Over the past weeks, a lesson which the arithmetic of debt dynamics has taught us long ago has finally seeped into the European politicians’ minds: Without growth, there will be no solution for the European debt crisis. Hence, the term “growth” has popped up everywhere in the debate. The newly elected French President François Hollande wants it, the German Social Democrats want it, and even the conservative German Chancellor Angela Merkel wants it.
However, a policy promoting growth is easier proclaimed than designed. The conservatives reiterate their old mantra: Growth should come from structural reforms. And after all, austerity paves the way for growth. Hence, according to them, there is no need for any policy change from what has been prescribed to Greece and the other countries in the euro periphery since the onset of the crisis in Greece in 2010. The Social Democrats in Germany in contrast would like to spend a little more on growth friendly policies, such as more research and development and more education, yet they lack really path-breaking proposals and do not want to be painted as being fiscally profligate and hence hesitate to change the basic fiscal course Europe has taken. Experience from the past years tells us that both approaches are extremely unlikely to jump-start the European economy and lead us into a sustained recovery.
So, what do we really need for a growth programme in Europe? In my eyes, all the dabbling with marginal programs will not really be helpful. Instead, we need three elements in order to return to a new growth trajectory both in the medium and the long term:
I am well aware that this growth package is much larger than anything politicians at the moment discuss and that hence this three-point plan will easily be dismissed as being completely unrealistic. This might be true. However, this would be very bad news for the euro-area. Europe has now for more than two years tried to solve the crisis on the cheap. The result has always been the same: A deterioration of the situation and a huge increase of rescue costs. Do not fool yourself: Growth in a situation like the current will not be created with marginal policy measures, but only by a fundamental correction of the current policy approach.
This article first appeared in Social Europe Journal
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