Europe remains in the grip of stagnation. Eurozone GDP growth in the second quarter of 2014 is planted at zero. The German economy performs worse than the average and falls: less than 0,2%. Those who saw pink in recent weeks, noting the moderate decline in European unemployment, are now surprised. But whoever is surprised today, who expected a result, even if minimal, from the negative rates of the ECB and from the announcements of purchase programs, or from the 80 euro, has not studied macroeconomics in depth.
No surprise. Economies create jobs when there is turnover. And the turnover depends on the free decisions of individuals guided by criteria of profitability and opportunities. In the first place, families spend when they feel they have some extra money. And saving is closely related to the public deficit, as I explain in Saving Europe from Austerity (Vita e Pensiero, 2014). Cutting the deficit means cutting the legs off household and corporate savings. In these conditions, lowering rates is useless and can be counterproductive if families who have saved up some money realize that their nest egg no longer yields anything.
It is true that in Europe some countries do better than others. And how could it be otherwise? But the argument according to which if Italy is worse than everyone else, it means that the problem is Italian and not European, is truly specious. It would be as if in 2009 Obama pointed the finger at Michigan, where unemployment was more than 4 percentage points higher than the average, and refused to make the $797 billion federal package, instead asking Michigan to make the reforms !
Differences between countries do not change the diagnosis: the austerity policy is nothing more than a handbrake on the Eurozone economy. Nor was it difficult to predict the decline in German GDP: if Germany is so good at selling to others and if its traditional partners are in Europe, who will ever be able to export if Italy and France are left with nothing but eyes to cry? And if Germany is so good it is because wages and salaries of the low and middle income class have not grown for years now. Germany had found some relief in non-European markets. But global growth is not all that robust. And the euro is expensive. And it will remain so as long as austerity and deflation last, whatever the ECB's policy.
For years now, a growing number of economists have been scrambling to get the message across that austerity must end. And that until we overcome it together, there is no future for the Eurozone. This is objected to by resorting to partly legitimate but decidedly off-topic arguments. It is objected that Italian public spending is still too high and of poor quality. True, maybe. But to talk about the size and quality of the state is to talk about something else. No need to lower the handbrake. It is objected that expansionary fiscal policies cannot be implemented with a level of debt such as Italy's.
True, in the weak institutional environment of the Eurozone today. But fiscal policy can and must be implemented, even in the absence of a federal government and budget. You just have to figure out how. What is needed as soon as possible is not a growth policy. It is a policy that makes growth possible. And macroeconomics is generous with suggestions. You just have to choose the one that is politically more acceptable. The fiscal compact can be modified. For everyone. Not just for Italy. This seems to me the most uphill and politically impracticable road. Or new infrastructure expenditure can be deliberated on a pro-rata basis, jointly approved and jointly financed. A European program can be created that suspends all unemployment benefits and provides temporary work of social utility to all the unemployed: there is nothing worse than long-term unemployment to create permanent material and psychological damage to our human capital . You can give a 50% cut to the VAT of the whole continent, centrally financed by Europe.
My personal preference goes to the latter because I am convinced that it would be the one with the fastest results and the easiest drawing. Even better, if at the same time a common European table is opened to study together the reforms to be given priority. I don't know if the Italian Senate is one of them. More likely the fight against tax evasion and illegality, not only in Italy, and a new genuine collaboration to cut off the legs of organized crime which eats a large slice of the remaining European pie. And while these reflections are being made in the blog columns, the European political front stands out for its immobility, its inability to formulate a realistic and politically feasible alternative for the good of all.
