Antonio Lettieri – A Possible New Season for the Euro

An analysisof the current EU/euro crisis from the Italian perspective. 

For the first time the majority in the European Parliament becomes unstable after the loss of consensus of the two dominant parties. The centre-left parties suffer a debacle in the three major countries of the eurozone.

Antonio Lettieri is Editor of Insight and President of CISS – Center for International Social Studies (Roma). He was National Secretary of CGIL; Member of ILO Governing Body,and Advisor of Labor Minister for European Affairs.(

Cross-posted from Insight

European union and Italian flags breaking apart

The election of Ursula von der Leyen as the head of the European Commission with a majority of only nine votes (383 out of 747) was a cause of surprise and bewilderment . The Commission has the task of asserting its positions to the 28 EU member states governments. A vast and demanding task, indeed, that would presume a strong and widely supported leadership hardly guaranteed by a president elected with such a strong opposition 

But, on closer inspection, it is a superficial appreciation. It is not the first time that the Commission president has been elected with a very narrow majority: the conservative Portuguese  José Manuel Barroso was re-appointed in 2009 as President in 2009 with 382 votes out 718.

Yet the surprise must be found in a different direction. The majority has been reached with the confluence of European parties’ representatives which are light years away from the traditional parliamentary majority. In the last 40 years, since the establishment  of the European Parliament in 1979, the majority has always remained stable in the hands of the two main parties, the Conservatives and the Social Democrats.

1.     After the recent elections they no longer have the majority; and a new one must be reached from time to time through the confluence of the representatives of the different European parties. As an unpredictable consequence, the new President, Ursula von der Leyen owes her election to the votes of governing parties of Poland , Italy (the Five Star movement) and Hungary which have been in conflict with the sorting  Commission, and are, in many ways, considered on the fringe of the European establishment.

Ms. von der Leyen rejected the criticisms regarding the narrow majority and above all its composition, pointing out that it was not her job to distinguish between the votes cast in secret . Yet she has clearly expressed her knowledge of the layout, declaring that she will be open to seeking different majorities in Parliament when it is necessary in relation to  different issues.

In other words, the European Parliament for the first time acquires a decisive role in the legislative process. And a new dialectic may emerge between the Commission in its function of government and the Parliament, which can use its codetermination role even in opposition to the policy promoted by the Commission. This was a clear reason for regret for the two main political groups – Socialist and Conservatives – used along many decades to governing without effective opposition.

Despite this radical change in the composition of Parliament, mediation to elect the main leaders of the European institutions took place between the French and German governments. With the appointment  at the helm of ECB of Ms. Lagarde (an old French politician, former Treasury Minister of the Sarkozy government) Macron has averted the appointment to the presidency of the ECB of Weidmann, director of the Bundesbank, considered a hawk.

On the other hand, Germany has secured the presidency of the Commission with Ms.von der Leyen, albeit having had to give up the first candidate of the CDU-CSU Manfred Weber, creating a great disagreement in the German parliamentary groups. Finally, Charles Michel, the Belgian liberal premier, supported by Macron, was appointed president of the European Council, the role currently held by the Polish Donald Tusk. In short, the three main EU command posts were the result of a German-French agreement.

2.  At the birth of the euro, the European Union majority group was formed  by the Social Democrats who led the governments in the bulk of EU countries. In many ways the transition to the single currency was primarily their initiative. And principally, it was  the job of the French socialists under the leadership of Mitterrand, Delors and Jospin.

The picture is now upside down. In France, the European elections have sanctioned the substantial disappearance of the Socialist party.  A pillar of French politics during the last century, and still in the recent years with François Hollande at the head of the government.  The result of vote in the national election of 2017 around 6 percent was  a humiliating result. A result still reiterated with the European elections.

On the other hand, the German SPD – born at the time of Karl Marx and, after the ideological update of Bad Godesberg, still the protagonist of German politics under the leadership of Willy Brandt, Helmut Schmidt and more recently Gerhard Schroeder – has been reduced to a minor party with about 15% of the votes behind the Green Party. A dramatic fall that continues up to 12% of the voting intentions, while the Greens become the first party, according to the most recent polls ..

As for Italy, once the home of the largest communist party in the West and the secular history of the socialist party, the ruling Democratic Party – composed of the last heirs of the Socialist Party and Christian Democrats – was seriously defeated with the national elections of 2018, when after five years of government it earned only 18 percent of the votes. And now reaching about 22 percent in the recent European elections against the 41% obtained in the 2014 elections.

So we have witnessed the deconstruction of three fundamental pillars of left European history  and of the birth of the euro of which they had been its main architects

The case of Spain is different. Here the PSOE, the Socialist Party led by Pedro Sánchez, returned to being the first party with the general elections in April, after a long disastrous ase dominated by the Popular Party led by Mariano Rajoy. But having rejected the possible coalition with left-wing Podemos, Sánchez will try to form a minority government by the end of September. Otherwise, Spain will face new uncertain elections.

Although to a lesser extent, conservative parties have not escaped the crisis. Macron’s La Republique en marche received a deceptive 22 percent of the votes in France, behind Marine Le Pen’s Rassemblement National. While in Germany, the CDU-CSU alliance, with around 28 percent of votes, has fallen to the lowest election result of the last seventy years.

The astonishing set of these results is not accidental. The Eurozone is the area with the lowest growth and the highest unemployment rate in the developed world. This result is all the more significant if we consider that the setback does not affect the entire European Union, but in particular the eurozone.

Britain has been torn apart for over two years by the debate on leaving the EU. Yet its growth rate, although low, is still higher than that of France or Germany. The growth of Sweden is also higher than the euro area average It is even more interesting to observe the countries of Central and Eastern Europe that have remained outside the eurozone. Poland, which is the largest of these, grows at an annual rate of between 4 and 5 percent, with an unemployment rate of less than 4 – a development that has allowed some of the past emigration in Western Europe to be reabsorbed,  and also incorporate migrants from Ukraine.

3.   The official explanation in Brussels is that the euro countries suffer from reduced growth due to their low productivity. Germany openly contradicts this assertion, being the country with the highest trade surplus (between 7 and 8 percent of GDP) at a global level – a record that couldn’t  be reached without a high productivity of its manufacture sector.

So Its permanent low growth has to be attributed to the deflationist domestic economic policy aimed at achieving budget parity, sacrificing public investment and private consumption. A paradoxical policy that is at the origin of its negative growth in the second half of 2018 and a disappointing growth prospect of around a half a point in the current year.

Italy is further proof of the misdiagnosis that attributes its low growth to the lack of productivity and competitiveness. In fact, Italy ranks fifth in the world for manufacturing trade surplus, after China, Germany, South Korea and Japan. It is clear that low domestic growth cannot be attributed to a presumed low productivity and competitiveness in international markets.

The problem is instead the collapse of internal consumption, in turn determined by the collapse of investments. A condition at the origin of a high level of unemployment that continues to fluctuate over 10 percent, reaching the aberrant level of 20 percent in Southern Italy.

The trouble is not a presumed low productivity, but the inadequacy of public and private demand for consumption and investments. Clearly the solution is to promote public investments with a high employment rate index. The Eurozone fiscal rules block a growth policy, imposing budgetary parity as the main goal, regardless of the growth rate – a lethal therapy as has been shown over the last decade.

As we have seen Ms. von der Leyen said to Repubblica: ” We will try different majorities. This is a necessity deriving from the fact that there is no pre-established majority in the European Parliament”. If this turns out to be a new model for managing the euro area, it would mean achieving greater autonomy for the Member States in relation to their different economic policy needs to develop conditions of growth and employment.

Italy, alike the majority of other member states, must take a new path. Budgetary policy cannot be defined in terms of abstract parameters but in relation to specific multi-year public investment program specially selected on the basis of their multiplier coefficient in increasing  growth and employment rates. Initially this inevitably means an increase in the public budget deficit.

It makes no sense to reduce public investment when private investors are in retreat due to permanent economic stagnation. A condition of underdevelopment that cannot be compensated simply by increasing the export rate which, as we have seen, is already the main support for growth. The increase in public spending is not a luxury, but the only tool left to renovate sectors that by their very nature depend on public investments such as health care, education, the environment, the rehabilitation of urban areas, together with the development of Southern Italy reduced to one of the most disadvantaged areas of the euro area.

 There is no other effective way to reduce the current debt relative to GDP, without a sharp increase in national income.. Until now, the opposite has been done in the eurozone policy: the failed attempt to reuce public debt in a context of substantial economic stagnation.

A new approach is possible as wll as needed. But it remains uncertain, given that it is a field of conflict at national as well as at  European level. Next fall will tell usif the eurozone will find a new operating model or continue on the same old path. In this case, its bankruptcy will not depend on the euro but on the policy that unsuccessfully and stubbornly has been superimposed on it.

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