Two visions of Europe and how to tackle the crisis

28 Feb

  di Paolo Pini

euroIn Europe the policy of austerity has prevailed over that of growth, and a new term seems to become popular: “expansionary austerity”. This policy has been governed by a fundamentally liberal view of Europeanism, as opposed to a view interpreting Europeanism in terms of social market economy, as it was in the pre-Euro age when a stronger and more progressive vision of a Political Europe was on the agenda.

It is clear that those who support a vision of Europe based on a social market economy, including European the social democracy movement, will find themselves in an unwelcoming climate; and if they don’t go for a facile but ineffective opposition to the introduction of the Euro and reject any populist view, they will only find obstacles and restrictions along their path, as well as the reality of globalisation. In fact, the internationalisation of financial markets and resistance to world-scale (even to European-scale) regulation contribute to the adopting of austerity measures for national states in Europe now that there is a single currency. The context in which growth policies may operate has now changed, narrowing down dramatically.

The debate in Europe is open, and democratic and socialist parties and movements show that another Way is possible. At least seven key actions should be realized, in order to support the vision of a social and political European market economy. These actions would enable Europe to once again find the path to growth, full employment and collective welfare. Only within the sphere of these key actions will there be the chance of undertaking specific instrumental policies to achieve growth and employment.

1) It is necessary to extend the powers of the ECB so that it may operate as “lender as a last resort”,  with the primary task not only of controlling the dynamics of monetary variables influencing interest rate movements but also guaranteeing the strength and solidity of the single currency on international markets, protecting fiscal policies, and guaranteeing their efficacy, from speculation on financial markets.

2) At a European level, public investments also as an anti-crisis measure financed on national budgets must be allowed, and not limited by a rigid interpretation of the regulations laid down by the Treaty on stability passed in March 2012 so that fiscal policy may be utilised to combat the crisis and encourage growth.

3) It is necessary to issue various types of Eurobonds. Some of these will finance large-scale European projects leading to quantitative and qualitative growth of economies in Europe, supporting the digital economy, the green economy and the economy of knowledge. Other types of Eurobonds, such as the EuroUnionBonds must be utilized to stabilize the management of national public debt and create a wide market of European bonds based on real guarantees, as many economists have been suggesting for some time.

4) The European Commission budget must be increased, as at present it accounts for only 1% of the GDP of all member States, contrasting the view that has forced the debate on this issue to be frozen until June 2013. The raising of the budget, defying the policy of those who instead want it reduced, would make it possible to finance larger projects not just for the structural re-balancing of the member countries but also for infra-structural projects of a physical and intangible nature.

5) We need to speed up fiscal levelling throughout the Community, as this will enhance homogeneity of fiscal regimes within the Union. The fact that fiscal systems greatly differ clearly encourages the practice of competitive national policies that do not foster cooperation between member States and clearly reduce the efficacy of fiscal industrial and labour policies.

6) We must direct initiatives for coordination of economic policies of member States non only towards reducing national debt, the timing of which must be reviewed, but also towards reduction of imbalances in trade flows among member States. These imbalances constitute one of the major causes of tension concerning the single currency. Coordination policies must operate non only in countries with structural deficits, but especially in countries with structural surpluses in their trade balances, to induce them to sustain domestic demand and not entrust growth only to the expansion of foreign markets.

7) We must take actions on the banking system, increasing control in order to reduce systemic risk by fiscal means (taxing financial instruments and transactions) as well as regulatory means (prohibiting specific activities and transactions) relying much less on “risk weighting” instruments and “capitalization” which have proved largely ineffective or even counter-productive. The banking system has lost its function as a complement to the real economy, failing to support companies and households, and has become practically self-referential, as the separation between commercial banking and investment banking introduced after the banking crisis at the beginning of the last century was abandoned decades ago. If the loan system is to become part of the real economy, we must re-create that separation in the current new climate.

We believe that each project for national economic policy must take into consideration the two pillars of Europe, Political Europe and Economic Europe, and the seven key actions outlined above. The United States of Europe remain, and must still remain, the goal for our politics and economics. However, the Europe we have now is unfortunately a Europe in which the single currency, because of the intrinsic errors made at its birth, forces restrictions and rules which must be changed as soon as possible. It is a matter of economic growth, employment performance and social cohesion, and so it is also a matter of democracy.

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  1. Two visions of Europe and how to tackle the crisis | Sviluppo Felice | Il mondo visto da Edoardo Cignoli - 1 marzo 2013

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