THE ECONOMIC AND SOCIAL CONSEQUENCES OF THE GLOBAL FINANCIAL CRISIS: WHAT RESPONSES

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THE ECONOMIC AND SOCIAL CONSEQUENCES OF THE
GLOBAL FINANCIAL CRISIS WHAT RESPONSES?

• Iain Begg
• European Institute, LSE

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AN UNFOLDING CRISIS.
Mrs Jones of Mississippi defaults on her
sub-prime mortgage
Over-extended banks try to dispose of assets and
restrict new credit
The stresses shift from Wall to Main street
as debt deflation takes hold
Now its not just Mrs Jones of Mississippi who is
the victim but also Herr Schmidt, Madame
Dupont, Señor Sanchez and several members of the
O Reilly and Nowak families
Companies cut back on investment, then start to
lay-off workers
Consumers tighten their belts and try to rebuild
balance sheets
Unemployment leaps and social exclusion is
aggravated
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THREE STAGES OF COPING

• Fire-fighting to prevent systemic crash
• Re-capitalising financial intermediaries
• Provision of sufficient liquidity
• Now largely achieved?
• Or are new fires breaking out in CEE?
• Macroeconomic policy responses
• In progress, but still to have much impact
• Longer-term reforms to prevent recurrence
• Will need hard choices in redefining capitalism

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Did the world change on 14/9/08?

• Assimilating the lessons from recession
• Markets do fail, sometimes spectacularly
• The State is the ultimate rescuer
• Greenspans fall from hero to villain
• Limits to competition or temporary blip?
• Are we all still pro-market?
• or are state aids suddenly good news?
• New capitalism, new balances of interests
• Threats to skills investment in human capital
• New emphasis needed on social dimension?

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IMPACT ON EU INTEGRATION

• The temptation to retrenchment
• Protectionism by any other name
• Bank bail-outs
• British (French) jobs for British (French)
  workers
• Buy American
• Nevertheless
• Imagine chaos if there were separate currencies
• Or coping without the ECBs deep pockets
• Tough questions for EU processes
• Lisbon strategy, sustainable development, SPSI

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One for all and all for one
The dilemmas of policy coordination
but with who playing DArtagnan?
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4 OVER-ARCHING QUESTIONS

• Should policy be co-ordinated at all?
• With what overall emphasis?
• Which policies macro, structural, regulatory
• Todays big topic rescue of GM
• What sort of governance arrangements?
• The absence of economic government
• The shortcomings of soft mechanisms
• Does the economic crisis change the entire
  problématique?
• Possibly undermining Barroso era model(s)

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THE TROUBLE WITH COORDINATIONIts a bit like
herding cats
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CAN THE EU OFFER MUCH, or is it the absent actor?

• FISCAL CO-ORDINATION
• THE 200 Bn EURO STIMULUS PACKAGE
• BUT RELIES ENTIRELY ON MEMBER STATES
• LITTLE VISIBLE LEADERSHIP

THE ECB CLEAR LEAD GIVEN IN MONETARY POLICY AND
IN MEETING SYSTEMIC THREATS
STRUCTURAL POLICIES COMMISSION SEEMS TO LACK
CLEAR DIRECTION WHERE NEXT FOR LISBON STRATEGY?
STATE AIDS A NEEDLESS CONFLICT WITH FRANCE? OR DO
WE NEED THE COMMISSION TO BE TOUGH?
AN UNDERLYING CHALLENGE FOR EU DEEPENING HOW TO
MAKE THE EU BUDGET AT ALL RELEVANT - A GLIMMER
OF HOPE IN STRUCTURAL FUNDS DECISION?
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WHAT ABOUT A SOCIAL EUROPE? Channels for a
possible (limited) response

• Substantive EU acts directly
• European Social Fund
• Globalisation Adjustment Fund
• Or similar for current crisis
• Generally very limited scope
• Regulatory standards or frameworks, e.g.
• Working conditions
• Forestalling a race-to-the-bottom
• Co-ordinating national approaches
• But with what conception of social model?

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RECOVERING FROM CRISISLong-term social policy
orientations

• Education
• Not a total panacea, but a necessary condition
• Learning from each other
• The productive role of social protection
• Smoothing labour market transitions
• Preserving and enhancing human capital
• Has led on to the Flexicurity agenda
• The person not the job as target of policy
• But needs to be sold better to citizens
• Prone to be seen as a Trojan horse for cuts

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WHAT NEXT?

• The G20 as the next key step
• Needs concerted EU position (deepening?)
• But diverging interests and priorities
• Main challenge still macroeconomic policy
• Still some measures needed for banks
• perhaps also for other financial intermediaries
• Re-regulation will be neededeventually
• Over-arching narrative low carbon???
• Confidence the (missing) magic ingredient

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CAN THEY BE THE ANSWER?
CAN ANYONE ELSE?
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THE ECONOMIC AND SOCIAL CONSEQUENCES OF THE
GLOBAL FINANCIAL CRISIS WHAT RESPONSES?

• Iain Begg
• European Institute, LSE