Part 3 spain - eu course - summer 2011Presentation Transcript
part #3 Welcome to Barcelona, Catalonia, Spain Welcome to the …EU!! Introduction to the European UnionProf. Brian Butler
Prof. Brian David Butler About: Brian Butler is a professor of International Finance and European Studies with Forum-Nexus Study Abroad, an academic program which is co-sponsored by the IQS Business School of the Ramon Llull University in Barcelona, and the Catholic University of Milan. Brian was previously a teacher at the Thunderbird School of Global Management, MBA program in Miami, and was a researcher at the Columbia Business School in New York. In Brazil, Brian has taught at FBV in Recife. He previously worked for Honda of America Manufacturing in Ohio, and was involved in international trade.
Student introductions emails - Did you send? email… include: Session? Grad / undergrad? POL/ SOC / BUS
my slides: www.slideshare.net/briandbutler
Rules / Expectations: Request Closed book, open mind, Please turn off everything except your minds…I want your full attention – this is a “participatory” class No sleeping (if you feel tired, please stand up, go get some water, come back) no laptops (sorry) No blackberries, no iPhones, no iPads, etc, etc…
Travel advice If you have just one afternoon in Barcelona… make sure you see…
La Pedrera – Gaudi go at night … look for pizza place on corner Just 5 minutes walk …from our hotel!!
La Pedrera – Gaudi Just 5 minutes walk …from our hotel!!
La Pedrera – Gaudi Just 5 minutes walk …from our hotel!!
La Pedrera – Gaudi View from the roof… Does anyone know what that is??
Travel highlights Barcelona La SagradaFamilia- The Church of the Holy Family Unfinished Roman Catholic Church designed in by Catalan architect, Antoni Gaudi, famous for his unique style that stood out during the Modernisme (Art Nouveau) Catalan cultural movement period. The church is scheduled to be completed in 2026, the centennial mark of Gaudi's death. The church is a UNESCO World Heritage Site and was declared a minor basilica by Pope Benedict XVI as of November 2010. One of Barcelona's most popular tourist destination sites. Forum-Nexus Interns Winter 2010-11
La SagradaFamilia- go at night … look for pizza place on corner
Casa Batllo – Gaudi (near our hotel) Casa Batllo – Gaudi (near our hotel) The National Art Museum of Catalonia Built for the 1929 World Fair, this attraction is housed in the Palau Nacional on Montjuic Hill, and hosts some of the most beautiful pieces representative of Catalonia. A MUST-SEE on your tourist stop. Forum-Nexus Interns Winter 2010-11
Barcelona – eat TAPAS Forum-Nexus Interns Winter 2010-11
Why Europe (still) matters, is globally relevant for business, opportunity, investment and attention Why Europe?
Why study “Europe”?
Questions: How is the “European Union (EU)” different than “Europe”? What is the “Euro-zone”, and how is it different than the European Union? From “Europe”?
Group assignment Questions: Form groups of 3 people – write answers: Which has a bigger population – the US or EU? Which is a bigger economy? (US / EU)? Within the EU… approx what % is the Euro-zone economy?
Group assignment Questions: Which has a bigger population – the US or EU? EU Which is a bigger economy? (US / EU)? EU (slightly) Within the EU… approx what % is the Euro-zone economy? 3/4
EU is approx 50% bigger by population than the USA
Eurozone population approx same size as US
– on much smaller LAND!
-- more concentrated population
EU and US approx same size (EU slightly larger)
Eurozone approx 75% economy of EU
Question: If the US and EU have approximately the same size economy, but the EU has approx 50% more people… what does that tell you? Why is it like this? What part of the EU accounts for the difference? Which regions of the EU are the richest?
Geo-Political Question When did the Cold War end? After the end of the Cold War, how many “super powers were left?
Geo-Political Question Are there any other superpowers (rising) to consider?
WHY THE EU MATTERS? Q. Is the EU an economic superpower? (to rival the US?)
textbook Who has been reading the textbook? See CH 9 “European Economic Superpower”
EUROPEAN “ECONOMIC SUPERPOWER” Discussion
Economic Superpower “While opinion is divided on the prospects of the EU becoming a military superpower … there are no doubts at all about its new status as an economic superpower” The commission has powers to represent the governments of all the member states in negotiations on global trade, and it is now well understood by everyone that the EU is the most powerful actor in those negotiations” Textbook: “Understanding The European Union, A Concise Introduction”, John McCormick, Ch 9
Economic Superpower With population of 490 million, EU has 63% more consumers than the USA (much bigger internal market). Making the EU the largest capitalist market in the world. Textbook: “Understanding The European Union, A Concise Introduction”, John McCormick, Ch 9
Economic Superpower Worlds biggest and richest marketplace Accounting for 30% global GDP (more than the USA) 39% of merchandise trade (more than 2x the USA) 42% of trade in commercial services Textbook: “Understanding The European Union, A Concise Introduction”, John McCormick, Ch 9
Economic Superpower Biggest market in the world for corporate M&A (mergers and acquisitions) Biggest global source of FDI (foreign direct investment) EU now source of 2/3 of ALL investment coming out of OECD member states, and more than 3 times as much as the USA (per OECD website, 2007) As result of size (and one-voice): Dominating actor in global trade negotiations (WTO) Currency that competes with Dollar, Yen in terms of global credibility and influence (perhaps reserve currency) Textbook: “Understanding The European Union, A Concise Introduction”, John McCormick, Ch 9
Economic Superpower International Aid : Europe is the biggest world donor, counting for 60% of global aid for Development. The EU spends more than 100 billion euros each year on projects ranging from farming to foreign aid. Click on the buttons to see how much different countries benefited in 2007. Textbook: “Understanding The European Union, A Concise Introduction”, John McCormick, Ch 9
Expansion EU is “engine of economic growth for Eastern Europe and former USSR, which have combined population of more than 260 million (compared to 300 million in US)…. Enormous productive potential, and a wealth of largely untapped natural resources”” Textbook: “Understanding The European Union, A Concise Introduction”, John McCormick, Ch 9
MOVING ON… Ok, enough statistics, lets continue discussion about Spain and the crisis facing the EU ….
What’s going on in Spain? Articles read? Observations? What have you noticed? (different, interesting)
Recent news (austerity in Spain)
Pay cuts up to 7-10% in Spain, more in Greece
Raise retirement age 62 ->65 -> 67?
Raise VAT taxes
Raise education rates
Question – how do you think Europeans are reacting
Dual Labor market Dual structure – labor market
Who can explain?
Why important for crisis?
Questions Should a country make laws that make it easier to fire people? Should labor laws protect workers from being fired? Is one week notice enough? Does the company need to justify “why” they fire you?
Questions If you were an owner of a company… would you be MORE or LESS willing to hire a worker… if you knew it was DIFFICULT to lay them off during recession?
Questions Unintended consequences… What might be the results of strict labor-laws? (on labor markets in Spain, other EU)
Questions Jobless recovery Law of “unintended consequences”
Dual Labor Market Temp: High unemployment Young, Immigrants University grads The rest enjoy a high level of job protection which politicians dare not dismantle. Risk = political backlash if crisis is LONG (if recovery takes YEARS not months) Economist.com, A special report on the euro area, Jun 11th 2009
Temp workers –during the boom
The spread of fixed-term employment contracts in Spain (from the mid-1980s) helped make hiring and firing more responsive to the business cycle.
Immediate pay-off: it created jobs.
Firms were content to take on temporary workers, often immigrants, because they knew they could easily lay them off again.
Before the crisis hit, temporary jobs accounted for more than a third of Spain’s total, the largest share in the EU.
Economist.com, A special report on the euro area, Jun 11th 2009
Temp workers - crisis Unfair: “The downturn has highlighted the gross unfairness of the dual labour market. It puts the burden of adjustment on groups with no tenure (women, immigrants and the young). Future Firms have little incentive to train tomorrow’s workforce. Instead they are stuck with older, tenured workers heading for retirement. less than 5% are converted into permanent jobs. Economist.com, A special report on the euro area, Jun 11th 2009
Questions Are the “number of jobs” in an economy fixed? Are there just a fixed number of jobs… So, if I get a job… then you don’t get one?
Questions If so… then, does it make sense to REDUCE the retirement age…. Encourage older people to retire… so younger people can take their jobs… to reduce youth unemployment (near 40% in Spain)
Is this right? Past – this was solution when EU faced recession Lowered retirement age Idea = open space for others… But, what is problem with this line of thinking?
Is this right? Problems Early retirement => budget issues for government But there is more….
Is this right? The IDEA that there is a certain set # of jobs = wrong Contrary: if one person gets a job, have $$ to spend… creates other jobs
Ask again… Question: why do politicians want LOW unemployment?
“we all know what to do, but we don’t know how to get re-elected once we have done it!” Jean-Claude Juncker, Prime minister of Luxembourg, 2007 Economist Magazine, “Can anything perk up Europe?”, July 2010 “
Ask again… What do you think will happen to parties in power currently in Spain, France, Germany (or to ones that were in power when the crisis started like Ireland, UK, etc)?
consider Are the new set of politicians expected to be: MORE or LESS tolerant of immigrants? MORE or LESS interested in European integration
consider Danger is in a few years time, when new politicians are put in place…Q. Will the Euro zone hold together? Will EU integration continue? Will immigrants be as welcome?....
Ask again… Question: what is “structural” unemployment?
Labor markets… Question: What does it mean to have “flexible labor markets”? (is it more than just the ability to hire/fire?)
Labor markets If Germany is hiring, how willing are Spaniards to move to Frankfurt? If French are hiring, how willing are Italians to move to Paris? Compare with US
Labor markets Question: Does this add to European “structural unemployment?”
Euro Zone Question: What is the “Euro-Zone”
Euro Zone Question: How many members in the “Euro-Zone”? Is the UK a member? Poland? Slovakia? Greece?
Euro Zone Many say: “the Euro zone only work if has “flexible” labor markets?” What does this mean? Do you agree?
Intro Spain Crisis 2011
Question What does Spain need to do to get OUT of the crisis? (to bring down unemployment, get people back to work, raise taxes, pay government debts, etc)
To get JOBS… Need to produce stuff that others want … at a price competitive in global markets EXPORTS Q. In a global competition… how to you make your products more competitive?
To be competitive One way…. Devalue currency… Question: why does a currency devaluation make your countries products more attractive in global markets (exports)?
Question But, can Spain devalue their currency? Why / not?
Question Where is the ECB located? Which country? City? How does ECB control of monetary policy (interest rates) indirectly affect currency valuation?
Question Q. Do you think ordinary Spaniards blame Germany? Is it fair?
Question Q. Other than by currency devaluation… what OTHER way can Spain become more competitive (with exports)?
Question Reduce prices. But, how do you reduce prices?
Question Reduce wage costs Negotiate with unions Or reduce head-count (less employees) More “productive” (more output for less input)
Question BUT, how easy is it to reduce labor costs? Pay cuts, benefit cuts, etc Especially in country with strong unions (like Italy, Greece, etc)
Question Result? Shift toward… temporary workers, 2-tier labor force Unfair on young, immigrants, women Again, “law of unintended consequences!”
Intro Europe in Crisis 2010-2011…
Questions Should one country bail out another?
Questions What motivation does that give OTHER countries? (ex: if bailout Greece, what motivation gives Italy, Spain, others)… Moral hazard?
Questions If you do bail out others (using YOUR tax money)… should you demand CHANGES in other countries? (to ensure that you get paid back) For example: if Germany loans money to Greece, should they demand changes to make it MORE likely Greece can pay them back?
Questions If you don’t attach “conditions” to the loans… is that just “good money going after bad” (ie. Dumping money down the drain?) How will German tax payers feel about this?
Questions But, on the other hand… Do Germans want to be SEEN as dictating policy decisions in Spain, Greece, etc? Will that create resentment?
Questions Considering European history of Wars, is it politically dangerous to have Germany (seen as) dictating that pensions must be cut, wages reduced, teachers fired, benefits cut, taxes raised, etc? But, if its NOT Germany dictating these conditions… then who? Who else is there?
(re) Read article “Gloomy France” from Hugo, be prepared to discuss in PARIS!!!