Spoiler: The Brexit-deal is finally done. A hard Brexit was fortunately avoided. The EU-UK Trade and Cooperation Agreement is perhaps the freest trade agreement concluded so far. Yet it raises barriers to trade compared to when the UK was part of the EU. The agreed zero tariffs and quotas are a fantastic achievement. But that only applies for trade in goods. Trade in services restricted. And services constitute 70% of UK GDP.
Spoiler: A lot of people cried wolf at the outbreak of the Corona crisis. Media reports of shortages of medical goods led to demands for increased production inside the EU of such goods. These demands came at the same time as some countries closed their borders and prevented exports of medical goods to other countries.
But these demands have been proven wrong. Most medical goods were produced within the EU, and trade with medical goods increased dramatically during the crisis eliminating the shortages. This and earlier experience from trading with the rest of the world show that decreased globalisation and specialisation will give us fewer resources and make us less resilient when future pandemics occur.
The export restrictions were counterproductive. The correct policies for combatting pandemics are trade-facilitating. Lowering tariffs and reducing the number of Non-Tariff Trade Barriers are obvious policies. In fact, decision makers across the world have realised this and have now introduced trade-facilitating measures for covid-19 goods that cover more trade than the trade-restrictive measures that were initially introduced. The correct policies within the EU is of course to make sure that the functioning of the Single Market is not harmed by trigger-happy politicians.
Spoiler: This post is a follow-up of a previous post and begins with the text and the graph of that post. That post showed that the Euro has had nothing to do with the poor developments of Italian exports. Instead, Italy has structural problems which date back a long time. A symptom of those problems is the low labour productivity and total factor productivity growth rates relative to the other countries who joined the Euro area at the same time as Italy, the EA12 countries.
If Matteo Salvini, the right-wing Italian politician, would have its way, Italy should leave the Euro. Why? Because he thinks that the Euro is the root of Italy’s problems. He has argued that if only Italy would not have to follow EU budget rules, Italy could spend its way out of its problems and return to the growth it had before the Global Financial Crisis (GFC).
People believing that the Euro is the problem, claim that it hurts Italy’s “competitiveness”. If that is correct, Italy’s problems began sometime after she joined the Euro area. If this is correct, we should see a negative effect on Italy’s exports after the introduction of the Euro. Let’ s have a look!