Antonio Lettieri – The Paradoxes of the Euro and the test of May’s European Elections

The euro is not at stake, but the policies that Brussels, with the complicity of national governments, imposed by making the eurozone the area with the lowest growth and the highest unemployment in the developed world.

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

We do not know how the European Parliament will be reconfigured after the elections at the end of May. But one thing is clear. It is the first time, after 40 years of existence, that the new Parliament will lack a pre-established majority. The two dominant, conservative and social-democratic or center-left parties, will lose votes and seats, according to all forecasts.

The result will be particularly significant in the eurozone. It is a matter of fact that, at the end of the last century, the social democratic parties played a leading role in the move to the euro. Now they will suffer the worst electoral outcome, as it was the case in France with the disappearance of the Socialist party of François Hollande, in Italy with the marginalization of the Democratic Party, in Germany with an historic downsizing of the socialdemocratic SPD.

1, We must remember that the euro was in many ways a French invention, the main European goal of Mitterand and Delors. It was not an objective of the unified Germany.  The unification had solved a historical problem and the Mark was the strongest currency in Europe and among the most respected in the world. But Kohl guided the liquidation of the Mark without hesitation to open the way to the euro as a counterpart granted to France in exchange for the unification of Germany.

At the beginning of the new millennium, indeed, the euro was born into a climate of great optimism. The offices of the European commission expected that within a decade the boost to economic growth arising from the single currency  would have eradicated unemployment in the European Union, reducing  it at a level of just 2-3 percent.

It didn’t work out that way. The early years were disappointing, but they were considered a transitional phase. But in 2008-2009 the financial crisis born in America hit the Eurozone especially the French and German banking systems, that had been involved in the American real estate crisis.

2. In America hit by the crisis, many economists had feared the catastrophic collapse of the economy. It didn’t work out that way. The United States, drawing lessons from the experience of the Great Depression of the 1930s, promptly adopted radical measures to attack the financial roots of the crisis culminating in the collapse of Lehman Brothers in the early autumn of 2008.

The comparison with policies in the European Union is enlightening. The first US intervention was the rescue of the banking system. But the bailout of the banks proved insufficient to solve the crisis. Nor was it sufficient to lower the interest rates to around zero to revive the economy. The horse did not drink. The economy was trapped in the recession, and unemployment was dramatically increasing up to 15 million unemployed.

Clearly, monetary policy blocked the crisis but it was not able to set up the solution. Ben Bernanke , president of the Federal Reserve, had used all the possibilities offered by the monetary maneuver, essentially eliminating interest rates and expanding credit. Yet he was aware of the limits of the monetary policy,

Bernanke had conducted his academic studies investigating the crisis of the 1930s. He was now convinced that the current crisis could not be solved with monetary intervention alone. “As Keynes had first suggested in the 1930s, in an economic slump public spending could replace private spending for a time – he writes. With the economy still in free fall and with short-term already near zero, the economy certainly needed fiscal help – increased government spending, tax cuts to promote private spending, or both” . (The Courage to Act, page 387).

It was therefore necessary to combine the monetary policy, based on the reduction of rates and the QE, a particularly expansive fiscal policy. But this was a choice for the government, according to Bernanke. And it was the choice that Barack Obama made as soon as he arrived at the White House, deliberating an expenditure of just under 800 billion dollars to boost consumption and investments.

It was a crucial turning point that recalled Roosevelt’s policy at the time of the Great Depression. A public expenditure of 800 billion dollars was then equivalent to more than 5 percent of the American national income – that is to say, the equivalent of 80-100 billion euros of additional public spending for an economy like the Italian or the French one.

For many American economists of democratic tendency it was an insufficient intervention as it should have been at least one time and a half, if not twice, bigger. But this remains a debate for economic historians. The fact is that the decision had positive effects. In the summer of 2009, after a year and a half of crisis, the economy slowly began to grow again. The important injection of public spending aimed at sustaining consumption and boosting investment had paved the way to recovery.

3. The opposite happened in the eurozone. The banks had been saved at the expense of the public budget, doubling the public debt in some cases, as happened in Spain .But adding salt to the wound of the recession, the European authorities imposed on the member states a program aimed to abate the deficit by increasing consumption taxes and reducing public spending –  essentially, blocking public investment and reducing social spending, starting with  healthcare and pensions. According to the theme evoked by Bernanke, the European authorities reiterated President Hoover’s policy that had triggered the Great Depression in the 1930s in the United States.

Ten years after the beginning of the crisis the comparison between the outcomes in the eurozone and in the United States, where the crisis began, is both instructive as it is appalling.  In  the United state, under the impulse of expansionary measures adopted by the White House,  the recession was stopped. The fear of a new 1929 had been overcome. Since then, growth in America has undergone continual increase over the course of a decade, achieving the longest growth period in recent American history while unemployment has finally been reduced to 3.6 percent, the lowest in the last fifty years.

Instead, during the same decade the eurozone has been the area with the lowest growth and the highest unemployment in the developed world. In the second half of 2018, both Italy and Germany experienced a new recession. And, according to the forecasts of the Monetary Fund, 2019 will end in Germany, the leading economy of the eurozone by virtue of its exceptional trade surplus, with a GDP growth of a mere 0.5 percent. Ten years after the 2008-09 crisis the eurozone picture, compared with the rest of the developed world, could not be more disconcerting.

Il Sole 24 ore, which cannot be suspected of anti-euro bias, referring to Italy,  recently opened the first page with the following title: “Middle class getting poorer: 12 percent of income lost since 2008” (06/05/2019). The reduction of income in real terms refers to the wide range of middle classes with an income of between 15 and 55 thousand euros. But for 44 percent of the population with an income of less than 15 thousand euros, the “decline – specifies the newspaper of Confindustria – is more marked, exceeding 13 percent”. Obviously, averages mask different situations. In Lombardy, families with an annual income of less than 15,000 euros are 35 percent of the total; in the Mezzogiorno they reach, and in Calabria, exceed 60 percent.

4. This is the framework in which voters will be called to vote for the new European Parliament on 24-26 May. Political propaganda in the vast majority of the European press tries to convince voters that the object of elections in the euro area is the very existence of the euro. This is a way to confuse the issue. Indeed, there is no relevant party in the euro area that puts the elimination of the euro into its platform. Not even Marine Le Pen of the French extreme  right or in Italy the League have done it. Nor is the euro put into play by the extreme left as would be the case with Podemos in Spain. And even the five-star Movement in Italy, which in the past has moved on an ambiguous line, has elaborated a platform that now accepts the existence of the euro.

If the clouds of propaganda are dispersed, the differences between parties is based not on the euro, but on the policies imposed by the eurozone authorities and by the national governments that used them as a shield for their domestic neoconservative policies. In effect, the euro is not at stake , but the policies that Brussels, with the complicity of national governments, has imposed in its name.

When in November 2008 the Americans voted against the Bush’s Republican Party, they voted against a policy that had caused the most serious economic crisis after 1929 not against the dollar, and they opened the way to a new administration that, as we have seen, triggered  a turning point in economic and social policy.

As it is normal in democracies, the vote has (or should have) as an objective the policy pursued by governments and its results. In the European Union, more precisely, in the euro area, the policy entrusted, with the complicity of national governments, in Brussels, has given the worst possible results. And all the elections  that have taken place at a national level in the last two years have punished the governments that have followed the policies imposed by Brussels.

The risk is that the  European elections at the end of May will take place in the cloud of great misunderstanding between the continuity or the liquidation of the euro, obscuring the issue on which it is worth voting: the continuity or the radical change of the neoconservative policies that have accompanied the euro in the past decade – a lost decade. We have to wait and see. 

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