By Guillaume Balas (France, MEP, Parti Socialiste, Progressive Alliance of Socialists and Democrats in the European Parliament), Fabio De Masi (Germany, MEP, Die Linke, European United Left – Nordic Green Left), Curzio Maltese (Italy, MEP, European United Left – Nordic Green Left), Emmanuel Maurel (France, MEP, Parti Socialiste, Progressive Alliance of Socialists and Democrats in the European Parliament)
“The EU is threatening to fail. The economic crisis will go down in history as Europe’s ‘lost decade’. Reductions in government spending, wages and pensions have put the Eurozone on life support and neutralised the policy of cheap money. The ECB is pumping euros into the banks, but without this having any impact on the real economy, because investment and credit demand is too weak. Financial markets are thus growing faster than the real economy. A new financial crisis is in the offing.
At the same time, the refugee crisis is a stress test for the EU. The willingness of EU citizens to accept refugees and their social integration depends on there being adequate investment in education, housing and infrastructure and the wealthy assuming their responsibilities. Depending on estimates, the annual (public and private) investment shortfall in Europe amounts to between EUR 370 and 640 billion yearly. The shortfall in public investment for Germany alone is about EUR 100 billion. We are leaving severely depleted infrastructure to future generations.
The Commission has also warned Germany to reduce its high export surpluses – obtained at the expense of its trading partners – through greater public investment and thus enhance domestic demand. This is also in Germany’s interest, as it will reduce the risk of new debt crises in the Eurozone and reduce its dependency on the global economy.
The Commission is now promising to come to the rescue with the Juncker-Plan (European Fund for Strategic Investment – EFSI) and the Capital Market Union. Public guarantees and laxer accounting rules for insurers (Solvency II) are designed to encourage Deutsche Bank and Allianz to invest in public infrastructure, because the Stability and Growth Pact prevents public investment. This is more expensive for taxpayers, because they have to help finance the returns of private investors.
The Capital Markets Union covers the deregulation of financial markets, including the promotion of the securitisation of junk credit, which led to the real estate crisis in the USA. This is the wrong answer to the financial crisis. Funding via the capital markets is expensive and unreliable, especially for medium-sized enterprises; this is because anonymous investors cannot estimate the risk posed by investments and the solvency of the enterprises as competent as regional banks and therefore withdraw their money quickly in times of uncertainty.
The ECB’s biannual SAFE survey also shows that – except in some southern European countries with high levels of non-performing loans on banks’ balance sheets –companies lack sales opportunities rather than access to funding. Even the wealthy and insurers are desperately looking for profitable investments.
States should strive to meet their current expenditure by tax revenue. It would only be fair to tax the wealthy to reduce growing social inequality and to channel abundant liquidity from the financial markets into the real economy. The wealthy in the EU have benefited for decades from wage repression, tax gifts and the Euro bailouts.
However, it would also be useful if the State funded long-term investments by borrowing, just as companies do. Especially with historically low interest rates, it is inexcusable not to invest. Investments create wealth and income for future generations, which is why funding such investments should be spread over time. Climate change clearly demonstrates that not spending money today to modernise our economies and reduce the reliance on fossil fuels will prove expensive.
Government expenditure translates into revenue for companies and private households. But there is a paradox at work here: if all economic players try to save at the same time, no one would be able to save because nobody would have any revenue. Only the State can break this vicious circle. However, the Stability and Growth Pact prevents public investment, despite zero interest rates, thereby exacerbating the depression and thus failing to contribute to reducing the national debt. The EU is blocked and there is no political will for a genuine public investment programme.
We therefore see two options to kick-start the EU economy: The ECB could fund public investment by buying EIB bonds. This would not breach the current EU treaties as the ECB may not directly fund government expenditure, but public and private banks. However, the ECB is no permanent substitute for democratically accountable fiscal policies as long as it is not subject to proper democratic accountability. Hence, a first modest step to reform the economic and monetary union should address the investment gap by anchoring a ‘golden investment rule’ in the EU Treaties.
This scheme envisages that net investments – i.e. investments minus depreciation – should be excluded from the Maastricht criteria. In 2007, the German ‘Council of Economic Experts’ had also called for an exemption to be granted as part of the debate on the debt brake. However, it would certainly be wrong to invest only in bricks and mortar. There is no shortage of important tasks for the future: education, research and the environmental regeneration of the economy. Especially in view of the refugee crisis, it would be fatal to refrain from making such investments and to refuse EU citizens the dividends of public investment. If the EU does not invest in its future, it will be hijacked by its enemies.”