Reformist drive in periphery on the rise
The pace of structural reforms has picked up in the periphery of Europe according to the OECD’s reform responsiveness index which measures how many of the OECD’s key reform proposals suggested in the annual “Going for Growth” report have been implemented.
Assessing the progress and measuring the impact of structural reforms has become a key issue over the last few years as gauging a country’s competition and growth performance has gained importance e.g. in analyses of debt sustainability. As macroeconomic competitiveness indicators like unit labour costs can be strongly affected by cyclical factors the OECD’s indicator can provide a useful complementary take on the issue. The study paints a rather upbeat picture for peripheral countries: 1) The GIPS countries have outstripped the OECD’s average reform pace with Greece and Spain leading the group. 2) The pace of the reforms has picked up consider-ably, in Italy in particular. 3) Taking into account the political sensitivity of reforms (e.g. labour laws or the welfare system) makes the progress even more significant. In this respect, the progress made is encouraging. However, the OECD indicator says little about the remaining reform requirements, which are still considerable. Furthermore, much of the progress was due to substantial market pressure (and the economic adjustment programmes in GR and PT) or to the reform-minded Monti government in Italy. Market pressure has abated (at least in part due to the ECB), which could lower politicians’ and the public’s perceived need for further reform. Finally, experience shows that it is sometimes a long way from the passage of reform legislation to the actual impact on the economy and its institutions.
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Published with kind permission of Deutsche Bank Research.