The
Eurozone suffers from a structural economic problem. An imbalance: a
centre traditionally running current account surpluses, a periphery
traditionally running current account deficits. Admittedly, the peripheral
countries' current accounts are now balanced but as unemployment keeps falling
it is difficult to see how this won't translate into a rise in imports and
current account deficits resurfacing again. The classic response to address
such imbalances is via the creation of an EU transfer union. In theory, it
would make sense.
But
theory is not always very practical: it is almost impossible to gain political
support at the EZ's national level to transfer taxpayers money from
the centre to the periphery. However, doing nothing is not an option
either. And this begs the question: what to do? The answer: create
a centre-periphery FDI bridge. The idea's rational being reasonably
straightforward:
Problem: Peripheral countries (Spain, Portugal, Greece) have
traditionally (i.e. since WWII) run current account deficits - the resulting accumulation
of foreign debt leading sooner or later to an inevitable “sudden
stop”, financial and economic crisis. Just like in 2009/2010.
Solution: These countries need to broaden substantially their
export base and implement an export-driven growth strategy. The way to do it in
an effective and reasonably timely manner (5-10 years) is by attracting massive
amounts of foreign direct investment (FDI): that the Siemens, L'Oréals, Googles
of the world set up production/service units in the countries (or expand the
already existing ones) to serve (mostly) clients abroad. For it to happen
structural reforms at the national level are needed – no doubt. But it will not
be enough. The European Union has to create a mechanism that incentivises the
flow of private capital (simply said “Germany’s excess savings”) from the
centre to the periphery to finance the FDI projects. This should comprise:
-
tax incentives, e.g. FDI projects not paying corporate tax for the first 10
years;
-
a pan-EZ legal & institutional framework, e.g. FDI courts at EU level
investors could resort to in case of legal issues arising with their projects.
Thus overcoming the potential lack of trust in the national legal frameworks
& judicial systems.
In
short: create special economic zones in the EU periphery offering investors a
highly attractive and reliable fiscal, legal and financial return framework
Result: A win-win situation - the periphery expands its
export base and generates strong export-based sustainable growth; the centre can
invest its surplus in economically sustainable projects at an
attractive rate of return (instead of investing in
US-subprime or Spanish overvalued, excessively supplied, real
estate assets as in the pre-2008 period).
Cutting a long story short, the centre-periphery FDI bridge is an incentive mechanisms at
the EZ level to channel private sector monies from the surplus centre
to the deficit periphery, to finance FDI projects in the latter. It is both
politically more feasible and economically more efficient / sustainable than
creating a classic transfer union.
Combined with
(i) a limited common EZ budget (managed by an EZ finance minister) to finance investment projects across the EZ,
(ii) evolving the ESM into a fully-fledged European Monetary Fund for crisis
resolution situations, (iii) full implementation of bank bail-in
mechanisms and completion of EZ's banking union, the FDI core-periphery bridge
would complete Eurozone's required institutional framework and make it a
sustainable and prosperous economic construct. The Euro would
definitely become a success story.
Emmanuel,
are you reading? Thanks to you, we - the Erasmus generation - are
in charge now. Let's make Europe great. Again.
No comments:
Post a Comment