Prerequisites For Reform SEESOX And Bank Of Albania Seminar
Speaking notes, June 2012
articles & speeches
Regional High‐Level Seminar on the Subject of South East Europe
We have heard two papers that explore in detail the role of institutions and limited fiscal space. So, the question we are pondering on is how to have more fiscal space in case we may need it (hopefully in the future) for discretionary fiscal stimulus. This reminds me of an old joke. A gentleman got lost in the Irish countryside and he asked a farmer how to get to Dublin. The farmer replied: If I wanted to go do Dublin I definitely would not start from here.
1. Role of the state in the economy.
I would like to start with the following point. Maybe the term “fiscal space” does not accurately describe the situation, not only in SEE but in a lot of other countries as well. Why? Fiscal space is obviously a concept with a positive sign in front of it. Being an economist I am used to negative values such as: negative real interest rates, negative growth rates (which of course in plain English means a fall), negative trends in general!
So, negative is a variable which goes “south”, i.e. falls. Not being a physicist, I was reluctant to propose the term negative fiscal space. For me it was difficult to imagine a negative space. Therefore the closest term I managed to find is a fiscal black hole! There is usually a beam of light that travels from its centre. But not even a beam of light can escape the strong gravity of a black hole.
2. Role of the state in the economy.
Actually, this is not only about fiscal space, which is a subtopic, but it is broadly related to the role of the state in SEE, and yes, it will largely overlap with the next session. Therefore I am pleased that the program has been changed and that political constraints are after our session.
I would say in brief that the main problem with fiscal space in SEE is the attitude toward the role of the state in the economy in general. We will need to change such views. This will take a long time. My general opinion (which I will not try to prove rigorously here), is that SEE, or most of the post socialist states, even 20+ years into transition still have very biased views on what a sound fiscal position is and, more generally, what the “appropriate” role of the state in the economy is. Let me give several examples of the latter problem…
