So, the European Commission, at last, concluded that the eurozone’s fiscal stance is too austerian. “Better late than never”, some will say. Alas, this is too optimistic a take. The reason? The Commission is irrelevant and it knows it. Decisions of fiscal policy are now taken in the eurogroup where Commissioner Moscovici has next to no gravitas. Moreover, the Commission seems to know this, putting forward a proposal that it knows will be ignored.
“…Member States with further consolidation needs would seem to expand further, which could fuel concerns about the sustainability of their public finances… Conversely, Member States which enjoy fiscal space do not necessarily use it.”
Passages like the above pepper the Commission’s recent report on the eurozone’s dead-end fiscal stance.Brussels, correctly, suggests that the eurozone should be seen as a single macroeconomy:
“To assess the current situation, it is important to consider the euro area as a single entity, as if there were a finance minister for the euro area as a whole and to look at its fiscal policy in aggregate terms. This is the approach taken in this section.”
This is admirable. Except that Berlin will never, ever allow Commissioner Moscovici, or indeed any Commissioner, the opportunity to think of himself as the eurozone’s minister of finance. If such a role is to be allowed for, it would be afforded to an enhanced eurogroup President. Put simply:
The European Commission is now irrelevant from the perspective of managing the eurozone economy. It has been well and truly replaced by the informal, extra-Treaty eurogroup.
But let’s set this aside for a moment and humour the Commission by taking it seriously. What is it proposing in its recent report? It is proposing a modest fiscal expansion of some 0.5% of GDP across the eurozone. Will Wolfgang Schäuble agree? Of course not. And it is not just that he will not agree. He is, more importantly, forbidden by the German… Constitution from agreeing, as the Commission’s proposal violates the debt brake that the German government has, unbelievably, enshrined in the nation’s Constitution. This proves the earlier point that the Commission is making a proposal it knows it will be rejected in advance. Such is the European Commission’s present irrelevance.
The Eurozone’s current reality
The damage done by eight years of inept responses to the crisis has damaged Europe’s economy to such an extent that marginal adjustments (like those proposed by the Commission) to the calamitous fiscal compact will make only marginal differences.
Europe’s deflationary economy is fuelled by more than 3 trillion euros of un-invested savings. Unless they are mobilised, given an incentive to become invested in productive activities, the crisis will continue. Neither the Juncker plan nor this latest gimmick can do this. Europe needs something a European New Deal ,to the tune of 5% to 6% of eurozone GDP, to go directly into investment. Governments without a central bank behind them do not have the fiscal space to do this. This is why, as part of our work toward a European New Deal, DiEM25 will be tabling proposals (*) for an EIB investment-led recovery program with the ECB standing behind it to effect it.
(*) These proposals will be tabled on 23rd, 24th and 25th February 2017 in Paris. For more, and for the opportunity to participate in the writing of the relevant policy papers, click here.