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

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