Brussels, 15/03/2005 (Agence Europe) - A CESifo report (a Munich based Institute of Economic Research) has been assessing the political responses that could be put forward in an effort to deal with relocations of companies from EU Member States. The eight economists who drafted the “Report on the European Economy in 2005” are recommending an increase in working hours and suggest some innovating and optimistic paths that could be taken to guarantee healthy public finance in Member States. They also consider that property prices on European markets are not abnormal and that there is no evidence of a property “bubble”.
The macro-economic observations in the report on the EU do not come as any surprise: the growth rate is too weak and perspectives for recovery in 2005 remain fragile. Last Wednesday, during the presentation of the report to the Bavarian Representation to the EU, Hans Werner Sinn (Ifo - Institute of Economic Research, Munich) pointed out that Europe lacked investment. He stated that, “We need an 8% increase in investment when the level in fact stood at 1.8% in 2004”(in the Euro zone) and which is very likely to be 2.6% this year.
Reform of the Stability Pact: the authors' ideas in this arena are not very orthodox. They consider that decisions on implementing sanctions should be transferred from ministers of finance to the European Court of Justice. Marco Buti, Director of economies in Member States at DG Ecfin at the European Commission said that in the “near future” this proposal had little chance of succeeding.
The report investigates relocations and notes the trend towards deindustrialisation of western economies, which is closely linked to this phenomenon. The authors believe that the phenomenon could provide a “doping effect” to the world economy, insofar as countries become specialists in areas where they have comparative advantages. According to the report, in the medium and long term relocations will be bad at local levels but good at a global level.
The report says that recent company agreements in Germany (Siemens and DaimlerChrysler) could be an indication of the reverse of the trend towards lower working hours. The authors of the report believe that this practice, whereby labour costs are reduced but working hours stay the same to preserve jobs in the short term if it is accompanied by adjustments in production methods, could also be adopted in the long term. The report is available at: http: http://www.cesifo.de/home ).