“EUROPE CAN SPEND ITS WAY TO GROWTH”
Europe is back on the right track. With François Hollande as the new French president, we have made a significant step toward growth and the revival of the damaged European economy. Mr. Hollande’s plan to present the June European summit with joint French-German proposals for a growth pact is right, and—in these turbulent times—finally a ray of political hope.
Continuing the harsh austerity policies that German Chancellor Angela Merkel and her conservative colleagues have pushed until now would lead one European country after the other into recession. Dramatic economic news from Spain, the United Kingdom and of course Greece provides gloomy examples.
The Merkel dogma “Yes to growth, but no to debt” can only be understood as a polemic, an ideological statement. Because it makes no sense for the economy or for society.
Should companies that seek to grow not be allowed to take out loans anymore? Should states, in order to fight recession and unemployment, not assume debt? If that is the line of argumentation, what can possibly be the result of Wednesday’s informal summit on European growth?
In view of the rising levels of debt compared with gross domestic product in most European countries, we must take stock of the disastrous effects of the one-sided austerity politics and also recognize their antisocial character, proven by record unemployment figures. The collapse of some governments—notably in France and Greece—and the increasing strength of extremist parties further demonstrate the political danger. How many more facts does it take to end these austerity policies?
Alternatives should be developed without giving up the goal of balanced budgets. The fact that the current recession was preceded by a decrease of public investment in measures and policies that produce growth and employment clearly indicates that these must be the starting point of an alternative strategy. In the evaluation of national budgets, investment in growth and employment should be given priority. Expenditures for these purposes should not be integrated in calculations of structural deficits and hence be punished because investment in growth generates income and taxes and therefore revenues for the state.
Italian Prime Minister Mario Monti has already called for policies that favor targeted public investments in growth and employment, at least during this current weak growth period. In principle, this golden rule should apply at all times, but its application today is imperative if we are to grow past the crisis. We therefore need more Monti and less Merkel.
We actually need to go a step even further. The EU member states should not only be forced to limit their debt in accordance with European treaties. The European institutions should enact legislation that requires all members to make public investments in growth and employment.
In addition to fighting unemployment, such investments would finally lead us onto the path toward a seriously environment-friendly economy. A shift toward more renewable energies is not taking off so far. We have agreed on great goals within the Europe 2020 strategy, but we hinder their achievement by tough austerity policies.
These additional investments need to be financed, one way or another. A financial transaction tax and a more efficient fight against tax evasion could channel additional funds into national treasuries. And once growth takes off, tax revenues will start flowing. Tax policy that favors lower-income classes and better regulation of financial markets would already be fostering growth.
Compared with the stubbornness of Chancellor Merkel and the German Bundesbank, an alternative is not only possible, but economically, socially and politically necessary. How many lost state elections does Ms. Merkel want to deal with? How much more must the fabric of society be torn? And how much more can the project Europe take?
This week’s “informal summit” must finally lead to a change of direction in economic policy. The new French-German axis with a social democratic profile will play a central role in pointing the way.
Hannes Swoboda, Wall Street Journal, 21/05/2012