The outcome of the Italian elections should send a clear message to
Europe’s leaders: the austerity policies that they have pursued are
being rejected by voters.
[...]
[T]he reality is that much of
the European Union is in depression. The loss of output in Italy since
the beginning of the crisis is as great as it was in the 1930’s.
Greece’s youth unemployment rate now exceeds 60%, and Spain’s is above
50%. With the destruction of human capital, Europe’s social fabric is
tearing, and its future is being thrown into jeopardy.
[...] The reality [...] is that the cure is not working, and there is no hope that it
will – that is, without being worse than the disease. Indeed, it will
take a decade or more to recover the losses incurred in this austerity
process.
An alternative set of
well-discussed policies could work. Europe needs greater fiscal
federalism, not just centralized oversight of national budgets. [...] [I]t clearly needs far more
European-level expenditure, unlike the current miniscule EU budget
(whittled down further by austerity advocates).
A
banking union, too, is needed. But it needs to be a real union, with
common deposit insurance and common resolution procedures, as well as
common supervision. There will also have to be Eurobonds, or an
equivalent instrument.
European leaders recognize that, without growth, debt burdens will
continue to grow, and that austerity by itself is an anti-growth
strategy. Yet years have gone by, and no growth strategy is on the
table, though its components are well known: policies that address
Europe’s internal imbalances and Germany’s huge external surplus [...].
Concretely, that means wage increases in Germany and industrial
policies that promote exports and productivity in Europe’s peripheral
economies.
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