FacebookTwitterGoogle+RedditEmail

No Exit in EU

by JEFFREY SOMMERS

Peter Praet, Chief Economist of the European Central Bank, defended the ECB’s policies at Levy Institute’s annual Minsky meeting at the Ford Foundation this past week in New York that. In his remarks, he retreaded the EU’s wheels with the same rhetoric of inflation fighting and fiscal tightening that drove the EU off the road and into the ditch to begin with.  The effect of his pronouncements of EU intentions was to only further reveal the growing gap between reality and ECB ideology over their inability to successfully address the euro crisis.

Europe risks becoming a real lived version of Jean Paul Sartre’s No Exit in which its constituent countries are locked into a dysfunctional currency union for an eternity. Euro entry has been a Faustian bargain.  There is presently no exit clause once joining, except exiting the European Union itself. Entry promised membership into a rich club of nations in which Europe’s southern periphery and former Soviet bloc areas to the east would converge with Europe’s richest nations.  The devil of membership, however, is in the details.  Euro rules preclude a wholesale list of policies historically demonstrated to develop nations.

In short, the answer to the question of whether Europe’s periphery is merely in purgatory or eternal damnation rests with whether Europe is willing to undertake a revision of the rules guiding the relationships among its constituent members.  The European Central Bank understood the currency union would be complex, but their assumptions regarding rules that create economic development and stability have proven erroneous and mitigate against convergence and growth across Europe.

Among the faulty assumptions is that markets are the best arbiters of risk and worthy investments.  This is enshrined in article 123 of Treaty on the Functioning of the European Union.  At best, the rule was predicated on the idea that past monetary imprudence (think Zimbabwe or Weimar Germany) of some nations meant governments can’t be trusted with monetary and fiscal independence.  Not every country, however, is Zimbabwe with a dictator serving several decades, or a Weimar Germany saddled with inflation generating war reparation payments.  By contrast, nations in the past, from Europe’s richest, to East Asia Tigers, to the US have used domestic credit creation to fund infrastructure that enabled wealth creation beyond the costs of expenditure on that infrastructure.

The ideology and group think resident among central bankers, however, says “halt, you can still develop infrastructure, but you must be disciplined by the ‘Father Knows Best’ wisdom of the markets.”   This is highly problematic.  First, it suggests there is something intrinsic to markets that always makes for better decisions than public sector managers.  In effect, we are told that we must pay a fee (de facto tax) to private banks in the form of the higher prices they charge for credit over what states can as the price for the private sector’s ‘superior’ capacities of decision making on investments.

Second, it ignores the evidence from recent decades revealing that private credit has become remarkably inefficient.  Private finance is supposed to be a service enabling greater growth in the real economy of production and services. This argument made more sense in the Bretton Woods era following WW II until the 1970s when economic growth was strong and financial institutions comprised some 15% of corporate profits in the US.  Yet, since the liberalization of finance from the 1970s, economic growth has continued to diminish in the West, meanwhile in the most liberalized ‘finance gone wild’ economies, like the US, finance now comprises some 40% of corporate profits.  The bottom line is that deregulated capital markets in recent decades have taken an ever-increasing share of our economy, while producing less economic growth.  Finance no longer enables economic growth by providing a needed service, but instead impose a massive rent seeking tax on the economy.

Lastly, it ignores the different metrics by which markets and states measure investment success.  Private markets prefer a quick kill, with profits coming fast and furious.  By contrast, states genuinely interested in development need to make infrastructural investments where the benefits accrue to the whole economy.  Thus, the benefit, or profit, is harder to capture by a specific interest.  Moreover, the time horizon on state investments may be unacceptably long for private investors.

In short, European Central Bank assumptions and European Union rules on monetary have locked Spain, Italy, Greece, Portugal, Ireland, the Baltics and former Soviet bloc countries into a kind of Sartrian “No Exit.”  Only a change in the rules that permit historically successful strategies for development will instead make this current crisis merely a painful purgatory stage rather an eternal economic damnation as a cost for being part of a European Union.

JEFFREY SOMMERS is an associate professor of political economy in Africology at the University of Wisconsin-Milwaukee and visiting faculty at the Stockholm School of Economics in Riga.  He publishes in outlets such as CounterPunch and the Guardian, and routinely appears as an expert guest in global news programs, most recently on Peter Lavelle’s CrossTalk.  He can be reached at: Jeffrey.sommers@fulbrightmail.org

Jeffrey Sommers is Associate Professor of Political Economy & Public and Senior Fellow, Institute of World Affairs of the University of Wisconsin-Milwaukee and Visiting Faculty at the Stockholm School of Economics in Riga. His new book new book (with Charles Woolfson), is The Contradictions of Austerity: The Socio-economic Costs of the Neoliberal Baltic Model

More articles by:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

December 08, 2016
John W. Whitehead
Power to the People: John Lennon’s Legacy Lives On
Mike Whitney
Rolling Back the Empire: Washington’s Proxy-Army Faces Decisive Defeat in Aleppo
Ellen Brown
“We’ll Look at Everything:” More Thoughts on Trump’s $1 Trillion Infrastructure Plan
John Stauber
The Rise and Fall of Obamacare: Will the Inside Story Ever be Told?
Ted Rall
Ameri-Splaining
Michael J. Sainato
Mainstream Media Continues Absolving Itself From Clinton, Trump Election Failures
Ralph Nader – Mark Green
Divest or Face Impeachment: an Open Letter to Donald Trump
Gareth Porter
US Airstrikes on Syrian Troops: Report Data Undermine Claim of “Mistake”
Martha Burke
What Trumponomics Means for Women
Ramzy Baroud
Fatah, Hold Your Applause: Palestinian Body Politic Rotten to the Core
Steve Horn
Jeff Sessions, Trump’s Attorney General Pick, Introduced First Bill Exempting Fracking from Drinking Water Rules
Joe Ware
The Big Shift: Why Banks Need to Stop Investing Our Money Into Fossil Fuels
Juliana Barnet
On the Ground at Standing Rock
Franklin Lamb
Aleppo Update: An Inspiring Return to the Bombed Out National Museum
Steve Kelly
Hidden Harmony: on the Perfection of Forests
December 07, 2016
Michael Schwalbe
What We Talk About When We Talk About Class
Karl Grossman
The Next Frontier: Trump and Space Weapons
Kenneth Surin
On Being Caught Speeding in Rural America
Chris Floyd
In Like Flynn: Blowback for Filth-Peddling Fascists
Serge Halimi
Trump, the Know-Nothing Victor
Paul DeRienzo
Flynn Flam: Neocon Ex-General to Be Trump’s National Security Advisor
Binoy Kampmark
Troubled Waters: Trump, Taiwan and Beijing
Tom Clifford
Trump and China: a Note From Beijing
Arnold August
Fidel’s Legacy to the World on Theory and Practice
Dave Lindorff
Is Trump’s Idea To Fix a ‘Rigged System’ by Appointing Crooks Who’ve Played It?
John Kirk
Cuba After Fidel
Jess Guh
Repeal of Affordable Care Act is Politics Playing with the Wellbeing of Americans
Eric Sommer
Team Trump: a Government of Generals and Billionaires
Lawrence Davidson
U.S. Reactions to the Death of Fidel Castro
John Garvey - Noel Ignatiev
Abolitionism: a Study Guide
Clancy Sigal
Caution: Conspiracy Theory Ahead!
December 06, 2016
Anthony DiMaggio
Post-Fact Politics: Reviewing the History of Fake News and Propaganda
Richard Moser
Standing Rock: Challenge to the Establishment, School for the Social Movements
Behrooz Ghamari Tabrizi
Warmongering 99 – Common Sense 0: the Senate’s Unanimous Renewal of Iran Sanctions Act
Norman Solomon
Media Complicity is Key to Blacklisting Websites
Michael J. Sainato
Elizabeth Warren’s Shameful Exploitation of Standing Rock Victory
David Rosen
State Power and Terror: From Wounded Knee to Standing Rock
Kim Ives
Deconstructing Another Right-Wing Victory in Haiti
Nile Bowie
South Korea’s Presidency On A Knife-Edge
Mateo Pimentel
Some Notes and a Song for Standing Rock
CJ Hopkins
Manufacturing Normality
Bill Fletcher Jr – Bob Wing
Fighting Back Against the White Revolt of 2016
Peter Lee
Is America Ready for a War on White Privilege?
Pepe Escobar
The Rules of the (Trump) Game
W. T. Whitney
No Peace Yet in Colombia Despite War’s End
FacebookTwitterGoogle+RedditEmail