The Case for a ‘Growth and Development Pact’

Article published on Dec. 15, 2003
community published
Article published on Dec. 15, 2003

This article has not been vetted by an editor at Paris HQ

The trial of strength shown by Paris and Berlin is not enough. Europe needs to create competition between its economies. An analysis of the means rather than the abstract ends of the new ‘pact’.

Once upon a time there was a French Government ‘bully’ who for two years boasted about an extraordinarily rigid surplus.

Once upon a time there were ‘failing pupils’ who begged their own tax payers for a prayer and a sacrifice to offer up to the alter of the Stability Pact and the Euro.

However, neither the ‘bullies’ who brought some benefit to very few European citizens nor the sacrifices which afflicted the lives of many others have ultimately done much good. The European economy is hobbling along…and politics has been unable to find a way out or to come up with an innovative solution.

Chinese-style growth in the United States

On the one hand, the objectives fixed in Lisbon with regard to ‘full’ employment look increasingly like the over optimistic objectives contained within the FAO (Food and Agriculture Organisation of the United Nations) agreement. Just as it seems that developing nations are destined to face a ‘hungry’ future despite the good intentions of all the NGO agencies, as things stand the prospects for employment growth in the European Union tell a sorry tale: zero growth. In other words, unemployment at stratospheric levels and with no hope of unexpected economic booms; unexpected booms are not to be expected you might say.

On the other hand, the total growth in the wealth of the Union seems to be increasingly static. Eurostat warns that the prospects for growth in the GDP of the European Union in the next few years will not surpass the absurd figure of 1%. Significant when compared to the performance of the American economy during the last quarter which, thanks to steps taken by the Bush administration in terms of social welfare and umpteen interest rate cuts by the Federal Reserve, has grown at the same pace as China’s by 7%. At this rate, in only a decade we could witness not only America’s but probably also China’s economies overtaking Europe’s. They might even become twice a large.

Why not make cuts in the Welfare State…

And remember that European leaders actually invested in a common economic policy and economic integration at the end of the 1950s, because – as Schuman and his apostles explained – the European Union will be created ‘de facto on the basis of solidarity’.

There are two possible responses to the current emergency created by this situation.

The first possibility is the one given by France and Germany with the tacit approval of the Italian Presidency. They have lost respect for a Stability Pact that has been revealed as unable to meet the challenges of the global economy; a Stability Pact that has guaranteed the stability of inflation indexes (but not that of prices), and in the process sacrificed employment, prospects for growth and therefore the life of the European economy and the lives of millions of Europeans. France and Germany have gone it alone by breaking the Community pact at least in terms of their economic policies, incapable of beginning those structural reforms of social and welfare expenditure that alone can guarantee more equal and balanced growth.

The second response is the one that has no one has suggested, neither the ‘bullies’ nor the virtuous. In short, the Stability Pact, which the President of the Commission himself, Prodi, labelled as ‘stupid’, could be abandoned and a new Pact proposed, this time a ‘Growth and Development’ one. A Pact that, far from renationalising economic policies, would create a form of competition between economic solutions that would be revealed to be more effective in every country in terms of creating jobs, achieving important development in infrastructure, and improving the prospects for global growth; a Pact that would be more attentive to the means (that is to say to the necessary reforms of welfare systems), and the current economic policies in place in individual countries than the abstract end of price stability. Because in economics in particular the means prefigure the ends.

This second possibility is a reasonable hypothesis, worthy perhaps of some discussion in order to agree on how to overcome an increasingly serious crisis in European economies. To err is human but Europe should not bury its head in the sand.