Godot and Eurozone’s Policy

Junker's plan is a mocquery, and the monetary policy alone can't solve the eurozone’s problem.

The policy of the eurozone has used us to expect events more or less decisive. When the event occurs however, it is difficult to give a clear judgment. In the case of the recent decisions of the European Commission on the so-called flexibility within the Stability Pact, many commentators have written that the glass is half full and half empty. In fact, the glass is empty. In reality , the glass is empty. Under the dress of numbers full of   zero point something, nothing.

For a few months we expected the plan of Mr.Juncker, the new-elected European Commission’s President. When it finally turned up, we found that it ranged between deception and mockery. According to the plan, the European Commission and the European Investment Bank should put together about 15 billion euro. Then this amount would be multiplied by twenty-one through added resources from unknown origin, reaching the availability of 315 billion euro. The enthusiasm for this evangelical multiplication of bread and fish was quickly deflated, and the wait began for new flexibility’s measures delivered by the European Commission.

What is it?  Briefly, it allows that the national resources used for the co-financing of European projects assisted by the Structural Funds may be detracted by the calculation of the budget deficit. Just to exemplify, the European Commission would allow Italy a deviation of 0.2 % of GDP in relation to the eurozone’s program of the deficit’s reduction. Beware; the attached condition is to stay within the threshold of  the tree percent of the budget deficit. When the deficit should exceed the 3 % cap the “tolerance" would be canceled.

The second measure of flexibility is the possibility that, in circumstances of serious gap between potential and actual growth (for example, the recession that has hit Italy in the past three years), the European Commission, in its discretion, may allow that the deficit is reduced by 0.25 percent of GDP, instead of 0.5 percent, as it is currently imposed by the eurozone’s crazy rules.

If you find all this rattle  of decimals is a meaningless game, you're completely right. In fact, you cannot put the goal of a drop in the deficit along with the implementation of the structural budget balance, in a landscape of lasting stagnation and rising unemployment. Not only because this impossibility was explained by John M. Keynes during the Great Depression of the Thirties, but because it is contrary to common sense.

As in the Beckett's theater, nobody stops  waiting for Godot, so now the wait is moved on the measures, it is supposed, will be taken by the ECB. We must stress that Mario Draghi actually saved the euro, by cutting the claws of the financial markets, when he announced the commitment to do “whatever it takes”

Yet monetary policy alone can't solve the eurozone’s problem. Having lowered interest rates around zero, and made available to commercial banks an amount of liquidity that exceeds their current demand , only an ultimate chance remains to the: the direct purchase of sovereign bonds..

The financial resources for the renewal of maturing debt and the payment of  interests are already granted at very low rates through the current ECB policy. So the real change would be the possibility for the member States to acquire additional resources to launch a major operation of public investment: In fact, a sizeable increase in public investment would  enhance private investment, increase employment and revenues. In other words, a virtuous circle would be  put in motion  in the real economy.

That’s reasonable, indeed. However  there is a problem: the public investment expenditure increases the deficit, and the Commission in Brussels (backed by Berlin) prohibits the increase, regardless of the fact that it is intended to revive the agonizing investment, boost the growth and, ultimately, curb the debt- GDP- ratio.

In the United States, the policy of the Federal Reserve has been implemented to enhance the growth and the employment. And a similar policy was implemented in the European Union by UK and Poland. But the rules of the eurozone prevent it. God blinds those who want to lose.

To tell the truth, to recognize that eurozone’s policy has failed, is now the basis for any meaningful attempt  to change the situation. Yet Italian economy minister Padoan expresses satisfaction with the measures taken by the European Commission, and the premier Renzi exalts the "progress" (?) made during the evanescent Italian Presidency of the Union.

We can’t anticipate the effect of a likely Alexis Tsipras’ electoral success in Greece. Certainly, the clash with the European Commission (and even more with Berlin) is going to be an uneven game, at the start. However  the fact that the argument is opened, and a renegotiation of the terms of the Stability Pact is bound to become an open field between a member state and the eurozone authorities,  is in itself the breaking of a taboo. The next step could be the opening of the confrontation  with Spain after, according the current forecasts, Rajoy’s electoral defeat,  and the actual chance of an alliance between Podemos movement and the Socialist Party.

However  here we enter the realm of possibility and uncertainty. While the only certain and disconcerting issue is the subordinate acquiescence, if not complicity, of the Italian government with the self-defeating policies that govern the eurozone.