Significance. Of all the policies approved by the G20 last month, the exit strategy is one of the most important and yet at the same time one of the most misunderstood. Some commentators in newspapers that tend to lecture to their readers say that the strategy is simply about how to get out of the crisis. In reality however, as far at the decision-makers who drew up the exit strategy are concerned, it is all about how to exit from the special recovery measures and other economy-boosting initiatives that have grown out of all proportion to the point of becoming unmanageable and providing ruinous social guarantees that cannot be sustained. The G20 recognises that these exceptional measures are unavoidable, despite the state debt problems they generate, and that they cannot be swept away in one fell swoop. The speed at which they can be phased out will depend on the economic recovery and other issues that will evolve differently from one country to another. This means that a uniform exit strategy is impossible, and the G20 statement makes this clear. Phasing out the budget incentives will depend on developments in each country and cannot operate the same way everywhere. The United States has to boost savings rates (and therefore reduce household consumption), while China must encourage domestic demand, and so on. The G20 did, however, call for coordination of all the different exit strategies.
Diversity and coordination. Things are much the same in Europe. The EU cannot set an exit strategy for all the member states because the situation differs across the board. EU economy and finance ministers are currently discussing this in Gothenburg (see below). The Swedish Presidency document ahead of the meeting made things clear, stating that: a) expansionist macroeconomic policy has to remain in place until there is firm and sustained recovery; b) discussions must start immediately on how to proceed to restore normal budget, monetary and financial policies; and c) each member state should indicate how it is planning to pay back the debts it took out to fund social and recovery measures. Although they will differ in line with the member state in question, these exit strategies should be coordinated at EU level and comply with the Stability and Growth Pact. The Swedish Presidency admits that budget consolidation will take years and will have to be combined with structural reform of labour markets, pensions systems, investment in R&D and the development of green technology (see newsletter 9987).
Eurozone leaders more or less agree. Jean-Claude Trichet, President of the European Central Bank (ECB), says that the exceptional recovery measures must be withdrawn once economic recovery is consolidated. The process should start in 2010 and take off in 2011, depending on the situation of the member state in question. He points out that excess debt acts as a brake on growth and that limiting and cutting the public debt (as a percentage of GDP) go “hand-in-hand with prosperity”. He adds that the ECB's unconventional funding of banks was not meant to boost their profits but instead to support the real economy, particularly small and medium-sized enterprises. The chair of the Eurogroup, Jean-Claude Juncker, shares his view but is not as sanguine about timings. He believes that at present, the economic situation has only been “stabilised” and 2010 is too soon to consider removing recovery measures. In his opinion, it will not be possible to start implementing the exit strategy until 2011 and in terms of structural reforms, a more feasible timeline for implementing the Lisbon strategy should be introduced, extending it beyond 2010. It is natural for the two main euro leaders to pay huge attention to the exit strategy because it will have a direct impact on the single currency's role and very existence. Corrective budget deficit measures are a vital component of managing the single currency and if such measures are not respected by eurozone countries, then the euro might fall apart (although none of the politicians are saying this openly).
The missing link. To sum up: the new financial industry rules and surveillance measures underpin the revolution that is currently underway. Exceptional state-funded recovery measures and the exit strategy are a necessary transition corollary. A third point is often ignored - the need to decide on a more reliable way of measuring real economic growth that goes beyond crude mathematical calculations of gross domestic product (GDP), a mechanism that future generations will look back on with astonishment as untrustworthy and missing the point. I will be returning to developments in this connection. (F.R./transl.fl)