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 Milestones

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

Here’s how tech can help governments fight corruption

Khashoggi trial in Saudi Arabia falls short of independent, international probe needed: UN rights chief

Mobile technology saving lives: Changing healthcare systems with simple technology solutions

Tuesday’s Daily Brief: Venezuela-Colombia baby breakthrough, Italy piles on rescue boat pressure, States must combat hate, Kashmir rights latest and a musical plea to combat CAR hunger

Climate change will force us to redefine economic growth

This AI can predict your personality just by looking at your eyes

Northern Ireland: Parliament wants to secure post-Brexit regional funding

UN launches Facebook Messenger-powered bot to take on climate change

Keeping cool in the face of climate change

‘Favour dialogue’ over violence, UN chief urges all parties following clashes in Mali’s capital

Building climate resilience and peace, go hand in hand for Africa’s Sahel – UN forum

Being blinded by labels stops social change. Art helps us see a better future

Here’s why upskilling is crucial to drive the post-COVID recovery

UN, African Union make significant joint commitment to global health

Protecting refugees in Europe: UNHCR calls for a ‘year of change’

Yemen: UN envoy asks Security Council for more support ‘to move back’ to the negotiating table

Is the EU denying its social character favouring a banking conglomerate?

UN rights chief Bachelet appeals for dialogue in Sudan amid reports ‘70 killed’ in demonstrations

How the US should react to the pandemic, according to Bill Gates

One million facing food shortages, nutrition crisis after Mozambique cyclones: UNICEF

4 ways Africa can prepare its youth for the digital economy

UN agencies launch emergency plan for millions of Venezuelan refugees and migrants

Do doctors need to know their patients’ sexual orientation and gender identity?

The next 48 hours may change the European Union

The UK referendum has already damaged Europe: even a ‘remain’ result is not without cost to Britain and the EU

Mali facing ‘alarming’ rise in rights violations, warns UN expert

A European Discovers China: 3 First Impressions

5 things to know about African migration

MWC 2016 LIVE: GTI shifts to phase two – 5G – after hitting milestones

If we want to solve climate change, water governance is our blueprint

Minsk “ceasefire” leaves more doubts than safety, with EU already planning steps further

Trade: First year of the EU-Japan Economic Partnership Agreement shows growth in EU exports

Electronic Cigarettes: Are they really as safe as we think?

UN and African Union in ‘common battle’ for development and climate change financing

Parallel downfalls of Merkel and Deutsche Bank threaten Germany and Europe

For video game addiction, now read official ‘gaming disorder’: World Health Organization

A new proposal breaks the stalemate over the Banking Union

To Brexit, or not to Brexit…rather not: 10 Downing Street, London

AI can be a game-changer for the world’s forests. Here’s how

What young people can teach world leaders about mental health in 2020

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

Why do humanitarian crises disproportionately affect women?

Russia and the West to partition Ukraine?

Uzbekistan wins its long fight against malaria, as global rates continue to rise

Clean air is good for business

These are the world’s 20 most dynamic cities

Making the most of the Sustainable Development Goal 3: its overlooked role in medical education

Capital transaction tax on Ecofin table

International Women’s Day 2019: more equality, but change is too slow

An all-out fight for the EU budget

World Digital Media Awards winners announced at WNMC.19 in Glasgow, in association with The European Sting

Millennials (and Gen X) – Here are the steps you should take to secure your financial future

Forget GDP – for the 21st century we need a modern growth measure

David Attenborough’s worried about this ocean threat – and it’s not plastic

Is this the way to finally beat corruption?

80 adolescents a day will still die of AIDS by 2030, despite slowdown in epidemic

UN ceasefire monitoring chief tours Yemeni port of Hudaydah

DR Congo elections: ‘historic opportunity’ for ‘peaceful transfer of power’ says Security Council

Consumers’ rights against defective digital content agreed by EU lawmakers

Parliament mobilised to channel EU funds to those affected by Coronavirus pandemic

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