Albert Carreras analiza "Contra la hegemonía de la austeridad"
Compartimos con vosotros las interesantísimas notas que presentó Albert Carreras (economista y ex Secretari d'Economia i Finances de la Generalitat de Catalunya) en el CIDOB el pasado martes, en ocasión de un debate con Stuart Holland sobre su libro “Contra la hegemonía de la austeridad”. No tienen desperdicio. ¡Gràcies, Albert!
Dear Stuart, dear Jordi, dear friends,
Let me start by thanking CIDOB and Jordi for the wonderful opportunity that I have been offered to comment Stuart Holland’s book on “Contra la hegemonía de la austeridad”, just published by ARPA Editores.
His new book has been translated in Spanish with a strong change in title. The original title was “Europe in question: and what to do about it”. The change tells a lot about what are the political catch words in Britain and in Spain. “Europe in question” tells far more to Britons than to Spaniards. Instead, the criticism to “austerity” is much more appealing for us. I must confess that the book is much better explained by the original title.
Holland’s book is a history of his lifelong political battles in favour of a more social Europe, starting with the battle on the terms of the UK accession to the EEC, following a number of battles on the definition of a more inclusive and growth oriented Europe during the eighties and nineties, down to the last years, when the battle has been and still is on how to solve the Eurozone crisis by using anti austerity policies.
There is a fundamental continuity and consistency all along the fifty years of Stuart Holland political activism. It is impressive to read his vivid accounts on what he decided was worth his effort, and how he pushed his plans through the political and governmental scenarios. In all the occasions we see him drafting and promoting ambitious proposals that had a chance to be discussed at the highest level. Sometimes he succeeded, some others he failed. In many, he reached the point where his position got a chance to be considered by the government leaders.
I will skip some of the most important crossroads where Stuart Holland fought, against the stream, for what he thought was the best solution. The UK application to enter into the EEC, and the conditions of the entrance, where a famous episode. It is just amazing to realize how young he was when he did manage to convince Charles De Gaulle to accept the terms of a new application from the UK to enter the EEC. And it is also amazing to realize how quickly and how early he had to learn that high politics is completely unpredictable. He gave a wonderful jolly to Harold Wilson, but Harold Wilson decided to play other cards.
During the Delors years as President of the European Commission (1985-1995), Stuart Holland had a lot of influence on European affairs. His suggestions to enhance social cohesion, that always were very well politically prepared, had real impact. But the road to the euro and the first decade of the euro let him aside. He was not the proper man for the “new Labour”, much the contrary.
Let’s summarize the most pressing issue of the book: how the current economic crisis has been managed at the European Union, and what can be done to provide a better present and a better future to European citizens. Stuart Holland is crystal clear: the austerity recipe has been a disaster. The German governments have been the most influential but their understanding of what was going on was highly simplistic -moralistic to be fair. According to them, the southerners (or the peripherals) were responsible of what they were suffering because they became indebted but were unable to repay their loans. Stuart Holland makes detailed considerations on the fact that “debt” and “fault” are homonymous in German (“schuld”). This is a major problem. No consideration is made, by the German official view, on the risks inherent to give loans to over indebted debtors. What is worse: no consideration is made on the rationality to urge the repayment of a loan when the debtor is in poor financial shape. To renew loans is a much better solution. It makes no economic sense to crush your debtor under the weight of rigid repayments.
Stuart Holland has been suggesting, since the 1980s, to use the European Investment Bank (and the European Investment Fund) to promote investment in the wider possible sense (including welfare state facilities), with EIB bonds. He makes time and again the point that EIB bonds do not count as national debt for the incumbent States. He complains that no politician, and no high civil servant know this rule. The rule has been around for many years, but has never been used. The recent Juncker Plan proposal goes exactly in the direction Stuart Holland was promoting. Unfortunately for him (and for Jean-Claude Juncker), the proposal has been watered down to a modicum of public -i.e., European- money (5%), to be matched by State money, and a big portion of private (or foreign public) money.
The insistence of SH in his proposals to fight against the crisis resorting to massive public investment financed by EIB bonds has been defeated by the German symmetrical insistence in not to accept more public expenditure, especially in the peripheral Eurozone countries, those that are in most need of public investment. Luckily enough, he is insistent and persistent in his claim to promote a New Deal for Europe.
Let me now comment on some of these issues.
- On the origins of the financial crisis. In Spain the financial crisis was, mainly, the crisis of many savings banks. The subprime exposure was channelled through poor quality mortgages. Savings banks did not have shareholders. Politicians were on charge. They tended to over spend, with little internal and external control. The incumbent governments decided to switch from public shareholders to private shareholders. In some cases (Bankia -the former Caja Madrid) this made things even worse. On top of this, in Spain it has always been difficult to swallow that German saving banks, that had exactly the same problems than the Spaniards, were always fully protected by the German government from external scrutiny.
- A good deal of the financial crisis was simply over spending. Public administrations, private and public firms and private citizens -all of them spent more than convenient, both in investment and in consumption goods, thanks to over indebtment triggered by very low interest rates (the former, pre euro, German interest rates).
- I do agree with you on the disastrous effects of the German led Eurozone economic policy. The Eurozone has followed contractionary economic and financial policies, contrary to what the US have done. Only the ECB has followed expansionary policies but with years of delay compared to the US. Indeed, the European -German led- insistence on contractionary monetary policies has produced an ever more expensive euro, just the contrary of what was needed to escape the worst effects of the economic crisis.
- The Eurozone has suffered essentially the same disastrous experience of the countries within the gold standard in the early 1930s (recall Barry Eichengreen’s Golden Fetters).
- Indeed, the Eurozone will end up suffering a lost decade just as Latin America in the 1980s, and for very much the same causes. The fixed exchange rates first, and the dollarizations after, triggered massive indebtment by LA debtors. This indebtment was unsustainable. When it collapsed, the creditors, with the assistance of IMF, managed to get their money back, escaped from any risk, and left the whole problem to the nationals. We have suffered the same in Europe, and it is becoming as hard as it was in LA. This is specially the case of the countries that suffered “troika” interventions: Greece, Ireland and Portugal.
- When the economic and financial crisis came, the countries and the regions that accepted to lose their monetary sovereignity and that had to comply with the conditions of the Stability and Growth Pact, were obliged to implement austerity policies. Austerity has been very much criticized, but when there was no alternative -i.e., at the national level-, austerity was the best criterion to reduce useless expenditure and to protect critical expenditure. Many current expenditures ought to be reduced. Many investment expenditures should be reduced (and in many cases we speak of inefficient investments). What was to be protected was social expenditure. Even so, the fall in public income was so intense that everything had to be cut, but in different proportions. We all had to improve the quality of our public spending. We had to provide the same or more things and services with less income. A tremendous challenge. In most cases this implied reduction in public employee salaries. This seemed a minor effort when private employment was massively destroyed. Nevertheless, we have been hated especially for this kind of measures -that seemed the fairest when you look at them at some psychological distance.
- What is the opposite of “austerity”? Plenty? Abundance? Spending? No! Waste! There is a meaning of “austerity” that is morally right. We -public servants in the Eurozone- had to stick to moral criteria on what expenditure was right and what expenditure could be postponed or cancelled. We are convinced that any alternative government would have done quite similar policies. Indeed, all the governments in charge had to do similar policies.
- You mention the opposition between the “public”, always bad, and the “private”, always “good”, and you ask for a more balanced view. But in many European countries we currently are in the reverse situation: everything public is “good”, everything private is “bad”.
- What did citizens request? The rich paying the bill. Full stop. This was impossible in years when many rich people were getting poorer. We have seen many rich people ruined, many committing suicide. Now we have forgotten this, as a new class of rich people has emerged and growth is resuming.
- These countries (European peripherals) had to learn what was an assimetrical shock. There was no alternative to austerity because there were no means to develop expansionary, countercyclical policies. These can only exist when they are promoted at the Eurozone level.
- Indeed, the only way out of the crisis is to change monetary policy -this has, at last, been done- and to switch to expansionary policies in the core Eurozone states. This is just starting to be done. Public debt has to be renewed. It is nonsense to ask for the repayment of the debt when countries are in negative growth and to ask for the repayment of public debt when the states are in deficit. This has not been properly solved.
- There is also need of growth packs. Eventually, we have had something close to it thanks to the fall of oil price and thanks to the depreciation of the euro and the dramatic reduction of BCE interest rates.
- What to do next? The usual European crossroad is more integration or less integration. My personal taste is more integration. There is a lot to improve in terms of fiscal integration. A common currency requests a common Treasury. But many European countries prefer less integration. Perhaps the EU has to easily accept -as Stuart Holland has advocated many times- different sets of commitments among the member countries. Is what it is named “enhanced cooperation”. This applies for most policies, including investment promotion.
- On Juncker Plan, EIB, EIF, EFSI (European Fund for Strategic Investments). A bond financed investment plan could be a good idea if there was a good control on the quality of projects. But what we see is completely disappointing. Only politics -in the bad sense of the word- count. Not all the countries are in the same situation regarding investment, and not all the states are equally reliable. For a Catalan citizen like me, I am very much afraid of the investment priorities of the Spanish government. The Spanish state in action is a nightmare.
- If the bond financed plan is mostly about current expenditure, this can trigger criticisms going far beyond the “Merkel consensus”. It would be valuable to nuance what kind of social, health, educational, urban regeneration, or environmental expenditures do you propose to consider.
- Is this enough to assist European citizens in their resistance to globalization trends that reduce European wages (even if they increase welfare all around the developing world)? I doubt it. My own taste is more European common policies, more integration.
- But… what can be left to nation states? We are confronted with the end of the subsidiarity principle. Nation states are hunting for more powers and they only find them at regional level (see France, Italy and Spain).
- Is there a way out of the EU? Certainly not for the countries that are in the Eurozone. The monetary integration has been so intense and massive as to make it fully irreversible. We have to cope with what we have. This is why Stuart Holland proposal deserves full attention!
To sum up, Stuart Holland’s book is wonderful because it is all about how to rethink the world where we are. It forces us to think, and it suggests how to act. Let’s hope it will have an impact at the European top leadership!
Thank you so much, Stuart!