EU must overcome reform fatigue – debate on OECD’s report

Written by Marcin Cesluk-Grajewski and Tessa Tumbrägel

Many European Union Member States have lost their appetite for the reforms needed to lift them out of the stagnation that followed the 2008-2009 economic crisis. They now need a second wind to overhaul labour, product and services markets as well as fix their social security systems (a mix known as structural reforms), to break the vicious circle of low growth, weak demand and too few investments. This is the conclusion of a report by the Organisation for Economic Cooperation and Development (OECD), discussed at a round-table debate organised by the European Parliamentary Research Service.

The presentation of the report, Going for Growth, 2015, was the first joint EPRS-OECD event, marking what is sure to be the beginning of a fruitful cooperation. The event took place on 4 March in the EPRS Library Reading Room, gathering together politicians, officials, researchers, students and journalists.

Introducing the subject, Franck Debié, adviser to the Secretary-General of the European Parliament, remarked that the eurozone and the wider European Union continue to be marred by low growth, high long-term unemployment and growing income inequality, for which the OECD report tries to offer remedies.

The report’s author, Alain de Serres, Head of the Structural Policies Surveillance Division at the OECD’s Economics Department, noted that many economically advanced countries lost their zeal for reforms around 2013, actually once the worst of the economic crisis was over. As a result, countries remain locked in a cycle of low growth, low confidence and low investment. Productivity remains subdued and long-term unemployment high. This vicious circle can be broken only by reforms stimulating labour productivity and investment, although a monetary stimulus planned by the European Central Bank and low oil prices will do their part in bolstering economic expansion. Mr De Serres explained that emerging market economies scored better in their reform drive.

Going for Growth is a flagship publication for the OECD, the Paris-based organisation of 34 countries, which identifies best practices to help foster strong and inclusive growth and reviews reform progress.

Among many measures, the report encourages more effective product and labour market regulations, improved trade and investment rules, reformed tax and benefit systems, investments in people’s skills and innovation.

It also rings alarm bells about rising income inequality across Europe. ‘Growth is important – but growth for whom?’ said Mr de Serres, urging for inclusive growth and gains shared equally across society.

Dariusz Rosati, MEP, member of the Committee on Economic and Monetary Affairs and rapporteur of the Annual Growth Survey 2015, welcomed the OECD’s report as ‘providing justification for the necessary policy changes to put growth back in positive territory.’ He noted the OECD recommendations are similar to those made by the European Commission in its Annual Growth Survey. Mr Rosati said overall slowdown in reform efforts reflect to a great degree the political reality in Europe which often focuses on the potential social costs of reforms rather than the long-term benefits.

Dr Cinzia Alcidi, Head of the Economic Policy Unit at the Brussels-based Centre for European Policy Studies (CEPS), spoke on ‘reform fatigue’ in the EU. This often results, she noted, from the two sides of structural reforms – a long term gain follows a short term pain. Beneficial reforms often have a disruptive effect initially. Dr Alcidi also reflected upon the subject of inequality and the notion that technology-driven growth often drives productivity, but can also lead to labour market inequality, excluding low-skilled workers from the gains. Competitiveness should be analysed not only in quantitative, but also in qualitative terms. Competitiveness should be looked at in its whole complexity as it encompasses areas such as education, health and public sector.

The exchange of views prompted a lively question and answer session, with queries on topics such as the capital market union, the ECB’s quantitative easing or the role of austerity.