WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

image credit: Hans Schubert

On 3 June, at its Anniversary Spring Seminar 2022, the Vienna Institute for International Economic Studies (wiiw) gathered scholars from across the globe and around 200 guests to discuss prospects for Europe’s growth and integration after the pandemic and the war in Ukraine. Together they celebrated 50 years of wiiw, which was founded in December 1972.

The Anniversary Spring Seminar in pictures (image credit: Hans Schubert)

The seminar began with welcome addresses given by Robert Stehrer, Scientific Director of wiiw, Robert Holzmann, Governor of the Oesterreichische Nationalbank, and Hannes Swoboda, President of wiiw.

Welcome address by Robert Stehrer

Welcome address by Hannes Swoboda

Welcome address by Robert Holzmann

Panel 1: Ukraine war and European integration

The proceedings were opened with a panel discussion on Europe’s integration in the light of the war in Ukraine.

Leonore Gewessler, Austrian Federal Minister for Climate Action, Environment, Energy, Mobility, Innovation and Technology, delivered a remarkable introduction on the need to end our dependence on fossil energy, as highlighted by Russia's aggression against Ukraine.

This was followed by a keynote address from Danuta Hübner, Member of the European Parliament and former EU Commissioner for Regional Policy, which served as opener for the panel discussion by Ms Hübner, Birgit Niessner (Director of the Economic Analysis and Research Department, Oesterreichische Nationalbank), Velina Tchakarova (Director of the Austrian Institute for European and Security Policy - AIES, Vienna) and Guntram Wolff (Director of Bruegel, Brussels), moderated by Richard Grieveson, Deputy Director of wiiw.

The panellists challenged perceptions of the conflict between Russia and Ukraine, with a specific focus on the role of the European Union not only in intervening but also in facing the economic and political consequences of involvement. The debate began by pointing out the similarities and differences between the Cold War and the current conflict between Russia and the West. The panellists emphasised how, apart from the fundamental goal of Ukrainian subjugation, other world powers – namely China, the United States and the European Union – play an important role in the war’s geopolitical context. In this regard, the conversation also focused on Russia’s significant role in the energy sector and on the sanctions regime imposed by the EU and the US, which, some argued, was ‘not impressive enough to have a meaningful impact’, given that Russian fossil fuel imports continue, and at higher prices than before the war. Although the methods of doing so were contestable, the panel also agreed that decarbonisation efforts were a strong option in efforts to lessen dependence on Russian imports. Overall, the discussants favoured EU aid – economically, financially and militarily – to ensure that Ukraine does not lose the war and is able to rebuild afterwards.

The panellists also proposed various measures to increase pressure on the Kremlin. One suggestion put forward by Mr Wolff was a tariff imposed on Russian oil and gas, which, he predicted, would ‘reduce Russia’s profits and likely pacify global energy markets’. Several panellists also suggested that offering Ukraine EU membership would send a political message that the country is ‘part of the European family’. This became a particularly relevant point when discussing prospects for European enlargement, which, the panel found, was an important step towards securing democratic spaces in a defensive step against the possibility that the war grows to mirror a fight between autocracy and democracy. The panel also agreed that European action in the Western Balkans was another pressing issue.

The war’s economic impact and Ukrainian refugees’ integration into EU labour markets

Between the first and the second panel, wiiw economists Artem Kochnev and Maryna Tverdostup presented selected contemporary research carried out at the institute.

Artem Kochnev, expert on Russia and Ukraine and specialist in conflict economics, focused on the economic effects of the war in Ukraine and the sanctions against Russia. By using satellite data on the luminosity at night of war-torn regions, he depicted the war’s impact on economic output in Ukraine and tried to assess the destruction of the country’s infrastructure. According to Kochnev, the decline in luminosity and thus economic activity in eastern Ukraine is comparable to that of the Donbass region in 2014-2015. Concerning infrastructure, he argued that supply networks are nested, i.e. even the largest networks depend on critical nodes and are vulnerable to cascading failures.

Maryna Tverdostup, country expert on Estonia and specialist on labour markets, analysed the opportunities and challenges of the integration of Ukrainian refugees into EU labour markets. Ukrainian women coming to the EU very often have high levels of qualification, especially in natural sciences and technical professions. Their potential to alleviate the omnipresent shortage of skilled workers in these areas is therefore considerable. According to Tverdostup, challenges are acquiring language skills, the recognition of educational credentials, and in particular childcare.

Panel 2: Public debt in Europe – in cooperation with the Financial Times

The second panel in the afternoon discussed public debt in Europe.

As an introduction, the Austrian Federal Minister of Finance, Magnus Brunner, gave a video presentation in which he described the current challenges, underlined the importance of wiiw’s expertise on Central, East and Southeast Europe for Austria, and congratulated wiiw on its 50th anniversary.

Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, delivered a fascinating online keynote speech on the history of public debt and its importance for the development of financial markets.

This was followed by a panel discussion with Barry Eichengreen, Daniel Gros (Distinguished Fellow, Centre for European Policy Studies, Brussels), Daniela Gabor (Professor of Economics, University of the West of England, Bristol), Margit Schratzenstaller-Altzinger (Senior Economist, Austrian Institute of Economic Research - WIFO, Vienna) and Harald Waiglein (Director General for Economic Policy, Austrian Ministry of Finance). It was moderated by Claire Jones from the Financial Times.

The panellist’s perspectives mirrored the contemporary debate regarding growing public debt amid increasing demand for public investment. While most panellists agreed that financing major public works such as infrastructure projects through sovereign debt has led to positive growth and development in the past, opinions differed on whether this is true for European countries in 2022.

One viewpoint, represented by panellists who prioritised debt sustainability, found that, given the still strong economic growth after COVID-19 and other macroeconomic calculations, the status quo presents a ‘now or never’ opportunity for fiscal consolidation. Daniel Gros pointed out that ‘we’ve never been too early in consolidating, we’ve always waited for too long’.

Another viewpoint focused on the need to resolve pressing economic, social and environmental problems through public investment. In this respect, the decarbonisation of the economy, transforming the energy system to end dependence on fossil energy, but also budgetary support for poorer households against the impact of high inflation and the costs of the COVID-19 pandemic were mentioned most prominently. Daniela Gabor explained that ‘trying to push fiscal austerity when we need massive investments to solve these issues’ was the wrong way to go about stimulating positive change.

Harald Waiglein took a rather different view. In his opinion sovereign debt is still a problem, because even if some economists think it isn’t there anymore, markets still do. That’s why, according to him, yields for heavily indebted countries are pushed up if markets come to the conclusion that they pursue financially unsustainable policies. Waiglein also believes that the European Central Bank would immediately end the unconventional monetary measures if they did not reduce the yields of the government bonds of heavily indebted countries in Europe significantly. He strongly argued in favour of the Stability and Growth Pact as a necessary measure against moral hazard in incurring sovereign debt. However, this question remained unresolved during the panel discussion

Looking to the future, the debate focused on the ongoing green transition. The discussion centred on the productivity of green investment, with some finding that investment in sustainable technology mainly ‘replaces existing capital stock without raising productive capacity’, therefore increasing costs without increasing output. Other panellists argued that the costs of climate action, as outlined in the EU's Green New Deal, for instance, would be only a fraction of what we would face in the future if we failed to act on climate change.

The Anniversary Spring Seminar in pictures (image credit: Hans Schubert)