WEEKLY COMMENT 25-02-2016
By Barry Edwards
The Italian Ministry of Finance published a paper this week entitled ‘A Shared European Policy Strategy for Growth, Jobs, and Stability’ which is a recommendation to encourage the EU authorities to do more to stimulate growth in the Eurozone. The first surprise is that it is an Italian paper which is a country that has tended to ignore some of the economic structural recommendations from the EU Commission ever since they have been a member of the EU and its predecessor the EEC.
That does not diverge from the excellent points contained in the paper and can only suggest that the country is finally adopting the new approach that their prime minister, Matteo Renzi, has been proposing since he was elected in February 2014. The paper is 9 pages and is well worth reading since it is probably defining the opinion of all the southern and eastern countries of the EU that are struggling to grow their economies. Click on the link below to read the paper;
It would be fair to say that the northern European countries would not react well to the whole concept suggested in the paper but many commentators are of the opinion that the proposals are the only way to change the very low growth environment that the EU now finds itself experiencing. Despite the fact that most of the proposals are part of the long term plans set out in the Maastricht Treaty, the distrust between North and South has prevented the implementation of much of the concept. The following is taken from the introduction to the paper;
“The European project is suffering an unparalleled crisis: the policy reaction to the economic recession and large unemployment is often perceived as insufficient by European citizens, which often struggle to perceive the value added of being part of the Union. National interests are prevailing over the common good. Growing signs of disaffection, fed by the exceptional duration and intensity of the crisis, are boosting consensus for populist proposals; Euroscepticism is on the rise in almost every Member State.
If Europe is to be part of the solution – and not of the problem – we must rebuild trust among our citizens and between member states, and develop an EU-wide strategy to restore sustained growth and boost jobs. We have gone a long way towards more integration, but now Europe is at a crossroads: if we were to keep muddling through an uncertain recovery, progress in growth and job creation would fail to emerge and the Euro area would remain exposed to shocks, undermining its sustainability.”
“Weaker external demand and uncertainties in the global outlook point to increased downside risks. A protracted period of exceptionally low inflation coupled with sluggish growth is negatively affecting the growth potential and weakening expectations on future economic perspectives. Crucial indicators such as employment, industrial production and investment are still far below the pre-crisis levels in several Member states. Imbalances have further widened, with negative consequences on the overall sustainability and resilience of the euro area.”
Nobody can dispute the facts outlined above, it is the method to do something about it that seems to conflict between the northern and southern members of the Eurozone. The Italians are proposing much more cooperation and funding through the EU channels committing all countries to a unified support mechanism including issuing EU bonds, an EU unemployment benefit (to help with restructuring employment laws), coordinated migration induction, investment in higher education, innovation and projects beyond the scope of the ‘Juncker Plan’.
The main point being made is the need for a thorough long term approach to make a real difference to the future of the EU. Last week this weekly comment proposed a solution that bypassed the political complications that the Italians are proposing but it is not unrealistic to believe that the politicians could actually make an effort to implement the policies they are proposing. It would eventually reduce unemployment and increase the potential for all those struggling to achieve the standard of living that has been the reason for the creation of the EU.
The debate about the referendum in the UK is a catalyst for other EU countries to make their ideas known and it is very likely the discussion will change the thinking within the union and stimulate positive suggestions beyond the constrained ideology that is touted by the bureaucracy making policy within the EU administration. The paper from the Italian Ministry of Finance is an encouraging step in the process of considering a realistic alternative to the formal limited structure that is drowning the potential that could be unleashed with progressive thinking from enlightened politicians.
It is clear from the serious comment from many commentators, including the IMF, that they all believe a different approach has to be adopted if we are going to get through this low growth, low interest and non-inflationary economic cycle that has been created by the financial crisis. The traditional techniques to solve the usual recessionary periods we have experienced in the past do not seem to have the financial effect that worked previously.
The establishment, whatever that means these days, has to totally change the ideas, approach and concept of how the economy functions. The politicians must convince the majority of people that it is possible to predict a future of long term growth and potential for families everywhere. One thing is certain and that is the success of the EU is important to the UK whether we are a member of it or not.
That’s all for this week, more observations next week.