FacebookTwitterGoogle+RedditEmail

How Europe’s Budget Straightjacket was Born

by

Guy Abeille is known as “Monsieur 3%” . He’s the inventor of a concept signed up to and repeated ad nauseam by all French governments of both right and left for three decades, and all EU countries from 1992 under the Maastricht Treaty: “The public deficit must not exceed 3% of the national wealth (GDP).”

The 3 % rule that has justified all spending cuts, tax increases,  and reforms in Europe over the past thirty years. So to what economic modelling did it owe its origin? Le Parisien newspaper posed the question when it came across the economist in a cafe on the left bank some 18 months ago. And this was the answer.

“We dreamt up this figure of 3% in less than an hour; it was born on the back of the envelope, without any theoretical reflection. “

It happened right at the start of the first term of France’s first Socialist President, Francois Mitterrand, who, ironically, was about to launch a radical Keynesian-style reflation of the depressed economy, through nationalisations, higher investment in public services, increases in wages and welfare, cuts to the working week and a tax on wealth, inspired by a common programme with the communists. These radical policies were abandoned two years later.

“It was a night in May 1981. Pierre Bilger, the Budget Director at the time, summoned us, together with Roland de Villepin (cousin of one time PM Dominique de Villepin). He told us : [Socialist President] Mitterrand wants us to quickly provide him with an easy rule, which sounds like economics and can be used against ministers who march into his office to ask him for money,” Abeille told Le Parisien.

In his office at the Louvre, which at the time was the home of the Ministry of Finance, Abeille scratched his head.

“We needed something simple,” he said. They choose the gross domestic product, GDP, “because with the economy, everyone refers to GDP.”

Same round figure for the deficit? They considered a deficit ratio to GDP of 1%. But “this figure was eliminated as it was impossible to achieve. 2 % ? This put us under pressure too.” 3 %? “This was a good figure, a figure that has travelled through the ages, it was reminiscent of the Trinity.” So they go for 3%.

“Mitterrand wanted a rule, we gave it to him. We did not think it was going to last beyond 1981,” he added.

But the “3%” lasted. According to Abeille, Laurent Fabius – Mitterrand’s Socialist Minister of Finance, later PM and now foreign minister under another socialist President, Francois Hollande, was the first to talk about the deficit as a percentage of GDP, but he felt it too lax. He preferred 2.6%.

So who championed the 3% figure? “It was Mitterrand who took it as his own, using it to give himself legitimacy. Later, this reference was to be theorized by economists and included in the Maastricht Treaty, becoming one of the criteria to join the euro zone. “

Today, this “3%” dictates the daily lives of the French and the other 17 eurozone members. It dictates whether to build – or not – schools, hospitals, nurseries or raise taxes.

What does “Monsieur 3%” think of the 0.5% threshold of “structural deficit” imposed by the latest EU treaty, the fiscal compact or formally, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, signed by all EU states bar the Czech Republic and the UK in 2012 and which entered into force in January 2013. “It is true that the number zero has its advantages. But if we had made it 0.7%, people would asked why that number? While 0.5% is halfway, not a bad figure, a comfortable number.”

So reported Le Parisien  The obvious conclusion?  That European austerity, and associated policies of privatisation and deregulation, are nothing to do with sound economics and everything to do with politics; the kind of politics that is designed to benefit a tiny elite and dreamed up, for expediency’s sake, on the back of an envelope!

Tom Gill blogs at www.revolting-europe.com

Tom Gill edits Revolting Europe.

More articles by:
July 27, 2016
Chris Zinda
Snakes of Deseret
July 26, 2016
Andrew Levine
Pillory Hillary Now
Kshama Sawant
A Call to Action: Walk Out from the Democratic National Convention!
Russell Mokhiber
The Rabble Rise Together Against Bernie, Barney, Elizabeth and Hillary
Jeffrey St. Clair
Don’t Cry For Me, DNC: Notes From the Democratic Convention
Angie Beeman
Why Doesn’t Middle America Trust Hillary? She Thinks She’s Better Than Us and We Know It
Paul Street
An Update on the Hate…
Fran Shor
Beyond Trump vs Clinton
Ellen Brown
Japan’s “Helicopter Money” Play: Road to Hyperinflation or Cure for Debt Deflation?
Richard W. Behan
The Banana Republic of America: Democracy Be Damned
Binoy Kampmark
Undermining Bernie Sanders: the DNC Campaign, WikiLeaks and Russia
Arun Gupta
Trickledown Revenge: the Racial Politics of Donald Trump
Sen. Bernard Sanders
What This Election is About: Speech to DNC Convention
David Swanson
DNC Now Less Popular Than Atheism
Linn Washington Jr.
‘Clintonville’ Reflects True Horror of Poverty in US
Deepak Tripathi
Britain in the Doldrums After the Brexit Vote
Louisa Willcox
Grizzly Threats: Arbitrary Lines on Political Maps
Robert J. Gould
Proactive Philanthropy: Don’t Wait, Reach Out!
Victor Grossman
Horror and Sorrow in Germany
Nyla Ali Khan
Regionalism, Ethnicity, and Trifurcation: All in the Name of National Integration
Andrew Feinberg
The Good TPP
400 US Academics
Letter to US Government Officials Concerning Recent Events in Turkey
July 25, 2016
Sharmini Peries - Michael Hudson
As the Election Turns: Trump the Anti-Neocon, Hillary the New Darling of the Neocons
Ted Rall
Hillary’s Strategy: Snub Liberal Democrats, Move Right to Nab Anti-Trump Republicans
William K. Black
Doubling Down on Wall Street: Hillary and Tim Kaine
Russell Mokhiber
Bernie Delegates Take on Bernie Sanders
Quincy Saul
Resurgent Mexico
Andy Thayer
Letter to a Bernie Activist
Patrick Cockburn
Erdogan is Strengthened by the Failed Coup, But Turkey is the Loser
Robert Fisk
The Hypocrisies of Terror Talk
Lee Hall
Purloined Platitudes and Bipartisan Bunk: An Adjunct’s View
Binoy Kampmark
The Futility of Collective Punishment: Russia, Doping and WADA
Nozomi Hayase
Cryptography as Democratic Weapon Against Demagoguery
Cesar Chelala
The Real Donald Trump
Julian Vigo
The UK’s Propaganda Machinery and State Surveillance of Muslim Children
Denis Conroy
Australia: Election Time Blues for Clones
Marjorie Cohn
Killing With Robots Increases Militarization of Police
David Swanson
RNC War Party, DNC War Makers
Eugene Schulman
The US Role in the Israeli-Palestine Conflict
Nauman Sadiq
Imran Khan’s Faustian Bargain
Peter Breschard
Kaine the Weepy Executioner
Weekend Edition
July 22, 2016
Friday - Sunday
Jeffrey St. Clair
Good as Goldman: Hillary and Wall Street
Joseph E. Lowndes
From Silent Majority to White-Hot Rage: Observations from Cleveland
Paul Street
Political Correctness: Handle with Care
Richard Moser
Actions Express Priorities: 40 Years of Failed Lesser Evil Voting
FacebookTwitterGoogle+RedditEmail