Events

The Refresher Programme staged the session "Economic Prospects", led by Fernando Ballabriga, Professor and Director of the ESADE Department of Economics. The talk focussed on the current economic crisis and, in particular, the debt problem being experienced by certain Eurozone countries.

First of all, Ballabriga named the extended over-spending in the West, the extended over-saving in the Far East and the financial system's failure to channel savings globally as the three factors behind the worst economic recession since the Second World War. The director of the Department of Economics vouched that this crisis situation has generated a vicious circle. The credit shortage (linked to the banking crisis) and the fall in consumer and company numbers makes the corrosive effect mutual. Ballabriga stressed that "the main challenge of the crisis is to break out of this vicious circle". 

On this note, he highlighted the political response led by the International Monetary Fund (IMF), which is based on support for the financial industry, an expansionist monetary policy with low interest rates and sustainable fiscal stimulus. The economist explained that this response has actually taken effect, as the worst case scenario was avoided in 2010 and 2011. What's more, he emphasised the double-speed recovery underway: on one hand, emerging countries, which have survived the crisis unscathed, and on the other, developed countries, which are growing at a slower rate. 

Despite the recovery, Ballabriga pointed out that there are still risk factors, giving as an example the Eurozone debt crisis and America's slow employment recovery and fiscal sustainability problems. He also labelled the growth of internal demand in Europe as the main cause of the debt crisis in Europe's peripheral countries. These nations are suffering debt and funding problems, have seen their competitiveness dwindle and are having serious trouble in restoring pre-crisis growth rates.    

For Ballabriga, this being the first recession with the single currency is a test of strength of monetary union, as "the union neutralises economic stabilisers". The countries affected cannot change the currency's nominal rate or set certain interest rates, because these decisions depend on the European Central Bank (ECB). This is why he urged the countries affected to develop and broaden alternative stabilisers, such as fiscal policy or market austerity. 

Professor Ballabriga aired his criticism at the lack of a legal framework in the European Union that was unable to foresee the possible bankruptcy of some of its member countries, as happened in the case of Greece. "As there was no ruling framework, uncertainty grew and grew, making the crisis worse", he said, adding that "in the end, the German vision has prevailed", The director of the ESADE Department of Economics highlighted the austerity measures and structural reforms that the countries affected are undertaking as an example of German leadership. According to Ballabriga, the strong EU countries have agreed to be "supportive", but not at any price. "Solidarity comes through debt guarantees so that those affected can benefit from lower interest rates".  

Ballabriga then stated that the advance of financial integration since the adoption of the Euro has brought Eurozone countries closer and ruled out that the single currency is in danger. However, he warned that the disappearance of the Euro "could make the Lehman Brothers effect seem like a ripple in the ocean". Ballabriga vouched that greater budgetary control is needed to overcome the crisis, as is an activation of foreign trade, be it through increasing exports or attracting investors. 

Drawing to a close, the economist called upon company leaders to make a social commitment in these difficult times. "A short-sighted business world is not acceptable", he concluded. After his talk, Ballabriga ended the event by inviting the audience to ask questions to clear up any doubts. 

For further information:
clubcvalenciana@alumni.esade.edu