Must-Read: Thomas Piketty: Change Europe, Now

Must-Read: Thomas Piketty (2015): Change Europe, Now: “The extreme right has risen from 15% to 30% of the votes in France…

…unemployment and xenophobia, extreme disappointment with the left in power, the feeling that everything has been tried and that something else must be experimented… disastrous management of the financial crisis…. Only a democratic and social re-founding of the Euro zone, based on growth and employment, round a small core of countries prepared to move forward and provide themselves with appropriate political institutions, would enable us to counter the temptation to revert to nationalism and hatred which today threatens the whole of Europe….

It is important that the European leaders—in particular the French and the German—acknowledge their mistakes. We can discuss endlessly all sorts of reforms, both big and small, to be carried out in the various Euro zone countries: shop-opening hours, bus lanes, labour markets, retirement pensions, etc. Some are useful, others less so. But… this is not the reason for the sudden fall in GDP in the Euro zone in 2011-2013…. Recovery was stifled by the over-rapid endeavour to reduce the deficits in 2011-2013—with in particular rises in taxation in France which were much too heavy…. The application of blind fiscal rules… explains why in 2015 the GDP of the Euro zone has still not recovered its 2007 level….

As a first step, all the debts of more than 60% of GDP could be placed in a common fund, with a moratorium on repayments until each country has recovered a strong growth trajectory since 2007. All historical experiences show that above a certain level, it makes no sense to repay debts for decades. It is better to ease the burden clearly so as to invest in growth, including from the creditors’ point of view…. New democratic governance… the setting up of a Euro-zone parliament comprising members from the national parliaments in proportion to the population of each country. This Euro-zone Parliamentary Chamber should also be entrusted with the voting of a common corporate tax… [to] enable the financing of an investment plan in infrastructures and universities…. Europe has all the assets required to offer the best social model in the world. Let’s stop squandering our opportunities…. Before coming to plan B, proposed by the extreme Right and which the extreme Left is increasingly tempted to invoke, let’s start by giving a fully-fledged plan A a genuine chance.

Must-read: Wolfgang Munchau: “The Errors Behind Europe’s Many Crises”

Must-Read: Wolfgang Munchau: The Errors Behind Europe’s Many Crises: “The EU was wrong to construct a single currency without a proper banking union…

…wrong to create a passport-free travel zone without a common border police force and immigration policy. [And] I would add EU enlargement… the haste with which it was pursued. The cardinal mistake of our time was the decision to muddle through the eurozone crisis. Europe’s political leadership failed to generate the public support for what was needed: creating a political and economic union. Instead, the European Council did the minimum necessary…. There are four channels through which that policy contributed to the broader instability….

First… the EU has the capacity only to deal with one big crisis at a time…. Second… the conflation, real or imaginary, of two more crises. The Greek economy continues to contract… refugees have been trapped in Greece… since Macedonia closed the border…. There are the fake connections. Poland has used last week’s Brussels bombings as a pretext for questioning a commitment to accept 7,000 refugees… an interaction between the terrorist attacks and the prospect of British exit…. Third… the output of several eurozone countries has yet to return to pre-crisis levels. Security… was among the areas most affected by austerity…. The widening income gap between rich and poor — and north and south….

Fourth… a generalised loss of trust and political capital…. Populist parties on the left and the right are exploiting the union’s failures…. The combination of these four channels frustrates perfectly good ideas for further projects aimed at European integration–those that would benefit everybody, such as central agencies to co-ordinate the fight against terrorism and to deal with the influx of refugees. If the EU had not messed up the previous crises, people would look at a European immigration policy or an antiterrorism task force with a more open mind. But would you trust with your own security somebody who cannot even contain a medium-sized financial crisis?…

Economic history has shown… that efforts to muddle through financial crises never work…. For the EU it was a catastrophic policy error… an economic depression… destroyed public confidence in the EU and in the very idea of European integration.

Must-read: Wolfgang Munchau: “European Central Bank Must Be Much Bolder”

Must-Read: Wolfgang Munchau: European Central Bank Must Be Much Bolder: “The European Central Bank’s monetary policy has been off-track for a very long time…

…And lately, the [core inflation] rate has fallen again. Is there something the ECB can do?… The ECB should hold an open debate about policy alternatives, starting with a realisation that quantitative easing has failed. The ECB acted late, and did not do enough…. The programmes in the US and the UK started when market interest rates were higher than today. The European programme came when rates were already low…. The policy alternatives… [are] a ‘helicopter drop’…. The ECB would print and distribute money to citizens directly. If it were to distribute, say, €3,000bn or about €10,000 per citizen over five years, that would take care of the inflation problem nicely. It would provide an immediate demand boost, and drive up investment as suppliers expanded their capacity to meet this extra demand. The policy would bypass governments and the financial sector. The financial markets would hate it. There is nothing in it for them. But who cares?…