Foreword

As always, the report starts with an assessment of the current economic situation, providing a set of forecasts prepared by the Ifo Institute and complemented by the report’s authors, the European Economic Advisory Group at CESifo (EEAG). Chapter 2 focuses on the intra-euro area imbalances, emphasising the need for fiscal consolidation and a realignment of prices. It suggests cutting expenditures rather than raising taxes, and it advocates a fiscal devaluation by shifting the tax burden towards indirect taxes. Chapter 3 looks at long-term unemployment and the development of dual labour markets in some southern countries. At the heart of the analysis is the question of the optimal degree of labour market flexibility, in terms of trading off efficiency and social justice. The chapter opposes automatic, legally binding sector-level bargaining, and emphasises the need for improved vocational education, training and apprenticeships, as well as active labour market policies and employment protection legislation. Chapter 4 compares the European unification process with the history of the United States. It argues that the establishment of a common state is a necessary prerequisite for fiscal transfer schemes and warns against government debt mutualisation schemes. Furthermore, it calls for a US-like settlement mechanism for the Target balances that the EEAG analysed in its 2012 report.