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EuroMemorandum Group*

European Economists  for an Alternative Economic Policy in Europe

June 2005

After the French and Dutch No to the Constitution:

The EU needs a new economic and social development strategy.

 

The French and Dutch No to the Constitution opens  the window for a thorough reflection and public discussion about the way in which the people want to live in Europe. The majority of voters have rejected the elitist project of a European construction, which subordinates the democratic lives and material well-being of the people to the rules of markets and competition. They perceived European policies in their real lives as a threat to their economic and social welfare, as source of increasing insecurity for their work and incomes, as mounting inequality and injustice and as an obstacle to relevant democratic participation possibilities in the process of shaping a society which allows them to lead a free and independent life.

This perception is not based on a lack of understanding by the people or on insufficient communication from the side of the European institutions. It is fully justified because the increasingly neo-liberal economic and social policies of the EU and most member states have indeed contributed to high unemployment, economic weakness, growing social insecurity and rising inequalities in most member states across the EU. It is therefore quite reasonable to reject the undemocratic intention to elevate this increasingly contested pattern of failed and harmful policies into a constitutional imperative and thus stigmatise every attempt for changes  as anti-constitutional.  A Constitution should create the space for democratic discussion of and decisions on the policies most conducive to the welfare of the people and it should be open for changes of policies and institutional arrangements, if new knowledge and new political majorities emerge. The present draft has gone the opposite way and therefore it was good that it was rejected.

The public debate which the French and Dutch No to the Constitution should stimulate throughout the Union will be comprehensive and include all areas of economic, political, social and cultural life. One central aspect will undoubtedly be the economic and social policies in the EU. As European professional economists who have since many years been criticizing the increasingly neo-liberal course of the EU and most member states we want to make the following remarks.

We see three major groups of mistakes in the official and majority approach to European economic policies:

Firstly the lack of a determined and effective employment policy on the European and most member states levels. Monetary policy is exclusively concerned with price stability, fiscal policies were constrained by the imperative to pursue balanced budgets, the EU budget is too small to give an effective stimulus for growth and employment and labour market policies continue in many cases – with the remarkably successful exception of Scandinavian countries -  to exert pressure on the unemployed instead of creating good employment opportunities. The result of this is lasting and rising unemployment – with all its very harmful consequences on public finances, social cohesion and political stability and mounting aggressiveness against further enlargements of the EU.

Secondly the overarching and all-encompassing framework of competition which is imposed upon almost every area of economic and social activity and gives private profit priority over individual and public welfare. Central areas of social security as pensions and health care are increasingly shifted to the risks of financial markets. Financial liberalisation makes enterprises and their employees increasingly vulnerable against the short-termism of financial investors. Comprehensive liberalisation of services without harmonised social minimum standards opens the door for social and wage dumping. All this creates the environment of threat, fear and insecurity.

Thirdly the minimalist approach to structural and social policies which should promote strategic areas of development, facilitate a rapid catch-up process of the new members and weaker regions in the EU, and strengthen social security and cohesion across the EU. This minimalism leads to social polarisation and transforms in the view of many the historically progressive enlargement of the EU into a threat for employment and welfare.

The correction of these mistakes requires a thorough change of the economic and social development strategy in the EU. The key issues are employment, income, social security and equity. Immediate measures to improve the situation are possible. But in the medium term Europe needs far-reaching institutional changes.

As immediate measures we propose:

1. To stimulate sustainable economic growth and employment member states should start a coordinated public investment  programme of 1% of EU GDP. The resources should primarily be used for improvement of the public transport and telecommunication infrastructure, for ecological clean-ups and restructuring and for technological research and development. It should be complemented by projects on the EU level.  Such a programme can be financed by bond issues and on-lending of the European Investment Bank (EIB), which are not counted against national debt in most member states.

2. In a coordinated action member states should agree on a considerable contribution to higher employment through the creation of  5% more regular jobs in public services within the next two years.

3. The budget of the EU should immediately be increased to 1,5% of EU25 GDP and the additional resources be spent to support employment policies and the fight against poverty in weaker countries and regions.

4. Monetary policy should be relaxed through a reduction of the central interest rate in the Eurozone by 50 basis points to 1,5%. Cooperation with other actors should be intensified, particularly in the Macroeconomic Dialogue, in order to ensure an optimal policy mix to strengthen sustainable growth while constraining inflation.

The present public discussion about the future of Europe reaches of course beyond these immediately possible and desirable economic policy measures. It explores the contours and contents of a new economic and social development strategy for a progressive European Social Model. In our view they must be based on far reaching changes of orientation and institutions.

5. A more employment friendly macroeconomic framework. Fiscal policy should be organised as to ensure full use of capacities. Monetary policy should be embedded into a democratic process of discussion and decisions of economic priorities. Coordination between monetary and fiscal policies must be intensified.

6. A more balanced approach to the to the question of public services. These should be regarded not as a rare and contested exception from the general rule of market regulation through competition but as a legitimate alternative to private competition. Therefore the draft directive on services should be completely withdrawn and the discussion on “services of general interest” be broadened and intensified with the aim to define the principles and establish a set of European minimum standards for public services.

7. A more efficient and equitable tax policy. Tax competition must be ended and the members should agree on a harmonised tax base and a minimum rate of 40% for corporate profits (30 % for members with a GDP-per-capita of less than 75% of EU average). The EU budget should in several steps be raised to reach 5% of EU GDP which allows effective intervention. This should be financed mainly through a GDP-per-capita related EU tax, which takes account of the different abilities to pay of different member countries.

8. More proactive structural policies. Regional policies must be reinforced to facilitate more rapid catch-up processes of weaker regions. A necessary strengthening of industrial policies should ensure that interests of regions and workers are taken into account in European corporate restructuring. A reform of the Common Agricultural Policy should give developing countries more access to EU markets while at the same time safeguarding the European basis for agricultural production. On the basis of a broad debate about the main orientations innovation and technological development policies should be considerably strengthened on a European level.

9. A better framework for balanced external economic relations. This includes a mechanism for exchange rate management to exclude excessive instability of the Euro and other currencies of the EU. Trade policy should insist that social and environmental standards in the EU are not destroyed through excessive free trade agreements. Development aid should apart from a well regulated opening of European markets concentrate on financial and technological aid to strengthen the development of a balanced productive basis in the developing countries.

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* The EuroMemorandum Group (www.memo-europe.uni-bremen.de) is a network of European economists who have since 1995 regularly analysed and criticised the increasingly counterproductive and harmful economic and social policies of the EU and made proposals for an alternative policy course oriented towards full employment, social welfare and equity, ecologically sustainable development and balanced international economic relations.

Contact:

John Grahl, Metropolitan University of London, J.Grahl@londonmet.ac.uk

Miren Etxezarreta, Universitat Aut˛noma de Barcelona, Miren.Etxezarreta@uab.es

J÷rg Huffschmid, University of Bremen, Huffschmid@ewig.uni-bremen.de

Jacques Mazier, UniversitÚ des Paris Nord, mazier@seg.univ-paris13.fr

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How to support this declaration:

Dear colleague,
The French and Dutch No have had the magnificent effect to broaden and intensify the discussion about the way in which we want to live in Europe not only in France and the Netherlands but in most other European countries, too. One central part, although certainly not the only part of this debate will be about the economic and social development strategy, i.e. the crisis of neo-liberal policy patterns and about alternative options towards a progressive economic and social European development model.

The working group "European Economists for an Alternative Economic policy in Europe" (EuroMemorandum Group) wants to contribute to this new phase of public debate in various ways. The most immediate one is the attached declaration, which contains in a very brief way our assessment of the main mistakes in the current economic and social policy course and proposals for an alternative development strategy in the short and the medium term. (For further activities of the group see our web side: www.memo-europe.uni-bremen.de)

We want to attract some public attention for this declaration in two ways: firstly by collecting as many supporting signatures for the declaration as possible and secondly by publishing the declaration together with the signatures just before the EU summit at the end of next week (16/17 June). Therefore we would like to ask you:

1. to support the attached declaration,  and

2. to return this letter as soon as possible, at the latest until Saturday 11 June, so that we have one day time to prepare the complete list for the press.

Thank you for your rapid cooperation. Best greetings,
J÷rg Huffschmid

Declaration of support:
I support the general thrust of the declaration of the EuroMemorandum group: "After the French and Dutch No to the Constitution: The EU needs a new economic and social development strategy".
Name:
Institution:
City, Country:


Send your declaration of support to
Huffschmid@ewig.uni-bremen.de