EDITORIAL/1
A bond links economic crisis and political instability, as shown in France. Eyes on the summit of August 30
At a time of infinite recession it may happen that economic theory and economic action follow different directions, thereby overrunning – along with workers, taxpayers and enterprises – also national governments. The resignation of the French government, headed by Manuel Valls for a few months, is yet its umpteenth proof. The crisis which since 2008 has wreaked desolation in Europe, has also wiped out several presidents and premiers, from France (Sarkozy) to Spain (Zapatero) to Italy (Berlusconi); not to mention the changes of the guard and political instabilities in Greece, United Kingdom, Slovenia, Ireland, Portugal, Croatia, Bulgaria, Romania… After Prime Minister Manuel Valls stepped down on August 25 French president François Hollande asked him to form a new government focusing on the economy, with the purpose of drafting a programme “compliant with the agreed priorities” for “our Country”. In the previous days the minister of the economy Arnaud Montebourg (replaced by Emmanuel Macron in the new government) had criticised Valls, and implicitly also Hollande, accusing them of being “weak” in their positions vis a vis the German government – notably the austerity measures imposed by Angela Merkel on the EU. Growth is a recurring theme in the quest for new ways to revitalize production, employment and incomes in the new Continent. Does the answer lie in adherence to the rigorist dogma in Berlin or in the largely advocated option of flexible public accounts to promote investments and labour growth? The EU has been addressing this overwhelming question for months, failing to reach a shared solution. In fact, as stated in all manner of ways, only by containing deficits, decreasing public debts and ensuring sound banking systems will release positive energies that may trigger a fresh start for the economy. After all, it’s precisely what the president of the European Central Bank Mario Draghi said in a speech at the Jackson Hole central bankers forum past weekend. The ECB president began with an overview of the current state of affairs – poor recovery, low competitiveness, deflation risk, unsustainable levels of unemployment – and continued by reiterating the adoption of flexibility tools enshrined in the Treaties in terms of the timeframe and the means aimed at compliance with the Fiscal Compact and the “virtuous” Maastricht parameters on deficit and debt, while it is equally important to continue national reforms – notably the cuts in the realms of public spending, taxation, labour market. Last but not least, it is necessary to promote action at Community level, to enhance Europe’s competitiveness at global level, which entails shared governance, banking union, completing the internal market. To this could be added the adoption of common policies for energy, research and infrastructure. It’s a twin-track approach: rigour and development, investment and consumption, more Europe sided by increased decision-making capacities at national level. Moreover, to sweeten the pill Draghi promised to adopt “non-conventional measures” in support of recovery, which suggest longed-for liquidity and renewed interest rates control. The work plan bears resemblance with the plan which the President-designate of the Commission, Jean-Claude Juncker, presented to the European Parliament and then to the European Council in July, with a foot in the door of rigour and the other in the door of growth, advocating a 300 bln EU investment plan. However, following this track requires “more Europe”, which – far from demeaning government actions or national interests – is meant to strengthen the EU as a whole, enabling it to act as a political and economic player with a global stature. Once more, theory clashes against concrete action. At a time of widespread nationalisms, and of rehashed particularism, further “transfers of sovereignty” from the capitals to Brussels are being advocated. Yet with May’s elections euro-scepticism sent a strong signal; London distances itself from the EU on a daily basis, while North European countries view the weak economies of southern and eastern countries with suspicion. Could this be the right moment to strengthen Brussels’ governance and its political integration? Flexibility of public accounts should be accompanied by serious reforms (which may entail heavy social costs); “Keynes-inspired” measures whilst avoiding a resurgence of sovereign debt crisis. It appears to be the uphill road that all of Europe will have to face – and not only euro-zone countries. German economy has slowed down, while those of Italy and France have reached a standstill. East European countries and the countries that adopted heavy reforms, such as Spain, are registering positive trends. That’s why US Nobel Economics laureate Michael Spence said: “Europe should overcome divisions”. It should allow for “transitional derogations” to fiscal and budgetary regulations, while undertaking – as a whole – “the path of growth on the grounds of new investments and an upturn in demand”, even via “reduced tax-burden”, thereby involving welfare cuts. Once again, Europe is called to take “joint action”. But will the EU follow this direction? The European Council of August 30 and that of October (political appointments, economic action) might provide some of the answers.
