Many people today are calling for a change in the philosophy underlying the current approach to economic and monetary policy in Europe. According to them, it is time to move on from the present phase (which sees politicians and central banks driven, by the memory of the havoc caused by the inflation of the 1980s, to place a higher value on stability than on growth) to a phase in which this order of priorities is reversed - because the main danger to be averted is no longer inflation, but recession.
It certainly cannot be denied that the economy in Europe is slowing down. And the repercussions, on the countries of the European Union, of the economic crisis that has hit Japan, Russia and the developing countries of South East Asia and South America, certainly constitute one of the factors contributing to this slow-down. However, it must be pointed out that the behaviour of the EU economies in the face of this crisis has been radically different from that of the American economy, even though the interdependence that exists between the economies of the regions hit by the crisis and the American economy is certainly no less marked than that which links them with the economies of Europe. As a matter of fact, it is the United States which absorbs the majority of the exports originating from the countries whose currency has been weakened by this crisis. Moreover, the United States, as a result of this, continues to record a staggering trade deficit with these countries, while the corresponding overall balance of trade recorded by the countries of the European Union shows a strong surplus. And yet, while the American economy surges ahead, the European economy appears to be stuck in the starting blocks.
This is not a phenomenon that can be considered, simply, as an effect of the trade cycle. In the countries of the European Union, public spending is now the equivalent of 50% of the GNP, and it would be wrong, therefore, to lay all the blame for this slowing down of the economy at the door of the market. The responsibility borne by the public authorities is too evident to be denied. In short, the problem of the economic paralysis in Europe cannot be divorced from the problem of the paralysis of the continent’s public authorities.
Neither can we expect the problem to be solved by the European Central Bank. The ECB is already doing its job, which is to maintain price stability (even though, having said that, its asymmetrical interpretation of the objective it pursues is open to question, and it might be hoped that it can, in the future, build a greater degree of flexibility into its strategy). But the fact remains that interest rates in Europe are low, and that the effect on the continent’s economic activity of lowering them further would undoubtedly be very limited. In short, the time has come to stop using the European Central Bank as a scapegoat for the ineptitu de of the national governments.
In all industrialised countries, it is high tech sectors which represent the driving force behind the economy. And the evolution of these sectors depends on the direction of government policies relating to the creation of infrastructures, to the funding of research and development and to public purchases. From this point of view, the picture in the EU is a very disheartening one. In the high tech sectors, the single market is far from realising its full potential, a fact strongly underlined by the difficulties which prevent the completion of important cross-border mergers between member states.
The fact remains, therefore, that what is crucially needed is an expansionist budgetary policy. However, a policy of this kind cannot, for two good reasons, be carried out at national level: first, the dimensions of the major infrastructures serving as the mainstay of any balanced growth must, necessarily,be European, and second, an expansionist budgetary policy conducted at national level would serve only to increase the rate of inflation in the other member states. This, after all, was the concern underlying the Stability Pact, a concern which emphasises the diffidence felt by the strongest governments in the Euro zone towards the Union’s weaker countries. And the effects of this diffidence are all the more paralysing because the surpluses recorded in the balance sheets of many of the Union’s governments is, in advance, channelled into the reduction of their respective public debts.
An expansionist budgetary policy conducted at European level, on the other hand, is now feasible and (since this would involve nothing more than the transfer from the national budget to the European budget, and thus the productive use in the larger framework of the Union, of resources which are currently used unproductively within the narrow and suffocating framework of the individual nations) would not present any inflationary risk. However, until the governments of the member states stop worrying, to the exclusion of all else, about how they can contrive to contribute as little as possible to the Union budget, and how the size of this budget can be cut, rather than increased considerably, then this route forward will continue to be impassable.
And as long as the European institutions continue to constitute a mechanism with the capacity to do little more than produce compromises among the conflicting demands of the national governments, this situation will persist. Unless the European Union is given a federal and democratic constitution, it will remain unable to make decisions which are in the interests of Europe as a whole, and will have no choice but to go on putting up with soaring unemployment rates, and with a permanent state of economic stagnation, if not of recession. And the people of Europe will have only their governments’ stubborn and anachronistic fixation with national sovereignty to thank for all of this.