Recent proposals to reform European economic governance – discussed in more detail here and here – have been ambiguous. Simplifying heroically, they can be summed up as being largely positive in terms of process, but mixed or downright negative in terms of content. Clearly the European semester, the proposed surveillance of macroeconomic imbalances involved a greater degree of economic policy integration in Europe, something that (most) progressives had long argued for. At the same time the content was often wanting: the obsession with fiscal consolidation was made worse not better, the proposals for curing imbalances addressed a clear problems, but were worryingly skewed towards the deficit countries.
One consequence of this ambiguity has been controversy amongst progressives in their reception (hostile or more balanced) of the measures, depending on the relative weight given to process and content.
The best that can be said of the recent Franco-German proposals, tooled up between staffers of Angie and Sarko, and presented to an expectant public before the meeting of the European Council last Friday, is that they have removed this ambiguity. Here both the process and almost all of the content are to be rejected. Here the response is easier: throw the bathwater out with the bathwater.
For two member states to simply short-circuit the normal EU procedures and arrange a grand bargain – a strengthened stability mechanism in return for liberal-conservative policies that both governments want – that is then presented as a fait accompli to other heads of government was really extraordinary. Leaders of (smaller) countries, most of whom are from the same political family as Merkel and Sarkozy, were quick to reject such an approach. The content was equally tawdry. The measures proposed – while also flying the flag of greater coordination – appear to be a more or less random rag-bag from the liberal-conservative wish-lists of the two largest countries.
It starts with the title: ‘Competitiveness pact’ is completely misleading regarding the sources of and the solutions to the euro area’s problems.
Passing laws (worse: constitutional laws) dealing with the mechanics of government debt reduction (debt brake) was a bad idea in Germany and it is one thing that Germany should not export.
The abolition of wage-indexation (quite apart from being a dramatic intervention in national competence in this sensitive area) is completely besides the point for the problem of competitive imbalances within the euro area: Belgium, has successfully applied the policy for decades and during monetary union has an exemplary path of nominal wage growth with respect to national productivity. Luxembourg somehow manages to have the highest living standards in Europe despite being hobbled by such a disastrous policy, also for decades. Most of the deficit countries do not have indexation. And, as I have repeatedly argued, Germany’s beggar-thy-neighbour wage policy and consequent export surpluses is just as much a problem for the smooth running of the euro area. Instead of a sensible debate about wage policy after the crisis, we get neo-liberal polemic that can only be termed infantile.
Addressing demographic challenges is a complex and sensitive issue calling for a broad range of policies: seeking to impose an across the board hike in statutory retirement ages in line with growing life expectancy is not the way forward and risks destroying the social consensus needed to reach agreement on an effective package of measures.
Worth discussing is the introduction of minimum rates of corporation tax: the risk is that the autocratic means of its proposal will discredit the content, the reverse of my fear regarding the Annual Growth Strategy, namely that bad policy content will discredit positive and indeed needed process reform towards greater integration.