Examination of Witnesses (Questions 140-146)
Mr Roger Bootle
10 JULY 2007
Q140 Lord Trimble: One thing you
mentioned there was IT. It has been said to us that one of the
weaknesses of Europe is that it has got too much focus at the
medium level in terms of technology and not enough at the higher
level.
Mr Bootle: I do not know, I do not think I can
comment on that. I just look at the official numbers on IT investment
and it is quite striking how low the eurozone is compared to both
the US and the UK; the UK has come out comparatively well recently.
Q141 Lord Maclennan of Rogart: Do
you take the view that more mobility of labour and capital within
the eurozone would be helpful to deal with its current problems?
Mr Bootle: I am not sure I do, for two reasons
really. One of them is that economists refer to mobility of labour
as though it is some sort of impersonal, inhuman thing, but what
we are actually talking about is the uprooting of substantial
numbers of people and communities with substantial social cost
and social difficulties for both the areas they leave and the
areas that they come to join. This strikes me as not a simple
costless procedure, whatever the economists might think. The second
thing is that given that this is in reaction to short term economic
difficulties and fluctuations I am really not sure that that is
the appropriate way forward. If you use the word "shock"
maybe in relation to fundamental economic trends that are going
to be with you for a long period then a greater degree of labour
mobility would be desirable, but it seems to me that much more
preferable to a greater degree of labour mobility would be much
greater labour market flexibility so that people on the whole
could stay more in their own communities and countries. That is
where so much of the EU in general and I guess the eurozone in
particular has fallen down, in that the labour market is pretty
inflexible, has not been particularly good at creating jobs, has
not been able to absorb both the shocks and the trends and so
it has tended to have quite large levels of unemployment.
Q142 Lord Maclennan of Rogart: How
would you see relatively the importance of other instrumentalities
for improving the flexibility of education, training, corporate
commitment or even, possibly, interventions of governments within
the eurozone?
Mr Bootle: There clearly is a significant role
for better education and for the government in promoting better
education although, interestingly, in a number of the Central
European countries that have had high unemployment the educational
standards are pretty high anyway. I do not think the evidence
is clear that that is the essential problem; the essential problem
is really rather more to do with labour laws, levels of benefit
and the behaviour of labour unions or arrangements governing pay.
Those three things combined and their interaction are really where
the problem does lie.
Q143 Lord Maclennan of Rogart: What
about Italy, a country about which you expressed the greatest
concern?
Mr Bootle: Italy of course has shared in the
fall in unemployment, along with a number of the other countries
recently in reaction to improved economic circumstances, but there
as well the essential problem is to do with the difficulties facing
the functioning of the labour market; it just does not function
in a free and efficient manner. In particular, if you look at
the burdens facing employers in taking on labour and the difficulties
they face if something should go wrong, it is no wonder, frankly,
that rates of job creation are as bad as they have been.
Q144 Chairman: Do you see the eurozone
expanding in the future and other countries joining? Do you think
this is a good thing and how far do you think it should go?
Mr Bootle: I suppose it will expand if some
of the new EU members come to join. I do not see it as being a
hugely significant problem in that the economic size of these
countries is actually comparatively small. I actually did tot
up the size of all the new entrants in the last two rounds who
are not yet members of the eurozone and it comes to something
like 8% of eurozone GDP, so if these countries were to join the
eurozone it would amount effectively to having a country join
that was somewhere between the size of the Netherlands and Spain.
This is not insignificant but overall it is not enormous and the
relative size of Germany within the eurozone would fall from something
like 27 point something per cent to 25 point something, so it
is not enormous. I do not think in itself, therefore, it is a
big problem, but where the difficulties are liable to lie is rather
in the functioning of the ECB where these countries with their
own central bank governors will have a seat on the governing council.
Decision-making will become unwieldy and there will be a problem
to do with the relative weight of large countries and small countries;
that is potentially a difficulty.
Q145 Chairman: The advent, for example,
of a large country like Turkey, if that were to happen, would
be a significant change.
Mr Bootle: That would be a significant change
indeed but I have not even begun to consider that; they are not
even quite on the horizon so far as joining the EU is concerned
never mind joining the euro so I think that is some way off.
Q146 Lord Inglewood: We have developed
monetary union across a number of separate Member States' economies
where we do not have common taxes and we do not have labour market
integration. Presumably you would say that if we had greater integration
the euro would provide greater benefits. Do you think that this
disintegration, if that is the opposite as it were of integration,
poses a fundamental threat to the longer term stability of the
project?
Mr Bootle: No, I do not think the lack of integration,
harmonisation or whatever is somehow or other minimising or restricting
the size of the benefits of monetary union. As I tried to indicate
at the beginning, the benefits of monetary union were always going
to be minuscule, with the danger that there would be particular
events which would otherwise demand and receive some exchange
rate accommodation and that that could cause significant losses,
coupled with the difficulties facing individual countries. Although
I do not think monetary union has had a major economic impact
for the countries of the Union as a whole, it has had the effect
of boosting Ireland and Spain, initially restricting Germany and
more recently restricting Italy. If we went ahead to have fiscal
harmonisation, for instance, I do not think there would be some
vast pool of gains from monetary union that would suddenly be
unleashed. The sort of non-monetary element whose more effective
functioning could improve the overall level of GDP and welfare
in the Union is really the labour market, but that is not so much
to do with harmonisation, it is actually to do with flexibility.
Chairman: If there are no more questions, thank
you very much indeed for coming along. It has been very interesting
and we are most grateful to you.
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