Part 3 spain - eu course - summer 2011

PART #3 WELCOME TO BARCELONA, CATALONIA, SPAIN

WELCOME TO THE …EU!!

Introduction to the European Union

Prof. Brian Butler

Prof. Brian David Butler

About: Brian Butler is a professor of International Finance and European Studies with Forum-Nexus Study Abroad, an academic program which is co-sponsored by the IQS Business School of the Ramon Llull University in Barcelona, and the Catholic University of Milan.

Brian was previously a teacher at the Thunderbird School of Global Management, MBA program in Miami, and was a researcher at the Columbia Business School in New York. In Brazil, Brian has taught at FBV in Recife.

He previously worked for Honda of America Manufacturing in Ohio, and was involved in international trade.

[email protected]

LinkedIn.com/in/briandbutler

www.globotrends.com

http://www.linkedin.com/in/briandbutler

http://www.linkedin.com/in/briandbutler

http://www.globotrends.com/

Student introductions

emails - Did you send? email… include: Session? Grad / undergrad? POL/ SOC / BUS

my slides:

www.slideshare.net/briandbutler

http://www.slideshare.net/briandbutler

http://www.slideshare.net/briandbutler

Rules / Expectations:

Request Closed book, open mind, Please turn off

everything except your minds…I want your full attention – this is a “participatory” class

No sleeping (if you feel tired, please stand up, go get some water, come back)

no laptops (sorry) No blackberries, no iPhones, no

iPads, etc, etc…

Travel advice

Travel advice

If you have just one afternoon in Barcelona… make sure you see…

La Pedrera – Gaudi

go at night … look for pizza place on corner

Just 5 minutes walk…from our hotel!!


Just 5 minutes walk…from our hotel!!


View from the roof… Does anyone know what that is??

Travel highlights Barcelona

Forum-Nexus Interns Winter 2010-11

La Sagrada Familia- The Church of the Holy Family

Unfinished Roman Catholic Church designed in by Catalan architect, Antoni Gaudi, famous for his unique style that stood out during the Modernisme (Art Nouveau) Catalan cultural movement period. The church is scheduled to be completed in 2026, the centennial mark of Gaudi's death. The church is a UNESCO World Heritage Site and was declared a minor basilica by Pope Benedict XVI as of November 2010. One of Barcelona's most popular tourist destination sites.

La Sagrada Familia-

go at night … look for pizza place on corner

Casa Batllo – Gaudi (near our hotel)


The National Art Museum of Catalonia

Built for the 1929 World Fair, this attraction is housed in the Palau Nacional on Montjuic Hill, and hosts some of the most beautiful pieces representative of Catalonia. A MUST-SEE on your tourist stop.

Casa Batllo – Gaudi (near our hotel)

Barcelona – eat TAPAS


WHY EUROPE (STILL) MATTERS, IS GLOBALLY RELEVANT FOR BUSINESS,

OPPORTUNITY, INVESTMENT AND ATTENTION

Why Europe?

Why study “Europe”?

Questions:

1. How is the “European Union (EU)” different than “Europe”?

2. What is the “Euro-zone”, and how is it different than the European Union? From “Europe”?

Group assignment Questions:

Form groups of 3 people – write answers:

1. Which has a bigger population – the US or EU?

2. Which is a bigger economy? (US / EU)?

3. Within the EU… approx what % is the Euro-zone economy?

Group assignment Questions:

1. Which has a bigger population – the US or EU? EU

2. Which is a bigger economy? (US / EU)? EU (slightly)

3. Within the EU… approx what % is the Euro-zone economy? 3/4

http://en.wikipedia.org/wiki/Eurozone



By population:• EU is approx 50% bigger by population than the USA• Eurozone population approx same size as US • – on much smaller LAND! • -- more concentrated population

By economy:• EU and US approx same size (EU slightly larger)• Eurozone approx 75% economy of EU


Question:

If the US and EU have approximately the same size economy, but the EU has approx 50% more people… what does that tell you?

Why is it like this? What part of the EU accounts for the difference?

Which regions of the EU are the richest?

GEOPOLITICAL

Discussion

Geo-Political Question

When did the Cold War end?

After the end of the Cold War, how many “super powers were left?

Geo-Political Question

Are there any other superpowers (rising) to consider?

WHY THE EU MATTERS?

Q. Is the EU an economic superpower? (to rival the US?)

textbook

Who has been reading the textbook?

See CH 9 “European Economic Superpower”

EUROPEAN “ECONOMIC

SUPERPOWER”

Discussion

Economic Superpower

“While opinion is divided on the prospects of the EU becoming a military superpower … there are no doubts at all about its new status as an economic superpower”

The commission has powers to represent the governments of all the member states in negotiations on global trade, and it is now well understood by everyone that the EU is the most powerful actor in those negotiations”

Textbook: “Understanding The European Union, A Concise Introduction”, John McCormick, Ch 9

Economic Superpower

With population of 490 million, EU has 63% more consumers than the USA (much bigger internal market). Making the EU the largest capitalist market in the world.


Economic Superpower

Worlds biggest and richest marketplace

Accounting for 30% global GDP (more than the USA)

39% of merchandise trade (more than 2x the USA)

42% of trade in commercial services


Economic Superpower

Biggest market in the world for corporate M&A (mergers and acquisitions)

Biggest global source of FDI (foreign direct investment)

EU now source of 2/3 of ALL investment coming out of OECD member states, and more than 3 times as much as the USA (per OECD website, 2007)

As result of size (and one-voice): Dominating actor in global trade negotiations (WTO)

Currency that competes with Dollar, Yen in terms of global credibility and influence (perhaps reserve currency)


Economic Superpower

International Aid :

Europe is the biggest world donor, counting for 60% of global aid for Development.

The EU spends more than 100 billion euros each year on projects ranging from farming to foreign aid. Click on the buttons to see how much different countries benefited in 2007.


Expansion

EU is “engine of economic growth for Eastern Europe and former USSR, which have combined population of more than 260 million (compared to 300 million in US)…. Enormous productive potential, and a wealth of largely untapped natural resources””


MOVING ON…

Ok, enough statistics, lets continue discussion about Spain and the crisis facing the EU ….

DISCUSSION

Spain

What’s going on in Spain?

Articles read? Observations?

What have you noticed? (different, interesting)

Recent news (austerity in Spain)

Pay cuts up to 7-10% in Spain, more in Greece

Raise retirement age 62 ->65 -> 67?Raise VAT taxesCut spending Raise education ratesQuestion – how do you think

Europeans are reacting

REVIEW

review

Dual Labor market

1.Dual structure – labor market

▫ Who can explain?▫ Why important for crisis?

Questions

Should a country make laws that make it easier to fire people? Should labor laws protect workers from being fired? Is one week notice enough? Does the company need to justify “why” they fire you?

Questions

If you were an owner of a company… would you be MORE or LESS willing to hire a worker… if you knew it was DIFFICULT to lay them off during recession?

Questions

Unintended consequences…

What might be the results of strict labor-laws? (on labor markets in Spain, other EU)

Questions

Jobless recovery

Law of “unintended consequences”

Dual Labor MarketTemp:

High unemployment Young, Immigrants University grads

The rest enjoy a high level of job protection which politicians dare not dismantle.

Risk = political backlash if crisis is LONG (if recovery takes YEARS not months)

Economist.com, A special report on the euro area, Jun 11th 2009

Temp workers –during the boom• The spread of fixed-term employment

contracts in Spain (from the mid-1980s) helped make hiring and firing more responsive to the business cycle.

• Benefits:▫ Immediate pay-off: it created jobs. ▫ Firms were content to take on temporary workers,

often immigrants, because they knew they could easily lay them off again.

• Growth▫ Before the crisis hit, temporary jobs accounted for

more than a third of Spain’s total, the largest share in the EU.


Temp workers - crisisUnfair:

“The downturn has highlighted the gross unfairness of the dual labour market.

It puts the burden of adjustment on groups with no tenure (women, immigrants and the young).

Future Firms have little incentive to train tomorrow’s

workforce. Instead they are stuck with older, tenured workers heading for retirement.

less than 5% are converted into permanent jobs.


Questions

Are the “number of jobs” in an economy fixed? Are there just a fixed number of jobs…

So, if I get a job… then you don’t get one?

Questions

If so… then, does it make sense to REDUCE the retirement age…. Encourage older people to retire… so younger people can take their jobs… to reduce youth unemployment (near 40% in Spain)

Is this right?

Past – this was solution when EU faced recessionLowered retirement ageIdea = open space for others…

But, what is problem with this line of thinking?

Is this right?

Problems1. Early retirement => budget

issues for government

But there is more….

Is this right?

The IDEA that there is a certain set # of jobs = wrong

Contrary: if one person gets a job, have $$ to spend… creates other jobs

Ask again…

Question: why do politicians want LOW unemployment?

“we all know what to do, but we don’t know how to get re-elected once we have done it!”

Jean-Claude Juncker, Prime minister of Luxembourg, 2007

Economist Magazine, “Can anything perk up Europe?”, July 2010 “

Ask again…

What do you think will happen to parties in power currently in Spain, France, Germany (or to ones that were in power when the crisis started like Ireland, UK, etc)?

consider

Are the new set of politicians expected to be:

MORE or LESS tolerant of immigrants?

MORE or LESS interested in European integration

consider

Danger is in a few years time, when new politicians are put in place…Q. Will the Euro zone hold together? Will EU integration continue? Will immigrants be as welcome?....

Ask again…

Question: what is “structural” unemployment?

Labor markets…

Question: What does it mean to have “flexible labor markets”? (is it more than just the ability to hire/fire?)

Labor markets

If Germany is hiring, how willing are Spaniards to move to Frankfurt?

If French are hiring, how willing are Italians to move to Paris?

Compare with US

Labor markets

Question:Does this add to European “structural unemployment?”

Euro Zone

Question: What is the “Euro-Zone”

Euro Zone

Question: How many members in the “Euro-Zone”?

Is the UK a member? Poland? Slovakia? Greece?

Euro Zone

Many say: “the Euro zone only work if has “flexible” labor markets?”

What does this mean? Do you agree?

Intro

Spain Crisis 2011

Question

What does Spain need to do to get OUT of the crisis? (to bring down unemployment, get people back to work, raise taxes, pay government debts, etc)

To get JOBS…

Need to produce stuff that others want … at a price competitive in global markets

EXPORTS

Q. In a global competition… how to you make your products more competitive?

To be competitive

One way….Devalue currency…

Question: why does a currency devaluation make your countries products more attractive in global markets (exports)?

Question

But, can Spain devalue their currency?

Why / not?

Question

Where is the ECB located? Which country? City?

How does ECB control of monetary policy (interest rates) indirectly affect currency valuation?

Question

Q. Do you think ordinary Spaniards blame Germany?

Is it fair?

Question

Q. Other than by currency devaluation… what OTHER way can Spain become more competitive (with exports)?

Question

Reduce prices.

But, how do you reduce prices?

Question

Reduce wage costs Negotiate with unionsOr reduce head-count (less employees)

More “productive” (more output for less input)

Question

BUT, how easy is it to reduce labor costs?

Pay cuts, benefit cuts, etc

Especially in country with strong unions (like Italy, Greece, etc)

Question

Result?Shift toward… temporary workers, 2-tier labor force

Unfair on young, immigrants, women

Again, “law of unintended consequences!”

Intro

Europe in Crisis 2010-2011…

Questions

Should one country bail out another?

Questions

What motivation does that give OTHER countries? (ex: if bailout Greece, what motivation gives Italy, Spain, others)…

Moral hazard?

Questions

If you do bail out others (using YOUR tax money)… should you demand CHANGES in other countries? (to ensure that you get paid back)

For example: if Germany loans money to Greece, should they demand changes to make it MORE likely Greece can pay them back?

Questions

If you don’t attach “conditions” to the loans… is that just “good money going after bad” (ie. Dumping money down the drain?)

How will German tax payers feel about this?

Questions

But, on the other hand…Do Germans want to be SEEN as dictating policy decisions in Spain, Greece, etc?

Will that create resentment?

Questions

Considering European history of Wars, is it politically dangerous to have Germany (seen as) dictating that pensions must be cut, wages reduced, teachers fired, benefits cut, taxes raised, etc?

But, if its NOT Germany dictating these conditions… then who? Who else is there?

Homework

(re) Read article “Gloomy France” from Hugo, be prepared to discuss in PARIS!!!

Part 3 spain - eu course - summer 2011

News & Politics

Transcript of Part 3 spain - eu course - summer 2011