A new Marshall Plan for Europe would have to work as a structural adjustment programme, namely by achieving reforms through strong conditionality in return for serious money, says a new paper.
‘Saving the Eurozone: Is a ‘Real’ Marshall Plan the Answer?’ by Nicholas Crafts, argues that the rationale for a new Marshall Plan would be both to reduce the chances of a chaotic break-up of the eurozone and to allow more time to prepare for this eventuality – while at the same time working to improve the me dium term economic performance of the euro periphery.
It is important not only to understand the problems to which this might be the solution, but also to recognize both what the original Marshall Plan really was and how it worked in practice, says Nicholas Crafts.
The objective of a Marshall Plan for crisis-hit countries in the euro periphery of southern Europe would be to underpin European economic integration and the survival of the eurozone by raising productivity growth. This would entail increased but not massive transfers of funds. However, this is not appreciated by most economists today, let alone the politicians who argue for su ch a plan.
Nicholas Crafts says:
‘Throwing money at southern Europe through more of the same structural funds is not the answer because they are badly targeted and have not been successful in raising long-term growth prospects: a real Marshall Plan would have to be designed differently.
‘It would have to work as a structural adjustment programme in much the same way as its famous predecessor, namely by achieving reforms through strong conditionality in return for serious money. To be credible, the funds would have to be committed, but only released when reforms had been implemented satisfactorily.’
The paper argues that faster productivity growth in the euro periphery could help improve competitiveness, fiscal arithmetic and living standards; the main role of a new Marshall Plan would be to promote supply-side reforms that raise productivity growth. This would repeat the main achievement of the original Marshall Plan in the 1950s.
Notes to Editors
Read ‘Saving the Eurozone: Is a ‘Real’ Marshall Plan the Answer?’ by Nicholas Crafts FBA, Professor of Economic History and Director of the ESRC Research Centre, Competitive Advantage in the Global Economy at Warwick University.
This is the first in a series of policy papers published by Chatham House in partnership with the Centre for Competitive Advantage in the Global Economy (CAGE) at the University of Warwick.
Saving the Eurozone: Is a 'Real' Marshall Plan the Answer?
Tuesday 26 June 2012, 14:00 to 15:20
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