Finance: Research, Policy and Anecdotes

Together with Geoffrey Underhill (political scientist from the University of Amsterdam) and Dennis Novy (economists from Warwick University) I have been presenting the Quo vadis book (that Geoffrey and I jointly edited) across Europe over the past couple of weeks.  While our presentations were similar across the four cities, the focus of the discussions with the audience was quite different, which is interesting in itself.

In London, there were – not surprisingly – lots of questions on the factors explaining the Brexit vote. Dennis Novy, co-author of a recent paper on the factors explaining variation in the referendum outcome across the UK, pointed to socio-demographic (age and education – or the lack thereof) as well as domestic economic (policy) factors driving the vote, including the recent cutbacks in welfare and NHS and the long-term decline in manufacturing, with immigration playing only a secondary role and here only immigration from Central and Eastern Europe. Or as Diane Coyle and Rob Ford argue in their chapter, the Brexit vote was a vote against Westminster not vote against Brussels. This obviously raises the question on future policy making in the UK, currently heavily London-centered and the appropriateness of a political system where a party with over 10 percent of votes has no representation in the House of Commons.

In Frankfurt, there was a lot of discussion on rules and how to make sure they are being followed, with a clear undertone that Germans (and other creditor countries) are being taken for a ride by debtor countries.  While on the one hand, there is a time consistency problem if rules cannot be fixed, I argued that senseless rules (such as the original Maastricht criteria) and changing circumstances (such as a once-in-three-generations economic and financial crisis) very much call for adjustments. Ultimately, we need the right mix of rules and flexibility, together with transparency and accountability.  Are we at the right equilibrium yet? I very much doubt.

In Brussels, there were lots of questions on European identity and how to make Europeans fall again in love with the European dream and on the future of EU policy making after Brexit.  On the first question, many contributors of our eBook would argue that the impetus has to start from the member states rather than from Brussels.  At the same time, better enabling non-university graduates to live the dream of European mobility is a critical dimension to strengthen the European identity.  On the future of EU policy making after Brexit, I very much doubt that anything will become easier on the really tricky questions, especially within the Eurozone.  As long as Eurozone governments do not recognize and allocate the legacy losses of the Eurozone crisis, progress will be hampered.

In Paris, finally, there were again many questions concerning Brexit and populism, maybe not surprising given the upcoming French elections. However, there were also intensive discussions on how to revive the European project and make the Eurozone a sustainable currency union. The view of most of the contributors to the book is that the European project has to be revived bottom-up, i.e., the initiative has to come from national governments rather than from the European Commission. While it seems unrealistic to consider a new Treaty at this stage, strong political leadership is called for. And such leadership is also called for in turning the Eurozone into a long-term sustainable currency union.  There are many policy ideas in this area, from completing the banking union over creating a common budget for the Eurozone for stabilization purposes to reforming the fiscal policy regime to balance national sovereignty with the need for fiscal sustainability.  There is certainly no silver bullet, but there are lots of policy options. 

Overview