Paolo Belardinelli, Instituto Bruno Leoni // 07.12.2016
It has been one year and a half since Professor Nicola Rossi and I started the Superindex at Istituto Bruno Leoni.
The Superindex is an “ex-post performance indicator” of the impact of economic reforms, the main objective of which is to evaluate the path followed by selected European countries. For this reason, it exclusively refers to those essential aspects of macroeconomic performance that are presumably affected by the implementation of structural reforms. In particular, these are the GDP growth rate in real terms, the unemployment rate, the public deficit-to-GDP ratio, the public debt-to-GDP ratio, and the current accounts-to-GDP ratio.
The Superindex yields a synthetic measure allowing an easy calculation of the multidimensional distance among European partners (if you are interested in technical aspects click here), and it is based on freely accessible and regularly updated official information (European Commission data).
In the beginning, we only measured and reported the distance between the EU and Eurozone averages and the bad performing States, such as Italy, Greece, Portugal, Spain, and France. This was because the Superindex relies on the assumption that a properly designed and communicated reforms program, promptly (and without distortions) translated into legislation and then effectively implemented should, first of all, allow to bridge the gap – in all the different ways in which this gap is manifested – between a poorly performing State and its European partners. The perceived – and proclaimed – urgency of policy reforms, in fact, is predicated on just such an assumption.
A few days ago, the fifth Update File was published, the third since we started to take into account the trend of the Eurozone in its entirety. An important aspect of the Superindex is that it emphasizes the gap between countries both in a negative sense (the lower the growth, the greater the unemployment rate, and the worse the performance of public finances and so on) and in a positive sense (the higher the growth, the lower the unemployment rate, and so on).
As the Commission keeps updating its data, the Superindex becomes increasingly worrisome. Europe is straining at the seams, and Brexit is not the cause. Of course, Brexit does not help, but the European economies started to diverge far before the British vote. After a stretch, up to the 2008 financial crisis, during which the degree of divergence among Eurozone economies significantly shrank, in 2015 it has reached and exceeded the level immediately before the introduction of the Euro.
Table 1. Eurozone: trend of the average degree of divergence among Eurozone economies
In the coming months, there will be elections in several significant EU countries, like France, Netherlands, Germany, and most likely – after the referendum vote of last Sunday, which caused the resignation of Prime Minister Matteo Renzi – Italy. Voters’ choices will affect the future of Europe. Let’s hope they will find economic growth on their electoral menu.