The ECB’s Misleading Visualisation of the Euro-Crisis

Carlo D’Ippoliti

Two recent articles on the Global Labour Column deal with the European crisis (one specifically with the Italian case). Economists are still divided over the identification of the ultimate causes of the euro-crisis, but a mix of the two leading theses seems to be the most plausible explanation. On the one hand, the Eurozone is a failing attempt at sharing a common currency (the euro) without having a common governance of the economy. Thus, several economists note that the European Union (EU) “federal” budget is tiny in comparison to the task of managing aggregate demand, while common bonds and mutualisation of public debts is off the table; others question the strictly monetarist mandate of the European Central Bank (ECB), whose Statute (or better the mainstream interpretation of it) prevents the ECB from buying European sovereign bonds and mandates to only focus on the growth of consumer prices. On the other hand, a second explanation looks at the growing divergence of the European economies, in particular the sustained Balance-of-Payments imbalances that produced the accumulation of excessive foreign debt in the deficit countries (derogatorily called GIPSIs after the initials of Greece, Ireland, Portugal, Spain and Italy) and huge, possibly nonperforming loans vis-à-vis the GIPSIs in the ‘core’ European countries (Germany, the Netherlands, Austria, Finland).

A Marshall Plan for Europe

Michael Sommer

Proposal by the Confederation of German Trade Unions (DGB) for an economic stimulus, investment and development programme for Europe 

For historical reasons Germany has to be careful with giving advice to other countries. Even more so at the moment considering Germany’s dominant position within the European Union (EU). A ‘know-it-all’ manner is particularly problematic when the advice given is bad - the German government’s insistence on austerity measures as a response to the European crisis is not only unsuccessful in economic terms but socially unfair to a level that endangers democracy and the European integration process as a whole. This is a process for which Germany has a special historic responsibility. Despite some anti-European tendencies that have also evolved here and the media portraying the German population as being tired of rescue packages, the vast majority of the German population is in fact supportive of the Euro. This is a development that is remarkable but cannot be taken for granted. As German trade unionists we know from painful experience of the fascist destruction of the German trade union movement 80 years ago that an economic crisis that does not receive an adequate response has incalculable risks including political dislocations through to fascist dictatorship and war.

Italy from Recession to a new Socioeconomic Identity

Paolo Borioni

The historical sources of the Italian crisis[1]
The Italian economic crisis has global as well as domestic roots. As Italy depends on industrial exports, the country has been deeply affected by the global crisis, and even more so by the depressive results of the EU’s austerity measures.[2]  Mario Monti’s technocratic government has also added to depressive austerity: the Italian internal market shows a negative growth, below -2% in 2013, adding to Italy’s need for exports.

Italy was one the fastest growing industrialised European countries between 1950 and 1990, performing better than Germany.[3]  This was partly due to its newcomer identity characterised by low wages which helped competitiveness at the beginning of this period. The economic landscape was further marked by the presence of a few major enterprises (including Fiat, Pirelli, Olivetti) and big state-owned enterprises (Ansaldo-Breda, Fincantieri, Eni, Enel, etc.). Large companies provided long-term investment and innovation, facilitating the emergence of plenty of successful Small and Medium-Sized Enterprises (SMEs)[4]  in the so-called “third Italy”. The success of SMEs was founded on their embeddedness in a dynamic economy dominated by large firms, whose investment in research and technology also benefited SMEs.

Tax for Equity (T4E) - Getting Wages back on Track

Frank Hoffer[1]

During the last few decades productivity gains have not been shared fairly in most societies. The resulting growth in inequality has been one of the root causes of the crisis. Austerity and further aggressive wage cuts are currently aggravating the problem. As wage developments are continuously trailing long-term productivity growth, governments need to act in leading economies back to a more balanced growth path. Profits generated by monopolising productivity gains and depriving workers of wage rises in line with productivity should become subject to special taxation. Such a Tax for Equity (T4E) would ensure fair competition and close the opportunity for profit maximisation through wage repression.

Sharing productivity growth
To ensure inclusive and sustainable growth, productivity gains have to be shared between capital and labour. For this to happen, real wage growth needs at least to match the long term productivity growth in a society. As central banks aim at a certain level of inflation, nominal wage growth needs therefore to equal national productivity growth plus the targeted inflation rate of the central bank. Following such a balanced wage norm the increased productive capacity will be absorbed by the higher aggregate demand resulting from the simultaneous increase of wages and profits. Wage growth below productivity leads to either deflation as witnessed in Japan or aggressive export surplus strategies as in Germany; or - if prices are sticky - a decline in real wages, aggregate demand, production and employment. As markets have failed to deliver such balanced wage developments there is a need for policy intervention to stop the macro-economically undesirable wage repression. Wage restraint was achieved in many countries through a weakening of the collective bargaining system, an unprecedented rise in precarious employment and the creation of large unprotected low pay sectors.