Problems to be Addressed for the Future
While these bailouts and austerity measures have begun to stabilize the Greek situation (Greece expects to exit the bailouts program this year following a ten step procedure), they have not fixed the enduring problem the European Union and future debt crisis. Economists estimate for example, that Greek loans will not be paid off until at least the 2060’s. One measure that needs to be addressed in future legislation in the European Union so that another crisis does not occur is the technological gap across the different countries. As Servaas Storm and C.W.M. Naastepad argue in their study on non-accelerating inflation rate of unemployment (NAIRU) economics and the Eurozone crisis, “current-account imbalances (and divergent external debt positions) cannot be
attributed to the deterioration of cost (or price) competitiveness in Europe’s periphery,” but rather the imbalances were driven by high domestic demand growth that was financed towards low to medium technological development (i.e. Construction) instead of high technological development (Storm and Naastepad, 843). They derive this theory by pointing out that econometrics in the Euro area only show an export elasticity of 0.06 in relation to relative unit labor costs (RULC) and go on to show mathematically that unit labor costs only account for 20–25% of the manufacturing gross output price (845-6). This means that the focus that current policy places on differences in labor costs being the divergent factor in the European Union are misguided or at least not as important as other elements.
Using econometric data from a 2013 study, they show that as “impact of partner countries’ income on export demand becomes larger, the higher is the share of high-technology exports in total exports.” Eurozone nations with a large portion of high-tech exports therefore benefit more “from income growth in the rest of the world than Eurozone countries with a low share of high-tech exports,” (855). Based on this theory, the ECB and European Commission should introduce policy that addresses the trade gap in technologies between countries rather than focusing on policies that lower wages.
Though policy on this matter should be addressed in the near future, the European Union has taken a step closer to uniting Europe and preventing a future crisis with the creation of the Five President’s Report in 2015. This report outlines how the EMU plans to move forward by accomplishing objectives on four fronts, specifically moving towards a genuine Economic Union, towards a deepened Financial Union, towards an integrated Fiscal Union and towards a democratic Political Union. The report outlines the timeline to accomplish these objectives and notes suggestions for new bodies in the European Union member states to monitor nations performance. This new body would be known as the Competitive Authority and would make sure that “Member States improve their competitiveness as part of the same momentum [as the core (Germany, France, and Benelux)],” (Juncker, 7). Additionally, the report calls for a stronger Macroeconomic Imbalance Procedure (MIP), a procedure created at the height of the debt crisis to prevent and correct imbalances before they get out of control. The report also regards the need for a fiscal stabilization function in the form of a Fiscal Union, but does not provide much details on how this should be accomplished. Overall, the report calls for closer coordination of national parliament with the EMU and economic policy in general. With policies such as these implemented, there stands a better chance that such a debt crisis in the European Union does not occur again, or is at least minimalized to the lowest negative effects.