Jean Tirole: ‘I hope Europe and the UK can prevent Brexit’

Jean Tirole won the 2014 Nobel Prize for Economics. [Ecole polytechnique Université Paris-Saclay/Flickr]

Brexit triumphed through demagoguery and populism, according to the economist Jean Tirole, who calls for a U-turn to prevent Europe falling to the forces of separatism.

Jean Tirole is a French economist and president of the Toulouse School of Economics (TSE). He won the Nobel Prize for Economics in 2014 and spoke to’s Publisher Frédéric Simon, at the COEURE conference in Brussels.

In your latest book, “Economics for the Common Good”, you dedicated an entire chapter to the European Union. Six years after the first Greek rescue deal, how do you view the actions taken by Europe to prevent the break-up of the eurozone? What were the successes and failures of this crisis?

On the euro crisis, I think our only immediate option was to buy time for ourselves by providing liquidity through the European Central Bank (ECB). Beyond that, the subject becomes more complicated because European countries are not currently prepared to do what is necessary to establish a real economic and monetary union.

Of course, there is the vision of an ideal Europe as a federation, similar to the United States. But I think that today, unfortunately, we will not be able to go further than the Maastricht Treaty, or an “improved Maastricht”. Maastricht is far from perfect. There are implementation and information problems, as well as issues with its one-size-fits-all approach. It is a somewhat minimalist view of Europe.

We could move towards a more integrated Europe with more shared risk: shared debt, a shared budget, shared unemployment insurance, shared deposit guarantees, etc. But there are centrifugal forces – not just Brexit – and Europeans want to keep their national sovereignty.

In the end, we cannot have our cake and eat it too, with both sovereignty and economic federalism. Let’s take the example of the shared unemployment insurance, which could absorb regional shocks. This would be a good thing, but it is not possible because our laws are different and member states want to keep their own national regulations. It is impossible to pass this kind of policy in countries with a 5% unemployment rate, while others have a rate of 25%.

To realise the European dream, we all have to understand what a federation really is. We all live under one roof and we obey similar rules. For now, we are not in a position to relaunch the idea of a federal Europe.

What are Europe’s options now? Do you think the solution has to be “more Europe”, or do you think “less Europe” could work in certain areas?

I do not think that “less Europe” is the solution. Like all economists, I am sorry that the United Kingdom chose to leave the EU under the influence of demagogues on the issues of the economy and immigration.

So I hope Europe and the United Kingdom will be able to prevent Brexit. To take the example of research, which was discussed at the COEURE conference, Great Britain is a major scientific power and its absence from the European research bodies will be bad both the UK and the rest of the EU.

So what do you think are Europe’s main options going forward?

First of all, we have to keep Europe together. Then we could do with a bit less austerity and more reform. Southern Europe’s problem is economic credibility. There are two ways to restore credibility, austerity and reform.

For me, it is better to enact reforms to secure the future rather than austerity, which could stop the economic machine altogether and compromise the future.

But the rescue plans – particularly in Greece – are all accompanied by reform programmes…

Yes, but the countries themselves also have to take ownership of them. The Troika should not stay in Greece for 30 years. The reimbursement of Greek debt will start in earnest from 2022 or 2023. For now, because of the rescheduling of the debt, we are only talking about small repayments, which means the serious repayments will come between 2023 and 2040. So this is a situation where the Troika will have to stay in the country for the next 30 years.

At one time or another, countries will have to take control of their own destiny so they can have a bit less austerity and a bit more reform. After all, this is democracy!

What kind of reforms are you thinking about? Across Europe – and not just in Greece – we have seen a good deal of resistance to the economic reforms prescribed by the European Commission.

It’s the problem of ownership again. In Greece, a number of reforms have been passed but not implemented. Some were imposed under duress, but have still not materialised. In the long term, reforms cannot be imposed from the outside. Eventually, the country has to take ownership.

The 2008 financial crisis shed light on the fundamental role of the banks in the economy and provided the impetus to launch the Banking Union in Europe, which has still not been completed. Again, what priority projects need to be enacted in order to restore the central role of finance in the economy?

Firstly, the Banking Union is an excellent thing. But we still don’t know if it will work, if the European Central Bank’s independence will be respected.

When an important bank gets into trouble, its country’s natural reaction is to say, “Keep your hands off my banks.” And by definition, the Banking Union aims to remove banking supervision from the purely national sphere and make it more rational and rigorous.

Today, this question of the independence of transnational supervisors has still not really been tested. So we have to strengthen the structure and clarify certain principles. Once this is done, we will be able to establish a shared deposit guarantee scheme, which I support. Because, unlike unemployment insurance, deposit guarantees are already governed by shared rules under European supervision.

But even here there is a lack of political will, this time in Germany.

In this case, we may need to take what we call “legacy assets” and put them to one side. It doesn’t really matter whether or not these assets are mutualised at European level. The very fact that there is European oversight with much less moral hazard for the member states opens the door to a real European deposit guarantee scheme.

You contributed to a European research project called COEURE, which aims to feed European economic research into policymaking. But we see with debates like Brexit that expert opinions are often rejected by public opinion and that emotional arguments often win the day. Has our society entered a post-factual age, as some have suggested? And what do you think can be done to restore the credibility of expert advice from economists and other scientists?

I think the economists themselves could do a better job at communications. They could say, for example, that there is a majority view on many issues, even if their opinions differ on certain aspects. And they could work on joint positions on a number of subjects.

This said, the overwhelming majority of economists were anti-Brexit, but public opinion took no notice. This is the day of populism, of the emotional. Just listen to Donald Trump’s speeches, which defy all comprehension. He can say anything at all, playing on voters’ emotions, and the facts seem to have absolutely no importance. I think this is quite worrying for our democracies in general.

And I also think that you, the journalists, have a very important role to play. Because on all these subjects – the climate, the economy – two differing opinions can easily be found. But at one time or another, the journalists have to be able to verify the facts. Reliable media organisations should not feel obliged to say that there are two sides to the argument. Otherwise, in the end, the uninformed reader cannot even know if the professionals have a dominant opinion on a particular subject.

And politicians find this difficult to do because they are always thinking about their re-election.

Yes, as Jean-Claude Juncker said, we all know what to do, we just don’t know how to get re-elected after we’ve done it.

Personally, I’m not convinced that everyone does know what to do, but it is true that politicians tend to follow opinion, rather than lead it.

Let’s end with the question of reforms. In your book, you examined the reform of the labour market in France, which is something that many governments have struggled with over the last 30 years, including that led by Alain Juppé, who could become president next year. Taking the consensual arguments among economists, what reforms do you think the future president of France should enact as a priority?

To begin with, employment is a priority subject and labour market reform is obviously very important.

For the last 15 years, Olivier Blanchard and I have been proposing a reform that takes into account the informational limitations of the state’s actions. Only a company boss has the information necessary to say whether or not a job is useful to their company. But bosses must also be held to account with a bonus and penalty system, which would penalise those who fire too many people and reward those who preserve or create jobs.

We have also proposed a single type of contract, with grandfather clauses to protect those already on permanent contracts and who would like to keep them. This new contract would only apply to new hires, so in the future there would be no such thing as a permanent contract, but only the new, standard contract. I think permanent and fixed-term contracts are bad ways to organise the labour market.

Another priority is the reform of the state. I want to preserve the welfare state. But we also need to ensure enough wiggle room is available to make it possible. And by running up off-balance sheet debts in France, we are running the risk of another crisis.

For now, with low interest rates, all is well. And we did not have a financial crisis in France, unlike in other countries. But the more we push it, the more likely it is to happen. So we will have to reform the state to make it more efficient and economical, while preserving the quality of French public services.

To succeed with this kind of reform, we absolutely need to avoid blind budget cuts, and make more intelligent reforms. But these are eminently political issues that are difficult to pass. We do not want to find ourselves in the position of Spain (or the United Kingdom of the 1980s), which adopted brutally draconian austerity measures. We need the foresight to act in advance.

And to have these actions accepted by public opinion…?

Yes, and to do that, we have to help citizens understand the complex issues of our times.

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