For the ETUC, the question is not whether but how to reduce public debts. Austerity, as explained above, will fail to bring debt back under control. What we need to do instead is to turn austerity policy on its head. Securing and transforming the recovery in a process of self sustained growth must come first. Falling deficits will follow afterwards and mainly automatically as a result of the renewal of the economy. Europe can only get rid of debts by growing out of debts, and by creating new jobs instead of destroying them. Austerity needs to be traded in with action on stimulus.
Stimulus however will not come from individual member states. While one part of Europe is victim of the excessively pessimistic mood of financial markets, the remaining part is once again hoping to catch a ‘free (export) ride’ by leaving stimulus policy to others. Everybody is waiting for everyone else to re launch the economy.
To gain stimulus, Europe needs to mobilize the ‘power of acting together’ and become a prime policy actor itself by setting up a ‘European Debt and Investment Initiative’, taking action along the following six points:
- Europe is to issue a ‘Green European Bond’, thereby drawing upon the excess savings of the private sector inside Europe as well as outside. With debt at the European level virtually non existing, and with the European Central Bank backing up the liquidity of this new financial instrument, financial markets and its Wall Street rating agencies will have a hard time in triggering waves of self fulfilling speculation against a single European Bond.
- Europe should only borrow to invest. The finance coming from the European Bond is to support an investment led recovery aimed at rolling out the infrastructure for the greening of the European economy (for example, a European smart electricity grid, investment in sustainable energies,…).
- In return, Europe investment and economic recovery are to be passed on into a gradual but continued reduction of national deficits. A recovery, led by European investment, will generate new revenues for member states while reducing benefit expenditure. This will make it possible for member states to start reducing their deficits and control public debts, while avoiding the austerity trap of aborting economic recovery and killing jobs.
- At the same time, Europe is to adjust the pace of deficit reduction. Europe should acknowledge that the objective of reducing deficits by more than 3% of GDP over a three years’ time horizon is not realistically possible, certainly not when interest rates are already at the zero bound level. Europe should review the time horizon it has set for reducing deficits and attain the 3% deficit objective by 2016 – 2017 (instead of 2012-214).
- Save the single currency. The crisis is also putting the Euro Area under enormous pressure. Neither monetary policy (with its single interest rate for the entire region), nor wage cuts (which result in deflation), are able to keep the ‘deficit’ countries from suffering a continuing and intense slowdown of their economies. To rebalance its economy and to safeguard economic cohesion, the Euro Area needs a new instrument. By providing extra investment demand for ‘deficit’ countries, the European Debt and Investment initiative is to function as such a ‘rebalancing’ tool. ‘Deficit’ countries, forced to pursue a more intense reduction of the deficit, need higher doses of demand and investment to help them bring this task to a good end.
- European sources of (new) finance to service European debt. Certain categories of revenues are increasingly escaping from national tax authorities because the European internal marketplace allows governments to be systematically played out against each other. Addressing this situation will not only restore tax fairness in Europe, it will also provide the means to get us out of the crisis letting those who have systematically been at the receiving end of liberalization policies pay for it. A European financial transactions tax and a European minimum tax on corporate profits are some of the proposals.