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.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

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

Why did Cameron gain absolute majority? What will he do now? Will he vote ‘yes’ in Britain’s in – out EU referendum?

How UN cultural treasures helped set the stage for Game of Thrones

The 5 lessons from New York Climate Week to help us combat deforestation

Jordan flash flooding: UN chief ‘saddened’ by loss of life

UN chief welcomes event reuniting families on the Korean Peninsula

Vienna has the world’s best quality of living

What we know about the Wuhan coronavirus and urgent plans to develop a vaccine

Mental health in times of a pandemic: what can each individual do to lessen the burden?

18th European Forum on Eco-innovation live from Barcelona: What’s next for eco-labelling?

Italy can stand the US rating agencies’ meaningless degrading

Single European Sky: for a more sustainable and resilient air traffic management

COP21 Breaking News_05 December: Children Will Bear the Brunt of Climate Change: UNICEF

2019 ‘a critical year’ for Somali politics and development says Security Council

There are 3 barriers blocking good menstrual hygiene for all women. Here’s how we overcome them

UN postal agency ‘regrets’ US withdrawal

The Great Reset requires FinTechs – and FinTechs require a common approach to cybersecurity

Alcoholic drinks: Commission tables update of rules governing alcohol excise duties

Hatred ‘a threat to everyone’, urges Guterres calling for global effort to end xenophobia and ‘loathsome rhetoric’

Is history a new NATO weapons against Russia?

Is there a chance for the West to win the war on terror?

From Kenya to China, here’s why countries should start working together on AI

This AI outperformed 20 corporate lawyers at legal work

‘We are facing a learning crisis’, UN chief warns on International Youth Day

Humane leadership must be the Fourth Industrial Revolution’s real innovation

More than 80% of adolescents worldwide aren’t getting enough exercise

Engaging world’s youth vital to preventing violent extremism, building sustainable peace, UN official tells Baku Forum

Mozambique’s Beira city ‘returning to life’, elsewhere UN teams assess damage, deliver assistance

LGBTQI+ and medicine

A short history of climate change and the UN Security Council

COVID-19 prisoner releases are not a matter of mercy, but of justice

Coronavirus has shown us why we urgently need to make a basic income a reality

Renovation Wave: doubling the renovation rate to cut emissions, boost recovery and reduce energy poverty

Baby foods high in sugar, inappropriately marketed in Europe, reveal two UN studies

Parliament boosts consumer rights online and offline

Civil protection: Parliament strengthens EU disaster response capability

The EU to bear the cost of eventual sanctions against Russia

Religious violence is on the rise. What can faith-based communities do about it?

MEPs agree on future regional and cohesion funding

Marco Polo’s Dream

Attack on Saudi facilities risks dragging Yemen into ‘regional conflagration’: UN Envoy

How close is Eurozone to a new recession which may trigger formidable developments?

Venezuela migrant crisis begs a ‘coherent, predictable and harmonized’ response: UNHCR

How can we measure real progress on the Sustainable Development Goals?

How young people are shaping the future of sustainable fashion

Syria: Urgent, concrete actions needed, to protect children too young to ‘make sense of this senseless war’

MEPs demand unprecedented support measures for EU firms and workers

There is huge talent in the world’s refugee camps. We must realize this overlooked potential

Italian coronavirus pressures and flattening the curve – an epidemiology expert explains

Pedro Sánchez: We must protect Europe, so Europe can protect its citizens

Rule of law in Hungary: Parliament should ask Council to act, say committee MEPs

Number of MEPs to be reduced after EU elections in 2019

More than one billion people do not have access to electricity. What will it take to get them connected?

THE COMMITTEES: ‘All roads lead to the Fifth’

Macron’s Presidency: what the young generation’s expectations are

Why feeding the planet doesn’t have to mean sacrificing our forests

Smokers who quit one month before surgery reap benefits: UN health agency

EU job-search aid worth €9.9 million for 1,858 former Air France workers

This project in India helps people and tigers co-exist peacefully

UN underlines need for dialogue to resolve Israel-Palestine conflict

How can you or your organization support the Hour of Pride initiative?

More Stings?

Advertising

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