The Italian budget for 2019 refused? Never mind, this Italian budget is the answer to the austerity stubbornness of the European institutions (Le Taurillon, 30/10/2018) and their obsession as “account managers” to hold on the strict application of an updated Pact, which was as Frank Biancheri pointed out in this article of 2003: “ a predictable Pact of Instability“. It is indeed an Italian “right nationalist and left populist” government coalition (Süddeutsche, 23/10/2018) which opposes today the arm wrestling with the European institutions. Just like “it was delusive to imagine elected governments obeying some supra-national administrative authorities (Commission or ECB) with the risk to lose the next elections; and that if they did, there would be a great danger to nurture extreme-rights and lefts, and to reinforce anti-European trends” it is even more illusory to imagine that such a government from these extremes applies to it… It is unfortunately too late today for consider the “march towards a European economic pact” a “Prosperity Pact” for the citizens …
A European Prosperity Pact should match EU’s political and economic requirements, to preserve the good coherence and coordination of the different economic, financial, monetary and social components of the European community. In a moving and dynamic world, this pact should by no means impose stability, rigid rules and bank-style constraints.
Therefore, Europe does need a European Prosperity Pact with a Euroland nucleus.
However, should we have a Stability Pact?
Since the beginning, many European political observers (among whom your servant) mentioned the fact that it was delusive to imagine elected governments obeying some supra – national administrative authorities (Commission or ECB) with the risk to lose the next elections; and that if they did, there would be a great danger to nurture extreme-rights and lefts, and to reinforce anti-European trends. Contrary to what many bureaucrats (civil servants or bankers) may think, a democracy can only be run efficiently through democratic methods, not through administrative rules.
The face-to-face between « politicians / public opinion » on the one hand and « Eurocrats / central bankers » on the other can only result in an increased political and s ocial instability of the EU.
In this sense, this Pact is a predictable Pact of Instability.
In fact instability is already here. It is enough to notice how much of the European media’s space is occupied by debates on the value, validity, utility, respect… of the Stability Pact, to become aware that far from stabilising the EU, it destabilises the Europeans. Violent exchanges among European political leaders, mutual accusations of « neglecting the small ones » or « ignoring the big ones’ constraints », each day embitters the European public debate as well as those circles in charge of preparing the future (for instance, IGC debates on the future Constitution).
Growing political instability, strengthened aggressiveness within the European debate, dangers wei ghing on decisions regarding our future, … here are the main achievements of this Pact.
But, I could be retorted: these are serious issues! Our common future, everyone’s prosperity is at stake! Tomorrow’s prosperity is worth a few tensions today!
I would willingly agree if that was true. Alas, this is not the case! Where are the economic bases of the Stability Pact? Where are the economic « laws » that limit budget deficits to 3%, or public debt to 60%? Or maximum inflation to 2%? No where!
That rules a re needed? Absolutely. That once fixed, everyone (without exceptions) should respect them? Certainly. But these rules should take into consideration reality rather than fantasies of budget controllers or of aging “baby – boomers” who value stability at any c ost to the detriment of development and dynamics.
Reality today (I insist on this word because in the 21st century, reality is moving… and inviolable rules have short – term utility) imposes us to consider that the Euro having only recently been establishe d, everyone in Europe, from central bankers to government, as much as economic actors and citizens, are just discovering the extent of its impact on our economic and social systems. We are all at the beginning of a learning process that will last 2 to 4 mo re years. Three simple conclusions derive from this statement:
- no one owns the truth about the Euro and about the way to manage the Euro zone: neither central bankers nor finance ministers, companies, trade – unions, economists. Theory of what Euro would be gave birth to the Stability Pact rules; now for about 2 years, we have been experimenting Euro in vivo. As any scientist knows well, theory rarely fit experiments at first try. Experiments should then nurture theory in order to improve it and adapt it to reality. Which is where we stand now with the Euro and the Pact.
- flexibility is required for a few years in order to avoid the “violation” of this new economic reality that we know little (instead of letting flexibility be imposed by reality, thus embit tering the European atmosphere, let’s choose it)
- successful actors should be rewarded rather than players – in – difficulty punished. In an badly known situation, it is indeed easier (practically and legitimately) to remark those who seem to act in the « right direction » than try to condemn those who do not play well
- it is therefore necessary to be inventive in order to stimulate the actors, namely by abandoning the bank – style range of « sanctions » (this notion of budgetary sanctions for countries in a bud get deficit is economically and politically inept) and rather try to explore the « reward – sanction » possibilities available in the EU (for instance, bonuses to regional or structural funds, or on suppression of part of these funds according to the « Euro – behaviour », accumulation of deficit points in the positive periods to be made available in the dark « euromiles budget » periods).
To make a long story short, the criteria and instruments are inadequate in the present Stability Pact. Knowing this, the march towards a European economic pact can be envisaged more calmly:
- fixing objectives in a way that includes a gradually disappearing operational margin until 2006 (the next big European meeting in terms of budget)
- aiming the pact at prosperity (an idea that can be shared among all Europeans) rather than at stability (a concept opposed to the future)
- innovating in terms of instruments, going from sanctions to incentives (using in particular the possibilities of EU structural policies)
The Euro can not succeed economically and politically (both are linked) if its management is based on behaviours of bank account managers sanctioning non-authorised debits.
Franck Biancheri, 25/11/2003: Towards a European Prosperity Pact in place of the Stability Pact (download pdf file)