The supremacy of Economic Europe over Political Europe and the economic crisis

25 Feb

di Paolo Pini

euThis trend came into conflict for two reasons.It is now commonly thought that the economic crisis has hit a Europe which doesn’t stand on two pillars, but barely on one. That is, it stands on the pillar of an Economic Europe, which is incomplete and asymmetrical. The pillar that is missing is a Political Europe, which was supposed to evolve into the United States of Europe. Due to the difficulties along the road towards a Political Europe in a period when the European Union was marching forward to expansion in the East, the single currency took on importance as an instrument of harmonisation and convergence of the economies of each nation, aiming to achieve political unity in the end (once the economies had been harmonised).

The first is that the adoption of the single currency did not lead to harmonisation of the economies of the various States in the Union. In fact, the single currency led to, or was utilised for, strengthening the gap between member States. Instead of convergence, there has been a divergence trend in growth rates as well as intra-state trade and finance flows.

The second is the 2007-2008 economic crisis, imported at the beginning from the USA and partly endogenous in Europe. In Europe, fiscal rigour was initially loosened up and an accommodative monetary policy was adopted to satisfy demand for money for the banking system. But the anti-crisis measures did not prevent balance deficits or public and private debt from worsening, to a somewhat unequal extent among European member countries. In fact, the crisis has aggravated debt in weaker countries.

As we know, this led to a situation where, not even having got over the crisis of 2008-2009 and with tepid signs of recovery in 2010, European financial markets again plunged into a crisis, followed by the economic crisis and recession of 2011. While in the USA monetary policy was more expansionary and fiscal policy less harsh, in Europe the 2011 crisis was tackled by curbing public expenditure and restricting welfare systems in order to reduce the balance deficit and public debt. Harsh austerity measures were taken and the demand for structural reforms was stepped up: especially on the labour market, on the goods market (though not excessively) and financial markets (rather little).

The response to the crisis in financial markets was a mixture of rigour and liberalism: losses were suffered by all, gains enjoyed by a few individuals. Applied to a financial system undergoing crisis, this meant spreading private market losses throughout society and offloading them onto public finance and the community, which has had to pay higher tax. This entails making everyone pay twice, also for the growth in deficit and public debt; with the introduction of austerity measures and reduction of welfare for the sake of rigour, and possibly also the transfer of a share of public welfare onto the markets with privatisation of welfare[1].

 


[1] The second part of this post will be published soon with the title Two visions of Europe and how to tackle the crisis.

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