What’s Happening
France, Italy, and Belgium face the dual challenge of consolidating their public finances while boosting productivity. The task isn’t easy and can seem contradictory: a recovery in productivity would contribute to fiscal consolidation, but the reverse is not necessarily true.
With financial markets and the European Commission both looking for bold plans, the trio might want to look to the example of another developed economy with abundant private savings that rose to exactly that challenge. Sweden halved its public debt to 37.5% of GDP in 2007, from 69% in 1996, without abandoning its social model or killing growth. On the contrary, average annual growth was maintained at over 3% during those 10 years, didn’t fall into recession in any single year, and increased hourly labor productivity and capital intensity by 30%.
Why It Matters
European countries can’t rely on the cyclical economic recovery to repair public finances and restore productivity.
Failure to make structural changes could leave domestic and foreign investors no longer willing to overlook risks associated with onerous sovereign debts, rendering them unable (or at least less willing) to invest. That would consign the countries to widening sovereign debt spreads and could force the European Central Bank (ECB) to resume its sovereign debt purchasing program.
Europe has ample private savings which could be more efficiently allocated in support of innovative small businesses,
resulting in productivity growth that would help the region remain at the technological frontier. Without action, key European economies could continue to lose market share, undermining global trade that has been an important source of their growth for the last thirty years.
What Comes Next
We’ll be keeping a close eye on this autumn’s national budget debates,
especially in countries that the European Commission has flagged for excessive deficit procedures. And we will be watching for improved application of new European fiscal rules.
At the same time we will want to see a more efficient allocation of private savings across Europe,
notably with regards to progress on the use of long-term pension products–within or without the framework for a capital markets union.
Related Research
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P’s public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.
Source link : https://www.spglobal.com/ratings/en/research/articles/241015-europe-brief-a-swedish-blueprint-to-fix-productivity-and-public-finances-13287297
Author :
Publish date : 2024-10-15 14:05:00
Copyright for syndicated content belongs to the linked Source.
