Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
Spring Fund Drive: Keep CounterPunch Afloat
CounterPunch is a lifeboat of sanity in today’s turbulent political seas. Please make a tax-deductible donation and help us continue to fight Trump and his enablers on both sides of the aisle. Every dollar counts!
FacebookTwitterGoogle+RedditEmail

No Exit in EU

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

More articles by:

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

May 22, 2018
Stanley L. Cohen
Broken Dreams and Lost Lives: Israel, Gaza and the Hamas Card
Andrew Levine
November’s “Revolution” Will Not Be Televised
Ted Rall
#MeToo is a Cultural Workaround to a Legal Failure
Gary Leupp
Question for Discussion: Is Russia an Adversary Nation?
Binoy Kampmark
Unsettling the Summits: John Bolton’s Libya Solution
Doug Johnson
As Andrea Horwath Surges, Undecided Voters Threaten to Upend Doug Ford’s Hopes in Canada’s Most Populated Province
Kenneth Surin
Malaysia’s Surprising Election Results
Kathy Kelly
Scourging Yemen
Dana Cook
Canada’s ‘Superwoman’: Margot Kidder
Dean Baker
The Trade Deficit With China: Up Sharply, for Those Who Care
John Feffer
Playing Trump for Peace How the Korean Peninsula Could Become a Bright Spot in a World Gone Mad
Peter Gelderloos
Decades in Prison for Protesting Trump?
Thomas Knapp
Yes, Virginia, There is a Deep State
Andrew Stewart
What the Providence Teachers’ Union Needs for a Win
Jimmy Centeno
Mexico’s First Presidential Debate: All against One
May 21, 2018
Ron Jacobs
Gina Haspell: She’s Certainly Qualified for the Job
Uri Avnery
The Day of Shame
Amitai Ben-Abba
Israel’s New Ideology of Genocide
Patrick Cockburn
Israel is at the Height of Its Power, But the Palestinians are Still There
Frank Stricker
Can We Finally Stop Worrying About Unemployment?
Binoy Kampmark
Royal Wedding Madness
Roy Morrison
Middle East War Clouds Gather
Edward Curtin
Gina Haspel and Pinocchio From Rome
Juana Carrasco Martin
The United States is a Country Addicted to Violence
Dean Baker
Wealth Inequality: It’s Not Clear What It Means
Robert Dodge
At the Brink of Nuclear War, Who Will Lead?
Vern Loomis
If I’m Lying, I’m Dying
Valerie Reynoso
How LBJ initiated the Military Coup in the Dominican Republic
Weekend Edition
May 18, 2018
Friday - Sunday
Andrew Levine
The Donald, Vlad, and Bibi
Robert Fisk
How Long Will We Pretend Palestinians Aren’t People?
Jeffrey St. Clair
Wild at Heart: Keeping Up With Margie Kidder
Roger Harris
Venezuela on the Eve of Presidential Elections: The US Empire Isn’t Sitting by Idly
Michael Slager
Criminalizing Victims: the Fate of Honduran Refugees 
John Laforge
Don’t Call It an Explosion: Gaseous Ignition Events with Radioactive Waste
Carlo Filice
The First “Fake News” Story (or, What the Serpent Would Have Said)
Dave Lindorff
Israel Crosses a Line as IDF Snipers Murder Unarmed Protesters in the Ghetto of Gaza
Gary Leupp
The McCain Cult
Robert Fantina
What’s Wrong With the United States?
Jill Richardson
The Lesson I Learned Growing Up Jewish
David Orenstein
A Call to Secular Humanist Resistance
W. T. Whitney
The U.S. Role in Removing a Revolutionary and in Restoring War to Colombia
Rev. William Alberts
The Danger of Praying Truth to Power
Alan Macleod
A Primer on the Venezuelan Elections
John W. Whitehead
The Age of Petty Tyrannies
Franklin Lamb
Have Recent Events Sounded the Death Knell for Iran’s Regional Project?
FacebookTwitterGoogle+RedditEmail