A group of noted international economists (including Joseph Stiglitz, Peter Bofinger and Stefanie Griffith-Jones), known as the European Progressive Policy Initiative (EPPI), has issued a policy paper that endorses the main planks of our Modest Proposal for Resolving the Euro Crisis 4.0.
EPPI was assembled in 2013 by Europe’s social democratic alliance in the European Parliament. This is significant, given the social democrats acquiescence to the Merkel-led toxic policies, which are causing Europe to fragment. Coming, as it does, a few weeks before the European Parliament Election, this policy document flags the potential for breaking the stranglehold over European politics of the indefensible ‘official EU position’, i.e. the toxic trio of claims that: Europe is on the mend – Austerity is working – Europe has taken important steps in shoring up the Eurozone’s institutions).
The European Progressive Policy initiative was launched in 2013 by the Group of the Progressive Alliance of Socialists and Democrats in the European Parliament. It is made up of: Joseph E. STIGLITZ, Jean-Paul FITOUSSI, Peter BOFINGER, Gosta ESPING-ANDERSEN, James K. GALBRAITH, Ilene GRABEL, Stephany GRIFFITH-JONES, András INOTAI, Louka T. KATSELI, Kate PICKETT, Jill RUBERY, Frank VANDENBROUCKE
The policy document they issued is entitled A CALL FOR CHANGE: From the Crisis to a New Egalitarian Ideal for Europe. From the outset, the document wages a powerful assault on the current state of European Affairs:
“The depressing transformation of the European Union into an Austerity Union was driven by at least five factors:
- Flaws in the design of the European Economic and Monetary Union, including the lack of a banking union with strong Eurozone institutions and a minimal fiscal backstop
- Bad advice given by the European Commission to national policymakers over the years.
- Spill-over effects from the United States to Europe, and across European countries, notably due to simultaneous fiscal contraction in highly interdependent national economies, which European policymakers have consistently ignored.
- A rules-based and largely undemocratic economic policy making process within the EU and the Euro area, with strongly pro-cyclical effects.
- A failure to react, as the national social and political repercussions of austerity policies became even more severe.”
In response to these failures, the authors of the EPPI document call for a new macroeconomic strategy whose major elements are borrowed from our Modest Proposal. Below I quote them verbatim under their own titles adding (in brackets) the relevant policy that the Modest Proposal first outlined.
Resolution of insolvent banks (see the Modest Proposal’s First Policy)
“Where banks are insolvent, they must be resolved. European banking strategy must break the toxic link between national governments and national banks, and permit EU institutions to resolve failed banks wherever they may be found. The recent agreement on ‘banking union’ leaves national decision-makers responsible for the resolution of national banks, and that is a formula for problems. An effective banking union or case-by-case process must have a common recapitalisation fund and resolution authority empowered to restructure insolvent banks and return them to competent private hands. The key is to have efficient, workable and apolitical institutions and procedures.”
A new strategy toward public debt (see the Modest Proposal’s Second Policy)
“Problems in sovereign debt markets must be addressed via new instruments and approaches. While the European Central Bank has contained sovereign bond yields for now, this alone cannot solve the sovereign debt problem, and new steps are now essential. In recent years, several proposals have been worked out, which aim at stabilising the market for public bonds. Important proposals include the Modest Proposal’s argument for ECB-bonds, and the recent proposal for Basket-Eurobonds. The search for a politically viable plan must continue, despite major resistance. In the meantime, the excessive debt burden of the crisis countries must be reduced through timely and effective debt restructuring.”
Growth-oriented public finances (see the Modest Proposal’s Third Policy)
“[T]he EU needs an approximate annual 200 billion euros until 2020 according to independent research and to the European Commission’s own estimates. A significant part of this investment is essential to pursue Europe’s ecological transformation – including its contribution to the global fight against climate change. This amount covers identified public investment needs in transport, energy efficiency, and renewable energy and network integration. One path is to expand the use of project bonds by leveraging the EU budget. Another path is to further boost the European Investment Bank’s (EIB) paid-in capital. An additional increase of 10 billion euros can finance increased investment for innovation, especially but not only in the countries suffering most from the crisis, as well as target SME financing more forcefully. Alongside the EIB, the European Investment Fund can provide resources to support investment and innovation by business firms in the private sector. Within its mandate, the European Central Bank can support both institutions.”
A new European program of social solidarity (see the Modest Proposal’s Fourth Policy)
“Stabilizing the incomes and social conditions of Europe’s most vulnerable populations is a vital economic policy measure. The model of reserving social insurance solely to nation-states in Europe has failed the test of crisis. This model must be changed. We propose, below, to begin by creating a social solidarity fund, to provide food assistance where it is most needed. Further steps along similar lines should follow in due course.”