The European Waste
In Sweden, the anti-European far right has just brought down the government and new general elections have been called. In Germany, Angela Merkel, before the congress of her party, the CDU, has questioned specifically France and Italy, whose "structural reforms" would be insufficient to allow both countries to resume growth and restore their accounts. The day before, however, the Bundesbank had lowered its growth forecast for 2015 to 1%, illustrating the fragility of the German economy. The time and place chosen by the Chancellor to lay bare the divisions that undermine the European project, is revealing: the denunciation of French and Italian policies is very popular among the German right, which hopes thereby to stay in power. For the first time, Thuringia will be led by a coalition of the Left, the Greens and Die Linke whose president belongs to. But this strategy feeds the rise of the anti-European party, the AFD. Playing with fire, Angela Merkel is likely to get the opposite result and Europe does not really need this.
In the midst of economic stagnation, characterized by high level of unemployment, except for the countries where population decline leads to a decline in the working age population, Europe is going through a major crisis, reflected inside by a growing rejection of the project itself, and outside, by a significant loss of influence. The conduct of the Brisbane summit makes this situation obvious. At no time, European leaders appeared to be in a position to impose their views or at least to make them heard. The agreement on climate change has been negotiated between the United Stated and China on a strictly bilateral basis and the discussions on trade relations have been focused on the Pacific Ocean.
Challenged by its people and criticized or ignored by those around, Europe must react. But Europe does the opposite. Its leaders show their divisions and provide no answer to the criticisms that burst. The new Commission failed its start. As expected, its President was immediately and directly blamed for the tax policy of his country, Luxembourg, which was, while he was serving as finance minister and head of government, a huge mail-box offering large international companies unstoppable and perfectly legal ways, under European rules, to avoid taxes. Who can think that his priority, and there is an emergency, would be to put an end to these abuses? His first initiative, a $ 315 billion investment plan to boost growth, consists both in show-politics and in diversion. The measures are neither technically ready nor politically settled, and allocations would be designed by country. Jean-Claude Juncker has chosen the announcement effect but its Plan is likely to remain on paper.
The expected level of public funding is negligible at the scale of Europe and the use of private funding will, at best, occur at the expense of unsuccessful projects and at worst face the refusal of banks and investors. The impact on growth will be insignificant. But its real purpose lies elsewhere: to offset, with this device, the real and depressive effect of the budgetary constraints imposed by Brussels and the Treaties, in particular, the famous 3% rule. But this rule, raised for the first time in France in 1982 and adopted along with the rule of price stability and the public debt ceiling of 60% of GDP, refers to another era when the threat of inflation was the highest fear of Germany given its own history.
Twenty years later, the threat of inflation has disappeared. We even talk about the opposite risk. None of the major countries meets the public debt ceiling of 60%. However, nobody in Brussels or elsewhere is concerned about it and all the attention is focused on the sole criterion of the annual public deficit. It is legitimate to be worried when a country’s policy jeopardizes its solvability, as was the case between 2010 and 2012, and requires European solidarity. But neither France nor Italy is in this case. In both countries, the household savings rate far exceeds every year the deficit. The financial markets are fully aware of this and they lend at rates never seen before: less than 2% in Italy and less than 1% in France for funding to 10 years. As for foreign risk, it is inexistent: the balance of payments of the euro zone is in surplus - with an Italian surplus and a small deficit for France, just over 1% of GDP in 2014.
The 3% criterion, which might have made sense 25 years ago, when the inflationary threat was real and the balance of payments deficit difficult to finance, is no longer relevant today. The best proof is that no one thought about mentioning it when we needed to counter the disastrous effects of the financial crisis coming from the United States in 2008. Today, the European project is in crisis. Due to the inadequate response of the European states imposed by the Commission, which is now under the unequivocal public pressure of Germany, member states are divided and sink into stagnation whereas the US economy resumed its march forward and China reveals itself as the rising economic power of the 21st century. In this new context and at a time where Europe should be the solution, it is now becoming the problem, in the eyes of its own people. What a waste.