Europe beyond austerity measures
International summits like the G8, the G20, Ecofin and the European Council often issue statements that present the blindingly obvious as if it were a profound revelation. The final statement of the latest G8 summit held in Camp David in Maryland’s Catoctin Mountains contained its fair share of platitudes that add very little to the proposed solutions to resolve the current eurozone economic problems.
The G8 leaders vowed to “strengthen and reinvigorate” their economies while “recognising” that each country might pursue different policy paths. Stripped of its public relations undertones, what these leaders told us is that they intend to go on with pursing what each one believed was best for their country. So it appears that the prospect of Greece been kicked out of the eurozone is not really a matter of major concern to the rest of the eurozone countries. While the electorates of various countries like Greece and Germany have already claimed the heads of their leaders, the remaining leaders seem scared of defining in any meaningful way what needs to be done to guarantee the long term future of the euro.
US President Barack Obama, who some years ago earned an enviable reputation as a politician of not being afraid to call a spade a spade, could not do much better than state the obvious. “All of us are absolutely committed to making sure that both growth and stability, and fiscal consolidation, are part of an overall package in order to achieve the kind of prosperity for our citizens we are all looking for.” Beyond these soothing pious intentions there is little evidence of strong political leadership that defines how these objectives could be achieved.
One of the main obstacles to a clearly defined eurozone economic strategy is the inability of European political and institution leaders to agree on how economic growth could be achieved. Often the debate is raging on the futile and superficial argument on whether we need fiscal tightening or economic stimulus to promote economic stability. The reality is that we need both. The difficult part is how to reconcile these potentially divergent forces to bring about the necessary changes that will dispel the economic doldrums that at present are depressing most Europeans.
Mario Draghi, the president of the European Central Bank has joined the choir of those advocating the need of economic growth as it has now become rather politically incorrect to even mention the word “austerity”. But what Draghi has in mind is, among other things, the liberalisation of the labour market in eurozone countries to encourage investment by those entrepreneurs who are holding back from investing because of onerous legal obligations that make hiring and firing of employees expensive. The new French President, Francois Hollande, has a different interpretation of what needs to be done to promote growth. Like the Socialist and Democrat Group in the European Parliament, the French President is promoting major infrastructure investment spanning all EU countries financed by jointly issued and guaranteed eurobonds. One such project is the Trans-European Transport Network, a network of interconnected cross-border transport links. Germany is not so keen on such a project and much less prepared to guarantee the eurobonds necessary for its financing.
The German Chancellor, Angela Merkel, while using more frequently the word “growth” in her comments is as committed as the British Prime Minister David Cameron in insisting that there cannot really be any prospects of strong economic growth without first “pushing fiscal austerity as a prime means of bringing down huge debt levels that are burdening European economies”. But with Merkel fearing the same fate as her former ally Nicolas Sarkozy, she is not prepared to irritate German voters by promoting more austerity. But there are signs that Germany is softening its position by tolerating pay increases that are in excess of inflation thereby boosting the spending power of German workers and lifting consumption – a strategy that has been urged by the United States to promote growth in Europe.
Italian Prime Minister Mario Monti was possibly the most Solomonic of all. “We link back to the notion of demand. I think we should regard it more positively than the most conservative European authorities do. On the other hand, if it is an across-the-board crusade for more demand, then I believe that the German reluctance to that is not entirely unfounded.”
So while world leaders all seem to promote the notion of promoting economic growth, the way this is going to be achieved remains worryingly obscure.