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:

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

May 23, 2017
John Wight
Manchester Attacks: What Price Hypocrisy?
Patrick Cockburn
A Gathering of Autocrats: Trump Puts US on Sunni Muslim Side of Bitter Sectarian War with Shias
Shamus Cooke
Can Trump Salvage His Presidency in Syria’s War?
Thomas S. Harrington
“Risk”: a Sad Comedown for Laura Poitras
Josh White
Towards the Corbyn Doctrine
Mike Whitney
Rosenstein and Mueller: the Regime Change Tag-Team
Jan Oberg
Trump in Riyadh: an Arab NATO Against Syria and Iran
Susan Babbitt
The Most Dangerous Spy You’ve Never Heard Of: Ana Belén Montes
Rannie Amiri
Al-Awamiya: City of Resistance
Dimitris Konstantakopoulos
The European Left and the Greek Tragedy
Laura Leigh
This Land is Your Land, Except If You’re a Wild Horse Advocate
Hervé Kempf
Macron, Old World President
Michael J. Sainato
Devos Takes Out Her Hatchet
L. Ali Khan
I’m a Human and I’m a Cartoon
May 22, 2017
Diana Johnstone
All Power to the Banks! The Winners-Take-All Regime of Emmanuel Macron
Robert Fisk
Hypocrisy and Condescension: Trump’s Speech to the Middle East
John Grant
Jeff Sessions, Jesus Christ and the Return of Reefer Madness
Nozomi Hayase
Trump and the Resurgence of Colonial Racism
Rev. William Alberts
The Normalizing of Authoritarianism in America
Frank Stricker
Getting Full Employment: the Fake Way and the Right Way 
Jamie Davidson
Red Terror: Anti-Corbynism and Double Standards
Binoy Kampmark
Julian Assange, Sweden, and Continuing Battles
Robert Jensen
Beyond Liberal Pieties: the Radical Challenge for Journalism
Patrick Cockburn
Trump’s Extravagant Saudi Trip Distracts from His Crisis at Home
Angie Beeman
Gig Economy or Odd Jobs: What May Seem Trendy to Privileged City Dwellers and Suburbanites is as Old as Poverty
Colin Todhunter
The Public Or The Agrochemical Industry: Who Does The European Chemicals Agency Serve?
Jerrod A. Laber
Somalia’s Worsening Drought: Blowback From US Policy
Michael J. Sainato
Police Claimed Black Man Who Died in Custody Was Faking It
Clancy Sigal
I’m a Trump Guy, So What?
Gerry Condon
In Defense of Tulsi Gabbard
Weekend Edition
May 19, 2017
Friday - Sunday
John Pilger
Getting Assange: the Untold Story
Jeffrey St. Clair
The Secret Sharer
Charles Pierson
Trump’s First Hundred Days of War Crimes
Paul Street
How Russia Became “Our Adversary” Again
Andrew Levine
Legitimation Crises
Mike Whitney
Seth Rich, Craig Murray and the Sinister Stewards of the National Security State 
Robert Hunziker
Early-Stage Antarctica Death Rattle Sparks NY Times Journalists Trip
Ken Levy
Why – How – Do They Still Love Trump?
Bruce E. Levine
“Hegemony How-To”: Rethinking Activism and Embracing Power
Robert Fisk
The Real Aim of Trump’s Trip to Saudi Arabia
Christiane Saliba
Slavery Now: Migrant Labor in the Persian Gulf and Saudi Arabia
Chris Gilbert
The Chávez Hypothesis: Vicissitudes of a Strategic Project
Howard Lisnoff
Pay No Attention to That Man Behind the Curtain
Brian Cloughley
Propaganda Feeds Fear and Loathing
Stephen Cooper
Is Alabama Hiding Evidence It Tortured Two of Its Citizens?
FacebookTwitterGoogle+RedditEmail