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Ec104: study notes for topic 13 European Reform
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Revision notes with content from lectures and seminars for EC104 topic 13: European Reform
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European Reform: 1979-2001The European growth slowdown since 1979
The periodisation of EU economic performance
● Crafts and Toniolo (2010) - Golden Age (1950-73), slowdown then New
Economy with ICT (from the 1990s)
● Golden Age driven by capital deepening and TFP growth
○ TFP growth more important in most W.European countries
○ From tech transfer, EoS, structural change and reconstruction
● Capital deepening and TFP growth slow during the decline
● 1990-2003 - more diverse performance
○ Rapid TFP growth in Ireland, negative in Spain
Major recessions
● Battilossi et al (2010) - 3 major recessions, 2 of which were global
○ Oil and food price shock (1974-5)
○ 2nd oil shock, austerity (1980-2)
○ European specific - German unification, tight monetary policy (1992-3)
■ European semi-fixed exchange rate spread this across Europe
(EU Monetary System crisis)
● Country specific recessions are rare from 1958-74 but occur between 1970-
90s
○ Related to financial liberalisation and fixed exchange rate
○ Nordic crisis (1990-3) - liberalisation and low interest rates caused debt
accumulation and a boom in asset prices. Forced monetary
intervention to curb inflation
The growth slowdown
● Crafts and Toniolo (2010) - unavoidable slowdown. End of reconstruction,
diminishing returns and less catch up possible
● Shift of manufacturing to Asia, rise of services
● Convergence in labour productivity with the US (more than GDP per capita)
○ EU work less - unemployment, holidays, female labour force
participation
○ Some say EU labour markets are overregulated
○ EU unions are more powerful than the US
● Wage moderation and high investment replaced by unions, capital mobility
and floating exchange rate in the 1970s
● Distortionary taxes fund welfare state expansions (1970s)
● EU product markets are more regulated than the US
, ○ Discourages entry, increases the mark-up that the incumbent can
charge
The New Economy
● Crafts and Toniolo (2010) - US revival since mid 1990s - outpacing W.EU
● US view - EU constrained by high taxes, regulation and little competition
○ These predate 1995 EU
● Regulation most harmful in the case of new tech
○ Slow diffusion of ICT
○ Strong correlation between product market regulation and ICT
contribution to productivity growth
● ICT contributed more to TFP in the US than EU
○ Important in US acceleration post 1995
○ Is the adoption of tech by firms, not the growth of tech firms
● ICT is also important in less regulated UK and Irish cases
The welfare state in postwar Europe
Before 1979
● Baines et al (2010) - poor relief and limited education until the late 1700s
● Late 19th c - growth of a “welfare state” - payments into a fund that helps in
the case of accidents, sickness…
● 1945 - expansion to social protection, universal coverage with income
support/unemployment benefits/healthcare
○ Changed the role of the state and created a lower bound for
government spending
Since 1979
Baines et al (2010) explored patterns of welfare expenditure since 1995
● Scandinavia - see social protection as a right. Universal coverage and central
admin. Financed by general tax
● UK / Ireland - more modest benefits, means-tested, healthcare from general
tax and the rest contribution-based
● Benelux, Austria, Germany, France - employment / family status offering
entitlements, contribution-based
○ Bismarckian welfare state
○ Different regulations across occupations
● Greece, Italy, Portugal, Spain - mix of Bismarckian and social insurance for
the uninsured. More gaps in coverage
Social expenditure growth slowed from the 1980s
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