 se začeli najbolje auto vsočno. Všeč se vse imamo vstupovito. Zelo se bolje natova skupaj, sem hvala odštega je tudi dolgju. Tako, da jeball nekaj, pri vspe, nekaj neč zelo pajnitosto, Now, so this is the topic, so optimal, OK, economists talk about optimal polysemiks, I have been tempted to do it as well. I think let's look at it in terms of better polysemiks than the optimal ones. If we would get to a better one, I think it would ready be an improvement. First one is towards a more balanced polysemiks. Second, I'm going to talk very little because of institutional responsibility of monetary policy, but I look at fiscal policy and I look at structural reforms. Basically, when now we talk about policy mix is not only the macro one, so fiscal monetary, but there is also the structural reforms element, which comes in, and this is before concluding. Debbie mentioned my role in the G20. I think the relevant starting point is what the G20 being in charge of global governance has indicated as the direction for the polysemiks for G20 countries. And here I have reproduced a paragraph from the G20 leaders communique of the summit in Hanzu, so beginning of September. This has been with the G20, this orientation for about a year, but it has been codified and adopted by leaders under the Chinese presidency. So basically what it indicates here that we need a coordinated set of policies and this commitment we are determined to use all policy tools, monetary, fiscal and structural individually and collectively to achieve our goal of strong sustainable balance and inclusive growth. I noted in passing that the G20 was in favor and has a final aim until Hanzu to achieve strong sustainable and balanced growth and the issue of inclusiveness has been added lately. So this element here inclusiveness which pertains to the issue of fairness and is participating in the gain of globalization, et cetera has become clearly a relevant dimension of the G20 policy lately. And if you go back to the events of the past week in the US this element here clearly has explained a role and it has moved up to the direct political level. Monetary policy will continue to support economic activity and ensure stability consistent with central bank mandate, but monetary policy cannot lead alone to balanced growth. So there is a call to use in a more proactive way the other two set of tools, i.e. fiscal policy and structural policy. So this is the consensus at the level of the G20. Now how do we translate this? Now monetary policy, fiscal policy and structural reforms. So if one looks at the translation of this in terms of the euro area you come to this which is an inconsistent triangle. Here you can achieve the other two but it's very difficult to achieve the three together. So what do we have now? And the three poles here basically they are connected somehow to the three prong of the strategy that I mentioned before. So it is very difficult within the euro zone to achieve what you have here at the bottom namely sustainability of debt burdens, private and public and competitiveness gains in more vulnerable economies so those who have to regain competitiveness after the crisis and do that in an environment of inflation persistently below targets. It is easy to understand because if you have like now at the euro area level basically zero or a slightly positive but very, very low inflation then if you want to gain competitiveness by some countries within the euro zone then you have to have an inflation below the average. But if the average inflation is zero then you have to have a negative inflation and the negative inflation you can gain competitiveness that is very difficult but you can do that but clearly that runs into conflict with the sustainability of a high debt burdens because via the denominator the public debt and private go up. So basically what we need to have is to go back to normal level of inflation which are defined by the ECB as inflation rate around 2% or slightly below 2%. And with that you can then achieve more easily the other two objectives. But the message of the G20 is that you cannot leave only to the ECB the relaunch of inflation, the relaunch of growth you need to use all the policies for that purpose. Now, this comes from the Autumn Forkast published last week basically what do you see here? You have since the beginning of the crisis or 2008 you have growth rate of GDP and the cumulative change in the level of GDP. So what do you see here is that we have gone back to moderate growth and in our forecast this should continue around 1.5% in the year 2017 and 2018 after a period of very subdued growth and that you can see in the level of GDP. The level of GDP for the Euro area as a whole has gone back to the pre-crisis level so that's where the lighter line here crosses the horizontal axis only in 2015. So it has taken 7 to 8 years to go back where we were before the crisis for the US it took about between 2 and 3 years. So it has taken a long time and within the Euro area you have a differentiated performance you have countries like Germany and France who went back to the level of 2008 in between 2011 and 2012. Ireland has gone back to the level of 2008 in 2014 and you have other countries like Italy and Spain who have not gone back yet to the pre-crisis level. So this is a picture which is a pretty discomforting one because the legacy of the crisis is still clearly with us. There is a substantial economic slack remaining in the economy. You see indicators here you have employment still going up slowly but still remaining let's say below 2008 level. A major slack in the labour market is also the total hours work so it means here there is more part time and more temporary work so which have slided down and are coming up gently but we are still well below the level of 2008 and if you take here in the previous slide I showed you the GDP here I take domestic demand and you can see for domestic demand for the Euro area as a whole this is the red demand in 2016 we are still not at the level of the pre-crisis that we have relied a lot on external demand to pull up Europe and much less by the let's call it the indigenous strength of growth sources. Now as I talk think about Trump and what has been said in the US and I think the assessment and the desirable policy mix looking forward will have to rely to push us to rely much more on domestic demand in Europe rather than relying on the rest of the world to pull up Europe because I think with the evolution in the US and with the evolution in China we may have lost let's say the consumer last resort in the US or last resort in the global economy in China so we have to rely much more on what we can do ourselves so the policy mix that we are thinking about will have to be more favorable to domestic demand. Now what you can see here also is I have put in this graph which is less usual than the previous ones the current account on the horizontal axis and inflation on the vertical axis and you can see the two lines where they cross is on the inflation I put the line the horizontal line at 2% that is broadly the objective of the ECB so if you are there at 2% that's the definition of price stability on the vertical axis here on the current account is let's say a slight surplus in the current account this is much less official number and our estimates DG ECFIN commission estimates of the equilibrium current account of the euro area taken into calculated through our models taken into account demographic variables in industry structure and other fundamental variables so there is a good reason to have a slight current account surface for the euro area as a whole I mean we are becoming older so we save more than other countries so you have for the euro area at large I think a good reasons to have let's say a slight surplus on the current account Now where do we stand here on these two measures you can see that since 2013, 14, 15, 16, 17, 18 so this includes our auto forecast we are in the quadrant there where you have a much larger current account surplus than would be justified by fundamentals and you have a lower inflation so this would plead for using policies in order to push domestic demand in order to shore up inflation and to reduce our current account surplus in a situation in which you have in the global governance the orientation that I mentioned before I don't think we can continue these large current account surplus to pull up the economy so this is an illustration of the measures that I passed before and these, the two elements here they are also indications that there is substantial slack in the economy we have domestic demand lower than savings considerably larger than investments and inflation below the price level this is the definition of price stability of the ECB now finding the right policy mix that's where this graph here captures let's say the two axis so monetary policy and fiscal policy what you can see here is that we are moving to the left which is a situation in which monetary policy has been increasingly accommodative but fiscal policy has been in the consolidation phase 2011, 12, 13 strong consolidation overall this was the moment of the crisis of the sovereign debt in the euro area it has moved towards a more neutral policy so fiscal policy does not subtract any more demand from the economy but it does not add much either so this is underlines what the leaders of the G20 try to express in their conclusion namely that monetary policy is left to much alone in cutting the burden of sustaining growth and demand monetary policy indeed considerably supported the economy this is a composite credit cost indicator when it goes down the conditions are considerably more favorable for credit for both households and non-financial cooperation so monetary policy in a sense is doing what it has to one can discuss whether they reacted at the right time during the crisis but I think now monetary policy is doing its best and now we have to see what fiscal policy can do now on the fiscal policy if one looks at how fiscal policy in Europe behaved since the beginning of the crisis and even before and compared to the what happened on the other side of the Atlantic then what is the conclusion if you take this what you can see here is the euro area that is the red bar and the US that is the blue bar if you are below zero then is an expansionary fiscal policy if you are above zero it is a restrictive fiscal policy what you can see here is that if one takes the period 2008 till 2015 here that's what I have in this graph here all in all so if you take it as a period then there is not much difference between US and Europe if you take the integral part the integral of all this so you sum up all these changes there is not much difference over the period between the two what is different obviously is the fact that the US fiscal policy has been more anti-cyclical than the one of Europe so basically it expanded much more you see the blue bar going down at the beginning of the crisis we did it as well but much less and then when growth returned in the US more strongly than in Europe they moved to a retrench to fiscal retrenchment so to a restrictive fiscal policy now let's be clear on this US fiscal policy has not been driven by enlightened politicians the result is better than what we have but what you get there when they move to retrenchment is behind that there is the struggle between the administration and the congress with the fight on the debt ceiling the sequester the shutting down the government in Washington and so on so it has not been the smooth optimal social planner there who managed everything in a nice way behind that very dirty politics in the US we'll have to see now what is going to happen with the new administration because at the end of the year they will have to deal with the debt break again the republicans have been staunchly against increasing the debt ceiling for the US debt that was when you had the democrat in the White House now we'll have to see what happens when the congress and the administration are aligned what motivated I think our retrenchment here start 2010 11 and 12 thing was at the time of the sovereign debt which for many countries threatened the market access you know it in this country in particular so overall the euro area had to go to move to a more restrictive fiscal policy in a situation of poor growth so a prosyklical fiscal policy motivated by the need to maintain market access to the number of countries so I think there is the message here that you get I think there is a way to improve the anticyklical stance of fiscal policy in Europe that's what we should do looking forward especially if we want to take out some burden of the shortness of the ECB this is the euro area fiscal stance again fiscal consolidation when we are below zero you can see here I think what you get here is the key the key issue here is not so much this wins here an important point here is what happens in the pre-crisis period you can see in the pre-crisis period basically no much happens it is a little bit expansion a little bit consolidation basically nothing happens substantially but these were the periods where the euro area was growing at quite robust pace so it is the period in which one would expect to seize the opportunity to reduce public debt and create the room for maneuver to then use at the moment of the crisis so I think the key policy mistakes in Europe were not paradoxically not so much in the management of the crisis yes maybe there one could have done things somewhat differently the market forced a certain behavior the problems were I think in the good times here and as we know politicians, policy makers the big mistakes are made in good times not in bad times so this not having created the room for maneuver there by decisively lowering public debt it was the problem that then came to haunt us during the crisis where we didn't have that safety margin to use fiscal policy in a more proactive manner now if one looks forward then what you get from what member states will have to do in order to respect the rules is somewhat a fiscal consolidation looking forward so I announce already that the package that the commission will put forward tomorrow will try to let's say correct somehow this move into let's say into a very restrictive into a pretty restrictive fiscal fiscal policy which is in this here while still respecting the rules but obviously the tension here between implementing the stability and growth pack rigorously and achieving something at the central level which would be more let's say supportive of growth we have constraints obviously and the constraints are this we have accumulated during the crisis a lot a large stock of public debt so this limits the room for maneuver I do not in Ireland also here actually so you can see you can recognize yourself here is the this is the this is the Irish for most of these countries where the debt has gone up after 2007-2008 it has not been because of fiscal profligacy of lazy southerness no working the government stepping in with public spending it has been and this quintessential case this country it has been because of the banks so basically it has been the burden of the debt has been shifted from the banks to the public to the public sector whatever the origin we find ourselves with this quite large stock of debt so this implies that the room for maneuver that we have in designing something that is more supportive of growth is not enormous so this has to be taken into account and limits somehow the room for maneuver now, ok, I don't want to go into formulas here this is for the students you can distribute the you can distribute the slides and then you can do the maths for those who are versed into quantitative issues now, when we come to assess the fiscal space how much fiscal space do we have I think I know that there is a debate also in this country fiscal space do we have it do we have it or not now there are those on the other side of the Atlantic actually those who most of them they were on the wrong side of the election result Kruppmann Summers and others who say ok, we have had a dramatic fall in the interest rate so this is the good time to borrow for investment infrastructure public sector or quasi zero interest rate so you can do much more public investment than in normal circumstance with much higher interest rate those who emphasize this they only look at this which is the interest rate it is true that the interest rate goes down then the maximum level of the debt that you can sustain increases so you have more room for maneuver but that is not the only element in the picture and the other two elements here is the growth rate so this is potential growth is not cyclical growth in this quarter it's potential growth looking forward and this is the maximum primary surplus that you can achieve so the fiscal space on this is given by taking into account the interest rates taking into account the growth rate potential growth and taking into account the primary surplus that you can achieve now looking forward potential growth if you do not undertake the structural reforms that I'm going to talk about in a moment is going to slowly to go down mainly because of demography so demography getting older less contributions to the production function of the country via say via labor because we get older I think we lead to a trend decline in the growth rate and I think there are good reasons to think that the kind of primary surplus that you can generate in a politically sustainable way in the future may also go down and one of the reasons is what you have also in the debate right now I think we'll have to spend more in the future to take care of the elderly so the demography has an impact not only on the growth rate but also on the spending healthcare pension in spite of the reforms that have been done but also investment in human capital education I think the pressure for spending more in this good spending will go up in the future so the primary surplus that can be sustained I think is going to come down looking forward of these three elements I think the R star which is the interest rate which is going down increases the fiscal space but the other two elements they properly reduce it so it is not clear that one can come to the conclusion that we have much more fiscal space than we thought about and now let's go ahead in a spending spree I think there is here an element of prudence that has to be taken into account because these are for the students I am very proud of these graphs so if you have some questions on those later I am delighted to explain that the professional element comes through here but this articulates basically in a graphic inform what I was trying to say before conclusion on the fiscal policy side basic conclusion is that yes we have to use fiscal policy in a more proactive manner second we have to continue nonetheless to use fiscal policy in prudent way don't count on having enormously more fiscal space than we thought about prudent fiscal policy remains some countries have more fiscal space than others and they should use it other countries, especially with continue having high public debt I think should be moderate in the way they use fiscal policy what all countries should do is to change the composition of fiscal policy so that spend more in the good spending those good spending on the public investment side material especially in material investment so human capital technology innovation etc which help both from the short-term viewpoint by boosting demand and also from the longer-term viewpoint by boosting supply so this is a no regret policy though we know that is very difficult to do we have been preaching to the member states to look at the quality of public finances not only at the quantity so to reallocate the resources towards high growth spending and we have failed because member states do not listen and why so essentially because the vested interest behind the bad spending let's put it like that in inverted commas are stronger than the vested interest behind the good spending so it is very difficult to let's say push member states to move the budget towards the good spending away from the less good ones so this is the basic conclusions on the fiscal policy side now the third problem monetary fiscal, the third one is the structural reforms and here we go a question that comes often you talk about structural reforms in general what is the structural reforms, I think here structural reforms are those who tackle fundamental bottlenecks for growth in the first years of the crisis we focused on competition in enhancing aspects, labor market flexibility resilience, pension reforms I think we have to move to something that I have called here structural reforms 2.0 which looks more human capital education tackling rents and also taking care of incorporating the income distribution element in that now structural reforms work, here are a number of simulations that you have that we have done of let's say moving to best practices in the EU we have also island here you can look at the slides afterwards in terms of growth and employment they can work there are two views on structural reforms how do we promote structural reforms, when should structural reforms be done and the two views in the economics debate but you see it also in the euro group when we talk to the ministers in the Keynesian view and a moral hazard view and they lead to completely different prescriptions so the Keynesian view is the following structural reforms may have in the short term an adverse effect you liberalize labor market I think there is pressure downwards on wages, I think more layoffs because you make it more flexible so in the short term you have costs structural reforms so Keynesian view says do reforms when you are in good times because the cake is widening so you have a better chance if one loses a job in one sector you can find it in another one moving from one enterprise to another and the Keynesian view also says use fiscal policy in order to compensate the losers so more fiscal leeway to help those who suffer in the short term from structural reforms so this is the Keynesian view then you have the moral hazard view and it says that politicians operate in a different way they do structural reforms which imply difficult choices only when they have no other choice so this is the Tina there is no alternative only when they feel that they have showed against the wall that they find the courage to make structural reforms so this says don't use monetary policy and fiscal policy in order to ease the structural reforms because they will do even less so these are two completely different views one sees fiscal policy and structural reforms done in good times the Keynesian one and the other see structural reforms done mainly in bad times who wins experience of the crisis leads to the conclusion that the moral hazard view wins but with a bad we have seen during the crisis that countries being more in trouble they have done more reforms than countries not in trouble so this is one piece of evidence debate is the fact that in many instances these reforms being done under duress they are not fully owned by the system so when the situation improves they are reversed so this is the enlightened politicians would take the Keynesian view let's say let's use fiscal policy in order to ease and to make difficult choices but this is the evidence that we have now I finished with this one which is the sexy part of the presentation now Mr. Junker when he was president of the euro group before becoming president of the commission said something she has become famous and he said we all know what we need to do we do not know how to be reelected after we have done it this is Junker's curse now Junker is my boss so he is president of the commission now so he is always writer but he said this before before becoming president of the commission so he was not my boss at the time so I can contest this and as an empirical economist I have with some colleagues I have tested whether he was writing this statement that governments carrying out structural reforms actually they basically lose elections after they have done that and the evidence is not clear cut so you have many cases of governments actually having undergone courageous structural reforms having been reelected afterwards so in this paper we looked at the what are the determinants for being reelected or not after you have done structural reforms and what we found is that and this was with data before the crisis but we have replicated that after the crisis and the message is basically the same financial markets functioning and the functioning of welfare systems are key in the probability of being reelected after you have done structural reforms it is not difficult to understand why well functioning financial markets what do they do they help to reallocate resources from one sector to another and they help also to bring forward to the present the benefits of structural reforms so if you have well functioning financial markets then the likelihood that you get quicker response to the structural reform program I think is a higher that's why governments having done reforms in countries with well functioning financial markets I think they have a higher probability of being reelected second point is the welfare the functioning of the welfare state in many system I talked about before there also if you have welfare system functioning well they reduce the cost for the losers of the structural reforms in the first place so what you get there is that you have the social impact of structural reforms is lower for these countries so these two elements here are incredibly important in the prospect of being or not reelected so in convincing the politicians that they can do structural reforms and also what does it mean in practice here it means that we have to continue to restore good health in financial markets at the EU level it means proceeding steadfastly to complete banking union and to move forward and in welfare system is to have structural reforms and also looking at the functional tax and benefits systems which take care of the losers and indeed in the past years the generosity of the welfare systems that have been decreased and this is in part one of the reasons why there has been the hardship of the reforms I think I had another couple of things but this is the conclusion you can read it yourself these have been a plea for the G20 to implement what the leaders have agreed upon so the 3G let's say the 3Pron strategy in European source I think we if you move to more proactive fiscal policies why not throw away the rules that we have I think this will also help in strengthening demand domestically so increase let's say better manage global imbalances because we have now already has a large current account surplus so we have less more supportive fiscal policy also will reduce the pressure on monetary policy but it is more likely that the ECB more quickly return to orthodoxy moving away from negative rates which we know have heavy consequences on the banking system can we achieve everything at the national level to better coordination my plea here would be to consider also an investment in euro area fiscal capacity to supplement what can be done at the national level it is not there this is something I think we are going to work on in view of the white paper that the commission will put forward in view of the next march which is the leaders summit in Rome for the sixth anniversary of the union