A comprehensive strategy for Eurozone’s long term growth gains momentum

(from left to right) Gunilla Almgren, President of the European Association of Craft, Small and Medium-sized Enterprises (UEAPME), Markus Beyer, Director General of BusinessEurope, José Manuel Barroso, President of the European Commission, Bernadette Ségol, General Secretary of the European Trade Union Confederation (ETUC), Hans-Joachim Reck, President of the European Centre of Employers and Enterprises providing Public services (CEEP), and László Andor, Member of the European Commission in charge of Employment, Social Affairs and Inclusion, (EC Audiovisual Services).

(from left to right) Gunilla Almgren, President of the European Association of Craft, Small and Medium-sized Enterprises (UEAPME), Markus Beyer, Director General of BusinessEurope, José Manuel Barroso, President of the European Commission, Bernadette Ségol, General Secretary of the European Trade Union Confederation (ETUC), Hans-Joachim Reck, President of the European Centre of Employers and Enterprises providing Public services (CEEP), and László Andor, Member of the European Commission in charge of Employment, Social Affairs and Inclusion, (EC Audiovisual Services).

European Commissioner László Andor responsible for Employment, Social Affairs and Inclusion delivered an inspired speech entitled “Countering the crisis: fixing Europe’s monetary union and upgrading EU employment policy“, during an event at the London School of Economics. His idea about the European project is included in the very title of this speech that is connecting Europe’s monetary union with the efforts to upgrade employment.

He started by observing that within some months after December 2012, European decision makers seeing the danger for a slippage of the economy into a self-feeding recession, have decisively shifted the policy focus from fiscal consolidation to growth. The relevant passage is quoted here below, ”In fact, the euro area has been in a double-dip recession for more than a year. Of course, with such worrying outlook, the debate on how to achieve growth is intensifying. In 2010-11, expectations were based on a safe exit from the crisis. Therefore, fiscal consolidation was given first priority in order to assure financial markets of governments’ responsibility…in practice this was followed by a double-dip recession with rising unemployment as well as debt-to-GDP ratios. We have also seen a growing divergence between the ‘core’ and ‘peripheral’ countries within the euro zone, as I will show. In March 2012, 25 European governments signed up to the so-called Fiscal Compact, committing themselves to strict limits on structural budget deficits..But then the focus started slowly shifting from the numerator to the denominator of the debt/GDP ratio…perhaps the key observation about the current crisis is that there is an unprecedented divergence — or polarization — in unemployment and other socio-economic outcomes among the 17 countries sharing the common currency”.

Eurozone moves

He briefly identifies here the current double-faced problem of the euro money zone, which is recession and growing divergence between member states. This is not however the standard reading of the current situation in Eurozone, at least not yet. There are still those who do dismiss both those observations. They still insist that only Teutonic fiscal consolidation can guarantee sustainable growth in the long run, and as a result they don’t accept that recession is now the main problem, let alone divergence. Actually some German politicians propose that the unemployed of the South should move North to find a job, possibly in Germany.

However those fiscal discipline lovers are bit by bit forced by reality to recognize that the long-term solutions they preach for sustainable growth, may take too long to materialize  So they start sharing the fear that in the between the European project may collapse. It is astonishing to see how stubborn those Germans are, being stuck to such obsolete ideologies. It takes the prospect of a real catastrophe to make them start changing their minds and accept what was evident for decades now, that is “in the long run we all are dead”. John Maynard Keynes has really changed the political economy.

Let’s now see what Andor proposes for Eurozone to achieve a real monetary union and at the same time promote employment and growth. Actually in a few words he describes a full-scale programme for Eurozone to solve its short-term problems and secure long-term prosperity for all. The relevant passage is quoted below.
“A clear lesson from the past three years is that a systemic crisis of a currency union cannot be overcome if we rely predominantly on adjustment within the individual troubled countries – fixing budgets, rescuing national banks and trying to restore national competitiveness against other countries by cutting labour costs.
Internal devaluation is not the solution for a systemic crisis. The so-called ‘Baltic model’ of abrupt fiscal consolidation and wage cuts may have restored market confidence in these small economies, but this adjustment has taken a major social toll, with high unemployment and significant net emigration of young people.
Applying this simultaneously in much larger economies is certain to produce a disaster, also because of the effect on aggregate demand in Europe. Re-balancing within the monetary union must be symmetrical, at least in the absence of fiscal union.

Fiscal consolidation and internal devaluation in the periphery need to be balanced by higher consumption and investment in the core. This requires structural reforms within the surplus countries, such as adequate minimum wages and prevention of in-work poverty. If the surplus countries were willing to help restore the periphery’s growth potential through large fiscal transfers, the need for expansion in the core would be smaller.

But without such fiscal transfers, we cannot have recovery – or even proper re-balancing – in Europe unless domestic demand in the core countries grows and they accept higher inflation than the periphery. A genuine EMU also needs to be based on an understanding that employment and social crises in some of its parts have negative impact on other Member States and the currency union as a whole”.

A full programme

This is a complete politico-economic programme containing all the modern thinking that has being developed by open-minded economists in Brussels and elsewhere in Europe and not only. It starts with the recognition that the widely advertised ‘Baltic model’ cannot work at a scale comprising the entire southern half of Eurozone.

Mass emigration of millions of Greek, Spanish, Portuguese, Italian and even Irish and French workers to seek a better life in Germany, cannot offer a viable solution. This proposal is based on the theory about factors of production mobility, expected to cure the gaps of labour and capital when and where they appear. In today’s societies however such a mass emigration of labour will lead to a complete economic, political and social collapse and chaos in the South. In such an eventuality the North will also pay a dear price. Is this what Germany wants? Obviously the answer is NO.

Since this massive transfer of labour is impossible, Andor goes to the next available mega-policy solution, which is simply the transfer of capital from North to South. He bravely says that the surplus countries of Eurozone have to transfer some of those surpluses to the South. It goes without saying that this transfer will not have the form of a gift. As Andor proposes, it will be realized mainly through a generous home incomes policy in the North to strengthen growth for the entire Eurozone, though reviving aggregate demand all over the single money zone. Then comes the gift, which will take the form of support from sovereign to sovereign. But also in this case it doesn’t really have to be a gift. It may take other forms too. Germany is gaining so far by helping to bail out Greece, Ireland and Portugal.

In any case Andor implicitly observes that the North cannot have it all. He says that, “If we are serious about coming forward with systemic solutions that would enable the economic and monetary union to prosper over the coming decades, we must base such solutions on a clear understanding of what the employment and social dynamics have been during the current crisis, and how the euro crisis and the social crisis are linked”.
Truly this is the first time that a European Commissioner dares to put together a comprehensive package of economic policies for a long-term European strategy. One can imagine that those thoughts have been widely discussed in the Berlaymont.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Draghi tells the EU Parliament his relaxed policies are here to stay

5 things you need to know about water

More women and girls needed in the sciences to solve world’s biggest challenges

EU imposes provisional anti-dumping tariffs on Chinese solar panels

Radioactive nuclear waste is a global threat. These scientists may have a new solution

Huawei answers allegations about its selling prices

Scientists have created the world’s ‘first psychopath AI’

‘End the ongoing atrocities’ against people with albinism in Malawi, say UN rights experts

South Korea: A cherished partner for the EU

More children killed by unsafe water, than bullets, says UNICEF chief

Japan’s holiest shrine is pulled down and rebuilt every 20 years – on purpose

Future EU farm policy: Agriculture MEPs urge fair funding, no renationalisation

To realise the full potential of AI, we must regulate it differently

GSMA Mobile 360 Series – Europe – 14 June 2016

Idea of ‘homogenous’ Polish culture is a myth: UN human rights expert

Athens searches frantically for a new compromise between politics and economic reality

The 27 EU leaders did nothing to help May unlock the Brexit talks

Google once more under EU crossfire from a possible record fine and new Right to be forgotten case

How the tech world could make nonprofits a more powerful force

Europe faces economic turmoil as Italy gets closer to the Excessive Debt Procedure

Myanmar: New UN envoy offers to serve ‘as a bridge’, recognizes ‘positive steps’ over Rakhine state

Refugee crisis update: EU still lacks solidarity as Hungary and Slovakia refuse to accept EU Court’s decision

The world wide web is 30 years old. What better time to fight for its future?

It’s time for the circular economy to go global – and you can help

More billions needed to help Eurozone recover; ECB sidesteps German objections about QE

3 ways governments and carmakers can keep up with the future of transport

Companies have a new skill to master – innovation

The Venezuelan exodus to Roraima and its repercussions

Don’t compare data to oil – digitization needs a new mindset

Bugged Europe accepts US demands and blocks Morales plane

Africa is creating one of the world’s largest single markets. What does this mean for entrepreneurs?

JADE President opens JADE Spring Meeting 2014

These are the world’s best universities

Commission proposes fishing opportunities in the Atlantic and North Sea for 2019

Will Brexit shatter the EU or is it still too early to predict?

EU Budget: InvestEU Programme to support jobs, growth and innovation in Europe

Libyan authorities must shoulder the burden to support country’s ‘vulnerable’ south

Can big events really go plastic-free? A water capsule made from seaweed may be the answer

At last some rules on banks

Costa Rica has doubled its tropical rainforests in just a few decades. Here’s how

‘Answer the call of Afghans’ to reduce impact of conflict, UN urges all parties amid increase in civilian airstrike deaths

South Eurozone needs some…inflation and liquidity

Europe, US and Russia haggle over Ukraine’s convulsing body; Russians and Americans press on for an all out civil war

Parliament approves EU rules requiring life-saving technologies in vehicles

3 ways to use digital identity systems in global supply chains

Is the EU’s enlargement over-stretched?

Entrepreneurial leadership: what does it take to become a leader?

UN chief condemns attack in south-west Iran which killed dozens

Tuesday’s Daily Brief: Hunger crisis in DR Congo, Swine Fever in Asia, Venezuela death investigation call, updates on Eritrea and Syria

Global economy to see ‘steady’ growth of three per cent in 2019 despite risks, says UN

MEPs propose more transparent legislative drafting and use of allowances

China and UK relations post Brexit as EU addresses Chinese takeovers

Commission reports on progress in risk reduction in the Banking Union and calls for faster progress on Capital Markets Union ahead of EU Leaders’ meetings

The Europe we want: Just, Sustainable, Democratic and Inclusive

Inclusion, equality a must for ‘long-lasting peace and sustainable development’, UN official tells high-level event in Baku

The 5 things you need to make your teams more effective, according to Google

How we can win the war against antibiotic resistance

Cameroon: Clear ‘window of opportunity’ to solve crises rooted in violence – Bachelet

The European Parliament x-rays the troika’s doings

2016 crisis update: the year of the Red Fire Monkey burns the world’s markets down

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s