Ricardo
Migueis (RM) -
Let's start our conversation by
commenting
on
the current political background
in the EU. The Union has arrived
to a phase needing consolidation
and a particular focus on governance.
In this so-called "pause for
thought", what would you point
as the main obstacles to the modernisation
of the European Union's economic
system?
Philip Arestis
(PA) - I see the current situation
in the EU as rather
worrying but one that suggests that
if Europe listened to the relevant
referenda, a missed’ opportunity
could very well become a ‘cured’ case
for the EU.
The French and the Dutch referenda
have clearly demonstrated that there
is a very strong belief amongst the
majority of the electorate in the
EU that neoliberalism is not an acceptable
model. What is required instead is
a ‘true’ social European
model. The proposed and outvoted
constitution makes the case for the
neoliberal case. The ‘missed’ opportunity
is the strengthening of the existing ‘social’ European
model, a desired one by the EU electorate.
But if more EU countries voted in
tandem with the French and the Dutch
electorate, a real opportunity suggests
itself. The architects of the constitution
would have to go back to the drawing
board, or perhaps forced to do so,
and think very hard for a truly ‘social’ and
European model. This ‘pause
for thought’ interim provides
a golden opportunity for debate and
deep reflection on the importance
of such a conundrum.
RM - You see better chances for
a more social EU in a politically
and economically deeper Union. Could
you describe how that social Europe
differs from today's one?
PA - I do indeed. I am prepared to
go as far as to say that a United
States of
Europe (USE) with proper institutions,
and thus deeper political and economic
union would be a great opportunity
for a social Europe. Today's Europe
is an amalgam of all sorts of units
(i.e. countries). We need better
institutions.
RM - Imagine you were in front of
the drawing board: what institutional
reforms would be needed to strengthen
the social Europe you described?
PA - The first institutional change
is a firm commitment to full employment.
This can only be achieved through
full utilisation of economic policies
at our disposal, monetary and fiscal
as well as other policies. However,
we need discretion rather than rules
in implementing them. We also need
full co-ordination of these policies,
especially monetary and fiscal policies.
We need full co-operation between
industry and trade unions, and a
European Investment Bank to work
on the supply-side of the economy.
Consequently, a USE becomes paramount.
RM - In what way should the ECB
and the EIB work on the supply-side
of the economy and with what intent?
PA - The ECB cannot do much work
on the supply side of the economy.
What the ECB should be doing is to
look after monetary policy in a co-ordinated
manner with fiscal policy. The ECB
as it currently functions and with
its current constitution cannot deliver
on this proposal. Institutional changes
are desperately needed on this front.
However, the European Investment
Bank (EIB) can do a great deal to
enhance the supply side of the economy.
It can be given a more long term
role whereby it should look out to
identify areas of potential development
and then provide sufficient long
term finance to enable development
to materialise. This would require
a great deal of research and related
projects but the rewards will be
extremely high.
RM - You have recently explained
in Lisbon, at a conference organised
in the Higher Institute for Business
and Labour Studies that this focus
on inflation-targeting by the ECB
is originating from a New Monetary
Policy Consensus. Could you please
elaborate on this?
PA - We have to be careful. The ECB
has repeatedly suggested that although
they target inflation they do not
pursue inflation-targeting type of
policy. This we must make absolutely
clear. Be that as it may, it is true
that in more general terms inflation
targeting emanates from a new approach
to monetary policy, thus 'A New Monetary
Policy'.
Briefly and simply, this is the monetary
policy that relies on the new macroeconomic
consensus, with the focus being on
the notion that inflation is a monetary
phenomenon whereby the central bank
controls the rate of interest which
although in the short run can affect
aggregate demand, in the long run
it controls inflation and inflation
only. In this way, in the long run
monetary policy does not affect output
or employment. The latter two variables,
the real variables as opposed to
the nominal variables, like inflation,
can only be affected by the supply
side of the economy, especially flexibility
in markets with labour markets being
of particular importance. Thus, the
emphasis by its proponents, on the
importance of flexible labour markets.
RM - The flexibility of labour markets
is exactly the aim of the Bolkenstein
Directive. Its proponents argue that
it is absolutely crucial to spur
competitiveness and growth...
PA - This might be right. If it were,
there is still the very strong argument
that labour market flexibility if
it did have such an impact it would
be a very long-term development -
and we know what happens in the long-run!
Indeed, we could look at evidence
in Europe to make the point. Germany
in the past was very successful but
still had rigid labour markets! More
recently, the UK has been successful
not so much because of its flexible
labour markets but because of its
investment and government expansionary
policies. Other cases in Europe tell
a similar story. To put all one's
eggs in the basket of labour market
flexibility is merely futile. It
does not have any empirical, and
I would suggest persuasive theoretical
backing.
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