Marco Buti – Inclusive Multilateralism as a Response to Economic Nationalism?


[MUSIC PLAYING] All right, everyone. Thank you for coming along
to this lunchtime talk. It’s great to see
so many people here and engaged in this
very important topic. Marco was here last
year, and gave a talk. And he’s going to address
similar things today, but there’s a lot more in it. Having seen his slide
deck, I can tell you there’s a lot more in it. So what I think I will do
is introduce Marco briefly, and then just let him talk
for as long as he wants. At that point in time,
depending on what we’ve got left in terms of
time, I have a radio mic. I’m just going to walk
around and basically encourage you to ask as many
questions as you possibly can. Does that sound all right? Yes? Shall we do this? Then let’s go. It is my pleasure to
welcome Marco Buti. He is the chief economist
of the European Commission. At a time when Europe itself
and the very idea of Europe is under siege from many,
many different sides, it’s great to have
someone of his caliber able to come here
and separate out for us what is signal, what
is noise, what is important, and what is not. And I will then
leave it to Marco to take us through
what is signal and what is noise
from that point. Thank you. OK. Thank you, Mark. Thanks for the invitation. And indeed, this has been
a regular rendezvous. I think it’s the
third year I come, and I hope I can continue
to come in the future. You said, Mark, that last thing,
I talk about similar matters. Actually, I was looking
again this morning at my slides of last year. It was exactly the same day. So it’s sort of a
Halloween rendezvous here. And the title of
last year’s talk was “Is the High Tide
of Populism Over?” We were some months
after the Macron and developments in France. We were after the
Austrian elections also with a small country,
but where the pressure for a right-wing populist
actually was very strong, which was defeated. So I looking again at
my slides, and the sense of the talk last year was
quite the sense of optimism. That the high tide
was over then. And then we had
some developments which actually seemingly rolled
back, somehow, the optimism. And I think the example of
Italy is quintessential in that, because it was the
first time that we had such a radical change
in one of the founding members of the EU. You go back to the
original six countries, Italy was one of them. It is the first time that we had
not only the rise of populism there, but actually, two
different populism being stitched together and
actually forming a government, having a large majority. Actually, if you look
at polls right now, the majority’s even– it’s even bigger than the
results of the elections. I was wondering whether
the conclusion that they drew last year would
still be applicable today from the European standpoint. Conclusions was that
Europe should actually review its set of
priorities, focus on what we call new
European public goods, thinking about security,
common policy on migration, but also investing in new
technologies, technology that boost growth looking forward. Put in equity and fairness at
the center of our policymaking. Actually, Mark
mentioned I’ve been many years in the commission. And those of my
generation– actually, if you take the classic
Musgrave view of the functions of government, which
are, let’s say, allocation of resources,
lush potential growth, stabilization, and
then redistribution, the third element was
actually completely absent in the way we did
matters in Europe. Allegedly, here,
the justification is that you have a subsidiarity,
so these are competences, essentially, for
national governments, and not for the European level. At the European level,
what is equity and fairness is essentially amongst member
states via the cohesion policy that we have to help the
likes of, now, Eastern Europe, or previously, Spain, Portugal,
Greece, in order to catch up. But interpersonal equity
was never an issue. And I think there
were good reasons why that was not the case. But what I would
wonder, at this stage– probably what I
wondered last year– was whether an assignment
of policies which emphasize, at the European level, only
the [? harsh– ?] namely, the structural reforms
to liberate markets: competition policy,
trade policy– and on the fiscal side,
respect the rules, the Stability and
Growth Pact in the EMU, whether this is
a [? political ?] [? equilibrium. ?] And I think I
have a question, Mark, in that, because identifying Europe
essentially only [? for ?] blood and tears is not
something that, politically, can be sustained over time. And especially now that
there is, in a sense, a backlash against Europe. So I think the
conclusions of last year, we’re on a wave of
a certain optimism, but I will not change
[? them ?] dramatically if we fast forward to today. What I would like to
do today is to look at these challenges
here but taking less of an inward
European perspective, and put it in a more
multilateral view looking at global governance,
and what they call the challenge of
inclusive multilateralism in a moment in which
multilateralism and openness in general is
bitterly criticized in some part of the
world, including on this side of the Atlantic. So this is the
outline of the talk. I think it’s good to
go back to the roots of economic sovereignism. And I’m going to look at
the populist pressure, globalization and technological
change, an accelerant on both fronts, and then the
several fragmentations which actually emerged during
the financial crisis that started in 2008 and
which are still with us today. And then go to the more policy
response and the role of Europe in that. Now, if we look at
the populist pressure, I think it is useful to go back
maybe to a quite seminal paper by Daron Acemoglu and [? et ?]
[? al, ?] so with Egorov and Sonin. I think it was a paper
that he published in quoted Journal
of Economics back in 2012, which is that
political theory of populism. What Acemoglu does
in that paper is he actually focuses
on Latin America, and the left-wing populists. And the starting
point of the paper is the rise of Hugo Chavez,
the Kirchner in Argentina, Evo Morales in Bolivia,
Alan Garcia in Peru, Rafael Correa in Ecuador. This was six, seven years ago. You can fast forward
to today, you have Brazil Bolsonaro and
others in Latin America. So one has to be careful
in the way one extrapolates the finding of that paper
to today’s challenges, which at the time were more on the
populism of the left here. Now, what is actually
uglier, is more dangerous, is the populism of the right. And not in emerging economies
like in Latin America, but at the heart of the Western
economies, including Europe. So not one-to-one
translation, but still some interesting basic insights. I think what the
paper concluded is that when voters feel that
politicians are influenced by a corrupted elite with
the establishment rigging the system in its favor,
then signals of integrity are valuable. And in order to distance
itself from the elite, these governments actually
adopt super-populist policies precisely to signal the distance
from the corrupt establishment. And here, the attacks
on multilateralism can also serve as a
signal in this regard. And one of the
conclusion of the paper also is the populist
bias of policy is greater when the value
of remaining in office is higher for the politicians. And I think there are no
shortage of negative examples– I put them here– of multilateralism
being questioned. Here, I list some
of the phenomena that have taken place lately,
both in Europe and in the US. The political theory of populism
that I have just outlined here is what is summarized
here in the slide. What I would like to
do here is actually to complement the
paper of Acemoglu by a different one, which is
a paper I am still working on. And I have tried
here to represent in a very sketchy way. The people it is obviously
more elaborate than this. Let me see if we travel together
through this to the argument here, which is complementary
to the one of Acemoglu but with a bit of a
different perspective. Basically, what Acemoglu
does is that you have this rejection
in the population of the elite and
the establishment, and the governments will try
to signal concern and closeness to that type of worries by
adopting populist policies. What we do in this
paper here is actually to endogenize the preferences
of the population. Let me say that here, as an
economist and as a policymaker, I am venturing outside
my comfort zone. And especially
when one economist tried to deal with more
political science matters, they travel on very thin ice. I would say the opposite
is also the case. But anyway, I venture
into that anyway. So what we have
here– let’s think that there is exogenous
preferences by the population, and you have the preference
range here is on the x-axis. So we have more mainstream
and more populist preferences. And what you have here is that
you have the government which is rather traditional. The mainstream is
more to the left, and the populism
more to the right. And what you have is
that you have p here, which is the bold vertical
line, is the preference of the median voter,
[? essentially. ?] And the medium voter is
the one that allows– are going to be elected. So you have to be as close
as possible to do that. So let’s say, in
a certain moment, you have a mainstream
government in office. You have the
population which is– [? it ?] has a certain tendency
towards a more populist views, but still, let’s say,
moderate distance. What the government
will do– and here, it will optimize a
welfare function, let’s say a loss function, which
has two variables [? in. ?] One is the government
will try to be re-elected. So what it wants to do
is to be as close as possible to the median voter. And the government has
also a certain ideology, so it has a certain
set of preferences. So it will try to remain
close to its own preferences. So its own preferences, what
you see here on the left, the median voter is what
you have here on the right, and the dotted line here is the
policies that will be adopted. Something in
between, close enough to have a chance to
win the elections, but also close enough to your
own ideological preferences. So here, let’s say,
exogenously, there is a shift in preferences going
towards more populist views. The reasons may be
those that Acemoglu analyzed in his papers,
rejection of the elite, all sorts of things. So a populist
government is elected. Then what you have here– again, the motivation
for the government are the same close
to your political– let’s say, your
preferred choices. At the same time, trying
to struggle in order to be re-elected. So again, the policies
that will be adopted is the dotted line
here on the right. This indicates
preferences are exogenous, and they move for exogenous
reasons in the model. Now, what I insert here is
the endogenous preferences. So the idea here is that the
preferences of the population actually do not
fall from the sky, but they are actually
modeled, and they are influenced by the policies
that the government itself is implementing. So take, in this case,
the endogenous policies. Then what– under certain
value of the parameters, the populist government
that is in office actually has a strong incentive to
adopt super-populist policies. So going, actually, to the right
of its own true preferences in order to carry the
median voter with it. So to shift the median voter
towards its real preferences. So under certain value
of the parameters, you have– actually,
the government does not adopt policies
in between the preferences of median voter and
its own ideology, but actually exist, in this
case, [? here to say ?] to the right its own policies by
a super-populist policies which adapts and helps shift the
preferences of the median voter itself. If you look at some of
the policies adopted in a number of countries– and I’m thinking about
Italy also in these cases– on migration, on security,
and other type of policies, I think you can actually–
this resonates reasonably well. And one of the
variables which shifts– let’s say, which underpins
the shift to the right here to the
super-populist policies is actually the
parameter that allows to translate the policies
into the preferences of the population. So it means how effective
is the policies adopted by the government in
changing the perception and the preferences
of the median voter. And that parameter
there in the model is actually much related to
the propaganda, the control of mass media, the occupation
of public broadcasting, and so on and so forth. So that element there is
very important in explaining why government adopts
super-populist policies. And I think it explains also
why the populist government actually tend to occupy
media, and they criticize, also, the independent media. So this is, let’s say, a
conceptual framework that is, I think, helpful in
trying to capture somehow the current populist trends. Now, when you come to
the populist backlash, you have two theories, and
two underpinning factors. This is actually as I
presented last year also, so I use basically the same. You have one is the
economic roots of populism. The other one is more the
cultural identitarian one. You have the– on the economic
insecurity is the rising income and wealth inequality. Insecurity amongst
those left behind. And on the cultural
identitarian, you have reaction against the
progressive cultural change, and the feeling of
identity being undermined. And immigration fears actually
helps to bring together the two perspectives. On the one hand, you have
those who are, let’s say, essentially the blue collars who
fear that immigrants arriving, being relatively low-skilled,
actually undermine the wages and the jobs. And you have also– immigrants being
different– you have also a cultural
identitarian backlash. What characterizes, actually–
and this is across the board both in Europe as well as on
this side of the Atlantic– is the rural-urban divide. If you look at
the Trump election here, if you look at the
vote on Brexit in the UK, look at the vote
for Macron versus Le Pen in the French
elections, you look at the support for Alternative
for Deutschland in Germany, this rural-urban divide is
the common leitmotif of this. I mean, in no university
city in Britain, the Brexit vote had prevailed. Not in any single one. And if you look at the
AfD, in Germany, that is– I think– the same story. So what those who tend
to think that they are– and they feel, with
very good reasons, that they are threatened by
globalization, are those. So youngsters, workers,
long-term unemployed, those who feel dependent on
shrinking social benefits, they turn against
neoliberal elite. And on the other side
also, the less-educated, older generation,
right-wing authoritarians. Let me say here that I do not
belittle at all the underlying motivation for this. I think this is not
just a perception and victim of propaganda. I think the critical
review and reconsideration of globalization
having become globalism as an ideology I think
is something that has to be taken very seriously. And as a policymaker
in Europe, I take also very
seriously the fact that, often, Europe is seen
as fostering globalization, [? so ?] globalization at the
regional level rather than the response to globalization. And I think this is
something [? that has ?] to be taken seriously on the
political and policymaking level. You have two accelerants in
this, which actually reinforces the populist backlash. One is– I’ve just mentioned–
is globalization and globalism. I think, as economist,
we have made it very easy for ourselves,
because what we have focused on is the overall gains
on globalization. Globalization, yes,
I think one can argue that it has
helped to increase the cake, the
volume of the cake. And then at best, we
acknowledge that there was a distributional issue. But the fact that one
could compensate the losers is different than actually
compensating [? losers ?] de facto, instead of
just adjusting theory. So actually, we have belittled
the distributional impact of globalization. And also, we missed
[? the ?] other side effects of that, including the
fact that we thought that the problems would
actually come more by mobility of capital and
race to the bottom, rather than mobility of people,
which has proven much more difficult to deal with. So these are the
first accelerant. The second accelerant is
biased technological change with the mobile
urban elite being those who is benefiting from
the current digital revolution. And all these elements here
and the next wave, I think, if anything, while providing
great opportunities, could also tend to
exacerbate this divide, and exaggerate the feeling and
the reality of being left over. So we take these
two accelerants, and the result is a set of
fragmentations which I think are important to understand. The first one is
political fragmentation. And what you have here– and
it stops at 2016, actually. If you extrapolate the curve,
it goes vertically up, actually. So this is the populist party
in democratically-elected governments. And most here of
these governments with populist parties actually
[? published by a ?] minority government, but now,
you start to see also in a majority of government,
and possibly putting together a populist of a different
nature, so combining, actually, the problems. So this is the what
has happened in Europe. And this has also
gone hand-in-hand with the changing
position of countries. So what I have
done here is to put a subset of European countries
along two dimensions. And the two dimensions, they
are not purely geographical. So north and south,
and east and west. The division here
between north and south is between the emphasis
on responsibility and risk reduction in the north,
so Germany et [? al. ?] And from the south, the emphasis
on solidarity and risk sharing. So this is the
north-south divide. And you have the
east-west divide, which is more along the
sovereignism versus more favorable attitude to European
integration and federalism. I sketched here in a
purely subjective way where countries lie
in the four quadrants. And what is interesting is
also the arrows moving around. So a number of countries which
tend to shift and similarly change quadrant. If you start with the
pro-EU risk reduction camp, which is here with
Germany, what is in the oval there is the Netherlands,
the Nordics, and the Baltics. Why so? Because lately, especially
with the political troubles of the chancellor in
Germany, the Netherlands has taken the lead– together with Finland
and some of the Baltics, but led in particular
by the Netherlands– in, let’s say, calling into
question possible compromises that Germany and France
would make to bring forward the European agenda. So in a sense,
they have overtaken Chancellor Merkel on the right. From these quadrants
here, there are also shifts which are
apparent lately. One is Austria
with the elections of the new government,
actually, which has led by Christian Democrats,
but with a strong presence of an extreme right
sovereignist party. Austria has actually tended
to shift to the right being more Eastern, so to say. And also Spain–
which traditionally, in the past several years, has
been close to Germany in terms of preferences– with the latest
government change, has moved more to this
traditional position, which is more to the south
together with other countries of the south. If you go down below, still
on the left in the second quadrant, you have
France, Portugal, Greece– to a certain extent, certainly– and now Spain. But you have Italy,
which has actually tended to shift
quadrants, and that this goes hand-in-hand with what
I have indicated before. And you move to the
right-hand side of the graph, then you have the Slovakia, the
Czech Republic, which are more, let’s say, on the
sovereignist side and close to Germany in terms
of preference to risk reduction. And Hungary, Poland, even
in a more glaring way, which much stronger emphasis
on sovereignism and illiberal democracy going hand-in-hand
with a preference for risk sharing via
the EU budget, which the two things seem to be
somewhat in contradiction. And this is definitely not– those who are in
this quadrant here, this is certainly not a
political equilibrium, [INAUDIBLE] there. And actually, you can see
that even Italy moving there is not leading to a coalition
of the sovereignist that is [? in ?] any way,
let’s say, viable on this. So this is political
fragmentation. At the global and– with
the focus on Europe, but you can do the same type
of analysis looking worldwide and across the Atlantic. The second fragmentation
is institutional. Here, we had the various
fora and institutions at the global level. Traditionally, the Bretton
Woods institutions– so IMF, World Bank, and then also WTO– being at the center
of the system. And you can see the
splintering lately. What has happened
during the past 10 years is not altogether negative. The rise of the G20
so it’s more inclusive participation of emerging
economies, I think is a favorable development. At the same time, you
have, for instance, WTO, which has moved out
of the center here. Plus, you have a
number of actors which help in terms of safety
net to respond to crises– so these regional
financial arrangements– including first and foremost
the European Stability Mechanism that we have created in
Europe during the crisis. But there are a number
of new institutions which make the
system more complex. And in particular, what you
have here on the right-hand side is new multilateral
development banks, BRICS bank, the Asia
Infrastructure Investment Bank, very much promoted by
China, and the competition that we have with traditional
multilateral development banks. And very important, the
rise of new lenders– China in particular–
which is, I think, very important in affecting,
strategically, the positioning of this country
and its influence in several part of the
world through, essentially, the new Silk Road and
conditions for debt transparency which risk [? putting ?]
in trouble some of the countries that
creating debt dependency. So an increase in
fragmentation at the global institutional level. You have an increase
in fragmentation on the trade level. This is the number of trade
restrictive measures in force. Before the crisis,
you see pretty flat. And the increase during
the crisis since 2008. Now, this has not led to
outright protectionism. Many of these measures
here are WTO-compatible, but nonetheless, they
create frictions in the– and the risk here is that
this arrow here would actually trend up with the risks of
entering into a trade war led by the US in the first place. What we had also is
financial fragmentation here. This is foreign claims
in G7 countries. This applies in particular to
Europe less than in other parts of the world. So we are becoming financially
more autarkic in the world. And then you have this, which is
a graph I’m extremely proud of, and I hope you like it as well. And it is the– I have basically replaced
the Branko Milanovic elephant of income distri– you know the elephant chart? So basically, if you
picture the elephant, you get the trunk going up. Those who benefited
from globalization are essentially those in the
middle, which is essentially the emerging [? econo– ?]
China, India, et cetera, which saw a
large increase in income. Those who actually suffered
from globalization in his chart are those left over
from globalization. Sub-Saharan Africa and
other very poor countries which are here on the
tail of the elephant, and those who are at
the bottom of the trunk, which is essentially the working
class in advanced economies. And those who profited
are the 1%, or the 0.1%. So that graph there was for
the years before the crisis. So the 20 years before the
[? crisis, ?] 1988 till 2008. Here, what I have done in
this is taken basically the same variables but
looking at 1980-2016, and I found that the whale
fitted in the graph editor than the elephant. So what you have
here, the message is not all that different. But notice something,
is that the x-axis on the right-hand side
here is the axis extended because you have 99%, and
then 99.9%, 99.99%, 99.999%. And you can see the vertical
acceleration which is actually benefiting from a tiny minority
of the super rich appropriating a large share of
wealth creation. It is clear that if you
look at something like this with the squeeze of the
medium and low-income in advanced economies, you
can see some underpinning of the economic motivation
for the populist backlash that I talked about before. Now, policy response [INAUDIBLE]
inclusive multilateralism going through that, quickly. So we should strive for
collective and concrete commitment to foster
strong sustainable balance and inclusive growth.
[? These ?] [? are ?] the four objectives of the G20,
strong sustainable balance and inclusive growth. What is important
is also develop a common global approach
to tax policies, and knowing that those
who do not pay taxes are those who are
extremely mobile. So any country or region
individually cannot actually tax those capital that
escape any reasonable amount of taxation. And also, strengthen
digital economy rules, protection of data
which is fundamental, promote a new generation of
trade deals that [? I– ?] [? here, ?] what we have tried
with Europe is to do so in new trade deals with
Canada and also Mexico. Deliver new global public
goods, financial stability, master migration,
fight climate change. And equip the G20, which
has risen during the crisis, to win the peace, not only
to respond effectively during the crisis,
through a reform of multilateral institutions. So this is, in a
snapshot, very quickly, things that one will
need to do in order to renew multilateralism. Put in order and recomposing
global governance is what I have tried
to picture here. So putting back the
Bretton Woods institutions with a reviewed
mandate, and considering the new actors that have
emerged in the past 10 years. There has been a
very important report prepared by the Deputy
Prime Minister of Singapore, Tharman– he has a family name that
is impossible to tell, so first name was Tharman,
Tharman [? group, ?] which elaborates on this and put
forward some proposals on that. It was presented at the G20
in Bali three weeks ago, and is going to be discussed,
then hopefully carried forward, at the Buenos Aires G20
summit mid-November. This is what one should do
by the three main actors, in my view. So the US, euro area, and China. For the US, it’s moving
from inward-looking strategy in a very pro-cyclical
policy mix, now with a very expansionary
fiscal policy to continued contribution to multilateralism
and more prudent macroeconomic stance, which has a particular
negative impact, actually, on emerging economies
because when you have a very pro-cyclical fiscal policy and
tightening of monetary policy, you have an increase in
the dollar and troubles for countries– especially emerging
economies– which have a larger share of
dollar-denominated debt. So the implications
for the others are pretty clear,
not only for the US. I think for the
euro area, we have to move from excessive
reliance on external surpluses to finding more indigenous
growth motivation. So stronger investment,
and also reforms to boost potential growth,
and deepening and finalizing the architecture of EMU. And finally, for China, moving
from an unbalanced growth model [? and ?] market-distorting
practices to more sustainable development and [? greater ?]
adherence to global-level playing field. The fear here is also that, when
you have a trade risk or trade war, tariffs, threats,
and outright tariffs by the US on China,
actually, the response of the Chinese authorities also
to meet their central planning targets, is to do more
domestic stimulus. But this reduces the likelihood
of moving towards a more balanced policy mix,
actually increasing the imbalances within China,
and the risk of a boom-bust in China as well. This is not for the
longer-term future, but 2019, 2020 are actually– [? there are ?] risks, serious,
also for the shorter term. What can Europe do in this? We can serve as an example
to effective cross-border cooperation and coordination. With all our limitations
and mistakes, I think we have a way of
composing the, let’s say, resolution of conflicts in a
peaceful and effective way. I think we can lead the world
in terms of climate deals. We were at the forefront
of the Paris Agreement, and we have tried also, in
bilateral trade agreements, to bring in the climate
dimension, which is important, and promote high standards
for social, environmental protection, gender equality,
and so on and so forth. And also strive for
fair and effective international
taxation [INAUDIBLE] the proposals that we
have had in the G20. So this is what we can do,
and then what we should do. The domestic task is to
boost our structural growth. I think the external
strength can only be based on domestic
strength, so we have to have stronger growth. I think tackle more effectively
inclusiveness challenges. I think we are better
than [? in ?] other places of the world because
of the welfare system that we have in Europe. Nonetheless, there
is a sense of erosion of the social
protection, and also the feeling that the
way the welfare state is organized in Europe responds
very much to the worries of the 1950s or the 1960s. And now, with a much
more mobile workforce, the way social protection
is organized is actually less than effective. We have to complete Economic and
Monetary Union, banking union, capital markets union, establish
a fiscal capacity, also safe asset. Tackle the Brexit challenge,
which is here with us, and this is a very
short-term challenge from now till March 2019, and adopt
a credible migration policy, which we are struggling to do. I think the external task is
to overcome the small country syndrome. Europe is large altogether,
but the mentality is still a small country one. Which is a bit of
[? free-riding ?] also on the rest of the world, which
I think we should overcome. Here, clearly, it
means an outburst of political leadership
which is not easy to have. To deal with reverse
creditor paradox. Here, what I mean with this
is that the feeling in Europe is that having large
external surpluses is an element of strength. So the idea is that you have
bit of a mercantilistic view. We are stronger–
you see how much we export to what is the
external surplus that we have. But actually, if you take
the right perspective, this is an element of weakness. It’s not an element of strength. And it puts us more
into the limelight in the case of tariff
threats and tariff war. So we have to find much more
indigenous domestic sources of growth, and relying less
on the external environment. And we have to foster a single
more unified representation in international fora
for the moment we punch below our weight, because
the countries are all separate. And I think, after
20 years, we can think about a stronger rule
of the euro internationally. I think this is basically the
talk, and thank you very much. Thank you very much. [APPLAUSE] I shall go straight
to questions. You [? won’t ?]
hear this actually being speakers in
the room, but it’s for the benefit of the camera. So if you to ask a
question, use this. Who wants to go first? Who wants to go
first, [? Nina? ?] Wait for the microphone so
we can record [INAUDIBLE].. Thank you. That was a really
interesting talk. I guess two questions. The first is, this is
a very ambitious agenda that you laid out. Very broad in scope. And could you give us
a sense of priorities? So if I were to ask
you, if you could only do one thing to
increase inclusiveness, what would it be? And in your final slide, you
had one of the tasks for the EU, you said, “to tackle effectively
inclusiveness challenges,” but you don’t– would you say more about– what would you
actually do to address those inclusiveness challenges? There are two questions, but
actually, your second question answer your first one. And indeed, I was
thinking, going through, what one should do. I think if I had to choose one
priority which is something that I would insert
in our policymaking, I think is the
distributional dimension. So in the case of
Europe in particular, we have put the
emphasis traditionally on efficiency allocation
[? of ?] resources. That’s why we have created
the single market in Europe. We have put the emphasis on
stability and sustainability, [? that ?] we have created
Economic and Monetary Union. But we have disregarded largely
the distributional impacts of these policies,
and more generally, the distributional implications
of certain coordination practices that we have. So I think it is
important that we factor into what we do this
distribution and these fairness considerations. I mentioned before, it is
very difficult to think that what we have now– Europe is only the harsh
face of policymaking. And all the tempering of
the social implications of this being left at
the national level, that [? it ?] would be a
stable political equilibrium. So what to do in practice? First, internationally,
I think is– and I mentioned it here– is
to negotiate trade deals which have social standards, even
environmental standards, which are part and parcel
of the agreement. So I think this is one element. And I think, also, in the way
we do coordination policies in Europe, put at the forefront,
also, reforms of the labor market, of the welfare
systems, which do not only look at the supply side,
but also the demand side. And this is something
that we do not do enough. So I think we have, both
externally as well as domestically, an agenda which
would put more the emphasis on distribution which
I think is important. But it is important also
in terms of the [INAUDIBLE] swing stronger growth. Because there’s been a
lot of research lately that show that there
is not a contradiction, there is not
necessarily a trade-off between stronger
growth and more equity. And in fact, what
we have in Europe is that we try to pursue
so-called structural reforms. But structural reforms
here, this only is essentially [? the ?]
blood-and-tear type. So one can help to force
the structural reforms if you have more concern
about the equity as well. So some of this comes
out of your last slide, where a lot of the
things you put up seem to be things that
would have been there even without concerns
about how to create inclusive multilateralism. Promote climate change,
strengthen the euro. These are all old
things that Europe would have pursued anyway. And so I’m curious to– if you’re thinking
about something that you’re calling
inclusive multilateralism, what’s specifically
different here from the way Europe would
have pursued its growth and development in the past? And I think you’re talking
about paying more attention to distribution effects,
but I didn’t see so many of those in your slide here. The fact that they
are all priorities doesn’t mean that they
are wrong priorities. So I think we cannot jump on new
things until we have finished the others. Right. But the old priorities,
seemingly– you said yourself– are what led
to the economic nationalism. So I’m wondering, the
argument isn’t simply, we’re just continuing
with our goals because they were the right
goals, because something went wrong. And so– OK. Look, here, if you look
through the list here, there is some
element of novelty, and some element of
traditional [? chantier ?] that have to be finalized. So what is more new emphasis
is on the inclusiveness. So I think that’s
what I mentioned. I think [? on ?]
completing Economic Monetary Union is a
traditional priority. But we are in the
middle of the river now, and we are still
exposed to large shocks. So what we need to
do is to complete banking union,
capital markets union, establish a proper
fiscal capacity. This is essential. Otherwise, come the next crisis,
or the next severe downturn, and we would be in trouble
again as we were post-2008. So I think it is important
to do these things here. Actually, in my view, the global
dimension actually provides– and should provide–
an additional impetus to do what is done here. We are now evidently in an
[? anchor-less ?] world. So we have lost the– so it is probably the
G-Zero of Ian Brenner been under our own eyes. And I tell you, I was in
China and India back in June. It was interesting, because
it was two weeks difference, so at the same time. And what I detected
there very explicitly is a demand for Europe
to take leadership in the global arena in a moment
in which the natural leader– which is this country here– has renounced that
type of responsibility. One can be credible
externally only if you are strong internally. So what needs to be
done here is actually a number of reforms
which are needed in order [? precise ?]
to project at external strength
in an effective way. So I would see the
inclusive multilateralism and the global dimension
as an additional motivation to actually pursue some of
the traditional reforms that have been started
and not completed, and not wait until
the next [? rise ?] to be back against the wall
and doing it under duress. Yeah. Two related questions
to what you said. Do you see distribution
happening among countries, or just within countries? Because if you’re speaking
about winners and losers from globalization,
then distribution in a more global sense, and
not just within countries, seems important to me. The second question is, why
should the rest of the world accept the continued
leadership of the G20 countries when they were the architects
of globalization in any event, and why should we continue
to have [? and ?] sanction the exclusion of the majority
of the world from the table, especially if we are looking
at reshaping the world that all of us can
be satisfied with? And I think there is an
underlying assumption there that troubles me,
and that I would like you to at least justify
why you think that you should continue to have that
leadership despite the failures of the policies, and why you
should continue with exactly the same policies because
you think there was just not enough growth,
not enough capitalism, not enough of the [? medicine ?]
that seems to have brought us to this place in
the first place. Thank you. Very good questions. On the issue of equity and
fairness between and within, if I take the
European experience, we have the emphasis,
essentially, on cohesion policy between countries. So what we [? are, ?]
actually, via the EU budget, which is minuscule–
it’s around 1% of GDP– but we have about 30% share
of that budget actually going for cohesion policy
and transfers to countries which
amount to 3 to 4 [? percentage ?] points
of GDP for countries at the bottom scale of
the income distribution. So the emphasis in
Europe has been so far. And if one looks at the future,
will likely remain on cohesion and distribution, [? a lot of ?]
[? concern ?] between countries. The idea being that, as far as
distribution within countries– so the interpersonal
distribution– Brussels and Europe is
too far for actually providing an answer. The question I put before was
whether the complete disregard of the interpersonal
equity is something that one could afford, even
in the present junction and in the future, considering
that the identification of Europe with difficult
policies to be made, and then leaving to the
national governments to pick up the pieces,
I think is not something that I consider to be a
viable long-term solution. So I think we should try to see
how we could incorporate it. It is far from evident
to incorporate this, also, interpersonal
considerations into the policies we promote
at the European level. Now, on the G20– the G20 was created
many years ago. I think it was Larry Summers,
beginning of the ’90s, with Clinton, who
somehow invented the G20. And it was relaunched at
the beginning of the crisis too in 2008, because the feeling
was that the classic G7– so industrialized
[? economy– ?] or G8, with Russia at the
time, before the sanctions, was not enough to deal
with a global crisis which affected everybody. They were looking for another
more inclusive composition. And the idea was, OK, shall
we go from G7 to G10, G13, enlarging to a number
of emerging economies? And there was a discussion
there between those who wanted to have
something which was more restricted
in order to be more effective in the
decision-making, and those who wanted to have
a broader participation. And eventually, those favoring
a broader participation won, and the G20– which was a forum
already existing– was used for that. It is true that it does
not include everybody. It’s the G20, clearly. At the same time, I think
it was a major innovation of bringing in into the
global governance the largest emerging economies. And in certain circumstances
also, other countries which are invited, even though not
being full member of the G20. Take Nigeria, for instance,
or other African countries. So is it enough for
representing everybody? The answer is probably not. At the same time, I think
it allows to have a more, let’s say, inclusive management
of the crisis at the time. What the G20 is
not equipped with is beyond helping
in times of crisis. So in times of– inverted commas–
war, it’s probably not sufficiently equipped
to win the peace. So having overcome the
crisis, at least the deepest consequence of the crisis
now, to what extent we can have a global governance
which is fair and inclusive? And the example of these weeks
and months with the withdrawal of the US from a number of
fora, and quasi-withdrawal from the G20 as well– because
we have a number of working groups, the US does not
participate in those working groups– I think is something that
should worry us a lot. A slightly more political
question, I guess. It seems that, particularly
in the countries that have promoted Europe–
in France and Germany– the answer to problems in Europe
has always been more Europe. And this has led to a backlash. It’s been easy for
politicians who didn’t like
something, or hearing complaints about something,
to blame it on Brussels. A lot of the political
campaigns had to do with European
regulations on lawnmowers, or toilet flushes, or things
like that that kept coming up. And I wonder what the chances
are of less Europe, what the chances are of populists
getting together with a program to cut Europe down to size
a la Margaret Thatcher, Ronald Reagan, and
whether you see that as one of the
possibilities that might come out of this
fragmentation and resentment. Is more Europe always the
answer, [INAUDIBLE] the right answer? I think that is not the case. And actually going back
to the talk of last year, if I remember well, we had one
of the finest [? lies ?] which actually asked
precisely your question. So more Europe would
imply that you acknowledge that to tackle a
number of problems, the European dimension is the
critical one in order to do so. So think about migration. Unless one thinks that to
seal the borders completely– which I think is neither
feasible nor advisable– then you have to go to a broader
perspective which can only be a supranational one. And I think the European
dimension is the minimum one to deal with as a precondition
to have an effective migration policy. The example of trade
is another one. Actually, trade is one of
the exclusive competences of the EU. Now, we have had the
discussion between president of the European Commission,
Jean-Claude Juncker and President Trump
[INAUDIBLE] in July. I think it was good
that President Juncker, when they are representing
the whole Europe, and not having just
one country in mind. And actually, if
one looks at the– it’s a little diversion
from your question, but I think it’s
maybe useful anyway to understand what is happening. The present strategy
of the US seem to be the refusal of
the multilateral setting and institutions, and a
cobweb of bilateral deals. In bilateral deals, if
you sit at the table, no country individually
can match the might and the power of the US. So that is evident for
more than one reason. And actually, if you look at
the way trade deals have been designed, adopted, or negotiated
lately, with Canada and Mexico, with Japan, with Korea,
think on the part of the US. All this, they have– the US got, basically,
what it wanted. The only entity that can
match the US in terms of might, in terms of when you
deal with trade, is the EU. So that is the only dimension
where you can have a fair deal. So I think we have a
responsibility there. And I think there, in
the case of trade– foreign direct investment
regulations, et cetera– the EU is the right dimension. This does not mean that Europe
is the response to everything. I think that cannot be the case. So what I would
claim, and was one of the conclusions
of last year talks which I recalled at
the very beginning, is probably not
more or not less, but it’s [? about ?]
different Europe. And the focus been
on the allocation of resources within
the EU budget away from common
agriculture policy [? and ?] the old European goods
to new public goods. And I mentioned before, defense,
security, [? policies of ?] migration, et cetera. I think these are the
right things to do. Completing banking union,
Economic Monetary Union, is the right thing
to do for Europe. On some of the other
issues, I think devolution at the level of
national governments, or even subnational
governments, I think is the right thing to do. So I would not say that
the answer is always more. And a final question. So I would like to start
from the previous question and make it even closer
to your area of expertise. I’m a PhD student in
economics, and I happen to be Italian, incidentally. So– Nobody’s perfect. [CHUCKLING] So your agenda is
full of step forwards. Don’t you think that, at this
stage in the European Union, we should be ready to accept
at least small steps backwards to preserve the basic
structure of the union, and to make it
even more precise? My reference is to the
Stability and Growth Pact, and the letter that,
a few days ago, you had to write to
the Italian Treasury. Yes, we are writing
several letters lately to the Italian Treasury. I think the approach
that we have there– and we should have, in terms
of fiscal policymaking– is not an intrusive
one, but one that reduces the likelihood
of negative spillovers on the others. So the case of
Italy in particular, which is of exiting a reasonably
healthy period of growth in the past four or five years,
I think definitely growth higher than the potential
one, with a debt that is not decreasing, I think is
an important threat, both for Italy itself, and
for the rest of the eurozone. So the emphasis here has
been on putting in place a responsible
fiscal policy which would put the debt on
a downward trajectory. You may have noticed that,
in the various letters that have been written, the ultimate
goals that this government is pursuing are not criticized. Nobody calls into
question the basic income, or a reduction of taxes. But these are policies which one
will have to finance properly in order to allow
the continuation, or the beginning of a reduction
in the public debt in earnest, which is a fundamental
vulnerability of the Italian economy. Had we looked at inside
the individual policies, one could have had some nuances,
certainly, and some maybe further criticism. The way they seem to want
to design the basic income, I think one can
probably question. Whether a flat tax is helpful
from the point of view of inclusiveness that
I mentioned before is also questionable. Reversing the pension reform
with an extremely rapidly aging society is also something that
definitely is not in favor of the new generations. So one can put the
emphasis on those, but we have decided
not to do so precisely not to be portrayed as
being against inclusion, or against the
people in general. The present government–
this is my final word. Not to the previous one. The present government
committed supporting fully a certain adjustment
of the budget next year, and they committed
that in June and July. And actually, come
two months later, they have done
exactly the opposite. So the reaction of the
commission here was vis-a-vis the word that the
government had given– itself had given– which I
think is in contradiction, and the policies
in contradiction with those commitments. Go on, then. Thank you for your talk,
and thank you for your time. Hold on. Hold for the mic. Oh, OK. But we do have
three minutes, so. OK. I’ll wrap it up. Thank you for the talk,
and I was wondering– I think you used two
very interesting words. The first, globalization,
but more importantly, cosmopolitanism, which
both, in the 20th century, were used as a thinly-veiled
guise for anti-Semitism. So I was wondering how you think
that economic multilateralism can combat the darker ideals
behind economic and social nationalism. [INAUDIBLE] [CHUCKLING] Yes. That’s a heavy question. And definitely, the two minutes
left is not adequate for that. If you take a cosmopolitan
set of preferences, I think what has
happened in the past 20 or 30 years with
globalization actually will make us reasonably
happy, because there has been no growth of
the poor in the world. More has to be done, but
I think this has been a quite remarkable achievement. The point is that not everybody
has cosmopolitan preferences. Probably the urban
elite, yes, because they can exploit all
these opportunities. The rest, not. So one has to acknowledge
that, and in the policies that we are pursuing take into
account that the fears, risk of exclusion, being
left behind, I think is something that
is a real concern. My claim here is that the
nationalist policies which would tend to move to a more
autarkic view of the world, and regaining back control,
are not only ineffective, but they are
counterproductive precisely for those who feel left behind
in the current globalization and globalism. So I think we have to find a way
to respond by pulling together the forces, and I
find that Europe, for several of the
policies– not all, as I mentioned before– I think has the right
critical mass for doing so, and we like to talk about
European sovereignty as opposed to purely national sovereignty. Thank you very much for that,
and for the talk in general. Thank you, Marco. Thank you. [APPLAUSE]

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