Integration and Globalization The European Bellwether

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Integration and Globalization The European
Bellwether
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Economic integration is ahallmark of our global
era

• Borders less important
• Faster growth
• Benefits most people at most times

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From 6 to EU-15
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To EU25 and beyond
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Overview

• Economic integration promotes growth and
  increases exposure to policy competition
• Relatively illiberal economies are less equipped
  to deal with globalization
• Europe is such an economy
• Should Europe further liberalize its economy or
  better coordinate its policies?
• Europe is at a crossroads and so are we

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What is economic integration?

• Nations liberalize their economies
• Trade agreements
• Investor protections
• Worker visas
• These policies increase exposure to globalization
  and boost economic growth

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But exposure to globalization exacerbates policy
pressures

• Workers and businesses seek better business
  climates
• Recipients seek generous safety nets
• High-tax high-benefit nations penalized
• Greater penalty in a more economically integrated
  world

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EU economies uniformly less free
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EU has relatively low growth
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relatively high unemployment
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and low productivity growth
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But it was not always so
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This is a globalization story

• Inflexible, high-tax policies more damaging when
  goods, capital, labor more mobile
• Europe kept up in the low-tech less-global 70s
• Europe fell behind in the 80s and 90s as
  globalization accelerated

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Some see policy competitionas the problem

• A recent OECD report Developed world should
  eliminate harmful tax competition
• German finance minister Low-tax nations must
  raise taxes in the name of fairness
• As long as some nations are more competitive than
  others, globalization will benefit some nations
  more than others

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and policy coordination as the answer
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Policy coordination can bringintegration without
liberalization

• Sweden Farm subsidies too low
• Czech Republic Labor laws too lax
• Poland VAT too low
• What path will the EU follow in the future?

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Free trade in services defeated
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International capital movement feared
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Yet there is hope for freer EU markets

• EU head speaks movingly of liberalization
• More efficient financial markets?
• Clout of organized labor reduced
• Sea-change in German corporate strategy?
• Fewer protections for new workers
• New opportunities for French youth?

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The crossroads revealed

• Some EU states want more social protection
• Other EU states want faster growth
• How can Europe simultaneously satisfy these
  competing visions?
• It cant and the policy choices made by the EU
  and elsewhere will go a long way toward
  determining the ultimate fate of globalization