The writer is director of the centre for economic policy at Esade business school in Madrid and former economics spokesperson for Ciudadanos
A friend working at a city council on the coast of southern Spain wrote to me the other day. “The whole management of the European funds is going to be a nightmare . . . we have too much money!” she said. “I have been told to spend €10m on the installation of photovoltaic plaques in 100 public buildings. But I don’t think we have 100 public buildings! This is a small city!”
This example is a microcosm of the problems surrounding the €750bn in spending to be unleashed under the Next Generation EU (NGEU) fund to aid economic recovery after the pandemic.
The initiative is a unique chance to transform Europe’s southern economies. But there is a risk that the money will be wasted in boondoggle projects. Given the poisoned politics across the continent, this poses dangers for the EU. Europe’s currency union was conceived as a way to reduce competitiveness gaps among countries. But progress on structural reforms has been slow. In terms of productivity, the gap between the core and the south is widening. The Covid-19 crisis will just accentuate these diverging trends.
Reforms in the south have failed in the past because too little attention has been paid to how to make them actually happen. Without a better understanding of this problem, NGEU is likely to repeat previous failures.
At present, the incentives for reform could hardly be worse in the south. Governments are fragmented and weak. More political parties have a veto power over reforms. Populist forces on the extremes will reduce the ability to reach agreements through the centre.
Moreover, thanks to the European Central Bank’s actions, market pressure on governments has disappeared. Low borrowing costs will make it easier for them to postpone reforms. The Recovery and Resilience Facility, through which 90 per cent of NGEU funds will be channelled, lacks teeth on economic conditionality.
The debate on conditionality has been misleading. Nobody argues that, having been hit by a pandemic, populations in southern Europe should be exposed to fiscal austerity or more social suffering. But that does not mean we should forget about reforms.
Money alone will not solve structural problems. Think of Spain’s active labour market policies. Spain has the EU’s highest school dropout, youth jobless and temporary employment rates. It already spends more than €6bn a year on ALMPs.
However, according to Spain’s independent fiscal authority, there is no evidence that this money is improving employment opportunities for workers. Throwing more money into the system without reforms will simply reinforce the system’s flaws.
In the coming months, it will not be hard for the European Commission and national capitals to agree on a 50-point reform plan. The problems will start after agreeing to that plan.
Without a governance framework for NGEU that makes reforms actually happen, governments will spend the money satisfying their short-term electoral needs rather than implementing politically costly reforms. Why would they behave differently this time?
To ensure good governance, consider a proposal made 15 years ago by Harvard economists Ricardo Hausmann, Dani Rodrik and Andrés Velasco. They called for a strategy that would set policy priorities for governments “in a way that uses efficiently the scarce political capital of reformers”. Rather than trying to implement long laundry lists of reforms, which are “seldom helpful”, they proposed a framework for identifying the most binding constraints for economic growth in a given country.
EU governments and the commission should follow this framework, engaging in an honest conversation that results in a smaller set of structural reform goals. These should focus on two or three truly binding constraints for growth in areas such as human capital or institutional modernisation, where reform is necessary and politically achievable.
If nothing changes, it is not unrealistic to imagine that five years from now Dutch retirees, for instance, will be asked to take pensions cuts, while their newspapers are full of stories of EU money wasted on useless projects in southern Europe. Such an outcome could prove fatal for the EU.
In 2020, the EU has done the hardest part, putting together an extraordinarily generous package as a response to the crisis. In 2021, Europe’s priority should be to make it work.
OTTAWA – Prime Minister Justin Trudeau says the NDP is caving to political pressure from Conservative Leader Pierre Poilievre when it comes to their stance on the consumer carbon price.
Trudeau says he believes Jagmeet Singh and the NDP care about the environment, but it’s “increasingly obvious” that they have “no idea” what to do about climate change.
On Thursday, Singh said the NDP is working on a plan that wouldn’t put the burden of fighting climate change on the backs of workers, but wouldn’t say if that plan would include a consumer carbon price.
Singh’s noncommittal position comes as the NDP tries to frame itself as a credible alternative to the Conservatives in the next federal election.
Poilievre responded to that by releasing a video, pointing out that the NDP has voted time and again in favour of the Liberals’ carbon price.
British Columbia Premier David Eby also changed his tune on Thursday, promising that a re-elected NDP government would scrap the long-standing carbon tax and shift the burden to “big polluters,” if the federal government dropped its requirements.
This report by The Canadian Press was first published Sept. 13, 2024.
Simon Jolin-Barrette, minister responsible for consumer protection, has tabled a bill to force merchants to calculate tips based on the price before tax.
That means on a restaurant bill of $100, suggested tips would be calculated based on $100, not on $114.98 after provincial and federal sales taxes are added.
The bill would also increase the rebate offered to consumers when the price of an item at the cash register is higher than the shelf price, to $15 from $10.
And it would force grocery stores offering a discounted price for several items to clearly list the unit price as well.
Businesses would also have to indicate whether taxes will be added to the price of food products.
This report by The Canadian Press was first published Sept. 12, 2024.
Quebec legislature member Youri Chassin has announced he’s leaving the Coalition Avenir Québec government to sit as an Independent.
He announced the decision shortly after writing an open letter criticizing Premier François Legault’s government for abandoning its principles of smaller government.
In the letter published in Le Journal de Montréal and Le Journal de Québec, Chassin accused the party of falling back on what he called the old formula of throwing money at problems instead of looking to do things differently.
Chassin says public services are more fragile than ever, despite rising spending that pushed the province to a record $11-billion deficit projected in the last budget.
He is the second CAQ member to leave the party in a little more than one week, after economy and energy minister Pierre Fitzgibbon announced Sept. 4 he would leave because he lost motivation to do his job.
Chassin says he has no intention of joining another party and will instead sit as an Independent until the end of his term.
He has represented the Saint-Jérôme riding since the CAQ rose to power in 2018, but has not served in cabinet.
This report by The Canadian Press was first published Sept. 12, 2024.
