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

August 24, 2016
John Pilger
Provoking Nuclear War by Media
Jonathan Cook
The Birth of Agro-Resistance in Palestine
Eric Draitser
Ajamu Baraka, “Uncle Tom,” and the Pathology of White Liberal Racism
Jack Rasmus
Greek Debt and the New Financial Imperialism
Robert Fisk
The Sultan’s Hit List Grows, as Turkey Prepares to Enter Syria
Abubakar N. Kasim
What Did the Olympics Really Do for Humanity?
Renee Parsons
Obamacare Supporters Oppose ColoradoCare
Alycee Lane
The Trump Campaign: a White Revolt Against ‘Neoliberal Multiculturalism’
Edward Hunt
Maintaining U.S. Dominance in the Pacific
George Wuerthner
The Big Fish Kill on the Yellowstone
Jesse Jackson
Democrats Shouldn’t Get a Blank Check From Black Voters
Kent Paterson
Saving Southern New Mexico from the Next Big Flood
Arnold August
RIP Jean-Guy Allard: A Model for Progressive Journalists Working in the Capitalist System
August 23, 2016
Diana Johnstone
Hillary and the Glass Ceilings Illusion
Bill Quigley
Race and Class Gap Widening: Katrina Pain Index 2016 by the Numbers
Ted Rall
Trump vs. Clinton: It’s All About the Debates
Eoin Higgins
Will Progressive Democrats Ever Support a Third Party Candidate?
Kenneth J. Saltman
Wall Street’s Latest Public Sector Rip-Off: Five Myths About Pay for Success
Binoy Kampmark
Labouring Hours: Sweden’s Six-Hour Working Day
John Feffer
The Globalization of Trump
Gwendolyn Mink – Felicia Kornbluh
Time to End “Welfare as We Know It”
Medea Benjamin
Congress Must Take Action to Block Weapon Sales to Saudi Arabia
Halyna Mokrushyna
Political Writer, Daughter of Ukrainian Dissident, Detained and Charged in Ukraine
Manuel E. Yepe
Tourism and Religion Go Hand-in-Hand in the Caribbean
ED ADELMAN
Belted by Trump
Thomas Knapp
War: The Islamic State and Western Politicians Against the Rest of Us
Nauman Sadiq
Shifting Alliances: Turkey, Russia and the Kurds
Rivera Sun
Active Peace: Restoring Relationships While Making Change
August 22, 2016
Eric Draitser
Hillary Clinton: The Anti-Woman ‘Feminist’
Robert Hunziker
Arctic Death Rattle
Norman Solomon
Clinton’s Transition Team: a Corporate Presidency Foretold
Ralph Nader
Hillary’s Hubris: Only Tell the Rich for $5000 a Minute!
Russell Mokhiber
Save the Patients, Cut Off the Dick!
Steven M. Druker
The Deceptions of the GE Food Venture
Elliot Sperber
Clean, Green, Class War: Bill McKibben’s Shortsighted ‘War on Climate Change’
Binoy Kampmark
Claims of Exoneration: The Case of Slobodan Milošević
Walter Brasch
The Contradictions of Donald Trump
Michael Donnelly
Body Shaming Trump: Statue of Limitations
Weekend Edition
August 19, 2016
Friday - Sunday
Carl Boggs
Hillary and the War Party
Jeffrey St. Clair
Roaming Charges: Prime Time Green
Andrew Levine
Hillary Goes With the Flow
Dave Lindorff
New York Times Shames Itself by Attacking Wikileaks’ Assange
Gary Leupp
Could a Russian-Led Coalition Defeat Hillary’s War Plans?
Conn Hallinan
Dangerous Seas: China and the USA
Joshua Frank
Richard Holbrooke and the Obama Doctrine
FacebookTwitterGoogle+RedditEmail