Ambassador's Corner

WEEKLY MESSAGE FROM AMBASSADOR JOHN BRUTON

October 6, 2009

Mayor Michael Bloomberg of New York

I had the privilege of calling on Mayor Bloomberg in his open plan office in City Hall in New York City. It was a remarkable experience.

The Mayor has no private office. His desk is in a booth, surrounded by booths occupied by key city officials including his Deputy Mayors who deal with particular services. The Mayor is thus in constant eye contact with all his key managers, and is able to deal instantly with crises as they emerge. There is no long paper trail, no shuffling of files from office to office, no bureaucratic delaying tactics. Decisions are taken with maximum speed and minimum fuss.

As we look around for new ways to bring efficiency to governance in these cost conscious times, Mayor Bloomberg's methods may have much to teach us.

Mayor Bloomberg is responsible for a city budget of $50 billion. New York City government employs 250,000 people. It spends 31% of its budget on education, 20% on social services and 13% on police, fire and public safety. It is currently facing a drop in tax revenue, and the Mayor is seeking major economies in city services.

The city operates a "311" service for citizen complaints, and the service received 18 million calls in the last year.

The Mayor seeks to measure the output of public services. In the last year, he has been able to report an 8% drop in the murder rate, and an 8% drop in fire fatalities. He reports an 8-point increase in Math and English scores among children in 3rd to 8th grade and an improvement in graduation rates. For example, his report shows that an improvement in the cleanliness of streets has been achieved, but that there has been an increase in from 10 to 11 hours in the delay in repairing elevators in public housing.

During my visit to New York, I met with members of the Partnership for New York City, the European-American Chamber of Commerce of New York and the Association of International Banks. I gave interviews about EU policy on climate change to the following media outlets: Fox Business Network, WNYC (New York public radio), the Bigthink.com and Bloomberg TV and wire service.

Princeton, New Jersey

I also visited Princeton University to give a talk on transatlantic relations to students and faculty. In the course of the visit, I also visited the magnificent art gallery at the university--which includes a representative collection of art of all genres and historic eras--and the rare books collection where I saw a first edition of the poems of Seamus Heaney, a book on court procedure written by Bram Stoker (who later wrote about Count Dracula) and private correspondence of Maria Edgeworth, the eighteenth century Irish novelist.
 
 

The Lisbon Treaty and Ireland

The Lisbon Treaty was approved by the Irish people in a decisive vote last weekend by 67% to 32%. In fact the majority of the "Yes" vote over "No" vote was slightly higher than the entire "No" vote itself. The swing, by comparison to the 2008 referendum, from "No" to "Yes" was around 20 points.

The biggest swings were in Limerick West (25 points), Cork North West and Cork South West, and Kerry North (23 points). These are constituencies with a big agricultural vote concentrated in the dairy industry. The smallest swing to "Yes" was in Donegal, where the "Yes" side gained only 13 points. This was also the only area in the entire country where there was a "No" majority.

In urban Ireland, the less prosperous areas had a higher "No" vote than did the more prosperous ones, but the swing from "No" to "Yes" was around 20 points across the board.

The reasons for high "No" votes in EU referenda in Ireland deserve study, especially given that 68% of Irish people believe EU membership is good for their country, which is far above the EU average. There was an information deficit. In February of 2009, only 40% of Irish people said in a poll that they understood how the EU works, which is below the EU norm.

This should not be the case. The basic operations of the EU are simple enough and should be capable of being explained to, and understood by, everybody.

The EU has a separation of powers among executive, legislative and judicial branches, along US lines. EU legislation has to be proposed by the European Commission (executive branch), and can be approved, rejected or amended by two legislative bodies (the directly-elected European Parliament and the Council of Ministers). Planned legislation is flagged well in advance through Green and White Papers published by the Commission, so there are plenty of opportunities for public comment and input.

The EU is a voluntary Union. Countries are not required to remain a member if they do not want to. Being in the EU is their sovereign choice.

It seems to me that a new and basic information campaign about how the EU works, and about what it does, and equally importantly about what it does not do, would now be a useful project to undertake in all the EU Member States.

The European Economy – some frank self criticism

Last week the European Commission published its report on the European economy, which deals with how different Member States of the EU have been affected by the global economic crisis. It is well worth reading.

The report is unsparing in its criticisms of the policy failures that led to the crisis. Of those responsible for supervising the solvency of banks it says:

"supervisors in the EU failed to detect, warn and act upon major risks that were accumulating in the system."

Nor were they prepared to share information with one another.

"They were not prepared to discuss with appropriate frankness, and at an early stage (with one another), the vulnerability in the financial institutions they supervised."

The report then outlines the proposal the Commission has made to put these matters right.

It says that the European economy is in the midst of the deepest recession since the 1930s, with real GDP projected to shrink by 4% in 2009.

The write-downs in the value of housing and banks are a real wealth loss, and the necessary reallocation of resources to more viable activities will incur real costs.

The report predicts that in 2010, the EU economy will contract by 0.1%. There are variations among countries. Declines of 4.7% are predicted for Lithuania, 3.2% for Latvia, 2.6% for Ireland and 1% for Spain. The country with the best projection for growth in 2010 is Poland, but even there growth is expected to be less than 1%.

The report makes the point that, by comparison with the fall in output that has taken place, the

"increase in unemployment has been extraordinarily mild in most Member States."

A bigger increase in unemployment has been avoided by people keeping their jobs, but working fewer hours.

The Commission worries that "unless policies take up the new challenges, potential growth in EU could fall to a permanently lower trajectory." It gives reasons for this worry:

• A prolonged period of unemployment leads to a permanent loss of skills, or skills become out of date;
• Lower investment can lead to equipment becoming out of date by comparison with what is used by more prosperous competitors where equipment is renewed;
• In difficult financial times, research and development of new products are likely to be cut back as firms struggle to survive, but this reduces the longer-term productivity of the economy;
• Stimulus measures by government may alleviate the worst effects of the crisis in the short-term, but public debt is rising and is predicted to reach 100% of GDP in the euro area by 2014. This is before the full effect of the retirement of baby boomers on public finances is felt.

All this suggests that, if Europe is to avoid this "lower trajectory" for its economy, it must make a radical effort to increase efficiency and productivity in every corner of society, in the public sector as well as in the private sector.

It will have to develop a new export model, focused on the needs and demands of consumers and businesses in emerging economies like China, India, Latin America and Africa. The United States will have to do the same, because it too faces many of the same problems as Europe.

The emphasis will have to be on earning and saving, rather than on borrowing and spending. We will both need to boost export earnings.

For that, Europe and America will need to ensure that markets stay open for exports. That is why concluding a World Trade Deal soon is urgent.

Another problem mentioned in the Commission's report is the risk of what it calls "real appreciation pressures on the euro." Pressures to push the euro upwards in value would hit exports from euro area countries. If global economic imbalances are to unwind, currency values will have to change, notably the undervaluation of the Chinese currency.

The Commission adds that the imbalances in world finance that led to the crisis are still there.

"The root causes of the global liquidity glut are still in place."

Unless these structural problems – undervalued currencies and artificial surpluses – are dealt with, we could face the problem all over again.

The countries in the euro area will need to forge a common response to all of this and to be able to pursue a clear currency policy on the international stage. This would be made more difficult if countries in the euro area were to follow different economic policies. As Wolfgang Munchau points out in an excellent article in the Financial Times of 5 October:

 "the single most important economic policy rule of the Maastricht Treaty [which established the euro] is that Member States [of the euro] should treat economic policy as a common concern."

This report is refreshingly honest and deserves a wide readership outside the economics profession.   

Please send me your comments about this or any of my weekly messages or other EU matters. I look forward to hearing from you!