For all the attention that’s been paid to Greece and its debtor negotiations lately, the coming battles over Europe’s troubled economy will be won not in Athens but mainly in Paris and Rome. France accounts for almost 22% of eurozone gross domestic product; Italy, more than 16%. Together, these two countries contribute more than 20 times Greece’s portion of eurozone GDP. If the eurozone is to escape its current stagnation, France and Italy must restart their economic engines once again.

The European economy has been given a lift in recent months by a weak euro and low oil prices. Regional elections in France and Spain have reduced concerns about populist parties derailing economic reforms. Politicians now have the breathing space to do the right things economically.

However, based on experience from the euro’s original launch at the turn of the century, there is reason for concern that such opportunities might be wasted. Back then, low interest rates induced some eurozone countries to go slow on structural reforms, relying instead on a monetary boost to the economy from the compression of sovereign-bond yield spreads. It would be most unfortunate if that experience were to repeat itself.

The real surprise now is that it is Italy, not France, that seems to have understood this. In February, Prime Minister Matteo Renzi’s government approved two decrees enacting the core of the labor-market reform. One improves the rules for firing employees on a permanent contract, giving them a right to severance pay but removing the previous right to court-ordered. The government also has reduced the time a worker can receive unemployment benefits, to 18 months from 2017 onwards.

Coupled with tax incentives introduced last year for companies that hire on regular as opposed to part-time contracts, it is now more enticing to hire in Italy than it has been in years.

In contrast, things in France are progressing much more tentatively. Paris continues to miss its budget-deficit targets, testing the European Commission’s flexibility. France’s prime minister, Manuel Valls, and its economy minister, Emmanuel Macron, have worked hard to convince the French Parliament of the merits of their reform package. Reforms would relax Sunday work restrictions, liberalize long-distance bus transportation, simplify employment tribunals and lay-off procedures, and deregulate white-collar professions such as notaries.

Limited in scope though this proposal was, the Valls government was nevertheless forced to resort to a rare constitutional provision to get it through the National Assembly on Feb. 19.

There is no time to waste. The Italian government has shown the way by creating the legislative framework for overcoming the two-tier labor market, while the French government is still dabbling with reforms that are only slightly more than symbolic. Paris still shies away from other essential steps, such as making its rigid 35-hour work-week regime more flexible.

It remains to be seen whether the measures required to make Italy’s labor market more flexible take proper shape in reality. But for now, at least, Italy has a head start on France.

Jim O’Neill writes: I just spent a week in China, where I participated in the Boao Asia Forum, a conference similar to the annual gathering of the World Economic Forum in Davos. The topic of my panel was what President Xi Jinping has called the Chinese economy’s “new normal”: an era of relatively slower growth, following three decades of double-digit economic expansion.

But what strikes me most about China’s economy is how remarkable it is. Indeed, its performance continues to astound me. Though it undoubtedly faces plenty of challenges, the key question is how likely they are to bring down the economy.

Of the four BRIC countries – Brazil, Russia, India, and China – Xi’s is the only one that has met my expectations for growth so far this decade. From 2011 to 2014, the Chinese economy grew at an average annual rate of 8% per year. If it continues to grow by around 7% for the rest of the decade, as the authorities and many observers expect, it will achieve an average pace of expansion of 7.5%, in line with my projections.  China’s New Normal

Michael Porter writes: Economic growth has lifted hundreds of millions of people out of poverty and improved the lives of many more over the last half-century. Yet it is increasingly evident that a model of human development based on economic progress alone is incomplete. A society which fails to address basic human needs, equip citizens to improve their quality of life, protect the environment, and provide opportunity for many of its citizens is not succeeding. Inclusive growth requires both economic and social progress.

The pitfalls of focusing on GDP alone are evident in the findings of the 2015 Social Progress Index, launched on April 9. The SPI, created in collaboration with Scott Stern of MIT and the nonprofit Social Progress Imperative, measures the performance of 133 countries on various dimensions of social and environmental performance. It is the most comprehensive framework developed for measuring social progress, and the first to measure social progress independently of GDP.  Why Social Progress Matters

Anrdrew Rettman writes:  Greece and Hungary have endorsed plans for a Russian gas pipeline in the latest blow to EU unity over the Ukraine crisis.
Their foreign ministers, Nikos Kotzias and Peter Szijjarto, and counterparts from Serbia, Macedonia, and Turkey added their names to a declaration on the “Turkish Stream” project in Budapest.

Russian leader Vladimir Putin last year in Ankara said he’ll build Turkish Stream, a pipeline under the Black Sea to Turkey, after the EU blocked construction of South Stream, a pipeline under the Black Sea to Bulgaria, Serbia, and Hungary.

For its part, the European Commission blocked South Stream on grounds it violated EU anti-monopoly laws.

The Budapest communique underlines that it’s a statement of “political intent only, and that further exchange of views and dialogue is needed”.

The Turkish minister, Bozkir, told Hungarian media that “after the project’s feasibility studies are over, we’ll be able to give it a more qualitative estimate”.

The caveats come amid Turkish scepticism that Turkish Stream will be built because Russia lacks money and because its capacity exceeds the region’s requirements.

“Frankly, nobody in Turkey is taking it very seriously,” a Turkish source told EUobserver shortly after Putin unveiled Turkish Stream in Ankara last year.

“In the present climate, the Russians feel isolated. So they have the same reflex as the Iranians used to have – to announce some kind of new project with Turkey, and the whole idea is to show they still have international partners”.

The Budapest meeting represents a blow to EU unity over the Ukraine crisis despite the pipeline’s dim prospects.

Russia is courting Cyprus, Greece, Hungary, and Italy as potential veto-wielders on EU plans to extend economic sanctions before they expire in July.orts.

Nikolay Fyodorov, Russia’s agriculture minister, told Tass that Cyprus and Hungary might also get exemptions.

Tsipras told Russian media: “I think that the opportunity to strengthen our relationship is associated with tourism, as well as various cultural events”.

The Greek energy minister, Panagiotis Lafazanis, said: “I have a feeling that the visit of Alexis Tsipras to Moscow and his meeting with Vladimir Putin may become an important milestone”.

“The new chapter in the development of Greek-Russian co-operation, which will also include the Russian gas pipeline on Greek territory, may bring drastic and very positive changes to the political environment and the image of our region and of Europe”.

Samuel Benett writes:  Despite recent reports that Russia, along with the United States and China, is a top military exporter, Russian military equipment manufacturers are becoming less competitive in the global arms market and have been forced to withdraw from key sectors.

Prior to the fighting in Eastern Ukraine and the conflict over Crimea, Ukraine used to deliver technical components and technology to its Russian counterparts, maintaining the relationship established in the Soviet era, when certain key military industries were based in Ukraine.

Russian armored vehicles face increasing competition from Germany, China, and even Ukraine.

Despite such pessimism, there is little reason to think that Russian arms exports are going to suffer. Alexander Fomin, head of the Federal Service for Military-Technical Cooperation (FSMTC), recently said that over the past 11 years, the supply of Russian arms abroad tripled. Russia’s arms exports in 2014 exceeded $15.5 billion. The current portfolio of military orders amounts to $48 billion, according to Fomin. Responding to global instability and the proliferation of conflict, Russia has re-established military-technical cooperation and concluded contracts with Nigeria, Namibia, and Rwanda.

However, this year, exporting weapons will be more difficult, due both to sanctions and to violations of industrial integration, primarily with Ukrainian enterprises, and the resultant scarcity of parts.

Russia has to address gaps in precision electronic equipment and indigenous production.

Addressing Chinese competition, Shvarev noted that Beijing actively competes with Russia in the market segments where Russian exports are most competitive.

Ukraine’s military industry has dried up. Clearly it has suffered considerably since the start of hostilities with Russia-backed rebels, although there is still hope that Kiev can rebuild its domestic and export capacity following the cessation of hostilities. Military industry accounts for a good percentage of Ukrainian gross domestic product and involves large segments of the country’s economy.

To be fair, Russia’s defense industry has had its own issues securing sales on the global market. A few years back, Algeria refused delivery of Mig-29 Russian fighter jets due to the poor quality of the aircraft. In fact, such quality issues were severe enough that the Russian government began purchases of these aircraft in order to keep Mig manufacturers from going bankrupt. Russia also faced difficulties with its long-term client India when it came to the sale and modernization of an old Soviet aircraft carrier for Indian use.

Lawrence Summers writes: This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system. I can think of no event since Bretton Woods comparable to the combination of China’s effort to establish a major new institution and the failure of the United States to persuade dozens of its traditional allies, starting with Britain, to stay out.  This should lead to a comprehensive review of the U.S. approach to global economics.

With China’s economic size rivaling that of the United States and emerging markets accounting for at least half of world output, the global economic architecture needs substantial adjustment. Political pressures from all sides in the United States have rendered the architecture increasingly dysfunctional.

Largely because of resistance from the right, the United States stands alone in the world in failing to approve International Monetary Fund governance reforms that Washington itself pushed for in 2009.   At the same time, pressures from the left have led to pervasive restrictions on the infrastructure projects financed through the existing development banks — which consequently have receded as infrastructure funders, even as many developing countries have come to see infrastructure finance as their principal external funding need.
With U.S. commitments unhonored and U.S.-backed policies blocking the kinds of finance other countries want

First, U.S. leadership must have a bipartisan foundation, be free from gross hypocrisy and be restrained in the pursuit of our self-interest.

Other countries are legitimately frustrated when U.S. officials ask them to adjust their policies — only to then insist that state-level regulators, independent agencies and far-reaching judicial actions are beyond their control.

Second, in global as well as domestic politics, the middle class counts the most. It sometimes seems that the prevailing global agenda combines elite concerns about matters such as intellectual property, investment protection and regulatory harmonization with moral concerns about global poverty and posterity while offering little that speaks to those in the middle.

Third, we may be headed into a world where capital is abundant, deflationary pressures are substantial and demand could be in short supply for quite some time. In no big industrialized country do markets expect real interest rates to be much above zero in 2020 or for inflation targets to be achieved.

These precepts are just a beginning. There are questions about global public goods, about acting with the speed and clarity that the current era requires, about cooperation between governmental and nongovernmental actors and much more. What is crucial is that the events of the past month will be seen by future historians not as the end of an era, but as a salutary wake-up call.

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