Looking at the euro zone with optimism – interview with Bruno Dallago


Bruno Dallago is an economist, professor at the University of Trento, guest lecturer at Berkeley, the University of North Carolina and Kyoto University, as well as member of the External Counselling Body of the Hungarian Academy of Sciences. He last came to Budapest on the occasion of the Kornai90 conference but is otherwise a regular visitor to our city. He speaks excellent Hungarian. We talked with him about the future of the euro zone, his relationship with Professor Kornai and about delicious food.

How come that you speak Hungarian? When did you have the opportunity to learn our language so fluently?
I suppose I have to tell the truth. The real reason is that I like good food: I eat little, but well. And I am also fond of travelling. As a student I did not have money but wanted to travel abroad. ERASMUS did not exist yet, so the only chance was to get a grant from the Italian Ministry of Foreign Affairs. I was awarded a scholarship to come to Hungary. In 1972 I spent two weeks in Budapest at a conference on the results of the Hungarian economic reforms implemented in 1968. I was in the last year of my Masters studies and decided to choose this topic for my dissertation. After graduation I returned to Hungary and worked here at the Karl Marx University. In the meantime, I met a Hungarian girl who has been my wife for 42 years. She had a wonderful grandmother, the best cook in the world who talked to me in Hungarian all the time. As she saw that I liked good food, she asked me what I could cook. I realized that I would have to learn Hungarian. Since then, I have been coming to Hungary two, three, four times each year to work together with colleagues here. When our children were born I asked everyone to speak Hungarian so that they could learn the language. It is a very charming language and the Hungarian culture is also very exciting.

What has been your favourite research topic recently?
In fact, my working method as a scholar resembles the way I use the computer: I keep a lot of windows open and click from one to another, I like doing many things at a time. In terms of duration my most important research area is Central and Eastern Europe, the Socialist countries, the transition, with particular attention to the Visegrad countries. We recently published a book with Professor Steve Rosefielde in which he covered Russia and Ukraine, and I wrote about the Visegrad countries.

This continues to be one of my key research areas, but right now the euro zone definitely enjoys priority. We have not really come to terms with the euro zone, this „strange animal” and in this respect János Kornai’s approach, his research methodology is essential despite the fact that he himself did not address the issue of the euro zone. I was very pleased to accept this invitation because it gives me an opportunity to re-read a lot of things. I actually think that what he had written has increased relevance now.

My third research area on which I also published has been enterprises, a crucial factor in competitiveness. We will probably have think about the euro’s effect on competitiveness. Italy, for instance, was once well-known for entrepreneurship, there were a lot of enterprises. Nowadays it is the opposite: we sleep, we are afraid, we wait. What happened? I do not think it is the euro itself that is to be blamed: it is rather our way of looking at the euro. We had thought that we would only gain from the euro, that we would have free meals and had not understood in time that if we join a common currency, we have to behave, work and arrange things in a different way and that we have to reorganize our institutions.

Although the European set-up faces several challenges, you still said in your talk that you were optimistic about its future. Why is that?
I am positive about the future of the euro zone and not about the individual countries. This two should be clearly distinguished from each other. I am not scared of populism as I do not believe in its predominance. As a matter of fact, populism shows us that to simply wait and hope is not an option. Problems will not just go away, we must act. And this is where my optimism comes in the picture: fear from populism and from the extreme right explains how the political situation has changed in Germany. Proceeding towards a political union is not only backed by the German federal government, but by the Bundesbank too. One of the objectives is to establish a European monetary fund that would support countries with liquidity problems. We can be confident, at least to some degree, as previously rigid discipline was applied to convergence parameters.

Now I believe that if we are heading towards the creation of a common European ministry of finance and economics, that will allow greater flexibility in the long run. Subject also to what the situation of the individual countries requires and what they would like to do about it. In a country like Italy where productivity has stagnated for 25 years, something must be done. If, for instance, the Italian government works out a serious financial investment program that is approved by the EU, we will not be forced to reduce debts in the short run, but we will be accorded some time and flexibility. This will be a significant step forward.

The role of Greece seems to be crucial in this respect, as what happened there was bad enough, but not lethal. They had to pay the price but managed to do that as they wanted to stay in the Union. Therefore, Germans have more and more trust in Greeks – and perhaps others can be trusted as well. Moreover, the position taken by the US and the UK in foreign politics makes it clear to the Germans that the sound functioning of the euro zone is in their best interest. To achieve this, reforms are necessary. As far as I can see, every ingredient is there: there is will on behalf of the Germans and France is politically strong. Therefore, I believe that a considerable restructuring period has started which might be lengthy but might bring about a completely different euro zone. We are not going to be one country, we will not have one government, the political union might not be full, but conditions will be there for the euro to be strong and to exert a positive influence on national economies.

What about the long-term effects? Will other members also join the euro zone or European development will be characterized by two speeds?
The two or multi-speed EU is already there and that is not a concern: it grants greater flexibility both politically and economically. If certain countries do not wish to adhere to certain agreements, they should not be forced to do so. At the same time, they might thus deprive themselves of additional funding. If you want to, go a bit slower, but if you wish to accelerate, you are welcome to do so.

The euro zone is slightly different: one cannot pick and choose, either they want the whole of it or nothing. Money perhaps is the only factor in economy for which overall decisions should be taken. As I said this morning, I think it is essential for Hungary to join the euro zone, but also not to commit the same errors as Italy had. The intention to join after a while should be declared, but reforms aiming at aligning the economy should be started immediately. This way Hungary would not fall in the same trap that had caught Italy, Portugal or Spain. The Hungarian economy is extremely open, German, Austrian, Dutch and even Italian economic ties are very important. I feel, however, that it is not yet strong enough to join the euro zone, it is not ready, it should be developed. A country which starts to develop later has the advantage of learning from the cases of the others. But they should understand that nothing is for free, they have to work and fight with determination to get admitted in the club.

What do you think is the most important contribution of Professor Kornai, and why is it relevant now and for the future?
I would say it is that he showed one thing to economists clearly. Namely, that in the economy there is no such thing as taking just a little of something. One must understand that small pieces constitute a bigger system and interact with the other parts. While they affect the others, the others also affect them. Even though we researchers are unable to handle everything and therefore focus on particular details, we should think in systems. This approach is to be followed in case of the euro zone too. Thus, Professor Kornai’s contribution is unquestionable even here.

What was your main takeaway from today’s conference?
Well, that we are still able to think. Professor Kornai has inspired various ideas, but as he himself said in his closing speech, he could suggest thirty or forty dissertation topics to students based only on today’s discussions. What is valid for Professor Kornai also applies to me. I take home a lot of ideas. Of course, I do not agree with everyone, but that is how it should be. The driving force behind our work is disagreement: if we all agreed, the whole thing would be of no interest.

Máté Baksa