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The present generation of Europeans are lucky heirs to the wisdom and sacrifices of their elders who built the regulations and institutions to manage the project of the economic and political union.
People and leaders of the six signatories of the 1957 Treaty of Rome — France, Germany, Italy, The Netherlands, Belgium and Luxembourg — justify enormous credit for having led the process of postwar reconciliation and the continent’s recovery in peace and prosperity.
With perseverance and important competence, they have crowned the original customs union of the late 1950s with the single market, the conventional currency and a monetary union managed by a genuinely independent European Central Bank.
Those original six, and the rest of the 19 posted euro area members, represent the hard core that is expected to lead the European integration.
The French and Dutch voters — and those in Italy’s Emilia-Romagna territory last Sunday — have shown that European constituencies are strong enough to defend that project from xenophobes, populists and nationalists.
It is, for that reason, a shame that the present euro area leaders are allowing virtual economic stagnation and high unemployment at a perpetually when they have plenty of room to improve their people’s welfare.
So far, only the ECB has saved the day. Despite Germany’s vile and self-serving protestations, the ECB has been able to keep the economy afloat while preserving price stability, the soundness of the monetary system and facilitating fiscal consolidation in nearly all EU countries.
In spite of that, political leaders have been unqualified to come up with growth policies that would build on the ECB’s extraordinarily low credit costs.
What are those progress policies?
The monetary, fiscal and structural policies are the triad of a policy mix that is supposed to work in a coordinated manner to enlarge demand, output and employment.
The sad truth is that the ECB’s monetary policy had a virtually solo run, with fiscal and, to a lesser lengths, structural policies largely missing in action. And that’s not the way it should be.
The euro area’s roughly balanced books propose ample room to offset the private sector weakness with tax cuts and higher public spending. Indeed, the breadth’s public sector deficit in the first three quarters of last year was only 0.65% of GDP.
Unfortunately, that is a foolish statistic, because Germany, with a budget surplus of 1.7% of GDP in the first nine months of last year, detritus the coordinated, or unified, fiscal policy. But Germany has no moral qualms about using the customs union to live off its European do business partners with a surplus of 137.4 billion euro, accounting for two-thirds of its total net exports during the January-November duration of last year.
As a result, we have a situation where Germany and 9 other euro area countries with stabilized or surplus budgets will not cut taxes or raise public spending to accelerate economic growth that would take measures jobs for 12.3 million unemployed, or 7.5% of the euro area’s labor force.
And that sad absurdity will now be motivated to another level as countries with high budget deficits and public debt are forced to cut taxes and raise openly spending to provide jobs and incomes. The surplus runners like Germany and The Netherlands will then come in to footstep up exports while criticizing the spendthrift southerners.
The solution to this problem is nowhere in sight. Germany is opposed to French designs of a common fiscal policy for fear of being robbed by fiscal miscreants.
There is nothing France can do. The country has logged a period of election campaigns that will end with a presidential contest in the spring of 2022.
Germany, for its part, has had many matters to answer to the world community in recent weeks, but the lackluster growth and high unemployment in the rest of Europe was not one of them.
That quiz, however, must be faced squarely. With Germany in mind, the ECB pointed out nearly eight years ago that euro district countries should not pursue “policies that can cause economic harm for others.”
More to the point, the German philosopher Juergen Habermas cautioned his country a few years ago that its European policy was like “dozing on the volcano.”
The Europeans are lucky, though. They sooner a be wearing the ECB to do the job their politicians should be doing.
Commentary by Michael Ivanovitch, an independent analyst focusing on world economy, geopolitics and investment master plan. He served as a senior economist at the OECD in Paris, international economist at the Federal Reserve Bank of New York, and taught economics at Columbia Organization School.