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This is the second report of the European Economic Advisory Group at CESifo. The group was set up in 2001 by CESifo, a joint initiative of the Ifo Institute for Economic Research and the Center for Economic Studies (CES) of the University of Munich. Its aim is to comment on the state and prospects of the European economy. With Ifo’s support it provides a business forecast and discusses topical economic issues which are of general interest to policy makers, managers, academics and the European public in general.
The group consists of a team of nine economists from seven European countries. It is chaired by Giancarlo Corsetti (University of Rome III and consultant to the Bank of Italy, and chairman of the group) and includes Lars Calmfors (University of Stockholm), John Flemming (Warden of Wadham College, Oxford), Seppo Honkapohja (University of Helsinki, EEAG vice chairman), John Kay (St. John’s College, Oxford, joined in November 2002), Willi Leibfritz (OECD), Gilles Saint-Paul (University of Toulouse), Xavier Vives (INSEAD), and myself. The group plans to deliver reports on an annual basis, remaining in toto responsible for the content.
I wish to thank the members of the group for investing their time in a challenging project and I also gratefully acknowledge valuable assistance provided by Doina Radulescu, Frank Westermann (assistants to the group), Wolfgang Meister and Wolfgang Nierhaus (business forecast), Paul Kremmel (editing) and Heidi Sherman as well as Elsita Walter (statistics and graphics) and Elisabeth Will (typesetting and layout).
Hans-Werner Sinn President, Ifo Institute and CESifo Professor of Economics and Public Finance, University of Munich
Munich, 5 February 2003
The report includes five chapters and an executive summary. The executive summary provides a brief synopsis of the report, including both analyses and policy proposals, and presents the main conclusions of the group on the issues raised by each individual chapter.
Chapter 1 presents forecasts of growth and inflation in the European economy for the year 2003 and assesses the current macroeconomic conditions for the whole area and for some individual countries.
Chapter 2 analyses the role of fiscal policy as a tool of macroeconomic stabilisation and proposes changes in the EU fiscal rules with the aim of making them more flexible while at the same time maintaining fiscal discipline.
Chapter 3 reconsiders and assesses subsidiarity as one of the general principles to guide the political and institutional development of the European Union, and proposes a framework to assess the consistency of alternative plans.
Chapter 4 analyses the current financial architecture of the euro area, questioning whether the current institutional arrangements are adequate to reduce the risk of financial crises, and deal with them if they occur.
Chapter 5 presents evidence on the brain drain from European countries towards the US, identifying possible causes and costs for the economy, and looks at factors and policies that could reduce the net outflows of skilled people from Europe.
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