Pubblichiamo la mia relazione introduttiva al Meeting di Madrid. Qui materiali usciti in Spagna in merito su Pubblico.es (quotidiano on line qui e qui): L'appello "Irlandese" è nel frattempo stato pubblicato da Pagina 12, un diffuso quotidiano argentino (oltre che su vari siti internazionali).Aggiornamenti: meeting riuscitissimo, grande sala piena di ragazzi per tutta la mattinata, e poi nel pomeriggio per la loro discussione. Bel clima di amicizia e cameratismo come solo i ragazzi fra loro possono creare. Oggi seconda giornata. Torneremo con alcune riflessioni in merito (e qualche foto). Qui intanto le notizie, ricche, uscite sulla stampa nazionale on line:
I video sono qui, probabilmente ne verranno messi altri migliori.
PIGS in Madrid
Sergio Cesaratto
Cesaratto@unisi.it
Dear students and colleagues, ladies
and gentlemen, companeros y companeras (if I am allowed to say so),
I wish first of all to thank the organisers and the supporters of this event.[1] I believe this is a beautiful opportunity to work side by side with the young people who are fighting against the present state of things and the critical economists. This is not a conference against Europe, or of one part of Europe against the other. As people of “troubled Europe” we feel perhaps more concerned than the majority of our northern fellows. But I think that the message of this meeting should arrive especially at your young northern fellows not just asking for solidarity (a word that I personally look suspiciously at), but because the dismantlement of the social rights in our countries might be the premise to the reduction in their own. I believe that they would defend the idea of their countries being part of a peaceful and prosper continent, and be outraged by the idea of their countries as islands in the midst of deprivation and resentment. I also believe that youth is the time of hope and generosity, the time in which the outrage for social injustice is felt the most. So I hope that our messages, the messages from the young people here, will arrive at the most sensible ears of northern Europe, those of the young people there (let us not forget here the young socialists massacred by the crazy Nazi guy in Norway). It is particularly important that, through any possible channel, more information about the situation in our countries be directed at the likely victims of disinformation, be they youths of Germany, Austria, the Netherlands etc,. We should take some initiative in this direction.
The story of the crisis
The story of this crisis is the
story of an imperfect currency union. It is not yet clear to me which political
processes led to the European Monetary Union (EMU). Unfortunately economists
tend to neglect the analysis of the political processes, and indeed our aim is
also to reform the way Economics is done and taught. From a rational point of
view, the national leaders and their economic advisors certainly knew that the
European Union was not a so-called optimal currency area. Various
considerations possibly led to this imperfect union. France
and Italy were not happy
with the European Monetary System (EMS), the fixed exchange-rate that preceded
the EMU: they though that a monetary union could be less German-dominated than
the EMS. The German unification in 1989 and
the fall of the iron curtain possibly accelerated the process (Germany has
traditionally looked east, and the monetary unification was perhaps seen as a
way to lock it west, but I cannot judge if this is a legend). Finally, through
the common currency the elites in the periphery wanted to import the German
renowned labour discipline. Be that as it may, the monetary union lacked the
institutions that could make it work, in particular the significant federal
budget with regional redistributive functions recommended by earlier
unification plans (see also the prescient analysis by Kaldor and later by Godley). The union was designed in negatives, so to
speak. To prevent national governments to take advantage of lower interest
rates, the Maastricht Treaty created the famous Maastricht fiscal constraints; the ECB was
assigned a monetarist statute with the sole objective of controlling inflation
(so that it inherited the Bundesbank function to keep German wages in check).
The objective of full employment was assigned to national labour-market
flexibility policies, that is to competitive internal devaluation strategies.
No to a wider federal budget, no coordination of fiscal and monetary policies,
no banks crisis resolution mechanism.
As we know, at the beginning the
Euro seemed a success, particularly if judged from the point of view of Spain, Ireland
and also Greece.
Not much so for Portugal and
Italy:
the former country already had its demand-led boom in
the years before the monetary unification and joined the currency with a
negative current account, which explains its later stagnation. Portugal and
Italy - but of course this partially also concerns the other southern countries
- likely began to suffer from a loss of competitiveness due to more than one
factor: an over-valued real exchange rate, the competition from the EU new
entrants and from the emerging economies, the stagnation of domestic aggregate
demand that depressed productivity growth In Portugal and Italy. As is well
known, in Spain, Ireland and also Greece domestic demand was indeed sustained
by a construction boom fed by foreign capital flows. The story has been
usefully compared to that of the financial crises in the emerging economies:
financial liberalisations and fixed exchange rates can easily lead to
residential investment-led growth, but later to a balance of payment crisis.
This happens when foreign financial investors stop the refinancing of the
peripheral foreign debt and begin to withdraw their investment (what is named
“sudden stops and capital flows reversal”).
The peculiarities of the Eurozone
(EZ) payment system, the famous and arcane TARGET 2 system, have impeded the
eruption of the standard foreign debt crisis, with attendant debt restructuring
and currency devaluation, which has been typical of the emerging economies. In
this kind of crisis, typically the IMF intervened to assure that the indebted
countries could continue to repay the interest and the principal of their
foreign debt (so the IMF “saved” the banks of the north); normally the debt was
renegotiated; fiscal austerity measures were imposed to obtain a current
account surplus necessary to assure the future ability to serve and repay the
debt (including that to the IMF); the currency devaluation relieved a bit the
country in this effort. Notoriously, Argentina by refusing to repay 75%
of her debt avoided the IMF austerity measures and, also helped by a buoyant
price of her exported commodities, could manage a demand-led recovery. What has
happened in Europe is that, through TARGET 2, the foreign debt of the peripheral
countries has “changed hands”: from a liability towards private lenders (who
withdrew their loans) it has become a liability towards the Eurosystem (the
German conservative economist Werner Sinn has not been wrong in calling it a
“stealth bail-out” of the periphery, although he missed to point out the German
responsibility in this story. I also agree with him that this re-shuffling of
liabilities has not made the German credits safer, contrary to the initial
opinion by De Grauwe). In a sense TARGET2 helped to gain
time, but this time has so far been wasted by the EZ governments. While no
reforms of the institutional architecture of the EZ have been endeavoured, the
EZ followed a wrong diagnosis of the crisis that, through austerity, made
things much worse.
The peripheral governments have
indeed basically backed the German interpretation of the crisis as caused only
by the borrowers ( although the SPD also vaguely accuses the deregulation of
the financial sector) and by the fiscal profligacy of the peripheral governments.
This interpretation overlooks that the peripheral current account deficit
financed by the northern capital flows sustained imports from core-Europe.
Moreover, it forgets that the fiscal crisis was the result, in Ireland and Spain,
also of the bailout of private banks, while the Italian public debt was much
older and Italy before 2008
violated the fiscal pact much less than Germany
and France.
While the Greek centre-right government might have relied too much on an
endless cheap foreign support to its public debt, it should not be forgotten
that Greece
has also been a excellent market for German exports (and possibly still is for
the German and French armaments). Be that as it may, lenders are as much
responsible as borrowers. But core-Europe is responsible for the crisis in an
even more important way: its neo-mercantilist behaviour. The financial
liberalisation and the fall in the devaluation risk (the ‘convertibility risk’
as Draghi calls it) and the consequent indebtedness of the periphery have
indeed been functional to this behaviour.
This is an old story, indeed. Since
the early 1950s Germany
took advantage of fixed exchange rates to pursue an export-led mode. The three
institutional pillars of the German low-inflation model were
-
a paternalistic State, both with regard to the general welfare of the
working class (the famous Bismarkian social state) and to trade (the German
government has clearly foreign trade and foreign investment policy as its top
priority, as the resignation of one President of the Federal Republic reminded
to us: he candidly confessed that Germany sent troops to Afghanistan for
commercial reasons).
- an accommodating labour movement;
- the Bundesbank as the watchdog of
German labour discipline.
Wage moderation, the relative
compression of the domestic market and the other countries’ Keynesism made the
model successful: it has guaranteed a high standard of living in a self-fulfilling
model in which the pursuit of trade surpluses promoted domestic labour
discipline. The model was reinforced at the inception of the Euro by the
SPD-inspired labour reforms. Although the model assured relatively high wages,
following Kalecki we can regard it as a way for capitalists to maximise the
level of the “internal surplus” - that is of what remains to them of the social
product after having paid wages - and get rid of it (or realize it in Marxian
terms) in foreign markets.
Note the parallel here between the U.S. and the EZ
crises. In both cases residential investment bubbles (and more in general
autonomous consumption financed by consumer credit) within a currency union
sustained aggregate consumption from a middle class otherwise impoverished by
decades of real wages stagnation. The internal geography, so to speak, changed,
but the logic is similar. What is different is, of course, that the U.S. as a complete Federal Union had the will
and means to deal with the crisis through monetary and fiscal policies and by
implementing bank crisis resolution mechanisms, while the EZ as an imperfect Union retreated back to nationalistic behaviours.
There is a lot of things we must
imitate from Germany
– and the German people should in no way be regarded here as an enemy. There is
a ‘benign’ form of mercantilism (quotation here) that consists of a developmental state
promoting welfare and productive capacity. This form of economic nationalism is
not at odds per se with a domestic
demand-led growth and international economic cooperation. But the German
hyper-nationalistic economic model has always constituted a problem for the
world economy, and it is basically incompatible with the working of the EZ.
This has been defined as malevolent mercantilism (quotation here). The suggestion that all the EZ countries
should imitate Germany
is a zero-sum game: a suicidal competitive deflation strategy. As Soros summed up, Germany has to lead or to leave.
As I said, I believe that we should
decide here a strategy of communication with the German new generations, the
only ones that perhaps have not yet suffered for too long from the Build, FAZ, BuBa etc. brain washing. Our student organizations should ask
their German twins to be invited in the German Universities to explain the
dramatic situation in our countries and the importance of a collective
responsibility to bring Europe away from this
self-destruction. A specific open letter might be prepared in this meeting in
this direction and addressed to the main German Youth organisations (including
the SPD’s Jusos, LINKE, Grunen etc.) The rich and generous German progressive
foundations might be asked to finance this initiative: one hundred delegations
from PIIGS countries to visit one hundred German universities. Germany has to decide if she wants to lead a
prosperous Europe or if she just wants a
backyard of impoverished countries, possibly a pool of unemployed labour for
her ageing population. We must be competent enough to explain the terms of the
situation to our German fellows, and so it is important that the interaction
with the critical economists continues. It is also important that the European
dimension of the crisis is fully endorsed by the movements.
In view of the German
neo-mercantilist behaviour, a debate about the causes of the EZ trade
imbalances has developed: one thesis emphasizes the structural lack of southern
competitiveness often attributed to an unsustainable wage dynamics; more
plausibly, another thesis argues that the trade imbalances are mainly due to
the combination of the repressed German domestic market and wage moderation,
and of the residential-investment demand-led growth in some peripheral
countries. This led to higher inflation in the latter and to their loss of
competitiveness. In this view, real wages are not the cause of the higher
inflation and real exchange rates losses, rather the service/non-tradable sector,
protected from external competition, appears to be the cause. Spain seems the
typical example (the PIIGS families, as the Anna Karenina unhappy families, are
each miserable in her own way, so it is
always difficult to generalise). This debate is important to focus on – also in
view of some discussion that has taken place on the manifesto of the meeting (I particularly sympathize with the
comments by Jorge Uxo). What Europe seems to
need is not so much a structural change in the periphery, but rather a
German-led aggregate demand growth. This would help to rebalance the EZ. Inspired
by an analysis of the periphery problems as due to too rigid labour market
institutions and too high real wages – again a wrong diagnosis of the crisis –
the widespread labour market reforms and wage deflation have negatively affected
consumption demand, thus aggravating the crisis.
All in all, the way Europe has dealt with the crisis has been too little and
too late (to kick the can down the road, as it has often been said). But even
worse: the austerity imposed on the EZ has made the crisis worse. It may well
be said that at present austerity is the main cause of the crisis.
The policies
The main policies so far have been:
a) Bail out packages (ESFS;
ESM): used to bail-out Greece,
Ireland and Portugal. They
have a basic problem: the troubled countries also put the money, so Italy and
Spain “loaned” money to their smaller troubled fellows to save the German banks
(note that Germany lends at very convenient rates, and borrows also at very
profitable rates, the opposite is true for Spain and Italy). Anyway, Spain and Italy
cannot save themselves in case they need to be bailed out (it would be a
vicious circle, somebody drowning cannot help herself): so the only real money
would be from Germany:
too much even from this mighty country. To make things worse, the bailed-out
countries have been imposed a counterproductive austerity that made the crisis
and public finances worse. Presently, everybody is realizing that Greece will not
able to redeem the official loans it received (used to save the French and
German banks). OSI (Official Sector Involvement) is the new EZ-acronym.
b) The ECB intervention has been
limited to the early summer 2011 when the central bank bought about €200bn of
peripheral sovereign bonds, without any persistent effect on the sovereign
spread. Only an unlimited guarantee can obtain this result.
c) The liquidity made available by
the Eurosystem assured that the banking system in the periphery did not
collapse in view of the capital flights to core-Europe. As said, the
liabilities of the periphery towards the private core-European investors have
been substituted by the “official” TARGET2 liabilities towards the Eurosystem.
Since most of the capital flights consisted of previous investment in
peripheral sovereign debt that foreign investors progressively refused to
refinance (roll-over), banks used the liquidity to sustain their respective
domestic sovereign debts (In Italy, for instance, the share of foreign-held
public debt has fallen form 60 to 30 per cent. This does not mean, however,
that the Italian foreign debt has fallen: private loans have just been
substituted by TARGET2 loans). What all this produced is that fragile banks
sustain fragile states, and fragile states back fragile banks. What we would
instead need is an ECB support to sovereign debts and a bank resolution
mechanism: a European bail out of banks and deposit insurance (measures that
cannot be left to national governments). Both measures would not hit the
core-countries tax-payers as far as the intervention of the ECB keeps the
sovereign interest rates at bay. The results of the European summit held at the
end of June 2012 have been disappointing in this regard: no European banking
crisis resolution mechanism seems to be in view.
d) From Summer and Autumn 2011 also Italy and Spain were inflicted various austerity
packages. Italy
was imposed a change in government with the implicit promise of an ECB
intervention that never materialised. In addition, in Spring 2012 the EU
approved the six-pack and the fiscal compact directing the EZ countries to
balance their budget and to reduce the sovereign debt/GDP ration at 60% by year
2020. The logic of the austerity policy is
Austerity à credibility à lower interest rates on sovereign
bonds à recovery
As a mounting evidence is showing,
this option simply does not work and will not work.
e) Following his famous August
declaration (“The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”) in Sept.
2012 Draghi launched his OMT plan
[Outright Market Transactions is the way the ECB defines the open market
operations (OMO); in the ECB’s jargon OMO means bank refinancing operations]:
the ECB cold intervene in the secondary markets buying, in principle, an
unlimited amount of sovereign bonds (the big bazooka, although restricted to
up-to 3y bonds); the countries asking for assistance should, however, subscribe
to an austerity memorandum with the EU surrendering their national fiscal
sovereignty. The idea of OMT is that lower interest rates will render austerity
a bit less tough, so that unsustainable social unrest (so-called “austerity
fatigue”) can be avoided, credibility regained, and maybe - the trust of
financial markets being restored - some growth will appear, etc. The ECB will
not pre-commit a given interest rate (or a given level of the spreads), so as
to be able to blackmail in any moment governments, and anyway the reduction
should not be too much, with a view to avoiding moral hazard, that is the
temptation of dodging the “structural reforms”, cuts in public spending and
labour market reforms. So the OMT does not really break with austerity policies
asking the peripheral countries to surrender further national sovereignty to
Bruxelles.
As known, the mere announcement by
Draghi of this measure determined a fall in the Spanish and Italian sovereign
spreads of some 150 basic points. This made plain to the public that the
interest rates are determined by the central bank and not by the market, unless
the central bank does nothing. It also showed that it is not necessary for the
central bank to intervene and buy: the deployment of the big bazooka is enough
to intimidate the markets.
We should finally mention the blah
blah going on in Bruxelles on a European Federal Budget, nothing very serious,
some bland anti-cyclical fund, nothing to do with a real redistributive Federal
Budget (in fact, the existing small EU budget has been cut!). Indeed when Germany thinks
of a European fiscal policy, it is just proposing the assignment of a
pro-austerity power on national sovereign budgets to a fiscal authority in
Bruxelles.
Alternative policies
Alternative
policies have also been proposed and discussed.
Eurobonds
In my opinion
Eurobonds are not an ultimate solution since by putting all sovereign debts in
the same pot, the “credibility” of the German sovereign debt would be
negatively affected and the political support by Germany undermined. A pan-European
sovereign central bank that guarantees a European sovereign debt is the
necessary measure to avoid this result. But if the ECB provides this guarantee,
do we still need the Eurobonds? Perhaps yes, if the change in the statute of
the ECB is deemed to be accompanied by a centralization in Bruxelles of fiscal
policies. But this should not be done along German lines, however. The old
French proposal (not of shy Hollande, tough) of a stronger Eurogroup that should be transformed from an informal club into the
institutional fiscal counterpart of the ECB would be a good compromise to avoid
an EZ fiscal Kaiser (the Germans have
always refused this change because a political body would be stronger than a
technical body like the ECB).
An
alternative proposal
My favourite proposal
is of an ECB intervention to calm markets down (the big bazooka) conditioned by
a fiscal rule; this should consist of the stabilisation of the public
debt/GDP ratios (not their reduction). This will be consistent with deficit
spending policies. I would call it an “expansionary conditionality” or
“Keynesian conditionality”. The rationale is that the savings obtained from the
reduction in the interest rates should be used not to reduce sovereign debt/GDP
ratio, but to sustain aggregate demand; the larger fiscal revenues will help
the stabilization of the ratio. This is the most practical, politically
reasonable proposal I can think of.
In addition we
need:
- a solution
to the banking crisis and a separation of sovereign and bank crises (this
would be easier if the European state intervention is backed by the central
bank)
- a looser wage
and inflation policy, so to let wages rise especially in core-Europe in order
to sustain aggregate demand. To this scope we need the right institutions,
first of all a cooperative ECB that tolerates a higher inflation target and
stops for good being the watch-dog of German wages. Instead of destroying the
Trade Unions, the EZ south needs strong TU and income policies, plus measures
to modernise the non-tradable sector, the source of the core-periphery
inflation gap.
Many other things
we need to do, but I do not like endless shopping lists. Let us focus on the
macroeconomic measures first.
There are at
least two further, opposite alternatives to be briefly discussed, a Federal
Europe and a Euro break-up.
A Federal Europe
Optimistic
Europhiles are thinking of the crisis as an opportunity to create a Federal
Europe. The US could be a
good example for a working Federal
State from the point of
view of fiscal and monetary policies, although less for social policy. We may,
of course, dream of a progressive Europe, with
social fairness and full employment. Of course Treaties in this direction
should be re-written (including the ridiculous EU “Constitution” that says that
the ECB must be independent and pursue price stability first). A Federal Budget
should progressively be created, perhaps along the lines of the McDougall
report of 1977. But I suppose this is not for this generation. The Spanish
experience with Catalonia shows how much even old and consolidated states are
fragile once exposed to external shocks (the austerity has clearly generated
the Catalan resentment against the rest of Spain – that is, by the way, a
market for Catalonia, as the Italian Mezzogiorno is for the Italian north).
A Euro Break-up
I am not able to
assess how dramatic this event could be, there are different opinions. What is
sure is that there should be a preliminary European political agreement, and a
lot of peaceful financial negotiation later. The EU must be saved. A German
exit might be easier, but do not underestimate the governance problems of a
Southern Euro. We must study this, and our governments should study it to have
a card to play to deal with Germany.
It is clear that Spain, Italy and the
other smaller southern fellows cannot endure this situation any further. We
must therefore accompany our “reasonable” pro-European proposals with the
option that we might go “our way” (a Mercosur with preferential ties with
Latino-America and North Africa?).
Our duties
We have a
difficult future ahead. But our fathers and grandfathers also had a difficult
future ahead. I thought I belonged to a lucky generation that did not suffer
hunger and wars, and the same I expected for my sons. It is not anymore true
(at least we have not wars, yet). I assumed to be living in a situation in
which any single individual was cared by society. It is not true anymore: we
see a cynical ruling class, that includes Rajoy and Monti, literally destroying
the lives and hopes of entire generations, old and young people alike. But we must fight and resist. Our specific
duty as students of Economics and critical economists is to put the European
question at the centre. The current European leaders must decide if they want to
save Europe or not. They are the
anti-Europeans, not us. We must explain to our fellow citizens that austerity
is a policy choice and not a compelling fate, that different policies that
would save Europe and prosperity are feasible.
You must talk also to your young core-European fellows. If I am sceptical about
solidarity, youth is the time for
solidarity and change. I am sure they will listen. To do this, we must also fight to defend the
space for critical economic thought in our universities. The Italian students
of LINK have in this regard launched a petition that they will explain. We must
defend critical Economics so as to be better trained in view of the tremendous
challenges we have ahead. Good luck to all of you, and thanks.
[1] I thank Jorge
Uxo for preliminary comments and Giancarlo Bergamini for valuable help in
improving the exposition.
Nessun commento:
Posta un commento