In a recent paper Anatole Kaletsky addressed Henry Kissinger's famous question about the Western alliance: "What is the phone number for Europe?" But observed that if Europe's phone number has a German dialling code, it goes through to an automated answer: "Nein zu Allem" (Kaletsky, 2016). One of us has addressed this in both historical and psychological terms, submitting that the Eurozone crisis is the first time since WW2 that Germany has been able to displace a darker past and project herself as a model of virtue that should be emulated by austerity from otherwise allegedly self-indulgent member states (Holland, 2015a, 2016).
After the crisis of 2007-2008 recession, the risk of depression and persistent unemployment and poverty in key member states and many European regions was mainly the consequence of European austerity policy whereas in other world regions and large economies policies have been able to achieve either investment-led recovery (East Asia) or demand-led recovery (the US). Austerity in Europe is not creating the conditions for recovery but "beggar-my-neighbour" deflation.
Structural reforms demanded of weak economies were used exclusively to obtain greater labour flexibility and a reduction of the income share distributed to employed workers (see the paper of Ginzburg and Simonazzi). By reducing the ratio of labour income and investment to GDP (Garofoli's paper in this issue) this has meant a reduction of aggregate effective demand, reinforcing the low disposition to invest (Keynes' marginal efficiency of capital) which is typical of a prolonged recession. Such findings for the case against austerity have been reinforced by parallel findings from the IMF Research Department (IMF, 2015), that Troika claims to weaken social protection of labour through Structural Reforms have no basis in any OECD country, which also has been critiqued in relation to the Lindbeck-Snower Insider-Outsider hypothesis by Holland and Oliveira paper in this issue.
As an outcome, there also have been negative investment, employment, income and fiscal multipliers. How policy makers estimate such multipliers has a crucial effect on what they expect the outcomes to be. Thus, if they assume a low multiplier, this minimises the presumed effect of austerity on economic growth which has been the case with the European Commission serially under-estimating negative multipliers in demanding cuts in investment and expenditure in the name of stability, and governments actively or reluctantly accepting this.
In October 2012, when Blanchard was chief economist of the IMF, both he and a colleague, Leigh, advertised in the IMF World Economic Outlook 2012 that negative multipliers from cutting debts and deficits had been under-estimated by a factor of up to three which was why the European economy was not recovering. In a further IMF paper in 2013 Blanchard and Leigh elaborated evidence for this. In parallel, in an NBER paper in 2011 Auerbach and Gorodnichenko found high negative fiscal multipliers in the Euro Area of some 2.5 since the onset of the Eurozone crisis which was five times more negative than the European Commission has presumed.
Yet a crucial factor in the Eurozone crisis not only is the lack of aggregate demand, but also failure to recognise how social investment can promote demand in a manner that sustains rather than drains the private sector (Fondation Robert Schumann, 2014; Abiad, Furceri, Topolova, 2015) (1). This will depend on what the investment projects are, and how labour intensive since a key part of the GDP increase comes from the income they generate in new employment. Nonetheless, investment multipliers can average 2.5 to 3.0, as found by research into those generated by European Investment Bank projects (Holland, 2015a).
There is a German obsession with competitiveness and with export-led growth. But this not only displaces the commitment of the first revision of the Rome Treaty in the Single European Act to economic and social cohesion. In a large market such as that of the EU, internal demand is more important than external demand. EU member states trade mainly with themselves. The ratio of non-European exports to GDP was lower than 10% before the economic crisis and the EU as a whole is broadly in balance with the rest of the world (see Garofoli's paper in this issue).
German competitiveness is partly due to its strong manufacturing sector and its quality but also from undue wage restraint and containment of internal demand (Ginzburg and Simonazzi, in this issue). Besides, the growing shares of German imports of lower price and lower quality consumer goods from non-EU economies such as China (Simonazzi, Ginzburg, Nocella, 2013) has created problems for exporters of such traditional goods from the periphery of Europe to its centre.
Moreover, export-led models are not sufficient to get out of the crisis. German surpluses reflect other countries' deficits. Trade surpluses in the centre and deficits in the periphery have led to debt imbalances in the Union. Of which the main beneficiaries have been German and French financial investors, led by banks, and the main losers the Southern European countries. Even the expansion of domestic demand in core countries like Germany and Netherlands would be insufficient to assure the balanced growth that actually is an opening commitment of the Treaties on the Functioning of the European Union (see the paper by Ginzburg and Simonazzi in this issue).
Further, economic structure between countries cannot be eliminated by a onesize-fits all monetary policy but need structural, social and regional policies to offset asymmetries integral to the free working of the market mechanism, which was recognised in the 1955 Spaak report to the founding conference of the European Economic Community but has been displaced since agreement of the debt and deficit conditions of the Treaty of Maastricht.
Besides which, inequalities in long term trends in the distribution of income are not solely due to Piketty's analysis of reduced income and wealth taxation, though both count, but also a falling rate of profit. As Manera, Navines and Franconneti submit through a long term comparison between USA and the main European countries, with only a few exceptions the rate of profit began to fall from the late 1960s, reaching values in the neoliberal phase that were half those of the Keynesian era.
The case for a bond funded European recovery programme, financed by both the European Investment Bank and European Investment Fund, had been recommended by one of us to Jacques Delors (Holland, 1993) and was the cornerstone of his 1993 "full employment" White Paper, which was approved by the 1994 Essen European Council and endorsed by Mitterrand, Chirac, Prodi and other heads of government at successive...