YouSaid · the spoken record

Guntram Wolff

lines on the record: 12
first: 2021-10-26
most recent: 2021-10-26
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Now that the grants are basically allocated in return for commitment on structural reform and certain things that need to be fulfilled in terms of conditionality for countries to be able to access those grants. And you can imagine a system where you move away from just these pure constraints where the evidence is that they haven't worked that well towards a system where you combine grants or loans from the central level with basically a commitment in return. That's the route that the recovery fund has taken and I think that is to me a promising role.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“To be buy-in, political buy in the countries that are supposed to follow the rules. And I think that's been pretty clear. The rules have been broken both by Germany in the early 2000s when it was convenient. And then, obviously, later on in southern European countries and so on. So I think that's really the issue with the fiscal rules that you can't just ensure fiscal sustainability by writing down these rules. You need them to be incentive compatible, basically. And the way forward with that might be, and this is whether recovery fund comes in, is to have a system of sticks and carrots at the EU level where essentially the fiscal rules currently, that's only a stick, there is no carrot. And I think potentially the way forward is to use the EU-wide resources basically in exchange for more fiscal responsibility. And so you're seeing this already with a”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“Which is the original mastery criteria, those were calculated on interest rates that were much higher. And so if you recalculated those numbers, you would get very different numbers because you can sustain higher debt with bigger deficits today. And so I think that's a strong economic case for revisiting that interaction between fiscal and monetary and understanding that you can't constrain both monetary and fiscal policy very much because then you end up not having enough room for stabilization when it's needed. Broadly speaking, fiscal sustainability is obviously important, but what we've learned is that the fiscal rules are not very helpful if there isn't buy-in into the rules. So in other words, the fiscal rules are quite ineffective in shifting incentives at the country level just because you have a rule doesn't mean that people will follow the rule and they really need”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“The world has changed since the Maastricht Treaty was put together. One of the key developments has been the decline in interest rates and in the equilibrium interest rate that has fallen over time, which I think makes it much harder to defend the structure that was put into place when EMI was constructed, where the idea was, of course, that monetary policy does the stabilization and fiscal policy basically looks after debt sustainability, but all the cyclical stabilization is done on the monetary policy side. And of course, we've learned that this, first of all, isn't possible to the same extent when there is a lower bound interest rates. And that, of course, is a global thing, but certainly is true in Europe. And then secondly, I think it means that running public debt is much cheaper than it used to be. And the 60% debt constraint in 3% constraint for the debt.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“To get benefits from government spending. It's a huge challenge for our democracies that governments will take longer-term view and not just look for the next election. This is a permanent problem of democracy, but in the euro area it's even more pressing because of disappointing growth so far.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“Think fiscal policy in the euro area and also in the European Union is at the crossroads. On the national level, all countries have spent huge amounts to mitigate the economic consequences of the pandemic. Finding back to a sustainable path for fiscal policy without endangering the recovery is a huge challenge, especially for those countries with a high level of debt. On the European level, I think two questions are imminent. First, the stability and growth pact is under severe pressure. A number of countries from the south argue that investments should be excluded from the deficits limit, whereas countries from the north, the so-called Fruge, resists those requests. The credit financing of the huge next generation program is an exemption of the law.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“Not, but maybe then there is going to be another one of those responses. And I think Europe has shown that when it matters, it really can come together. And then we think there's a decent likelihood that some elements of the recovery fund will stay. So, for example, the loan facility could stay. The bottom line is progress is more incremental. I think that's often the case in Europe, but I do think it's real progress.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“More flexibility in how those will be interpreted. So formal adjustment of the rules is pretty unlikely because it requires treaty change, but there are lots of parts where you can reinterpret the fiscal rules and give countries more time to do fiscal adjustment. And we also think there's going to be an effort to shield public investment from the rules and to make more room for that. And so that's a more informal change, but I think that is something that will be important in practice. And then on the recovery fund, yes, it's planned to be temporary, but first of all important to realize it really sets a precedent for an EU-wide response. And effectively cuts out the very left tail in terms of the sort of macro distribution in Europe.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“a good point and of course it's true that a lot of the institutional shifts that I just talked about are temporary in one form or another so the fiscal rules are only suspended temporarily they will come back and I think the hurdle for formal treaty change here is very high and it is possible of course that we are going to see a turn back towards austerity once these rules bite again which is probably going to be 2023 and then on the recovery fund you also write that is a temporary tool it's not euro bonds it's not joined in several guaranteed debt and there are plans to wind it down starting from 2027 all the way to 2058 so this is kind of a pretty long time span but you know it is designed to be temporary but nonetheless I think there is progress so on the fiscal rules we think there is going to be”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“A much more flexible way, despite the concerns that had been voiced from the German Constitutional Court not so long before that. And so I think it was a really clear sign that the ECB is also willing to do what's needed to protect the monetary union and really kick-started a much more coordinated policy response between fiscal and monetary policy. So I think bottom line is that it is an important shift and I think it is positive from an economic perspective because the missing part in the monetary union, of course, is the fiscal risk sharing. And these are all steps that provide some of that risk sharing. And so from an economic point of view, I think those are quite clearly desirable.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“Of course, there's still quite a lot of uncertainty around what exactly will happen, but it's very clear that it's not going to be a center-right coalition that would have pushed for a return to fiscal prudence soon. So I think the fact that the Green Party is going to be part of the next government, I think that's pretty clear. That is really going to cement a shift towards more public investment and more expansionary fiscal policy. And I think really underscores the shift that we've seen. It's important to add that we've not just seen the shift on fiscal policy, but also, of course, the ECB played a very important role essentially in buying time with the pandemic QE program, the PEP, until that EU-wide fiscal response have been put together, because that, of course, took some time. And I think it's notable how the ECB did this and how they really stepped up those purchases in a really big scale.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT
“I think we have seen an important shift in European fiscal policy really over the last 18 months. At the national level, countries were very quick to provide fiscal support. And that was really aided by the suspension of the EU-wide fiscal rules so that we were quite quick in suspending those and really making room for national governments to respond. And then, of course, at the EU-wide level, the recovery fund we think was a real milestone and a real turning point for the crisis. And of course, that agreement to Ishi Joint Debt, which was a real step forward, and it involves large-scale grants basically from the stronger to the weaker economies. And I think that's a very important step forward. I think the German election outcome is likely to cement that shift that we've seen.”
2021-10-26 · Goldman Sachs Exchanges · Europe at a Crossroads · IDENTIFIED FROM THE TRANSCRIPT