Debate on Macroeconomic policies

”It is often said that taking some distance, helps to have a better understanding of a situation. In this regard, debating with our American counterparts gave us the opportunity to see how absurd austerity is: not only terrible in social terms, but also inefficient economically.”

  70 years since Bretton Woods: Reform of the financial system

 

TheFirst debate took place at the “House of Sweden” in Washington on the “reform of the financial system”, 70 years after Bretton Woods. It was opened by a video of Joseph Stiglitz describing the current economic context in Europe and North America, and possible solutions to get out of this situation. The most terrible fact, as Stiglitz said, is that the propositions he makes aren’t new or revolutionary at all: just a reminder of what many economists (and we as social-democrats, progressives and socialists) said in the last years and still hasn’t been implemented since.

 Stiglitz briefly reminded that the economic downturn in the US isn’t that good. It is only the comparison with Europe that would make it seem a positive perspective. In the US as in Europe, hidden unemployment remains, inequalities increase, political abstention is frequent, the average revenues are inferior compared to last decades and unionization rates are very low.

He came back on the absurdity of the austerity measures lead in Europe (and to a certain extend in the US), instead of investing through public expenditure in order to compensate the low private investments. One of the reasons for this is based on the wrong analysis made by the current European Commission and Governments: the crisis made the debts and not the opposite. By crunching the public investments and demand, we would impede any relaunch of the economy (why would firms produce if there is there is no one to buy their products?) and in the end increase the debt we wanted to reduce.

In order to get out of this economic impasse and at the same time fight inequalities, the economist made several proposals:

  • Mutualise the European debts through Eurobonds in order to decrease the interest rates and be able to use more public money for investments ;
  • Low rate policy by the ECB (even if “ a monetary policy won’t ever be sufficient to change the economy” : the average rates are under 2% today, which is very low, but haven’t brought sustainable growth at all) and a change of its statutes in order to put the fight against unemployment as a priority ;
  • Tame finance in order to use its money for real economy and not speculative bubbles;
  • Taxation of capital at the same level as work and rethink our corporate taxation systems in order to reach a more progressive system ;
  • Common investments and industrial projects at European level to create jobs and create an economic dynamic and new openings for firms ;
  • Stimulate the demand through an expanded European Budget (based on progressive taxations) and an increase in salaries.

The debates continued with a panel of economists and politicians: with Alfred Gusenbauer former Chancelor of Austria, José-Antonio Campo, searcher and former Minister in Columbia, Dr. Adam Posen, Peterson Institute for International Economics and Pr. Stephany Griffith Jones, Initiative for Policy Dialogue.

The speakers focused more on the reform of the international institutions created in Bretton Woods as the World Bank or the IMF (how to democratise them? Or at least to “decentralise” the international institutions by creating other regional one for instance) and on their results (are we at a turning point with an IMF progressively turning its back to austerity?). The strengthening of the International Labour Organisation (how to ensure the implementation of its recommendations?) as well as the creation of an International Environmental Organisation were mentioned. The question of how to convince conservatives currently in power in the EU to change their economic policies towards investments was raised: some proposed a “realistic” approached through concrete et easily achievable steps, like the implementation of carbon tax at global level to finance an ecological transition/ investments; others proposed to frontally oppose the conservative propaganda, saying the public debts made the current crisis, by assuming our difference and multiplying our propositions for jobs creation. Alan Posen raised the question of migration policy as a needed economic factor: “migration flows exist and will continue to exist, so the question is, how to facilitate migration to make the best out of it, maximizing the positive effects and limiting the potential costs”.

The social costs of austerity were pointed out, especially its results on our societies: long-term consequences on the people themselves, massive youth unemployment, poverty, dismantling of the welfare state, rise of far right parties in the whole European Union. The need for an alternative in Europe was especially underlined by our American panellists, through an increased European Budget (“at least 3% of the EU GDP”) and by winning back the expression “structural reforms”, that means:

  • A true banking reform
  • Taming finance through a financial transaction tax
  • Progressive taxation
  • An energetic transition to face climate change and create jobs.

 

Macroeconomic policies for European growth

 

The whole Monday several debates and panels took place at the Brookings Institution with the Chief Economist of the IMF, Olivier Blanchard, João Carlos Ferraz, Senior Vice-President of the Brazil Development Bank, as well as several economists: Peter Bofinger, German Economic Professor, Homi Kharas, Adam Posen, Stephany Griffith Jones, Mariana Mazzucato, Marcus Miller, John Williamson, and Elva Bova economist at the IMF. A few politicians were also part of the panel: Joachim Poß, German MP, Paolo Guerrieri, member of the Italian Senate, José Antonio Campo, former Minister in Columbia and Massimo D’Alema, former President of Italy and President of FEPS.

Each time, after a general or technical presentation of economic issues, the floor was opened to debate with the whole participants. Here again the question of “structural reforms” and of the economic policies in Europe was at the heart of the discussions: how to convince the German government to invest (but also the conservatives in general and the European Commission)? Are so called “structural reforms” necessary? Are they something progressives should give in, in order to gain growth policies in a sort of exchange with conservatives? Peter Bofinger remarked with humor “When I ask to economists or members of the OECD what “structural reforms” are, they never gave me a concrete answer. Structural reforms are a sort of authority argument that no one should be able to discuss”.

For Olivier Blanchard (IMF) the debate on austerity belongs to the past, consolidation policies have failed, growth isn’t back in Europe, and therefore public investments are necessary (he wouldn’t be against an “investment golden rule” as proposed by Adam Posen or Eurobonds if Europeans propose it), as long the credibility of a country remains (debt/ GDP ratio). According to Blanchard- speaking about fiscal issues and debt ratios in Europe- : “the goals have to be fixed and not the instruments to reach them. If the goals haven’t been achieved until today, it might be necessary to rethink the instruments”. He adds that Central Bankers should have more respect for democracy and democratically elected people, instead of trying to impose decisions on them.

Politicians and economists insisted on the role of Parliaments and social dialogue to reach an agreement on investment policies. Zita Gurmai, President of the PES Women, underlined the need to support the Youth Guarantee (“trillions for the banks and only few millions for young people, this is unacceptable”). The questioning of the Maastricht criteria and of the definition of “structural deficits” were mentioned several times, especially in times of lasting economic crisis or in order to finance green investments, not only in renewable energies, but also in order to reduce housing costs, to develop alternative transportation, or to support greening cities and towns, etc. How to unblock the existing Funds of the European investment Bank? The former Prime Minister of Denmark and former President of the PES, Mr. Rasmussen argued that “it is about time to let Angela Merkel understand that is not even in her interest to keep these policies. It would be less expensive for German taxpayers to have a European shield (through Eurobonds) than only a German one”.

In the afternoon, the role of the State as an economic actor was raised. Mariana Mazzucato explained that the opposition between an “entrepreneurial private sector” and an old fashioned, very industrial state was not even depicting the reality as it is, speaking about the existence of an “entrepreneurial state”, often being the one to invest and to take risks, opening the way to firms, often averse to uncertainty. She multiplied examples to illustrate how active/ proactive a state could be and how complex and vital its role in the economy potentially was in order to create a viable economic environment.

At the end of the day, Massimo D’Alema in his conclusion urged socialists and social-democrats to keep their promises of an economic alternative in Europe: “We were often leftists in the opposition and became very conventional, following the conservatives while in power [Grand Coalition at national level, Agreements between Conservatives, Liberals and Social-Democrats at European level]. We should keep to our promises and change economic policies in Europe”.