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Archiv: February 2012

What Draghi’s Talk on the End of the European Social Model Reveals

29. February 2012, von Alexander Tietz, Comments (0)

By Ferdi De Ville

On the Wall Street Journal on Friday February 24, European Central Bank President Mario Draghi made no secret about his ideas on the future of the European social model: finito! It is already dead, as it should be, according to the ECB boss. Thereby he admits what many for some time were anticipating, fearing and warning against: that the ECB, its allies in the European Commission (dubbed the Brussels-Frankfurt consensus) and in some Member States, are using the crisis to finally push through their neoliberal programme of deregulation and flexibilisation of European welfare states and labour markets.

This should be revealing to those who did not yet quite understand why the ECB is refusing to lend money to solvent but illiquid countries as Italy and Spain while it is at the same time showering banks with unlimited and almost free money. Fear of inflation could not explain this different approach, of course. The argument against providing liquidity directly to governments is that it might slacken the pace of their fiscal and structural reforms, which is what the Frankfurt-Brussels consensus is so eagerly waiting for. Maybe, after they have carried out enough deregulation and liberalisation efforts, and have introduced a debt break into their constituencies (and thus effectively dismantled the social contract already declared dead by Draghi), might the ECB finally provide European Member States in problems with the breathing space to start to smell the odour of a budget surplus (including interest charges) again. Wait and see…

Meanwhile, the ECB has introduced its second long-term refinancing operations (LTRO) programme, which provides European banks with an unlimited amount of liquidity against a 1% interest rate. Here, there are no prior demands, while I was thinking there is also little time to waste for a big restructuring of European banks. Neither does the ECB appear afraid of ‘moral hazard’ risks. It seems that the ECB has more confidence in the reliability of bankers than politicians. Yup, that is what the past couple of years have taught us. Some argue that the LTRO might have a positive side-effect in that the banks will lend the money through to peripheral governments and provide them some respite in that way. Actually, why should they not lend the money they get from the ECB for 1% to governments against interest charges of more than 5%? How generous! Where can I get a bank licence?

Another question Draghi’s interview brings to the surface is on the central bank’s independence. Clearly this only runs in one direction. While the ECB and its defenders always take a harsh line when it comes to the bank’s independence, to the point that most European politicians have internalized this sacrosanctity, its President does not seem to see anything wrong in lecturing politicians. In this, he is actually only following in his predecessor Trichet’s footsteps. It is another extremist sign of the arrogance of the European technocratic class that is undermining the European Union’s legitimacy.

Meanwhile, in Greece…

I have argued in a previous blog that I expect – maybe hope is a more honest expression – this to end soon. Maybe this destructive path could get a (small) adjustment in the right direction after the French elections. But a more abrupt upheaval is also possible, starting in the streets or polling booths in Greece. While last week Greece’s second rescue programme has ultimately been approved, everybody knows this does not get the country out of the woods at all. It does little to improve Greece’s competitiveness, while the negative internal demand effects may lead to a government debt ratio in 2020 as high as today (160%), even after the private sector haircut. It seems ever more likely that Greece will have to default on all its foreign debt. This can be done inside or outside the euro. In the first  -and best – case, all sides would recognise that Greece was insolvent from the beginning of the crisis and all the rescue packages actually only served as disguised transfers from northern taxpayers to northern banks, and so now the moment has come to really rescue the Greek people with investment in green and productivity-enhancing projects that will benefit Greece but also the rest of Europe in the long term. Or a new blame-game will start whereby northern politicians will castigate the irresponsible, unreliable and disloyal Greeks even harder than before and Greece will leave the eurozone (and possibly the European Union) resentfully. Because of the new, fiercely devalued drachme, Greece will become more price-competitive and balance its current account (although for the greatest part due to the reduction of imports). But it will be left behind with an inadequate economic structure, a still defunct state, feelings of having been let down by its formers European partners and probably full of revenge, and with the regained political sovereignty to act on those feelings… Meanwhile, for the rest of the eurozone the exit of Greece alone does not solve any of its problems.

These are decisive times. We all have to do more than hope for the best.

In a next blog, I will try to be less cynical and write about the politics of the euro crisis that might explain some of the absurdities we are witnessing.

Ferdi De Ville is assistant professor at the Centre for EU Studies, Department of Political Science, Ghent University where he teaches and writes on economic and monetary union and the euro crisis.


The French Presidential Elections as the Focal Point for Conflicting European Economic Governance Paradigms

14. February 2012, von Alexander Tietz, Comments (0)

By Ferdi De Ville

It has been much lamented that European Parliament elections are ‘second-order elections’. European elections attract a low and ever-declining turnout and the voters who do make the effort to go to the ballot box base their choice on national rather than European considerations.
The ‘euro crisis’ may thoroughly change this picture. We are currently witnessing an opposite phenomenon: the Europeanisation of the French national presidential elections.
While the French socialist candidate Francois Hollande is campaigning with a programme that would quite radically deviate from the present fiscal discipline-cum-structural reform path as laid out in Brussels, Berlin and Frankfurt, the current French president and most likely centre-right candidate Nicolas Sarkozy has decided to try to fight an uphill battle in the race by promising ‘German-style reforms’ of the French economy and welfare state. German Chancellor Angela Merkel reacted by declaring that she would actively support Sarkozy’s re-election bid.
Thereby, the French presidential election is becoming an arena for the struggle between two competing paradigms about how to exit from the euro crisis (in an overly simplistic way: austerity and structural reforms vs. consolidation, redistribution and investment) and more generally, about the future of European economic governance (with the same disclaimer: monetarism vs. neo-Keynesianism). The austerity path is increasingly coming under fire, also outside France. Mario Monti, David Cameron, Jean Asselorn and ministers in other European governments, Members of European Parliament as well as a growing list of international organisations and influential economists are condemning the European austerity policies as unwise and unjust. While a French presidential election is always an event that is excitedly followed in European capitals, this time  because of its European dimension  it is attracting even closer and wider interest across the European Union.
Many observers think   not without good reason   that the French elections may function as a ‘game changer’ for the European Union and the eurozone. Indeed, many of the 60 measures that Hollande’s programme contains seem to be incompatible with the European treaties. Just to name a few: proposals for a French public investment bank; employment requirements for investment projects and measures to attract French companies to relocate their production facilities. Besides such national policy intentions that may be in conflict with if not the letter than at least the spirit of the current European treaties, the section on ‘reorienting the European construction’ will alarm the proponents of the current paradigm. Hollande is determined to renegotiate the Intergovernmental Treaty of 9 December 2011. Surely, some politicians in some European governments that had to assent grudgingly to Merkel’s Fiscal Compact will hope that a socialist victory in France can still halt this decision.
Meanwhile, Merkel is playing a high game by so openly supporting Sarkozy’s candidature. If Hollande wins the elections as currently expected, personal resentment may trouble the French-German axis on top of the substantial points of controversy between the next French President and the current German Chancellor. This may lead to confusion and discord about the way to exit the euro crisis and a stand-still in crisis policies. Of course, after the German elections in the fall of 2013, this axis may reappear somewhat to the left on the political map. Or Sarkozy could surprise friends and foes and just secure another term in France.
But even a possible standstill should not be regretted, if it leads to a period of profound reflection about how to reform the European construction. Not only to make it financially and budgetary more robust, and avoid crises in the future. But also in a way that more consistently spreads benefits over citizens in all Member States and embeds a structure and culture of solidarity instead of competition. Until now the approach of the European Union’s leaders with regard to the euro crisis has been very ad hoc. Time and again they assumed and boasted to have found the ultimate technical solution to reassure the markets, an illusion that has been shattered quicker each time. While crisis policies are of course reactive almost by definition, it is clear that both the markets, but more importantly the European populations, await a more ambitious and profound vision about the future of the euro and the European Union that these measures serve. Although Merkel is increasingly promoting a ‘fiscal’, ‘political’ and ‘federalist’ Union, it remains very vague what she means with these concepts. Moreover, such a leap forward cannot be decided in Berlin, not even consensually amongst a composition of European Heads of State and Government at any time, but would require an inclusive deliberation with and amongst European citizens. Maybe something along the lines of the European Convention for the lamented European Constitution.
For now, the Fiscal Compact that obliges Member States to insert a debt brake into their legal systems at constitutional level is a further act of sidelining democracy for the sake of the euro (that is thereby becoming a curse to many). It would be symbolic and appropriate that France, the cradle of democracy, would sideline the debt brake. And that through the French election, an inclusive debate on how to define and promote liberté, egalité et fraternité in the European project would originate throughout the European Union.
Ferdi De Ville is assistant professor at the Centre for EU Studies, Department of Political Science, Ghent University where he teaches and writes on economic and monetary union and the euro crisis.

Greece Needs Software and Time

8. February 2012, von Alexander Tietz, Comments (1)

By Nikos Chrysoloras

A common narrative in both Greek and international press is that the Greek economy is contracting so sharply because of the ridiculously high taxation imposed by the IMF, over the last two years. Journalists and commentators who support this view do not, obviously, bother to look at data. If they did, they would see, for example, that, at the end of 2010, when the EU-IMF austerity programme was already in full force, tax revenues in relation to GDP in Greece were much lower than the EU average (33.2% as opposed to 39.6% in the EU, according to Eurostat). Even after the steep tax rises, the typical company tax rate in Greece is 20%, VAT is at 23% and the highest personal income tax rate is 45%, all of them high indeed, but still falling within the EU norm.
On the other hand, the World Economic Forum’s Global Competitiveness Report, ranks the Greek economy in 90th place worldwide, mainly because of the dire ‘macroeconomic environment’ (140th place, in a total of 142 countries ranked) and minimal ‘access to financing’ (Greek banks and the Greek state have long lost access to international capital markets). In other words, although austerity measures imposed by Greece’s international lenders certainly have an adverse effect on growth, the fact that the Greek economy is in such comatose state is mainly due to the macroeconomic uncertainty and the lack of credit lines (which in turn, is also a symptom of macroeconomic uncertainty). It should have been common sense: no Greek or foreigner will invest and create jobs in an economy which, for the best part of the last three years, remains at the brink of collapse. For as long as no convincing guarantees are provided that the country will remain a part of the eurozone and it will not relapse into the developing world, investors will remain wary.
Hence, if the EU, the IMF, the ECB, the Greek authorities and the Private Sector finally agree on a definitive deal, which will ensure the medium term financing of the Greek economy and the meaningful reduction of public debt, so as to bring it down to sustainable levels, then uncertainty will disappear and the Greek economy will rebound. Besides, a successful resolution of the Greek crisis will help restore confidence on the prospects of the eurozone, hence enhancing growth in the continent as a whole, hence helping pull the Greek economy out of the mud as well. Moreover, labour costs in Greece have fallen significantly over the last year and a half, thus augmenting competitiveness.

Nonetheless, the rebound will be weak. Before the crisis, Greece enjoyed steady growth, averaging 4% annually, for 15 years in a row. This growth was based on five pillars: private consumption; public investment; housing and construction; tourism and shipping. For the foreseeable future, private consumption will not resume on the levels we saw back in the first decade of the 21st century  and public investment projects are now difficult to finance, given the size of the public debt (even after the haircut). Construction and housing have reached their limit and Greece only narrowly escaped a catastrophic bubble. Tourism and shipping are extremely volatile and depend entirely on global economy trends. So, what is to be done?
Obviously, the successful conclusion of the negotiations regarding the new bailout and the PSI would give Greece, as well as the region as a whole, valuable breathing space. Investment and public-private partnerships could also resume if the eurozone offers lines of credit to healthy and solvent Greek businesses. Most importantly though, Greek authorities should be pressured even harder by their European counterparts to lay the foundations for a solid production base in fields where the country enjoys competitive advantages, like renewable energy, tourism, shipping, sea and air transport hubs and organic farming. This reshaping of the economy will take time and it will require the expertise of the IMF and the EU as well as the active involvement of the Greek private sector. The same can be said for structural reforms towards the direction of competitiveness, productivity, transparency, openness, and efficiency. These reforms usually take years to bear fruits. In other words, time is what Greece desperately needs, in order to strengthen its democratic institutions and save its economy.
The other thing is software… Several studies and reports by Greece’s international lenders, international organizations (e.g. OECD), think tanks and NGOs have shown that the Greek bureaucracy and public administration are corrupt, inefficient and inept to change. Suggestions for reform have already been put forward and some of them are already being implemented. However, it will also take time before we see measurable results. Nonetheless, Greece needs to zero its primary deficit, limit healthcare expenses (among the highest per capita in Europe), and combat tax evasion now, not in five or ten years. Unlike structural reforms, the country’s international lenders do not (and should not) have to wait in order to see meaningful spending cuts and revenue increases. How can this target be achieved? Simply by bypassing Greece’s public administration through technology.
For the past two years, the Greek government has been trying to put an electronic pharmaceutical subscriptions system in place, so as to check oversubscription of expensive medicines by corrupt doctors and pharmacists. It hasn’t managed to do so, because procurement procedures take ages, due to the incompetence of the country’s public administration. Suffice to say that it took eight years for the completion of the upgrade of the Tax Service’s software system (taxisnet). The result is that before the new system starts functioning, it will already be outdated. Greece also lacks a land registry and its healthcare and social security systems are also not fully computerized. The country’s international lenders would do themselves and Greece a favour if they provided it with modern database software which would register the wealth, income and healthcare records of each citizen. It sounds like ‘Big Brother’, but such a system is absolutely necessary given the extent incompetence among the members of the Greek authorities entrusted with checking and limiting tax evasion. Given the recent advances in cloud computing, the cost of this ‘present’ or loan to the Greek authorities would be negligible and it would bypass lengthy procurement procedures in Greece.
Anyone who has visited the parking lot of a Greek hospital would appreciate the benefits of such software:  While the average net salary of a Greek doctor is around 2,000 euro a month, these places are full of Porsches and Ferraris. If the software I am proposing was running, it would definitely sound an ‘alarm’ each time a person declaring an annual income of around 30,000 euro and no other sources of wealth buys a car worth 150,000 euro. Similarly, the system would sound a warning if 20% of the population in a remote Greek island required social benefits because they are supposedly blind (real life example). Hence, a Big Brother software would be much more useful than the meaningless suggestions for the placement of a European ‘Commissioner’ in Athens.

Nikos Chrysoloras, PhD (LSE), is a journalist at the Greek daily Kathimerini, where he is currently managing the opinion pages. He has also worked as a columnist for the business news website www.reporter.gr and as a researcher for SKAI TV in Greece.The views expressed here are personal.
Contact: chrysoloras@ kathimerini.gr

Costs and Benefits of the Euro

6. February 2012, von Alexander Tietz, Comments (1)

By Rainer Emschermann

Germany does it again: After two world wars, it is again trying to dominate Europe, this time by forcing the eurozone under its economic tutelage. While it was ok for eurozone countries to buy German products and boost German growth during the last decade, Germany is now refusing solidarity with its customers who are struggling to pay the bill. The austerity imposed on southern Europe will starve off southern European industry and perpetuate German economic and political dominance over the continent. Is the Euro’s hidden agenda finally coming to light?

Hang on a minute! What may be accepted facts in the European debate may not quite live up to closer scrutiny. To begin with, opinions differ about the reasons behind the introduction of the euro. Most Germans were perfectly happy with the Deutschmark, which had provided a stable currency and consequently low borrowing costs for the industry, which was envied by those not in the DM-Zone. While it would go too far to say that the euro was the price Germany had to pay for re-unification, the simultaneousness of the decision for monetary union (EMU) is also more than a coincidence. For the German elites, the deeply unpopular new currency was a way to more firmly anchor the bigger Germany in the EU.

Now let’s take a look at the distribution of costs and benefits since the introduction of the Euro. Once the EMU was decided, financial markets anticipated the event and interest rates for Italian, Portuguese, Greek and Spanish bonds dramatically converged towards the German Bund. Public budgets experienced huge windfall gains through lower borrowing costs.

Lower interest rates in Southern Europe fuelled an economic boom: Between January 2001 and December 2009 Ireland grew by 30%, Greece by 29%, Spain by 21%, while Portugal (+5.5%) and Italy (+1.5%) could not transpose these gains into growth. On the other hand, also Germany (+5.4%) stagnated during this period, as much capital left for southern Europe. And the euro appreciated considerably since its introduction; still today it is more than 30% above its initial value against the dollar. However, Germany’s red-green government introduced reforms that led to strengthening its competitiveness. It is fair to say that while Germany adapted gradually to globalisation, necessary reforms were delayed in Southern Europe due to the windfall benefits from EMU.

The result was massive current account imbalances of southern European countries, joined by France. This means that the current discourse describing the crisis as ‘cyclical’ is dangerously euphemistic, as it ignores the structural problems of the region. The countries in question simply need to import less and export more. Fiscal stimuli by the EU would counter-act the necessary burst of the bubble. Youth unemployment in Spain for example has always been high, even during boom years. Its causes lie in the unfair distribution of opportunities between (older) employees and the (mostly young) unemployed. Such issues are to be addressed by Ordnungspolitik, not by throwing money at the problem. Or take the fact that Greece’s public sector has still not been reformed, the real economy not sufficiently opened to allow for a new entrepreneurship. Additional public investments can help soften the landing, but not address the root causes of the crisis. Eurobonds would provide more of the artificially cheap money which has delayed the real adaptation of the economies in the first place. Their joint liabilities clause would leave the health of more solid countries´ public finances entirely to the hands of the reform mood of the laggards.

So has Germany been the main beneficiary of the internal market and the euro? The simple economic fact is that the smaller an economy the bigger its benefit of joining the internal market. To take an extreme example: Luxemburg and Germany forming an economic union opens the huge German market to Luxemburg, while it doesn’t really change much for Germany. Moreover, since the year 2000, the share of the eurozone in total German exports has diminished from 48% to 41%. This is not to say that Germany does not benefit from the EU and the Euro. But it is wrong that, economically, it benefits more than others. Today it is easy to imagine that Germany, maybe together with some of its neighbours, would remain a global player even without the EU. But where would Spain be, where Portugal?

At the same time, the rules of the EMU do not reflect economic strength at all. Only a single one of the 6 members of the ECB´s Executive Board comes from an AAA rated country, Germany. The others are from Italy, Portugal, Spain, France and Belgium. Countries in distress can thus impose their monetary policy interests on the whole Eurozone. The massive purchase of sovereign debt on secondary markets and the more recent liquidity glut for banks – though both justifiable if limited emergency measures – are a case in point.

Overall, however, this amplifies the erosion of trust in the EU that can be observed in Germany, Holland, Finland and Estonia. This erosion of trust started when the explicit no-bail out clause of the EU treaty was broken in May 2010 after threats by President Sarkozy that otherwise France and some southern European countries would leave the eurozone. German governments were of course not at all innocent in the demise of the stability pact. But no matter if forced about by circumstance or political will – the violation of the Treaty’s no-bail-out rule means that for the first time in EU history a constitutional deal between the peoples of Europe has been broken. This is like abandoning the EU´s agricultural policy over a weekend – only that agriculture amounts to less than 2% of France’s GDP while by now each of the Eurozone countries has agreed to guarantees amounting to a quarter of their GDP, and rising. For ordinary Germans, the gains and benefits of the euro – and that is easily translated into ‘Europe’ – look disastrous: after ten economically difficult years, part of the rescue packages may have to be written off, price stability is in jeopardy and monetary policy is controlled by countries with different agendas. And, adding insult to injury, Germany has become Europe’s bogeyman.

Meanwhile Germany’s centre-left opposition is demanding further and more permanent contributions from its citizens, thus heavily borrowing against the EU´s fast diminishing political credibility. Still haunted by the ghosts of Germany’s past and badly wanting to represent the ‘good Germany’, it over-stretches the EU´s political credit and risks provoking a backlash against its institutions, Europe’s biggest post-war achievement. That is not what a sustainable European policy looks like. Ultimately, it is not laws, institutions or eurobonds that make EU integration last, but public support.

But what, then, is the way out of the crisis? Well, Greece is all but formally defaulted; much of its debt will have to be written off. Member States – in the ECB´s stead – should contribute to the debt reduction.

There should be no more fudging with fake “loans” which turn sour and decrease the public’s trust in politicians all over Europe. A “firewall” needed which will protect Spain and Italy against contagion from Greece and, possibly, Portugal. But this firewall is not identical with the money put up by governments, but it has to be convincing for the markets, otherwise it fails. And financial markets are markets of expectations: the same signals can be achieved by credible reforms today can lead to immediate discounts on interest rates – as the example of Italian reforms has shown. Still, the public debate’s obsession with rescue packages instead of reforms doesn’t bode well for the future of the Euro.

The crisis is as much a political crisis as an economic one. This is also illustrated by the fact that Spanish and Italian bond spreads over the Bund are today quite similar they were before the introduction of the Euro; it is just the adaptation to that status quo ante that – very understandably – hurts by squeezing public budgets. The current discussions are thus really about throwing around a hot potato between Europe’s politicians – the potato of who is to convey the bad news about the bubble that has burst and the harsh reforms that are necessary.

This is why the idea of putting the Greek budget under EU supervision was so ridiculous. It was not because the democratic core principle of “no taxation without representation” is no longer valid. But the argument is not about legitimacy; Europe is not a normal democracy but has different political realities and demoi which demand respect. Greece cannot be forced to do what is necessary. This is also why the crisis must not be seen as the founding moment for a fuller European fiscal federalism. And finally, this is why the Fiscal Compact is so counter-productive as it attributes the role of valuating a country’s public finances to politicians (who, including of course the German government, may ultimately collude for their own short-term benefits) rather than leaving it with – admittedly, equally imperfect – financial markets or with new, more independent rating agencies.

Germany’s current strength does not come for its own merits but by the default of a 2-year-long reluctance of Southern European countries to balance their current accounts in earnest. This has pushed Germany into an unwanted – because expensive – leadership role, which it has always been and will always be too weak to fill out alone – and even less to dominate the continent. Its elites are mostly lawyers and business folk; its government is sorely lacking macro-economic guts and nerve to lead Europe out of the crisis. For all these reasons, and being German myself, I hope that the Spanish and Italian governments will get their houses in order so as to take back their place as equal partners. As the example of recent reforms in Italy shows, this lies first and foremost in their own hands.

Rainer Emschermann is an economist and lives in Brussels.

Growth is a good intention, but requires bold transformation of crisis policies

6. February 2012, von Alexander Tietz, Comments (0)

By Ferdi De Ville

Even more than other years, ‘to grow’ topped Nicolas Sarkozy’s wish list for 2012. With the French presidential election coming up in late spring, the current president can miss a recession like, let’s say, a hotel maid entering a room at the wrong moment. The wish for growth also scored high among other EU heads of state or government’s New Year’s intentions. Only for Angela Merkel, for cultural reasons and because of the better state of the German economy, stability ranked one place higher.

Alas, as with other desires, growth does not come about just by wishing it. It unfortunately lacks the self-fulfilling prophecy character the idea of a recession has. Indeed, as European politicians fear a deeper recession in 2012, they have repeatedly reinforced their austerity programmes, bravely anticipating worse-than-hoped-for prospects in their efforts to bring their budgets towards balance. And look, by acting in that matter, they are manufacturing the dreaded recession.

On their first meeting of the new year on 9 January 2012, the leaders of France and Germany stressed that growth is a priority in their policies to combat the euro crisis, the second pillar of their approach. Of course, Merkel was quick to stress that this does not mean that Member States of the eurozone can slow down, let alone refract from, their fiscal consolidation paths. To the contrary, the Fiscal Pact that will constitutionally oblige governments to balance the budget agreed at the 8-9 December Summit of 2011, is on track to be signed by 1 March, Merkozy declared.

If growth cannot come from stimulus packages that, in the eyes of Merkel and, admittedly, most other top officials and politicians in the EU would only further increase public sector indebtedness, how then? Their answer is: further structural reform and completion of the internal market. This is the mantra for growth the EU has been repeating ever since the Lisbon Strategy in 2000, with very limited success. The question that follows is: if structural reforms and deeper integration have hardly succeeded in stimulating growth in relatively good times before 2008, how on earth should we expect them to do so in a prolonged crisis? How should, for example, liberalisation of some protected professions in Italy add to growth in a time when Italian companies are not recruiting hordes of accountants, to say the least? To believe that structural reforms will generate growth in the short term equals believing that the extra percentages of unemployed citizens (that amount to double figures among for example Spanish youth) since the crisis are unwilling to work, rather than desperate to find a job.

One of the envisaged measures now reportedly is to make cross-border labour mobility easier. In general but especially for young people, by for example simplifying cross-border apprenticeships. As with many other EU crisis measures, this may look good on paper. It brings the eurozone closer to an optimal currency area (by enhancing labour mobility) and along the way encourages intra-European exchange by youngsters (albeit in a one-way fashion), a kind of Erasmus for recent graduates. However, the question is if it will work out that positively, and will be felt that way by, for example, Spanish construction workers, their families and communities. And under what conditions such temporary jobs abroad will fall, maybe reopening the country-of-origin discussion from the infamous Services Directive? It can hardly be ruled out that such a measure will be perceived as encouraging uprooting people for economic reasons, and serve to delegitimise and alienate the people further from the European integration project.

The European Commission is risking the same loss of legitimacy by forcefully rejecting the Belgian (as other) budget plan and demanding quick amendments if the Di Rupo government wants to avoid a fine. It is clear that the Commission is just (in a rather eagerly fashion) executing what it has been tasked with by eurozone governments last year, but the perception is that ‘Brussels’ is one-sidedly preaching austerity. This may bring down one of the last standing bulwarks of the once convenient ‘permissive consensus’.

Is there any alternative? Yes, there is. The Commission should (as Barroso has done on a [too] few occasions) become much more visionary in promoting a fair and balanced exit from the multiple crises. That is the economic, euro- and budgetary crises that are much interconnected anyway. This involves a more balanced adjustment between member states, whereby creditor states are accepting their part of the effort needed to make adjustment by debtor states more easy. It means stimulating internal demand and accepting higher inflation than in the periphery. As the German government is as we write borrowing at negative (!) interest rates, stimulus measures come literally without a cost. And next to such a rebalancing exercise between eurozone member states, a fairer distribution of the burden within member states is needed. Long-standing measures towards a social Europe such as a financial transaction tax, harmonisation of the corporate tax and a European minimum wage have become now more thinkable than ever, and could serve to rally the Occupiers and Indignados around Europe, rather than drifting them away from the European integration project.

Ferdi De Ville is assistant professor at the Centre for EU Studies, Department of Political Science, Ghent University where he teaches and writes on economic and monetary union and the euro crisis.

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