procurement markets. The tool renders it possible for the purchasing department of the printing press manufacturer to locate the most suitable suppliers for the company without excessive loss of time. The event was concluded with two ZEW researchers, Dr. Michael Schröder and Robert Dornau, presenting the ZEW Financial Market Survey. The results of this monthly survey of about 350 financial analysts are converted into forecast values by means of specific statistical methods, and allow an insight into the medium-term development on the international financial markets.

Contact

Gunter Grittmann, Phone: +49(0)621/1235-132, E-mail: grittmann@zew.de