Seminar: Europe’s Long-Term Growth Prospects: With and Without Structural Reforms

Abstract: The Euro area economy has been growing over the past few years but this cannot hide the fact that average growth for the area has been extremely poor since the onset of the global financial crisis. This poor debt record has been an important factor in leaving many European governments with high levels of public debt relative to GDP, while a number of these economies still have high levels of various forms of private debt. Governments also have substantial unfunded commitments to provide pensions, medical coverage, and other social services in the future ageing populations. A return to higher levels of growth is likely to be necessary if European governments are to be able to honour their commitments and maintain debt stability. Much of the dialogue in European policy circles reflects this thinking with a steady focus from organizations such as the European Commission and the European Central Bank (ECB) on the need for growth-enhancing structural reforms. However, despite the ubiquity of the phrase ‘structural reforms’, there is a very limited empirical literature explaining precisely what is meant by structural reforms and the magnitudes of the potential impacts that such reforms could have on the growth rates of individual euro area member states or the euro area as a whole. This talk examines prospects for growth in the euro area, both with and without structural reforms. It follows up on an earlier paper that focused on trends in European growth rates up to mid-2006. Here, we update the calculations from our 2008 paper and provide projections for growth in the euro area up to 2060 based on a recovery scenario over the rest of this decade and long-term demographic trends. We then describe the potential impact of structural reforms relative to this baseline scenario.

Karl Whelan has been a Professor of Economics at University College Dublin since 2007 and a CEPR Research Fellow. Previously, he worked for eleven years in central banks, first at the Federal Reserve Board and then at the Central Bank of Ireland. His research is concentrated on applied macroeconomics. Prof. Whelan is a member of the Royal Irish Academy and currently a member of the Monetary Experts Panel, which advises the European Parliament's Committee on Economic and Monetary Affairs. He also blogs on macroeconomic issues at www.karlwhelan.com. He holds a PhD in economics from MIT.

This event is brought to you by ESA NSW Branch and the University of Sydney