The Quest for Consensus

by Shane Fitzgerald

Economic heavyweights have been knocking their heads together at the International Monetary Fund in recent weeks in an effort to Rewrite the Macroeconomists’ Playbook in the Wake of the Crisis.

In a post on the Fund’s blog, IMF Chief Economist Olivier Blanchard notes that before the global economic crisis:

mainstream macroeconomists had largely converged on a framework for the conduct of macroeconomic policy. The framework was elegant, and conceptually simple … Then the crisis came. If nothing else, it forces us to do a wholesale reexamination of those principles.

One forum for that reevaluation was a high-level conference organised earlier this month by Blanchard and three eminent peers, David Romer, Michael Spence and Joseph Stiglitz.

The topic was Macro and Growth Policies in the Wake of the Crisis and other star participants incuded Dominique Strauss-Kahn, Adam Posen, Otmar Issing, Guillermo Ortiz and Adair Turner.

Anyone interested in how the crisis has affected the thinking of world’s leading central bankers, regulators, economic policymakers and academics should check out the web page here, which provides a trove of videos as well as presentation slides, transcripts and links to recent papers by those involved.

From a quick review of that content, it seems that we are a long way from arrival at a new ‘Washington Consensus’, though it is certainly worth reading the reflections and tentative conclusions that Blanchard and Romer have offered since the conference.

Closer to home, discussion has been dominated by the pros and cons of what has been dubbed a new ‘Berlin Consensus’ on how to rewrite the rulebook of the Eurozone. The issues up for debate have been well rehearsed and the stage is now set for some sort of a settlement to be agreed at a crucial meeting of European heads of state and government this Thursday and Friday, 24/25 March. But there are an awful lot of details still to be decided upon, and an awful lot at stake for the EU, its member states, and their citizens.

In this context, another useful cache of expert analysis is this page on the website of Irish broadcaster RTE. It hosts extended video interviews conducted recently with leading Irish, European and international financial and economic commentators including:

  • Peter Sutherland, the chairman of Goldman Sachs International and the former head of the World Trade Organisation;
  • Michael Somers, the former head of Ireland National Treasury Management Agency;
  • John Bruton, former Taoiseach;
  • Richard Portes, Professor of Economics at London Business School and a member of the Group of Economic Advisers to the President of the European Commission;
  • Martin Wolf, Chief Economics Commentator with the Financial Times;
  • Philip Lane, Professor of international macroeconomics at Trinity College Dublin; and
  • Andrés Valesco, the former Finance Minister of Chile.

What is particularly interesting about these interviews is the comparison which they enable. Each expert is asked a series of related questions on the Irish and European crises. Just as at the Washington conference, the range of positions and lack of concurrence demonstrates the complexity, uncertainty and intractability of many of the problems which have arisen since the onset of the global financial crisis in 2007.

Of course arguments between economists are nothing new, but in what are still extremely treacherous times for the European Union, there is huge pressure on politicians to achieve a solid agreement of some sort at this week’s summit. However, those looking for a definitive deal (or fearing a half-baked compromise) on Friday would do well to keep an eye on the activity of the European Parliament’s increasingly influential Economic and Monetary Affairs (ECON) Committee.

Speaking during his quarterly Monetary Dialogue with MEPs in the Committee, European Central Bank President Jean-Claude Trichet today reiterated that many of his key concerns have yet to be properly addressed and called on the European Parliament to now take the lead in bolstering the Eurozone’s economic governance.

Tomorrow the Committee will hold its first discussion of the almost 2000 amendments tabled by MEPs to the six-text economic governance legislative package that was proposed by the Commission last autumn and which provides the context for any ‘Pact’ that might be agreed by national leaders this week. The Committee aims to vote on the package towards the end of April and then to open negotiations with Member States with a view to hammering out a deal by June. So there is a lot of bargaining yet to be done. It seems that, in Brussels as in Washington, we remain a long way away from the pre-crisis normal of relative consensus on macro-economic issues, policies and rules.