The EU can afford to invest trillions in support of employment

European Parliament, Plenary session week 29 2014 – Statement by Jean-Claude Juncker President of the Commission elect. (EP Audiovisual Services, 15/07/2014).

Eurostat, the EU statistical service, has recently released data showing that, while the government indebtedness increases, the industrial production retreats. Of course Eurozone doesn’t run any danger of losing its competitive edge in world markets. European goods and services exports usually leave a solid positive result, so the Union and more so the Eurozone don’t run any structural risks. The euro is more that well anchored in foreign trade surpluses. The problem is though that the continuous retreat of the industrial sector deprives the European unemployed, men and women, 25 million of them, from any hope to find a decent job where it counts; industry. This fact seen together with the rising government debt creates the impression of an irreversible falloff. Let’s see if this as it looks.

A diminishing industrial sector

According to the latest statistics published by Eurostat, industrial production fell again last May. The relevant Press release goes like this: “In May 2014 compared with April 2014, seasonally adjusted industrial production fell by 1.1% in both the euro area (EA18) and the EU28, according to estimates from Eurostat, the statistical office of the European Union”. This reality doesn’t tell the whole story. The truth is that industrial production in Europe keeps falling during last ten years without any visible possibility to overturn this dreadful tendency. Understandably, this trend has been tormenting all the developed economies of the world since the early 1990s with the expatriation of industrial production.

Blame Globalization

This was a purposeful decision taken in the US and the EU under the ground breaking novelty of ‘globalization’. Until then the developed countries jealously guarded production within their borders. Globalization completely reversed that and led to the rise of the emerging giants like China. No doubt the brave new world that emerged from globalization is a consciously intended and meticulously planned policy of the remaining world power(s) after the fall of communism in Europe.

The problem is however that in today’s globalized world the US managed to maintain unemployment at sustainable levels even during and after the latest financial crisis. Unfortunately, more than half of Europe is unable to perform in the same manner. That’s why Jean-Claude Juncker the newly elected President of the European Commission after his approval by the European Parliament promised support to the “social market economy, including a €300 billion investment package to boost growth, employment and competitiveness.”

No ‘ideological’ stubbornness

Mind you this is coming from a conservative center-right politician, who has obviously abandoned the neo-liberal obsessions about the market’s abilities to adjust everything. Clearly, the center-right parties which govern Europe today want by any means to avoid the obliteration that goes together with the power of market to regulate everything.

Nonetheless many people wonder if the EU has the required financial powers to finance this extra €300bn of investments in social market economy. To put it differently; can the EU governments borrow the extra funds in order to come up with additional investments in the social economy? In all likelihood the need for more government borrowing would not be of the same amount, because the relevant programs would require participation of private money or communal means in the projects. The usual percentage of public funding in similar EU programs is 50%. In this case this percentage may be higher, due to its special character, say 66.6%. At the end the extra public borrowing to finance the entire program of a total value of €300bn may be reduced to €200bn.

Can Europe find €300 billion?

This rough accounting leads to the other Eurostat Press release referred to above concerning public debt in the EU. According to this, “At the end of the first quarter of 2014, the government debt to GDP ratio in the euro area (EA18) stood at 93.9%, compared with 92.7% at the end of the fourth quarter of 2013”. Given that the annual gross product of Eurozone is around €9.6 trillion the new burden of €200bn is a mere 0.021% of GDP. Predictably this €300bn new program to support social economy and employment as announced by Juncker will not be realized in one year. As a result, the extra public debt of 0.021% of the GDP will not be charged to a single yearly budgetary exercise. If the time span of the new investment scheme is extended in say three years, the annual extra debt load will be even less at 0.007% of GDP.

They are more indebted

Now with the rest of the developed world governments, from the US to Japan being indebted far above the EU, this extra 0.007% of GDP is really nothing. It suffices to note that the public debt in the US exceeds one annual GDP (100%), while in Japan this percentage is more than the double (200% of GDP). It goes without saying then that this program promised by Juncker to invest €300bn in peoples’ lives should not present any difficulties to master. In short, this Juncker proposal may prove too little compared to capabilities and needs. The EU can invest even trillions without risking its creditworthiness.