Europe’s turning point
It is intriguing to think that, dramatically, the future of the West depends on the future of the country where the West itself was born.
The decision of whether Greece will stay or leave the Eurozone will have a tremendous impact on Europe and on the United States of America. Unsurprisingly, most European countries are making an effort to avert such a departure, as its effects are deemed to be devastating.
Greek people — demos, from which the word ‘democracy’ originates — have had their say in recent elections. They are not prepared to tolerate even deeper cuts and, most of all, an agenda of austerity which punishes working people and does not deliver. It is staggering to think that the future of Europe is so entrenched in what the demos of Greece will decide at the upcoming elections, which now look like a referendum on the euro.
As we all know, parties pursuing a policy of austerity, but with no grip on growth, have been rejected throughout the continent. I have always claimed that the fact that we do not have a European demos, only a European currency, has been a crucial factor underpinning the lack of common politics in Europe, therefore hindering its success and future.
However, the results of polls in the UK, Greece, Italy, Germany and France show that Europeans have expressed their verdict unequivocally: they are fed up with economies that do not work for them.
We should bear in mind that this burst of anti-austerity feeling throughout Europe is not a revolutionary or utopian idea: it is in tune with what most economists have been reiterating for months. This is the time to combine long-term deficit reduction with short-term stimuli; to encourage growth by means of innovative policies; to reduce youth unemployment; invest in infrastructure; and get people back to work.
In other words, we should be rigorous with our finances, but have growth as our key priority. The mantra — that states are like households and, therefore, when families are presented with debts the way forward is by saving and reducing spending — is misleading. Countries are not like households, and cannot be run by only looking at public sector liabilities.
The situation in our country shows this very clearly. The prime minister claims that it is Europe’s fault that the UK is in a double-dip recession. He could not be more disingenuous: he has caused this situation himself, pursuing an unsolicited agenda based on the orthodoxy of austerity which, unsurprisingly, is not working.
In his speech on the economy yesterday he said that, despite the situation in Europe, we are doing well. I was appalled: on what is his assertion is based, seeing as how our GDP is stuck at 4% below its pre-crisis peak, in what is the longest slump since the nineteenth century, and with no end in sight? Mr Cameron keeps repeating that ‘we cannot blow the budget on more spending and more debt’. Alas, as economists from all over the world are saying, this is the time to invest in growth.
As Jonathan Portes, director of the National Institute of Economic and Social Research, puts it: ‘With long-term government borrowing as cheap as in living memory, with unemployed workers and plenty of spare capacity, and with the UK suffering from both creaking infrastructure and a chronic lack of housing supply, now is the time for government to borrow and invest. This is not just basic macro-economics, it is common sense.’
Will the UK be the only country in Europe that fails to address its incorrect policies? The effect of not doing so will be devastating and, as Martin Wolf writes in the Financial Times, will result in a ‘permanent reduction in the output of the UK, not to mention permanent damage to a whole generation of the unemployed’.
On the continent, François Hollande can drive a major shift in European politics. He has Mario Monti, the Italian Prime Minister, as an ally. Monti is a wise man, who knows that financial rigour goes hand in hand with growth. The United States is also welcoming Hollande’s role in pursuing an economic alternative to Angela Merkel’s austerity, with Obama asking for a plan for growth.
The German economy, rooted in regional banks, solid investment in jobs’ creation, innovation, technology and infrastructure, demonstrates that there is a way forward. To achieve it, Angela Merkel needs to be prepared to allow, as Mariana Mazzuccato argues in The Guardian, countries such as Greece, Spain and Italy, ‘to make the strategic investments Germany has’.
And indeed, it appears that the German chancellor is prepared to offer stimuli for growth, and is open to discussing a growth compact to go alongside the fiscal compact.
The next few hours will be crucial for the future of Europe, but one thing can be said. We are at a turning point: Europe can only be saved by achieving a different role for the European Central Bank and the European Investment Bank, with stronger common policies and political power. Otherwise, the European project will fail.
Our prime minister is out of touch on mostly everything, including Europe. He is looking at the crisis as if it does not belong to him, trying to give lessons to European leaders, when all what he has done for his own country is to promise recovery and deliver recession.
This is not the role Britain deserves to play. Europe is crucial to British businesses, jobs and people, and we should support it. For Labour, I think this could constitute the basis of a solid new narrative on Europe, rooted in the core idea that we need to reform the economy to make it work for working people.
Instead of carping helplessly on the sidelines, we can actually be at the forefront of the debate: in the room when decisions are taken, contributing to the future of our economy, and delivering it for sake of our children.
Ivana Bartoletti is editor of Fabiana and a former policy adviser to the Romano Prodi government.