A credible platform for progressive parties in Europe

European trade unions and many progressive parties simultaneously ask for lower European budgetary constraints to counteract recession, while agreeing with austerity at home. But there's a way to resolve this contradiction – and to reverse depressive tendencies, foster growth and increase competitiveness in Europe.

During an anti-austerity demonstration in Brussels on 14 November. Demotix/Olivier Vin. All rights reserved.During an anti-austerity demonstration in Brussels on 14 November. Demotix/Olivier Vin. All rights reserved.

The contradictions of the European left

The 14 November mobilization in a day of  'action and solidarity' by the European Trade Union Confederation (ETUC) was pure protest, without proposals that would actually open the doors for the trade unions to negotiate with European institutions. If one looks more closely at the unions’ platform (such as the Declaration adopted by the ETUC Executive Committee on 17 October), it is quite obvious that, apart from the usual complaints against unemployment and social breakdown, their conceptual substrate does not significantly differ from that of the tribe of technocrats who are blindly committed to the generic pursuit of balanced budgets, the reduction of accumulated public debts, and nothing else.

On the occasion of this day of action and solidarity, the Unions wished to “...express their strong opposition to the austerity measures that are dragging Europe into economic stagnation, indeed recession, as well as the continuing dismantling of the European social model. These measures, far from reestablishing confidence, only serve to worsen imbalances and foster injustice”. This statement seems to hint at a quite critical analytical background. But alas! This impression is immediately shattered: “While supporting the objective of sound accounts, the Executive Committee considers that the recession can only be stopped if budgetary constraints are loosened and imbalances eliminated”. The highlighted parts make the position of the unions – but the same applies to most left wing political forces in Europe - conceptually ill-based, since "sound accounts" cannot be an objective, and are fundamentally contradictory. 

Most European countries have agreed to consider that a “sound” national budget is a balanced one. Many of them have even introduced a constitutional obligation to avoid deficit spending. At the same time, the countries which have higher ratios between their accumulated public debts and their GNP are forced to obtain a surplus of taxes upon expenditures in order to lower the debt/GNP ratio in the short term. In this context, it is simply absurd for the Unions to ask these same member states to pursue two contradictory objectives - balanced budgets and “loosened budgetary constraints”- at the same time.

Public action isn't only about balancing accounts

"Sound accounts” cannot be an objective. More jobs, more growth, more social justice or better health care can be “objectives”; that is, things that are worthwhile to pursue. Each entry of a public budget corresponds to a public action and this figure represents only one of the many effects - the monetary one - of the action. Each “action/monetary effect/real effect” triad has its own specificity, as it has been argued long ago by Abba Lerner - and never disproved. Econometric offices around Europe still calculate the different monetary “multipliers” associated with different expenditures and taxes; this proves that the effects of different budgetary entries on the final demand for goods and services are still considered as mattering, independently of whether such effects have real or nominal effects.

This makes nonsensical any statement about the balance of taxes and expenditures, since the total effects of the budget will not depend on such a balance but on the structure and quality of the different budgetary entries. The truth is that the “sound accounts” are simply (as J.P. Fitoussi has recently called them) a mantra, which appears to be worthy only because it is obsessively repeated by our technocrats, and swallowed by the many herds that 'pretend' to affect the European political scenario. Members of the herd can be found inside the progressive parties. In any case, the debate cannot be confined to short run monetary effects, since the construction of competitiveness requires a lengthy period of constructive activities, which are now totally neglected both on the European and national levels – thanks to austerity.

What can be done to square the circle

If we accept the idea of austerity in the budget of member countries, the contradiction described above can only be avoided if the task of getting out of the recession, reducing unemployment and fostering a new phase of sustainable growth and social justice were attributed to a consistent European federal budget. Today, it amounts to roughly one percent of the European GNP. A rise from this laughable number could be obtained not only from a tax on CO2 emissions and financial transactions (as Barroso recently suggested) but also – and this is important - by printing money to an extent to be negotiated with the ECB.

The truly astonishing part is that the European Budget 2014-2020 was on Brussels' agenda on the very same day (November 14) the European trade unions were organising these strikes and demonstrations. Agendas do matter and the progressive forces must do something about the  technocrats' habit of keeping the various tables and types of negotiations separated, when they actually are nothing else other than the different facets of the same problem. Unfortunately, unions don’t seem to see the connection between these facets. This makes them mostly ignored spectators in the culture of subtle diplomacy led by the European technocracies.

The need to escape the cultural hegemony of the European technocracies

This situation essentially reflects a cultural and political problem that affects a good share of the progressive parties (the substance of many of the analytical documents produced by ETUC, for example, is often much more advanced and consistent than its political documents). It is time to react and, since the need for expansionary policies is widely shared by progressive forces and the need to practice budget parities at the national levels has become a must, a serious mobilisation cannot but concern the federal budget. Not only is this the sole way, but it is also the more economically rational path and the more politically advanced one for all those who believe that what we require now is more Europe. 

Even the very interesting iAGS survey, prepared for the S&D (the group of Socialists and Democrats in the European Parliament) by three prestigious research groups (ECLM, IMK, OFCE) and presented at the end of November, which makes important policy recommendations (in particular that of making the ECB a lender of last resort for euro countries and an invitation to Germany and the Netherlands to reduce their surpluses), partly fails when it simply advises Europe to spread the recovery of  “sound accounts” along a larger number of years. To be fair, such a policy would in fact lower the recessive pressures more than proportionally, exploiting the fact that the depressive effects of fiscal austerity are more than proportionally higher the more the economy is already affected by the recession. Despite this, however, the recession would continue, since what is needed is more and better public expenditures, partly financed by printing money. In the long run, nothing else will do.

The importance of getting Europe back to normal

An obvious reference point for outlining a more federal budget is the US one. Basing ourselves on the US model implies an overall European governance in which the role of the federal bank is to regulate the creation of money as well as to act as a guarantor of last resort for individual member states, with no particular a priori constraints on how to finance any deficit. In particular, we could then abolish the grotesque mechanism that encourages the ECB to lend money to banks so that they can then buy debt securities issued by the member states. Such a mechanism has distorted the bank's behaviour who are now unable (and unwilling) to finance productive investments in member states and, at the same time, exposed to a completely artificial risk of default.

Given that Europe is presently facing a recession and a loss of international competitiveness, in such a different frame the mission would be clear: use the federal budget, if necessary through a deficit monetized by the ECB, in order to promote:

     (A) employment and GDP growth in the short term and, in the longer term,

     (B) development and innovation, and

     (C) overall balance between confederate states where necessary and appropriate.

This would lead Europe back to a more “normal” situation, sweeping off the type of vulture speculation that exploits the possible default of member states and fosters uncertainty and social loss.

There are good reasons why the radical, but simple and rational change of perspective suggested here has seldom been evoked by the progressive parties and unions. These forces must abandon their ideological contortions and overcome their own cultural contradictions.

The need to avoid ambiguities when asking for expansionary policies

There is a need to avoid the confusion about policies in which most of the actors fall. I kept distinct different goals. The above-mentioned objective (A) requires bare Keynesian manoeuvres. The underlying problem is in fact one of how to activate idle resources, made of unused productive capacity and unused labour; in short, a simple "elimination of waste". The federal expenditure should go to feed the demand where unused capacity and unused labour are more concentrated. The policies for growth and competitiveness are more complex, their effects are delayed and do not need to increase the current demand. Instead they should aim towards increasing the investments in human capital, research and different types of productive capacities, in order to have more and better production options in future years. The different policies may be made complementary, but must not be confused.

In the long run, strategy calls for the creation of a European political subject capable of managing industrial and commercial policies; a much more clever subject than the Super-austerity controller that Mrs Merkel is asking for, whose difficult task would be to coordinate other public and private subjects in order to achieve the objectives mentioned above! This, and nothing else, was the goal of European construction (who remembers the Europe of knowledge?), i.e. to make Europe a competitive pole in the world arena. However, in the meantime, other planetary poles have efficiently used instruments of industrial and commercial control, while Europe disappeared from that radar, blindly pursuing a stereotyped conception of the free market rather than using concrete strategies for competing in a merciless world market.

The crisis of the 1930s was eventually solved, in the US and in Europe, when the private industries were coordinated by states to produce weapons to be used in the Second World War. After the end of the war, the take-off of development was ensured by investments linked to the Marshall Plan, which, again, were based on private initiative being coordinated by a constellation of public and semi-public bodies (from this point of view The Marshall Plan was extremely sophisticated). The development processes triggered by the Marshall Plan were still used after post-war reconstruction, effectively leading to the golden years of steady growth and full employment.  

This collaboration of smart public and private managers has in fact worked for the best. What we have to do now is to rediscover this smartness, this logic and those organizational strategies - and to rely on a true European federal budget.

About the author

Sergio Bruno, now retired, was professor of Public Economics at the Sapienza University of Rome. His major interests are education, training and labour (he cooperated with Cedefop and other European research centers and institutions), macroeconomic dynamics, welfare theory, telecommunications, transport and industrial innovation