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Tuesday, January 24th, 2012

Why the Eurozone should not speak only German posted by Ross Dawkins

There is increasingly vocal recognition amongst Eurozone leaders that measures to promote growth are necessary.  Whether or not the Eurozone has a future then actions to (a) increase the competitiveness of its members and (b) to build a better internal market are necessary.  On the latter, improvements in the ability to deliver services across borders — as explicitly indicated by Italy’s Monti — would be a major start.  But reform needs to tackle national deficiencies as well as cross-border frictions.

In terms of competitiveness, the Eurozone (or, indeed, the EU) does not need to do much more than learn from its own best practices to build a very competitive economy.  For example, if we examine the components within the World Bank’s latest “Ease of doing business” survey:

Starting a business: Ireland, global rank 13th;

Dealing with construction permits: Germany, 15th (the EU’s best performer is Denmark);

Getting electricity: Germany, 2nd;

Registering property: Slovak Republic 10th (Lithuania);

Getting credit: Ireland, 8th (UK — as rated in mid-2011, somewhat surprisingly);

Protecting investors: Ireland, 5th;

Paying taxes: Ireland, 5th;

Trading across borders: Estonia, 3rd;

Enforcing contracts: Luxembourg, 1st; and

Resolving insolvency: Finland, 5th.

Taking best practice from within the Eurozone would rank each country in about 2nd (maybe 3rd) place, compared to a range of 10th (Ireland) down to 100th (Greece). 

Similarly, one can examine the Global Competitiveness Report and ascertain where best practice lies within the Eurozone (EU): Finland’s institutions and Luxembourg’s macroeconomic environment (both Swedish in the EU as a whole); German infrastructure; Finland’s health and education systems; both a goods market as efficient and financial markets as developed as in Luxembourg; Finland’s labour market (Denmark); German business sophistication (Sweden) and Finland’s innovation (yet again, Sweden).

This would be a relatively efficient economy — hypothetically ranking in the top three globally if such best practice lessons could be successfully learned from each other.  If an internal market was also truly achieved then the combination might well rank first (at least until other countries tried to catch up). 

Sadly, even the more successful economies within the Eurozone (e.g. Germany and the Netherlands) have done little to close the distance to the competitive frontier in the past few years.  (NB Germany is just reforming its insolvency laws — although the likely improvement is not yet clear).  What Monti, and others, are clearly saying is that reforming actions are also necessary outside the periphery countries, and that by demonstrating a willingness to share the short term pain, this would be equitable too.


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