Sir, - "Conference told EMU could spell rural poverty", says Uinsionn Mac Dubhghaill in The Irish Times of January 27th. In his article, Mr Mac Dubhghaill refers to a conversation we had at the conference on "Creating Employment in an Expanding Union - The IGC Debate" (Galway, January 24th). Although he correctly reports my views on a number of issues, I'm afraid some of my comments may have been misunderstood. Therefore, it seems appropriate that I clarify my position.
Research confirms that income levels per head in the EU countries have converged significantly during the last decade. This is mainly due to a catching up on the part of the so called "periphery" countries (Spain, Portugal, Ireland and Greece). However, between the European regions no such convergence can be observed. Within most countries regional income and employment disparities have even widened (see e.g. the EU Commission's First Cohesion Report of November 1996). A standard explanation is that given international capital mobility and free trade - investment tends to be concentrated in the more prosperous regions because these regions enjoy a better infrastructure, a wider skills base and modern technology. Poorer regions attract less investment. Consequently, they have lower income growth and job creation rates.
It is likely that - other things equal - EMU will strengthen these tendencies. Mr Mac Dubhghaill correctly summarises these ideas. However, his conclusion that these tendencies "could spell rural poverty", i.e. absolute decline in poorer regions, is a very unfortunate interpretation of my comments. Although often at a slower pace than the prosperous regions, poorer regions grow as well. Further, people in poorer regions share in the benefits of increasing average standards of living in their country. Finally, economic policies can be adjusted to counter the above mentioned tendencies.
The hope of policy adjustment does not alter the fact that in the past policies have in some respects been counterproductive. In recent years, and with EMU ahead, the EU has gradually reduced its member countries capabilities to deal with income and employment problems - both nationally and regionally - without sufficient strengthening it's own policy. First, countries are not only losing control over monetary and exchange rate policies, their budgetary room for manoeuvre is also being diminished strongly (Stability Pact). The latter implies a reduction of the capacity e.g. to invest in poorer regions.
Second, as I explained at the conference, I consider the combination of unnecessarily tight monetary policy, inspired by the Bundesbank, and fiscal policy imposed by the Maastricht Treaty to be a major cause of high unemployment in the EU. Since especially poorer regions and low skilled workers suffer from this unemployment, regional and social cohesion has been undermined. Third, in contrast to the US, the European monetary union will lack a significant centralised budget. Consequently, there will be no automatic mechanism of income redistribution from wealthier to poorer countries and regions.
Despite this criticism, my comments are no argument against EMU or against "Brussels" on the contrary. They are an argument for alternative, i.e. more employment minded, monetary and fiscal policies in the EMU. Further, they emphasise the need for a more substantial budgetary role for the EU. The latter is the implication for the EU's own policy of creating a common currency and of imposing financial rigour on the member countries. With respect to regional and social cohesion problems, the structural funds deserve further strengthening. Without these funds, disparities in income per head among countries and among regions would have been greater than they are today.
Last but not least, Mr Mac Dubhghaill's article suggests that my comments concerned Ireland in particular. This was not the case. Our conversation was about the EU and the periphery countries in general. Because the budgetary situation in Ireland is more comfortable than e.g. in Italy, Spain or Greece, Ireland may be more able than these countries to counter tendencies towards regional divergence in income and employment. - Yours etc.
University of Ghent,
Belgium.