This week, EuVisions takes part in the 11th edition of the Trento Economics Festival, whose theme this year is “Where growth takes place”. For the occasion, this Ideas Monitor focuses primarily on economic matters, with a special emphasis on their territorial dimensions.
Riccardo Crescenzi, Davide Luca and Simona Milio, on EUROPP, tackle the claim that the financial crisis affected European countries in radically different ways, with some countries emerging relatively unscathed, and others suffering extreme economic problems that still persist today. Contrary to the common belief channelled by the media, the geography of the impact of the crisis cannot be captured by a simple North-South divide. The evidence unveils a significant divide between the regions of “old” Europe and the new member states, and highlights the importance of pre-crisis national trade patterns and government expenditure for the post-crisis recovery within individual regions. Finally, the results suggest that human capital is the single most important regional factor associated with better resistance to economic shocks.
Greece’s new, old deal
On Social Europe, Daniel Munevar debates the newly struck deal between Greece and its creditors, and bitterly concludes that political considerations have once again trumped economic logic. Greece has to continue its commitment to unrealistic fiscal targets while debt relief is expected to take place somewhere and somehow down the line and, at the same time, the future of the country continues to be decided by political calculations within the Eurogroup. While the deal might buy the country some time, it will ultimately fail in its stated goal of ensuring growth and stability for Greece. For the Economist, the deal extends the long Greek and European tradition of “down-road can-kicking”. Yet for Greek businesspeople, any agreement is a welcome promise of financial stability, even if it required a costly tax raise passed by the Greek parliament on May 22. Paul De Grauwe argues, still on Social Europe, that ironically there has been debt relief in Europe, the problem is that Greece was the only country not included in it. Since March 2005, the European Bank has been buying government bonds from Eurozone countries, and then refunding each country of the interests they paid at the end of each year. However, Greece has been excluded because its bonds do not meet the quality criteria required, but this leaves us with the paradoxical conclusion that only those who don’t need debt relief can benefit from it.
The Failure of Austerity
On Social Europe, Simon Wren-Lewis writes about his working paper on why austerity is nearly always unnecessary, and why the austerity mistake happened in the first place. The case against austerity is not at all new, and the allusion to Keynes is evident in the paper. However, such arguments were ignored due to the opportunism of the political Right, which appealed to arguments based on equating governments to households, at a time when many households were in the process of reducing debt or saving more. Aditya Chakrabortty, on the Guardian, claims that even the most astute critic of austerity commits two mistakes: to think that it is about spending cuts and tax rises; and that it is meant to reduce how much the country is borrowing. What such commonplaces do is to reduce austerity to a technical, reversible project. But austerity is far bigger than that: privatisation is the multibillion-pound centrepiece of Osborne’s austerity – yet it rarely gets a mention from either politicians or the press. However, privatization turns out to be a redistribution from the poor to the rich, which does not bring better management, and while it does bring new investments, it is always the public that ends up paying for it. On openDemocracy, Johnna Montgomerie talks about austerity as an elite narrative that informs a set of policies whose outcomes are not yet fully known–they are contingent, contested, and uncertain. Framing austerity as an experiment offers an important analytical counterweight to the standard political economy framing of the post-crash period, by using established macroeconomic categories to interpret the relative success or failure of general policy platform. Focusing on the “big end of town” assumes a level of coherence to elite policy making that unwittingly ignores austerity’s incoherence in the “small end of town”.
Social Europe answers?
Anastasia Poulou analyses on Social Europe the preliminary outline of a European Pillar of Social Rights debated by the European Commission on March 2016. Its first objective is to overcome the negative effects of the Eurozone crisis on the labour markets and social welfare systems of Member States, thus responding to criticism of imposed aggressive austerity, in order to give greater prominence to social considerations in the coordination of economic policies. The draft revolves around three main headings: equal opportunities and access to the labour market; fair working conditions; and adequate and sustainable social protection. While the initiative certainly has potential, its unclear legal status, avoidance of the language of “rights”, and subordination to economic goals like fiscal sustainability and competitiveness prevent wider optimism.
Or rather more Innovation?
Markus J. Beyrer suggests, on Euractiv, that one of the problem with Europe is lack of innovation. In China, South Korea and North America the R&D effort is up to two times greater than in Europe. This will ultimately reduce our competitiveness. In Europe a large part of the budget is devoted to the Horizon 2020 program, which supports research. But public financial support is not enough. Innovation also needs a supportive regulatory environment. While many cherish innovation, too often the reflex is to first look at a new product’s risks as opposed to its benefits. A principle of innovation should thus be ingrained in European policy making to complement well the precautionary principle and existing risk management regulations.
Photo Credits CC: dualities