New CEPR Policy Insight - Economic Policy in the Rough: A European Journey, by Marco Buti

Tuesday, January 7, 2020

Insights into the European Economic and Financial Crisis from Marco Buti, former Director General for Economic and Financial Affairs (ECFIN) at the European Commission.

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In this CEPR Policy Insight, ‘Economic Policy in the Rough: A European Journey’, Marco Buti, Director General for Economic and Financial Affairs (ECFIN) at the European Commission between 2008 and 2019, and now Chief of Staff of Commissioner Gentiloni, gives a far-reaching and insightful commentary revolving around the economic and financial crisis in Europe, as well detailing his policy conclusions. 

Encapsulating a real sense of his journey through the Euro crisis, Marco Buti selects five key moments, some recognised as pivotal, and others less prominent, which he believes are crucial to interpreting the policy predicament today and in the future. His pivotal moments: 

  1. Latvia and the other Baltics – a prequel of the crisis.
    • Detailing the rise of the “Baltic Tigers”, the subsequent pre-crash economic slowdown and the IMF-EU Balance of Payments (BOP) assistance programme. 
  2. Deauville Meeting in October 2010. 
    • The compromise struck in October 2010 between the then French President, Nicolas Sarkozy, and the German Chancellor, Angela Merkel, in a meeting in the French city of Deauville, which is widely accepted as having been pivotal for the euro crisis.
  3. G20 Toronto summit - June 2010. 
    • A less well known moment, where encouraging economic growth and recovery led to a withdrawal of the fiscal stimulus, and a commitment by countries to halve their deficit by 2013 and stabilizing debt-to-GDP ratios. 
  4. Greece, a fiscal and a structural crisis. 
    • A snapshot of the Greek crisis, detailing the dramatic revision of the Greek fiscal accounts, subsequent loss of access to markets and the need for the EU to intervene in the context of a generalized loss of trust. As well as the “Grexit” speculations in 2015. 
  5. Mario Draghi’s speech at Jackson Hole Symposium - August 2014. 
    • Mario Draghi gave a speech at the Federal Reserve symposium in Jackson Hole in 2014, which would change the narrative on the European Monetary Union’s (EMU) policy mix, although it was not followed by a meaningful fiscal expansion or a stepping up of structural reform. 

Key lessons for future work on the Economic and Monetary Union (EMU)
These five pivotal moments, Buti explains, bear important lessons for the next steps in the completion of the EMU architecture and indicate how to create a better policy mix to ensure balanced and sustainable growth. His principal recommendations for future reform:  

  • Complete the Banking Union
  • Set up a European fiscal stabilization capacity 
  • Acknowledge the geopolitical relevance of the EMU 
  • Increase the democratic accountability of European integration

Considering the current slowdown and lacklustre medium-term growth prospects, Buti argues that these five moments, and the lessons to be drawn from them, also indicate that the fiscal, monetary and structural policy mix of the EMU are in need of change. Lastly, he outlines his vision for prospective reform.  

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You can find a selection of VoxEU columns below, relating to the pivotal moments in the European financial and economic crisis highlighted in this Policy Insight: 

  1. Deauville Meeting in October 2010. 
  2. Latvia and the other Baltics – a prequel of the crisis.
  3. Greece, a fiscal and a structural crisis. 
  4. Mario Draghi’s speech at Jackson Hole Symposium - August 2014.