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Jobs and Growth: Supporting the European Recovery
The IMF Book “Jobs and Growth: Supporting the European Recovery” launched at the European Policy Center (EPC) on Tuesday January 28th in Brussels. IMF Managing Director Christine Lagarde introduced the session followed by response and comments by Wolfgang Schäuble, Finance Minister of Germany, and Luis de Guindos, Minister of Economy and Competitiveness of Spain. The event was chaired by Fabian Zuleeg, EPC Chief Executive.
The book looks at key aspects needed to lead Europe out of its crisis seizing its growth potential and creating new jobs. The analytical work by IMF staff identifies key challenges to boosting growth and employment over the medium-term and describes a roadmap for policymakers for tackling them. The focus will be on the implications of deleveraging for growth, on labor markets, and on how structural reforms can help countries to find new sources of growth, including by tapping into international supply chains. How can Europe continue its recovery in a sustainable way and avoid the mistakes of the past? What are the most promising areas of reform that will allow Europe’s diverse regions to compete globally? By what means can policymakers successfully tackle the persistently high unemployment in some of its Member States?
Chapter 1: Jobs and Growth: Supporting the European Recovery
Martin Schindler and Helge Berger
The chapter lays out the roadmap for policymakers. Beyond supportive demand policies and completing the euro area’s institutional infrastructure, supporting the European recovery requires addressing high private and public sector debt, removing structural obstacles in product and labor markets, and finding new sources of growth by tapping into increasingly important cross-border supply chains.
Chapter 2: Growth and the Importance of
Sequencing Debt Reductions across Sectors
Fabian Bornhorst and Marta Ruiz-Arranz
Private and public sector debt is high in the euro area, and private sector debt may be more detrimental to growth than public sector debt. Therefore, facilitating the household and corporate deleveraging process should be a priority, while fiscal consolidation should come gradually over the medium-term.
Chapter 3: Reducing the Employment Impact
of Corporate Balance Sheet Repair
Bas B. Bakker and Li Zeng
In the aftermath of the pre-crisis borrowing binge, firms needed to cut costs to restore profits and repair balance sheets. In countries with inflexible wage structures and/or dualistic labor markets, cost cutting was done by shedding labor while in countries with more flexible labor markets, wages adjusted instead. This helps explain why employment losses in some countries have been so high relative to output losses, and suggests that reducing labor market duality and enhancing wage flexibility will help protect jobs.
Chapter 4: Reducing Public Debt When Growth Is Slow
S. Ali Abbas, Bernardin Akitoby, Jochen Andritzky, Helge Berger,
Takuji Komatsuzaki, and Justin Tyson
Sovereign debt is very high in many countries. The task of bringing it down is made difficult by a weak growth outlook, shifting the burden of adjustment to fiscal consolidation. History suggests that it can still be done, but requires a gradual approach (where possible), embedded in credible medium-term frameworks, and designed so as to protect growth.
Chapter 5: What Do Past Reforms Tell Us about
Fostering Job Creation in Western Europe?
Christina Cheptea, Jaime Guajardo, Ioannis Halikias, Emilia Jurzyk,
Huidan Lin, Lusine Lusinyan, and Antonio Spilimbergo
The euro crisis has laid bare pre-existing structural weaknesses in euro area labor markets, including an inadequate or incomplete policy response to previous shocks that resulted in a high degree of labor market duality in many countries. Only comprehensive reform can tackle these structural weaknesses, reduce unemployment and mitigate the social cost of restructuring.
Chapter 6: Challenges and Solutions for
Fostering Job Creation in the Balkans
Dmitriy Kovtun, Alexis Meyer Cirkel, Zuzana Murgasova,
Dustin Smith, and Suchanan Tambunlertchai
The labor markets in the Balkan economies are a case in point. Unemployment is high, and the rates of job creation are low. Key factors that have contributed to these problems include rigid labor market institutions, labor costs, and particularly the unfinished transition process. Structural reforms in all areas will be crucial to attract FDI flows and promote employment.
Chapter 7: Assessing the Gains from Structural
Reforms for Jobs and Growth
Derek Anderson, Bergljot Barkbu, Lusine Lusinyan, and Dirk Muir
Recent progress in the euro area notwithstanding, there is significant scope for structural reforms in product and labor markets, with the specific priorities varying across countries. A model-based simulation exercise illustrates that ambitious structural measures can lift euro area real GDP substantially, although it takes time for full benefits to materialize.
Chapter 8: A Disaggregated Approach to Prioritizing
Structural Reforms for Growth and Employment
Christina Cheptea and Delia Velculescu
Taking a closer look at the many levers of structural reform, this chapter assesses their cross-country impact and develops an illustrative framework to prioritize reforms, based on their impact on growth as well as on the possible implementation costs. The analysis highlights that different reform agendas will be appropriate for different countries.
Chapter 9: Making Current Account Adjustment
in Europe Growth Friendly
Ruben Atoyan, Jonathan Manning, and Jesmin Rahman
Chapter 10: The Role of Vertical Supply Links in Boosting Growth
Jesmin Rahman and Tianli Zhao
Supply chains play a strong role in explaining cross-country export performance in Europe. Competitive wages, trade-friendly reforms, and a similar industrial structure help downstream countries link with export hubs. These factors can assist euro area periphery countries link up with supply chains and sustain the recovery.