While the main objective of the US Federal Reserve is full employment, there is not a single EU institution that shares this goal. This is most likely why we have double the unemployment of the US, argue Ernest Maragall and Jordi Angusto.
Ernest Maragall is a Nova Esquerra Catalana MEP, in the Greens/EFA group. Jordi Angusto is an economist.
If the EU were to pursue an employment agenda, then austerity measures in deficit/debtor countries would have to be compensated by expansive measures in surplus/creditor countries: rebalancing demand is vital.
Without such rebalancing, the whole EU suffers from the lack of aggregate demand, which drives recession, high unemployment and deflation. This lack of demand renders ineffective the ECB’s increasing of the monetary supply as well as the Juncker Plan, which is much more a financial tool than the investment plan the EU urgently needs.
The eurozone budgetary capacity mechanism (EBC) currently under discussion at the European Parliament must take forward such an investment plan while having full employment as its main objective. It would complement the Monetary Union with a common fiscal policy implicit in a public investment plan.
To feed this new budget, regular revenue from green and wealth taxes – including corporate taxes – would be necessary. It’s clear that lower taxes on capital and profit cannot bring the higher investment and growth that Europe needs. Indeed, the present investment gap has risen with the ever lower taxes on capital. Between €50 and €100 billion per year should be enough to leverage up to €500 to €1.000 billion to be invested during downturns and paid back later, once the economy has been reignited.
There should be a focus on investments that offer the higher cross-border social returns, benefiting all member states. Just as the roads many years ago facilitated the automotive growth cycle, so today’s priority investments should facilitate the Energy Union and the clean energy transition. It would benefit the whole EU and would also help less developed countries catch up, given their higher potential for renewables: sun, wind and soil for biofuels.
A budget to fund such investments would be the best option to boost jobs and growth. Conversely, the unemployment reinsurance proposed by others to justify a eurozone budgetary capacity, could become a permanent transfer mechanism, freezing instead of fixing unemployment. It’s worth noting that Cohesion Policy, funding countries with excess demand, sometimes fuelled their loss of competitiveness instead of their convergence.
We must ensure that any boost in demand happens in parallel with a boost in supply in the affected region. The new European budgetary capacity must be a tool for a smart industrial policy, including energy, rather than just a guarantee to ensure a level of demand that creates jobs, but not where they are actually needed.
We must choose between offering fish or fishing rods, but not both. That’s the dilemma.