At least we have a European Central Bank, which has done an awful lot to keep the thing together. It created space for [European leaders] to strengthen the architecture of the euro zone.
Aren’t you worried that this process is losing momentum?
Every time the crisis moves away, every time the urgency abates, the energy and the drive to reform and to rebuild wanes a little bit. That is the history of the European construction.
That being said, all of these reforms — you can have acute crisis and you can have chronic ones, and it seems that they have traded acute crisis for chronic ones of low growth and less job opportunity.
Which I don’t think is bearable for the long term. Which is why also it is comforting to see that Germany, for instance, is looking at stimulating its economy, not increasing taxes going forward, and participating in the growth and jobs debate in a proactive fashion.
What about the other contenders here — France, Italy, Spain? What is holding them up from finishing the reforms that are needed?
I think confidence is a big factor. I am not going to comment on France, but if you look at some of the other countries, they have done an awful lot to do fiscal consolidation. Italy was in primary surplus, and both of them have restructured their labor markets despite entrenched interests and sort of strong cultural trends. Yet reforms have begun. They have both restructured and strengthened the financial market.
Since you did the last report on the U.S., it seems like Fed Chairman Ben S. Bernanke declared the end of the era. What dynamic is this unleashing? What concerns do you harbor about this unwinding that is going to occur over the next years? Is there high-frequency data you have started to monitor?
We have teams whose job it is to look at high-frequency indices. I don’t want to be riveted to what happens on a daily basis. They alert me if things are heading in the wrong direction.
What we see is that in quite a few of these emerging-market economies, measures have been taken, the market has deepened, issuance of bonds has varied, including in local currencies. And I think that some of them — not all of them — have strengthened their fundamentals to such an extent that I don’t think they would be the victims of reasonable, well-programmed, well-communicated unwinding of the super accommodative monetary policy of the central banks.
Number two, we have significantly reviewed, explored, debated and finally revised our position on capital flows and the management of capital flows. And we certainly think that countries which, once they have exhausted the various macroprudential policies, that they can resort to some capital flow management. We still think that the unwinding has to take place in an articulated way, with proper transitioning, not abruptly. And when I say well articulated — taking into account the potential spillover effects to other markets, not just the domestic consequences.
People have said these years of accommodation have left the world economy . . .
Withdrawal is always painful.
If it is gradual, if it is properly announced and at the same time other policymakers make the right decisions on fiscal, growth and structural measures — that they take the baton from the central bankers — it should work.