Can we design a “New Deal” for our European Union countries that are in profound crisis?
And – because to me, this is the real, underlying question – to what practical end? Aside from being an intellectual challenge, how could the application of measures designed in the first third of the 20th century for the United States help us to “come out on top”, that is give our fellow citizens, if not the assurance, at least the prospect of a better future?
In fact, I believe that we can, and what is more, that we must.
My contribution to the debate aims to make clear the main characteristics of our current situation and the reasons that allow us to equate it with the one that Roosevelt faced in his time. Then I will try to identify the main practical conclusions that could be drawn.
Our current situation is almost, if not totally, without precedent. Institutions of the Union have broken down or are in a cataleptic state according to some, faced with developments that no leader had anticipated or knows how to handle. As for the Eurozone, it quite simply is threatening to explode. “Tonight, we improvise…” This title of a Pirandello play could, sadly, serve as the byword for a European Union in trouble. Some time was gained, notably, early in 2012, thanks to two LTRO injections by the ECB (long-term refinancing operations of more than one trillion Euros in all!), one in December 2011 and one in February 2012. But nothing has been fixed. Problems simply have been pushed down the road.
If the Eurozone, at the core of the European Union, where the 17 strongest economies have come together around a common currency, is in trouble, it is because it is a weak link in the monetary power struggles and currency wars of today.
It is not so much the level of the debt that is important. The United States, as we know, lives with a debt that is 100% of GDP, along with a staggering public deficit of 8.5%. Objectively, the situation of the United States is worse than serious and should be sanctioned by “the markets”. But it is not. At least, not yet. The same goes for Japan, which has languished economically for more than ten years and carries a record debt of 200% of GDP. While waiting for the announced rise in value of the Chinese yuan, as well as of the currencies of emerging economies, in general, the dollar, in spite of everything, remains the currency of reference, 40 years after the suspension of its convertibility and the consequent end of the Bretton Woods international monetary system. Meanwhile, the Japanese yen remains a strong reference currency as well.
Why, then, these repeated attacks on certain countries in the Eurozone? Because they are weak links. For financial markets – if it dare be said – the best is always still to come. Even if only because they are so weak: always too little, always too late. Yet, if speculation is not restrained, it is encouraged. The Greek example proves the case, alas, only too well. After it was decreed that it was not necessary to wipe out any part of the debt at all and that austerity measures would be enough, one year later it became necessary to come to terms with what had been reality in the first place and wipe out 21% of the debt in early summer 2011, then another 50% in September until, finally, debt reduction amounted to 53.5% … while Greek GDP shrank 18%!
The weakness of the Eurozone is inherent to it, since it was established with the Union, despite all the fiscal disunity rampant in Europe since Maastricht. Opened to all the crosswinds of free competition, having renounced all control of the movement of capital, the Eurozone consequently is totally at the mercy of the markets and the demands of a “beauty contest” synonymous with being “business friendly”, since any kind of protection has become a handicap in the competition for the “most attractive territory”. The result, among other things, is the fiscal abdication that we have seen since the end of the 1990s: considerable loss of public revenue, with the sudden appearance of public deficits and debt. In France, this is generally considered to be the reason for about a quarter of the national debt – slightly less than 20 GDP points – plus downward pressure on spending. It also leads, as a result, to a fiscal policy that seeks fiscally to spare companies1 and the wealthiest; in short, to an increasingly less redistributive fiscal policy, which, of course, only intensifies inequality.
Finally, at the same time that it has been opened to the ostensible benefits of free and unrestrained competition, the Eurozone is a highly integrated economic area. For Europeans, globalisation means first and foremost: Europe. For France, as for all of its partners, two-thirds of foreign trade is conducted within the EU. Germany is its number one client and its number one supplier. Nearly as many French imports come from Belgium and Italy as from China! Yet, this zone, which is, in fact, economically integrated, does not have a real policy of integration.
Its ridiculous EU budget makes this impossible. As a result, the interior coexistence of areas with heterogeneous and uncoordinated policies only can lead to the pursuit of divergent directions. In reality, the EU of 27 is now made up of three distinct groups: a “North” (Germany, Austria, the Netherlands, Belgium, Finland, Luxembourg) that is economically in surplus; a “South” (France, Italy, Spain, Portugal, Greece) that has a trade deficit with the North2 and an “East” that tries to make the most of these conditions and of its assets – a low-paid labour force with low social expenses and protection – to become, if not the “workshop of the world”, at least that of Europe. None of this is salutary and can only, on the contrary, intensify divisions. Beyond the divergence of direction and the defence of self-interests, the risk of explosion looms.
In this configuration, it is obviously the weakest economies that are attacked by the markets and that become the guilty “grasshoppers” considered improvident by the stronger, “ant” economies within the EU. At the end of 2011, the sad result of repeated purges since 2008 turns out to be regression that ranges from severe (-18% in Greece) to serious (-5% in Spain, Portugal and the United Kingdom) and that makes the area into a zone of stagnation tending toward depression (-1.5% for the EU or the Euro zone). As long as “purge and bleed” – the false remedies prescribed by the doctors of Molière – remains economic liberalism’s prescription, we all can die in good health!
The systematic application of monolithic thinking to each separate state that is part of an integrated whole only can prolong and aggravate the overall recession. This multiplier effect is well known and even quantified: deficit reduction leads to lower growth rates – in France, from 0.5% to 1.3% for each percentage point of GDP knocked off the deficit, according to macroeconomic models. This effect is multiplied by a factor of between 125% and 150%, according to the OECD, when member states apply deficit reduction policy simultaneously. The illness is contagious!
In the past, consumption in some countries stimulated growth in others. In the future, the situation, inevitably, will be reversed: austerity imposed on some will export their recession to others. And Europe will become like the animals in the fable, sick with the plague: grasshoppers or ants, “not all died, but all were affected…”
In other words, and this goes for the economy as well as for the financial system, from now on the European risk is systemic. Our economies are tightly interdependent and there is no one solution that can apply to everybody. The only way to survive is together, which is why we need a common policy to emerge from the crisis, a “New Deal” for the Europe of the 21st century.
Beyond obvious distinctions, of place as well as time, what are the common denominators for Europe and the United States – in Roosevelt’s time and now?
Let us recall the basic facts: As of March 4, 1933, the newly elected President Roosevelt tackled the economic crisis in the United States by launching a concerted reflation and social justice plan that came to be called “The Three Rs: Relief, Recovery, Reform”. Relying on the authority of the Federal government, the plan sustained, not without enormous difficulty, this initial impetus until 1938.
Today, like Roosevelt, we have a political opportunity to alter the distribution of added value that has fundamentally shifted everywhere over the last 30 years in favour of capital, which is the basic cause of the crisis. Europe should be a space of fiscal rearmament that would lead to the restoration of balanced budgets, the indispensable financing of recovery and greater social justice. This is an essential tool.
Like Roosevelt, we, finally, must tackle finance. It is easy to forget that the “New Deal” was not simply a Keynesian stimulus plan. It was also – and from the start, since it was the first text approved by Congress – a complete recasting of the financial system. The “Emergency Banking Act” was passed on March 9, 1933. It effectively abandoned the gold standard and controlled movements of capital. In June, the renowned Glass-Steagall Act not only limited associations between commercial banks and securities firms; it also tackled conflicts of interest. These measures have striking contemporary relevance and are urgently necessary! But beyond these similarities, and differences, of course, there is the fact that the New Deal was backed up by a state.
First, a state unified by its political institutions, rule of law and labour climate. The need for Europe to become a homogenous social space, or at least to commit to a process of social harmonisation, is obvious, but far from a reality. However, when it comes to wages – establishing a minimum wage in each country according to national standards and setting a timetable for convergence over the long term – retirement age or social protection, the Europe of today does not seem unduly preoccupied.
Finally, a state that can declare and impose its will. By firmly regulating the economy as the Roosveltian New Deal did with: the Agricultural Adjustment Act, the National Industrial Recovery Act …with the support of ad hoc federal agencies created for the purpose: the Federal Emergency Relief Administration or agencies charged with implementing infrastructure policy, like the Tennessee Valley Authority which has become a world renowned symbol. All this takes money, a real budget, with acceptance of the fact that there could be a deficit. Nothing like this exists, of course, in the Europe of Maastricht and Lisbon, which does not collect taxes and which lives with a 2012 budget of 132.7 billion in payment appropriations which represents 1.01% of the Gross National Income of the zone as a whole!
This Europe is an economic power, since it leads the world in terms of GNP, but since it is politically castrated, it can be nothing more than a virtual power. Under the circumstances, implementing a new New Deal certainly would require dealing with a different Europe.
Beyond these few benchmarks and indicators, what conclusions can be drawn from this historic, and at the same time geographic, comparison between the Europe of today and the United States of the first third of the last century? In short, “What initiatives would respond to the most pressing challenges faced by the left?”
First, we need to acknowledge that these differences are major ones and that they must be overcome by pragmatically employing the whole range of possibilities, i.e. by:
Politically – and no longer economically – the situation is, everywhere in Europe, characterised by strong, and often very strong social and labour movements. They express general outrage and revolt in the face of an intolerable situation; they can certainly come to undermine and even bring down the powers that be. But in spite of their strength they so far have not been able really to modify the order of things. Everywhere in Europe, there are powerful – but impotent – social movements.
This absence of a real political outcome is glaring and widespread. The essential question is how to capitalise on these movements, or, more precisely, to provide them with political outlets which they so far have not found. Under the circumstances, our task – as the activists, labour leaders, community organisers and intellectuals that we are – is henceforth to contribute, first, to the definition of these outlets, which must be shared and not particular to each country, even if it then becomes incumbent on each one to apply them to their specific situation; then, to the construction of the needed European political convergences. To do this, we must, it seems to me, organise ourselves into a network where we can share, debate and identify, before proposing common responses to this common challenge that we all face.
So, beyond this first meeting, it seems to me absolutely essential that we meet again very soon in order to act on this perspective and formally take steps to build a European network that could call for a “European New Deal for the 21st Century”.
To advance in this direction, I propose that this future network be built on the basis of the six following benchmarks, which at the same time are demands that must be satisfied before we can achieve the transformation we want. In order of urgency, if not importance:
Talk given at the transform! workshop: “The State of the E.U. crisis – the Urgency of Alternatives”, Brussels, 8-9 December 2011
1) The Council of Obligatory Tax Contributions, which reports to the French Court of Auditors, confirms that from 1995 to 2008, the “average (corporate) tax rate” in the European Union dropped 10 points, from 38.1% in 1995 to 27.4% in 2008”. “Les prélèvements obligatoires des entreprises dans une économie globalisée”, La documentation française, October 2009, p.95.
2) Half the French trade deficit is with other EU countries. The specific deficit with China and the energy bill make up the other half.