Conference: Delay in promoting growth and confidence as an alternative to austerity, will be very costly, both economically and politically

Leading progressive economists eg Joseph Stiglitz – Nobel Prize winner, Jose Antonio Ocampo – World Bank presidential candidate, Peter Bofinger – Former Member of the German Council of Experts, and Stephany Griffith Jones, Director of financial markets research at the Initiative for Policy Dialogue (IPD) in association with eminent politicians eg Massimo D’Alema – Former Prime Minister of Italy, Hannes Swoboda – President of the Progressive Alliance of Socialists and Democrats in the EP, Alfred Gusenbauer – Former Chancellor of Austria and Ricardo Lagos – Former President of Chile, gathered in Rome on 2 and 3 May for a conference organised by three leading international left-leaning think tanks, the Foundation for European Progressive Studies (FEPS), the Initiative for Policy Dialogue (IPD) and Fondazione ItalianiEuropei. Three days before the second round of the presidential election in France, they called for going beyond austerity.

“There are so many natural disasters in the world, like earthquakes and tsunamis. It’s a shame to add to these a man-made disaster,” says Professor Joseph Stiglitz. “But that’s what Europe is doing. Europe, and especially the poor and the young are bearing the pain.”

No large economy—and Europe is a large economy– has ever emerged quickly from a crisis employing austerity, admitted the participants. But, austerity always, inevitably, and predictably makes matters worse, they said. Because austerity will not bring about either growth or confidence. It will destroy both, no matter how many speeches are given about the importance of confidence and growth.

Beyond Austerity: Alternative policies for employment and growth

“Still awaiting election results in France on Sunday, Francois Hollande has already opened the debate on growth, demonstrating that austerity is not accepted by the people” said FEPS President Massimo D’Alema. The conference explored alternative progressive policies for generating recovery from the crisis and long term growth.

Hannes Swoboda, President of the Progressive Alliance of Socialists and Democrats in the EP, added: “Our initiative for a “Renaissance de l’Europe”, launched in Paris in March, showed a strong commitment of Socialists and Democrats across Europe. Together we will fight for a comprehensive and alternative programme to fight the crisis. During this two day exchange leading academics confirmed that the pure path of austerity will lead us into ever greater recession. We need to take action to promote growth and investment to regain trust by people from all over Europe”.

Some countries, such as Germany, have fiscal room to manoeuvre. If they used it for investment, it would enhance long term growth, with positive spill-overs to the rest of Europe. Furthermore, countries like Germany should increase wages in order to enhance competitiveness by increasing wages in core European countries rather than decreasing them on the periphery. Therefore both aggregate demand and growth will increase across Europe.

There are already institutions within Europe, such as the European Investment Bank, that could help finance needed investments where private credit is collapsing. It should double its lending, both for infrastructure and to support small and medium sized enterprises. An increase of 60 billion Euros by the European Investment Bank is equivalent to half a cent of European GDP. With a multiplier effect of 2, it could boost European GDP by 1%. If a large part of this lending went to southern countries, the increase could be even higher for them. This is one of the main points illustrated also in the latest research paper of FEPS “Investment and Confidence can help Europe out of the crisis,” written by Signe Hansen of AE Economic Council of the Labour Movement.

See also the two background papers:

• Generating Resources for Investment, Stephany Griffith-Jones, IPD, May 2012
• Investment and Confidence can help Europe out of the crisis, by Signe Hansen, Economic Council of the Labour Movement, April 2012

Background materials