Mario Draghi? He saved Europe. The European super minister of the economy? It can be an idea, to coordinate budgetary policies. The taxman? We need an international agreement against tax havens. Olivier Blanchard, French economist, former chief economist of the IMF from 2008 to 2015, he gave a 360-degree interview to FIRSTonline, in which he spared no criticism of Minister Giovanni Tria but at the same time admitted: “The time of austerity is over for Europe. The budgetary rules are complicated and outdated: they need to be rethought".
Dr. Blanchard, the Minister Tria in Trento he spoke of relaunching public investment at European level, and why not of doing it by issuing money. Does this recipe convince you?
"Not entirely. We agree that a revival of public investments, both at European level and in individual countries, is necessary, but printing new money is not a painless operation. Investments in Europe have actually decreased due to austerity policies, I think it is right that they are relaunched, preferably at a Community level, under the direction of Brussels, but it is important that this operation is carried out by the commission and not financed by the ECB, because it is a political choice and it is right that the central bank remains independent. It is known that there are two ways to finance investments: issuing new money or making more debt. With interest rates now low, it might seem convenient to issue money, but what will happen when rates rise? That extra currency issued would become debt and this would involve great dangers”.
Speaking of interest rates, how do you judge Mario Draghi's mandate, which is coming to an end this year, and his choice to lock down very low rates until at least 2020?
“Draghi literally saved Europe, he was pragmatic and led a policy that reassured the markets. He did an extraordinary job, what he did will be remembered as are the great moments in the history of our continent. The only thing that should still be done is greater protection by the ECB of individual countries: investors must know that, if they attack a country without valid reasons, as can sometimes happen, Frankfurt is able to intervene. At the moment, this system is a bit convoluted and doesn't work very well. In Trento I gave the example of Japan, which has a higher debt than any European country (the net one is 160%), but with negative interest rates. There is therefore no spread. On the other hand, in Italy, despite a lower debt, there are doubts about the government's intentions, the danger of insolvency and what the ECB would actually be ready to do in the event of a liquidity crisis: the result is a high and costly spread . As for the choice on low rates, with the current scenario it seems correct to me and it is right that it should remain so as long as necessary".
Who would see well for his succession? Germany is shaking…
“I won't name names and I don't think the country of origin of the next ECB president is all that important. He needs a qualified and pragmatic figure, like Mario Draghi was ”.
Returning to more political issues, the recent European elections have averted a populist drift in Parliament. However, the clear signal of the need for a change of course has arrived.
"Absolutely. We need a new course, with redistributive policies that respond to growing social inequalities. It shouldn't be taboo to talk about higher taxes on capital and for large companies, as long as it is done not only at a European level but with a major international agreement, which cancels tax havens. There are various ways to do this: for example, taxing the exports of those countries more. And then, Europe must close the season of austerity: today the priority is growth, while budget consolidation is no longer so essential, thanks to low rates. Budget constraints need to be rethought, they are too complicated and the situation is no longer the same as it was ten or twenty years ago".
However, tax havens also exist in Europe: Ireland, Luxembourg, Switzerland. And it is precisely in these countries that the large multinationals elect their tax headquarters, penalizing countries with normal regimes. Should the issue be tackled and resolved at European level?
“It would be better to do it together, but each country can also do it on its own, providing that the taxation of Google or Facebook on duty is proportionate to the sales that the company makes in that country, and that it not only pays taxes where it has the tax residency. For example, if company X makes 10% of its revenues in France, it will pay 10% of its profits to the French state. This will mean that it will no longer be so convenient for a multinational to establish its headquarters in Ireland or Luxembourg”.
Welfare was also discussed in Trento. In Italy, the government is trying to launch the citizen's income, a measure that is currently confused and does not seem so suitable for solving the problems of poverty and work. What do you think? Wouldn't it be better to give subsidies to raise wages, as was proposed here at the Festival by Berkeley professor Hilary Hoynes?
“We need an overview. Miraculous measures do not exist. I can't tell you if the basic income will work, but in my opinion a real social policy should combine four action plans, as far as possible. The first is assistance tout court for those who are not even able to work, such as people with disabilities. The second, what I call 'negative tax' or, in English, 'in-work benefit', i.e. the detaxation of lower wages, to increase purchasing power. In this case the danger is a decrease in wages, because companies could purposely lower them, canceling the benefit of the subsidy. This is where the third point comes into play: the minimum wage, which is important at this point to prevent wages from falling beyond a certain threshold. Finally, an unemployment benefit, which is an aid but not a disincentive to return to the world of work. These four dimensions seem necessary to me, and I would also add a reform of vocational training, on which there is still much progress to be made".
Frans Timmermans, the candidate of the European Socialist Party to lead the Commission, has proposed a European minimum wage, equal to 60% of the average wage in that country. Would you agree?
“The cost of living varies a lot from state to state. The minimum wage is needed, but each country must establish its own".
Another hypothesis on the table, in the new course of Europe, is the eventuality of the establishment of a European super minister for the economy. What do you think?
“It could be an idea, but rather than a superminister for the 28 countries of the Union, I would rather see a superminister of the euro area. Provided, however, that sooner or later there is a common budget of the Eurozone. This seems to me to be the direction in which to go, also because getting many ministers from many countries to agree has proved difficult”.
