Even in Italy we are starting to hear the voices of ‘dissident’ scholars questioning the official dogmas about the causes of the recession and ways to get out of it
By Francesco Colonna
Public spending? It is not the main problem. Rather it is the private debt of banks and businesses. The recipe for getting out of the crisis? Not the austerity that the European Central Bank (ECB) is imposing on Italy and the other PIIGS (Portugal, Ireland, Greece and Spain) but growth, underpinned by state-funding.
This is not the thesis of a politician in search of supporters, but the conviction of a large group of economists. ‘In fact,’ says Alberto Bagnai, professor of political economy at the University of Pescara, ‘it is the opinion of the majority of the international academic community.’
‘That at the root of the European crisis is the imbalances in balance of payments between countries in the Eurozone and not their public debt is now a view taken by almost all the experts. With the exception of economists linked to the ECB, in a clear conflict of interest. And the ‘Chicago Boys’ followers, who have absolute faith in the ability of the market to regulate itself. ‘
In short, according Bagnai and other ‘dissident’ economists, the ECB and governments are following the wrong recipes. With the support of public opinion, influenced by a political class and the media that have embraced the ideas of austerity.
But something is changing. Faced with the continuing economic crisis in spite of cuts and sacrifices, dissident voices are rising. Economists such as Emiliano Brancaccio, who teaches at the University of Sannio, Alberto Borghi Aquilini, a professor at Milan’s Cattolica University, Sergio Cesaratto, who teaches at Siena University, Gennaro Zezza, University of Cassino, Bagnai and others are starting to be asked to write for the newspapers and appear in TV talk shows.
The road is still long. This is confirmed by Emiliano Brancaccio, author with Marco Passarella of the recent ‘L’austerità è di destra‘ (Austerity is right-wing)’ : ‘To say that you exit the crisis by making sacrifices is an easy thesis to grasp. The fact is people tend to look at the state budget like they would the family budget. We are in debt? Simply tighten our belts. Instead, a state is based on more complex mechanisms. If, during the recession, a country tightens the belt, that cuts spending and raises taxes, and its economy will contract. With the result that the ratio of debt to GDP, instead of diminishing, increases. In fact, with the Monti Government this ratio has reached a record of 126 per cent. ”
‘For the majority of economists it is not disputed that the debt is not the main problem,’ confirms Bagnai.
‘Just think about the fact that before the crisis Italian debt was decreasing. And that the current storm first hit Spain and Ireland which had debt levels that were lower than Germany. Thus, the [government bond] spread does not come from debt. ‘
What caused the crisis, then? In essence, say Bagnai and others, it is a problem of balance of payments: they are weak, and therefore subject to higher spreads, countries that get into debt with foreign countries because they import much more than they export. Between the introduction of the euro and the crisis erupting in 2007 among the PIIGS there was an explosion in private debt, often to foreign banks, with increases of between 31% (Italy) to 98% of GDP (Ireland and Spain).
The banking crisis is presented as being caused by the sovereign debt crisis but the data shows the opposite, says Bagnai. The public debt crisis was caused by the financial collapse of the private sector. And private debt has accumulated in the PIIGS because the single currency has prevented less competitive economies from defending themselves with devaluation, as they did before.
Are the German winning the competition race then? Yes, answer the ‘dissidents’, the Germans have been more efficient. But be careful: their competitiveness is the daughter of wage restraint designed to allow Germany to compete with the peripheral countries of the Eurozone. ‘In Germany over the last decade wages have always been kept below the growth of productivity,’ explains Emiliano Brancaccio. ‘In this way the Germans were able to maximize their surplus with other EU countries, creating an unsustainable imbalance within the euro zone. Now the ECB would like to correct it by forcing PIIGS to slash wages, domestic spending and imports. But the solution is wrong because it will eventually aggravate economic depression in the European Union’.
Is Euro exit and the fixed exchange rate therefore a possible solution? On this point opinions differ. Alberto Bagnai does not believe in the possibility of reforming this monetary union and considers the opinions of those who think that a return to national currencies would be a disaster as ‘terrorist’. ‘We would have devalued by 20 per cent, as in 1992 when we came out from the ECU*,’ he explains in his blog Goofynomics. ‘And inflation could have even remained stable, as it was then.’
Others like Emiliano Brancaccio think instead that exit from the single currency is a possible prospect, but the outcome is in question. In his view, all possible pressure should be exerted on Germany to play a leading role in at least part of the rebalancing of trade balances, by raising wages and domestic consumption.
So the terms of discourse are changing. The untouchable totems of austerity and ‘social’ cuts as solutions to the crisis are being questioned, at least by scholars.
How soon before politicians follow?
L’Espresso/MicroMega, November 14, 2012
* European Currency Unit, a precursor to the Euro
Translation by Revolting Europe