Europe at a Crossroads

Goldman Sachs Exchanges

Goldman Sachs

Business

4.4 • 1K Ratings

🗓️ 26 October 2021

⏱️ 25 minutes

🔗️ Recording | iTunes | RSS

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Summary

Will the Euro area's unprecedented program of fiscal risk sharing in response to the pandemic, and a new, likely less fiscally conservative, ruling coalition in Germany increase integration, raise growth and improve investor returns in the region? In the latest episode, experts debate whether the current moment will go down as a seized—or (another) missed—opportunity for Euro area integration. Host Allison Nathan, creator and author of the Top of Mind report on which the episode is based, speaks with Goldman Sachs Research’s Jari Stehn, former ECB Chief Economist Otmar Issing, former PM of Italy and President of the EC Romano Prodi and Oxford’s Timothy Garton Ash.

Transcript

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0:13.7	This is Exchanges at Goldman Sachs and I'm Allison Nathan, a senior strategist in Goldman Sachs research and creator and editor of the firm's Top of Mind report. In this episode we're
0:17.8	focusing on the implications of a potential shift in the fiscal mindset in Europe.
0:23.4	In response to the pandemic, Europe embarked on an unprecedented program of fiscal
0:27.8	risk sharing in the form of an 800 billion euro next generation EU fund and its recovery fund which for the first time in the
0:36.1	history of the EU provides large-scale grants and loans to weaker economies back by the issuance
0:42.0	of common debt.
0:43.0	At the same time, Germany is about to get a new ruling coalition
0:47.0	that's likely to break from the fiscal conservatism of the Merkel era.
0:50.0	Whether these shifts in fiscal policy towards a more expansionary mindset
0:54.6	mark a turning point for European growth and integration is top of mind.
0:59.2	We first sit down with our chief European economist Yari Stein to get his take on the importance of the recent fiscal
1:05.4	developments for the evolution of the European Union.
1:08.1	I think we have seen an important shift in European fiscal policy really over the last 18 months.
1:16.4	At the national level countries were very quick to provide fiscal support and that was really aided by the suspension of the EU-wide fiscal rules so that were quite quick in suspending those and really making room for national governments to respond.
1:35.0	And then, of course, at the EU-wide level, the Recovery Fund,
1:39.0	we think was a real milestone and a real turning point for the crisis.
1:43.3	And of course, that agreement to issue joint debt,
1:46.4	which was a real step forward.
1:48.6	And it involves large scale grants,
1:51.9	basically from the stronger to the weaker economies and I think that's a very
1:56.2	important step forward. I think the German election outcome is likely to cement that shift that we've seen. Of course there's still quite a lot of uncertainty around what exactly will happen, but it's very clear that it's not going to be a center-right coalition that would have pushed for a return to fiscal prudence soon.
2:16.8	So I think the fact that the Green Party is going to be part of the next government, I think
	...

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