France needs an economic overhaul to revive growth and help underpin the political union required to stabilize the euro area, Harvard economist Kenneth Rogoff said.
European governments’ policy responses to the debt crisis, such as a “half-hearted” banking union and national budget oversight by the European Commission, aren’t enough, Rogoff was quoted as saying in an interview published in German newspaper Die Welt today. European leaders need to start now with a push toward political integration that includes a European government with taxation powers, he told the Berlin-based daily.
France, Europe’s second-biggest economy after Germany, is decisive because if the French don’t reform and restore growth, “we can forget about everything else,” Rogoff was cited as saying. “If France changes, Europe can make it.”
German Chancellor Angela Merkel pointed to France’s lag in competitiveness last year by criticizing the gap between German and French unit labor costs. She has cited research on debt and economic growth by Rogoff and fellow Harvard professor Carmen Reinhart to back up her debt-reduction policies.
The French economy is expected to contract 0.1 percent this quarter after shrinking an estimated 0.3 percent last quarter, according to the Bloomberg survey of forecasts published Jan. 17. That suggests France has slipped into a recession for the first time since 2009.
Merkel’s proposal for a Europe-wide “competitiveness pact,” unveiled at the Davos Economic Forum on Jan. 24, faces resistance in European Union countries that aren’t part of the euro area. Swedish Prime Minister Fredrik Reinfeldt said that Sweden opposes shifting more powers to Brussels, though he would agree to voluntary measures, Handelsblatt cited Reinfeldt as saying yesterday.
The European Central Bank’s unconventional measures to stem the debt crisis lack political legitimacy and probably can’t buy time for more than seven years, Rogoff said, according to Die Welt. Euro-area political unification, including a European president who stands above national leaders, might take 20 years to put in place and has to start now, he said.
The example of the U.S. shows that Europe can become a single economic space with joint policies, Rogoff told Die Welt. Since Germans would have to feel that they are getting something in return for underwriting such a union, each euro-area country has to deploy its strengths to the fullest, he said.
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