ECONOMY

Flexibility key to Greek recovery, says Bulgaria’s ex-finance chief

flexibility-key-to-greek-recovery-says-bulgaria-s-ex-finance-chief

Economist Simeon Djankov understands both the theoretical and the practical side of economic policy. The 48-year-old served as Bulgaria’s finance minister and deputy prime minister for nearly four years from 2009 to 2013 under the government of Boyko Borisov and is credited with wiping away the Balkan nation’s fiscal deficit while also reducing not only taxes but also the size of the civil service.

Moreover, while serving with the World Bank, he has worked in more than 100 countries, created the annual Doing Business report, and last year was director of the World Development Report 2019.

He is also rector of Moscow’s New Economic School and Financial Markets Group policy director at the London School of Economics.

Kathimerini took the opportunity to speak with him on the occasion of his recent lecture on Europe’s economic challenges at the Athens-based Foundation for Economic and Industrial Research (IOBE).
 

What does Europe need to do to preserve its wealth and way of life in the face of illiberal populism, US hostility and China’s technological rise? Is there something in your liberalizing agenda for those who are losing out in a globalized, digitized economy?

The first thing Europe can do is to create a single digital market, a banking union and a single energy market. Without these, Europe is at a huge disadvantage relative to both the United States and China. This is a liberal agenda as much as it is a competitiveness agenda.

As for the second part of your question: With each industrial revolution, some sectors get affected positively and some negatively. So winning economies are those that allow freer movement of capital and workers across sectors. With rigid regulation, losing sectors shrink but the potential winning sectors do not expand.

Has the eurozone done enough to prepare itself for the next financial crisis? Could Italy be the cause of the next one?

No, the period after the last crisis was used to focus on migration and more recently on the rise of nationalism and Brexit in particular. As a result, Europe is not prepared for another financial crisis. Only now politicians like [French] President [Emmanuel] Macron are offering visions of future Europe. Italy has apparent fiscal and banking issues to resolve, but the main threat is the lack of readiness in Brussels.

What is the key impediment to a robust recovery in Greece? High fiscal targets or low competitiveness/investment climate rankings?

Low competitiveness. Fiscal targets can be met with higher growth, or, put differently, good fiscal policy needs a robust economy. The Greek economy has been constrained by inefficient regulation, including by fiscal rules. You can see this pattern in the World Bank’s Doing Business project, where Greece fell a few positions in the past year.

Are fears of massive job losses because of the Fourth Industrial Revolution overstated? If so, why?

Yes, significantly. People fear the unknown. Yet studies of previous industrial revolutions show they tend to generate jobs, not destroy them. Of course the type of jobs may be different. One finding of the latest World Development Report is however that there are going to be plenty of new service jobs in Europe. The question is which countries have the flexible regulation and taxation policies to create these jobs.

What are the key lessons you have drawn from the process of post-communist transition to a market economy?

The less you leave in the hands of national-level politicians, the better. This is particularly relevant for the economy, but also applies to matters of fiscal policy. Simple rules are sufficient.

As related to Greece, a good comparator is Israel. The two countries have similar human capital endowments, yet Israel’s economy is more competitive at this stage. Much of this competitiveness came with the wave of migrants from the former Soviet Union, and in particular their embrace of liberal economic development.