The Sound of Economics

More than two months after the Italian elections and its turbulent political negotiations, Italy finally has a new government. While this has had a calming effect on the financial markets, Italy's medium and long term economic outlook is yet to be determined. Bruegel affiliate fellow, Silvia Merler, is joined by Marcello Minenna, PhD lecturer at the London Graduate School and Head of Quants at Consob, and Lorenzo Codogno, LSE visiting professor, to examine the different ways the country can move forward. Starting off this Sound of Economics, Silvia examines the new government's policy priorities and discusses the message of uncertainty it sends to financial markets and investors. Indeed, the way in which the government will finance its promises is still uncertain, thus leaving room for unpredictability. In the short and medium term, Lorenzo puts forward the proposal that the new government should tread carefully by introducing policies gradually in order to maintain fiscal stability and discipline. The three guests address the widely discussed topic of Italy's euroscepticism. Italy's relatively stagnant economic growth over multiple generations is seen as a key factor in the country's present-day skepticism towards the single currency. They agree that, although an 'Italexit' is an unlikely scenario, it is nonetheless an important one to consider. Moreover, Marcello points out that Italy's situation is also a testament to ongoing issues at the European level, requiring a reform of the eurozone's policies and a tough look at its current functioning.

Bruegel director Guntram Wolff and Ashoka Mody – visiting professor in international economic policy at Princeton University – explore subjects addressed in the latter’s latest book, Euro tragedy: a drama in nine acts. Kicking off this Director’s Cut of the 'The Sound of Economics', the two explore the historical development behind the EU's creation. Ashoka Mody argues that the adoption of the euro as a single currency has exacerbated economic divergences between EU Member States as some do not have the institutional maturity or capabilities to fully adopt monetary policy measures. Guntram Wolff points out that in the view of Helmut Kohl, the adoption of the euro was a means to further reunite the continent and support peace-building. They also discuss the role of social democracy in the drama on the future of Europe. The conversation from this episode explores the development of the EU from its early history until its present-day situation. Member States’ commitments to the European project from a political and economic point of view are touched upon, with a particular focus on Germany's role within the whole debate. For a more in-depth discussion on the subject, be sure to play back the full recording of the Bruegel event chaired by Maria Demertzis and featuring Ashoka Mody and Guntram Wolff.

According to Annamaria Lusadi, academic director at the Global Financial Literacy Excellence Center, financial literacy requires both a knowledge of financial concepts and the confidence to make effective financial decisions in order to maximise one's well-being. Financial literacy is not only limited to knowledge of monetary calculations, but is also measured by the extent to which individuals understand their financial rights and obligations, in addition to their ability to educate themselves on financial matters. People are increasingly expected to have the appropriate skills to manage their own financial decisions; however, the rapidly shifting financial environment often proves to be extremely complex to understand and, thus, leaves many with poor financial literacy abilities. The young, the elderly, women, and people with low-education levels are particularly susceptible to the negatives effects of low financial literacy. The consequences of the situation are harmful both for the individual and at a national level. Just as reading and writing skills are a part of the educational curriculum, Annamaria Lusadi believes that financial literacy courses should now be a requisite part of school programmes. Moreover, the adult population should also have access to workplace and public financial education programmes. All in all, good financial literacy skills have long-term beneficial effects; sound financial decisions take today's resources and invest them in the future. As a result, policy-makers should redouble their efforts in this area. Maria Demertzis has co-authored a Bruegel Policy Contribution with Uuriintuya Batsaikhan on financial literacy and inclusive growth in the European Union. Annamaria Lusardi previously made a presentation at the Bruegel event, ‘The importance of being financially literate’.

Paul Tucker, former deputy governor of the Bank of England, joins Bruegel director Guntram Wolff to discuss the thesis of his new book, as well as the current tensions within current models of central banking governance. On the agenda is the contention that there is, and even should be, a limit to the level of responsibility that a central bank can reasonably be expected to shoulder. Some decisions have such far-reaching consequences that we might prefer they be made by elected, rather than appointed, officials. Paul Tucker presented his book in an event at Bruegel in May 2018, with Bruegel deputy director Maria Demertzis hosting a debate between Paul Tucker, Joanne Kellermann, former member of the Single Resolution Board, and Jean Pisani-Ferry, mercator senior fellow at Bruegel. For further reading, consider 'Central Banking in Turbulent Times' - a book co-written by Bruegel senior fellow Francesco Papadia with Tuomas Valimaki, launched at a Bruegel event in April 2018. Additionally, we recommend reading Silvia Merler's collation of economists' opinions on the current state of central banking in an age of populist politics.

Technological advancements continue to drive change in every industry. In a recent working paper co-written with Francesco Chiacchio and David Pichler, Bruegel research fellow Georgios Petropoulos has explored the impact of the increasing number of robots on employment and wages in Europe. The introduction of robots constitutes only one industrial advance among many, and each automated technology has different impacts on employment. The impacts across social strata can also be disparate. In this episode of ‘The Sound of Economics’, Georgios Petropoulos discusses the findings of his study, which focuses on six EU countries (Finland, France, Germany, Italy, Spain, Sweden) that account for 85% of robots in the EU market. Specifically this work sought to answer the question of whether robots have a positive or negative effect on EU employment and wages, and to place its conclusions in the context of other studies of automated technologies and their consequences for labour. The research pertinent to this podcast can be found in our publication: ‘The impact of industrial robots on EU employment and wages: A local labour market approach’. Meanwhile, Georgios Petropoulos has previously detailed the specifics of the growing presence of robots in EU industries in a Bruegel blog post. He has also written an article questioning whether we understand the impact of artificial intelligence on employment. Elsewhere, a number of Bruegel scholars have collaborated on our Blueprint book of research: ‘Remaking Europe: the new manufacturing as an engine for growth’. This comprehensive study looks at how well European firms are responding to new opportunities for growth, and in which global value chains they are developing new activities.

The coalition agreement between Italy’s Five Star Movement and the League puts the country’s new government on a potential collision course with the European Union, and has prompted fears that the country could nosedive out of the euro zone. Markets have already born witness to investor nervousness over the coalition’s proposed agenda, and the new government’s priorities run counter to the prevailing fiscal and monetary policies of the euro area. If Italy were to follow through on its new plans for spending, the expected reaction in among bond-buyers would make it very difficult for Italy to finance its already-significant amount of public debt. Any discussion of a possible default necessarily involves the euro area – as Bruegel’s database of sovereign bond holdings illustrates. Just how exposed are the other members of the currency bloc, and what paths might be taken in order to avert a crisis? In this week’s Director’s Cut, Bruegel senior fellow Francesco Papadia joins Guntram Wolff to assess the problems that currently occupy both Italy and the EU. For further reading, note Guntram Wolff’s article on why Europe needs a strong Italy, whoever is leading the government. Also consider looking at Jean Pisani-Ferry’s opinion piece on the opportunity that such political upheaval might offer Italy to overcome its longstanding internal issues.

The global financial crisis exposed flaws in the methods and theories of macroeconomics. Certain aspects of the crisis were completely unexpected; other burgeoning problems were flagged up but explained away, and thus allowed to get worse. As the profession seeks to reinvent itself post-crisis and reassert its worth, what exactly has been learned and what changes have been made to the practice of macroeconomics? New models appear to be flourishing, but debate continues over whether we have improved our understanding and mitigated the potential for misreading the results that these models present. In this Director's Cut of 'The Sound of Economics' podcast, Bruegel deputy director hosts a conversation with Nicola Viegi, South African Reserve Bank professor of monetary economics at the University of Pretoria, and Frank Smets, director general of economics at the European Central Bank.  For further reading on this topic, consider our overview of the ‘Rebuilding Macroeconomic Theory Project’ recently concluded by the Oxford Review of Economic Policy, written by Konstantinos Efstathiou.

The deepening and enlargement of Europe’s capital markets has long been a policy target for the EU – indeed, it is a flagship priority of the current Commission. Many legislative proposals have been forwarded, and there is widespread agreement on the necessity of the Capital Markets Union (CMU) project, but few tangible measures have been formally adopted. Joining Bruegel director Guntram Wolff for this week’s Director’s Cut of ‘The Sound of Economics’ is Valdis Dombrovskis, vice-president of the European Commission, overseeing the department of Financial Stability, Financial Services and Capital Markets Union. The Bruegel director met Vice-President Dombrovskis at the informal meeting of the EU’s Ecofin Council in Sofia, where the former presented a research paper (co-written by André Sapir and Nicolas Véron) advocating significant steps forward in the CMU project. The vice-president here expounds on the Commission’s own planned measures to have significant initial elements in place before the end of the current term in 2019.

The EU's transport sector is now a significant burden in the context of commitments made under the Paris Agreement to reduce carbon emissions. Transport is the only sector in which Europe's CO2 emissions are now higher than in 1990. Countermeasures are imperative, but it is not a simple challenge to abandon car-friendly policies; policymakers are not blind to economic benefits brought about by the automotive industry in the past. In this episode of 'The Sound of Economics', Bruegel fellows Simone Tagliapietra and Georg Zachmann discuss the findings of a Policy Brief that they have co-written containing policy prescriptions for cleaning up Europe's transport sector. Utilising taxation, as well as funds already allocated within the current multiannual financial framework, the EU can incentivise change not only in the habits of Europe's citizens but its industry leaders too, promoting the policy discussion at country- and city-level where locally appropriate plans and changes can be introduced. Though the EU's research and development funding for transport is dwarfed by that of the continent's automotive sector, there are fields in which the EU can take the lead – fields which private money would otherwise leave undeveloped.

As global trade war continues to unfold, Bruegel director Guntram Wolff is joined for this Director's Cut of 'The Sound of Economics' podcast by Bernd Lange MEP, chair of the Committee on International Trade (INTA), to discuss Europe's options. Increasingly it appears that the EU will have to choose between standing strong with the established laws of the World Trade Organisation (WTO), or striking a deal for a permanent reprieve from the US trade tariffs. There is no question that the tariffs have significant implications for European industry. Indeed, as the US and China brandish lists of further products on which they would consider imposing tariffs, the full scale of the potential future damage to EU exporters is unclear. Yet there remains some hope that the EU could align with other nations to use the WTO to bring US President Trump back on side. To discuss what opportunities as well as threats this current stand-off presents to the EU, Bernd Lange - member of the European Parliament and chair of the Committee on International Trade (INTA) - joins Bruegel director Guntram Wolff in this instalment of 'The Sound of Economics'.