Review by Russell Whitehouse
The European Union is in the midst of a sea change. The UK is headed towards a no-deal Brexit, Italy is being governed by far-right Euro-skeptics, Macron’s neoliberalism has ignited unprecedented protests across France and Angela Merkel has announced that she will step down in 2021. Michel Aglietta, cofounder of the regulation school of economics, writes about how to turn this grim tide in The Reform of Europe: A Political Guide to the Future.
Aglietta explores the problems that Europe has been facing for decades: low productivity, stagnant wages, unemployment, frequent market crashes, intra-nation inequality, etc. Much of these issues stem from bank negligence and recklessness. The author writes, “In the current European situation, repairing the balance sheets of financial intermediaries is the priority if there is to be any hope of reviving credit. It involves the full, complete realization of banking union. The latter is indispensable if monetary policy is not to continue to be trapped by the banks’ inability to do their job.” Banks in Europe are, as we learned during the recession, are over-leveraged, which creates financial vulnerability and stagnant growth for companies and nations alike.
The over-leveraging of lenders creates another deadly problem: lack of liquidity. Countries and companies alike have found it increasingly difficult to secure credit to grow or recover from the recession. There’s a dimension of inequality in this credit shortfall; countries like Spain and Greece were only given loan options at exorbitant interest rates. The ECB refused to help out these southern European nations; thus, they had to resort to devastating austerity measures. Echoing Keynes, Aglietta writes that, “The success of the [Danish, Canadian & two Swedish balanced budget initiatives] derived from the fact that they were initiated when growth had been restored following a recession, not during the recession. Prior closure of the output gap was a condition of success.” Thus, he advocates for establishing a lender-of-last-resort for EU nations.
A lack of liquidity also stymies investment; both pubic and private investment expenditures have been stagnant across Europe. The average European company is falling behind in terms of R&D, automation machinery, exports and innovation. European tech companies are likewise falling behind in the crucial AI race. Governments are also failing to adequately invest in infrastructure, job re-training for the hordes of the unemployed, public childcare to encourage female labor participation and countless other issues. Aglietta thus endorses a pan-European development bank that lends to Small-Medium Enterprises (SMEs) and national governments.
Serious reforms are needed amongst Europe’s major banks. This will require unprecedented cooperation between EU members… unlikely, given the current political climate. But as Aglietta wrote in his last book, there is no divorcing finance from politics. All of the issues plaguing Europe will need to be addressed via unified government action and partnership with businesses, especially small businesses. Unemployment across Europe has greatly retarded productivity and fanned the flames of xenophobia and fascism. This problem will only become a bigger threat in the coming decades; the author writes that, “Automation reduces the need for unskilled labor and reinforces the need to invest in skills, to respond to demands for skilled labor. It follows that life-long education must become a fundamental right of citizenship.” In the short term, Aglietta also vouches for the importance of instituting an EU unemployment insurance program. Likewise, addressing inequities in female labor participation and wages will strengthen economic output, discretionary spending and household stability.
The book has a whole chapter devoted to an EU iteration of the Green New Deal. A government investment initiative of clean energy jobs, sustainable infrastructure like wind farms, reversing water/air/soil pollution, retrograding old buildings, etc. will solve the aforementioned problems of unemployment and stagnant productivity. Such ventures will have to be funded by a fairly valued carbon tax and pan-EU “green” bonds, among other things. With the Trump Administration’s abdication of leadership on climate change, the EU can potentially challenge China for global dominance in the emerging green economy.
The Reform of Europe is a comprehensive look at the causes and solutions of the EU’s most pressing problems. American readers will also sympathize with the book’s descriptions of the EU’s post-recession malaise and hear echoes of the progressive-Democrat agenda in things like the Green New Deal, free college and the reining-in of banks that use their creditors’ money-and the whole world economy- as their personal casino. Aglietta addresses the inequality between Western Europe & the rest of Europe, men and women in the workplace, the educated and non-educated, workers and the shareholders, and citizens vs. polluters. His solutions are steeped in modern monetary theory, which is contingent upon having a sovereign currency. The euro is obviously a supra-sovereign currency, so Aglietta writes about the need for it to become a “complete currency” through the complete cooperation of EU members on fiscal and monetary policy. A fully united EU can jumpstart liquidity, mitigate future market shocks, decrease intra-European inequality, increase civic engagement and even challenge the global supremacy of the dollar. No one can argue that the EU as currently constituted is sustainable, what with Brexit, the rise of Euro-skeptic fascist movements in major countries like Italy and France, and the collapse of Greece.
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