Will the UK join in a new Marshall Plan for Europe now the war of the fiscal pact is about to begin?
By Peter Wilding
“The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”
So said the Italian sage, Antonio Gramsci, as he explained away Mussolini’s rise. The UK government watches on as morbid symptom number one unfolds: this week voters will reject austerity, but their democratically elected leaders will be precluded from providing growth. As Merkel faces the French and Greek people how can this logjam be broken and can the UK do anything?
Growth gurus are this week seducing politicians with another big bazooka solution. As Robert Kuttner, co-editor of The American Prospect, says,
“It is not difficult to imagine a growth agenda. Some European countries have very large deficits, mostly the consequence of the recession itself. But the Euro zone as a whole has plenty of room for fiscal expansion. The EU as a whole needs to launch a massive development program in the spirit of the Marshall Plan — the Spanish newspaper EL PAÍS writes that senior leaders in Brussels are talking of such a plan in the range of 200 billion Euros.”
So can Germany swallow another quick fix?
Worried that Hollande’s campaign has surged on this Marshall Plan growth splurge in direct contradiction to Berlin’s fiscal pact, the Germans are mobilising to counter French manoeuvring, courting Mario Monti in Italy and Mario Draghi at the ECB, united in the mantra that “there is no alternative to fiscal consolidation.” Although Monti last week warned that the austerity drive risks shrinking the euro area economy and leading to a double-dip recession, he was careful to steer away from direct criticism of the German chancellor. As David Marsh, co-chairman of the Official Monetary and Financial Institutions Forum, says,
“that was probably wise. Italy may well find itself in need of an EMU – for which read German – bail-out if the country’s bond yields continue to rise and the economy continues to contract.”
All well and good, but Berlin suddenly faces a democratic lose-lose scenario which trashes its beloved fiscal pact and leaves Europe sleepwalking. First, austerity will have the people’s thumbs down from almost all Europe soon. The longer austerity is maintained and increased without any seeming benefit in terms of growth, the wider the opposition will be. Britain’s double dip makes it the twelfth EU member state now in recession. Second, with Germany closely identified with the austerity policy, austerity fatigue will erode German influence over the euro area. This is even more likely as German politicians, frit of their own voters, refuse to do the one thing that could justify and alleviate the impact of austerity on others, namely stimulate Germany’s own economy and, crucially, re-orientate it towards greater domestic demand.
Says David Marsh: “At the moment, Germany is getting the worst of two worlds. It is imposing austerity on other countries, which among other things stops them from buying German goods. And it is making these countries adversaries, by seemingly enforcing a ‘pain but no gain’ policy. Neither can be a good idea for Germany.”
So the question is how long can Germany resist the unpleasant truth that, as it hangs onto its pennies, it loses its moral and political authority.
Is the Marshall Plan another idea to nowhere?
Possible not and nor is it new. Ian Traynor explains the growth thinking in Europe:
“The “project bonds” idea has been pushed for ages by the European Commission and its boss, Jose Manuel Barroso. He wanted to use bits of the EU budget the same way. Now this is emerging as the lowest common denominator compromise for avoiding a Franco-German clash (Hollande-Merkel) over growth and austerity.”
Currently, there are few details on the plan available but the main mechanisms for achieving the funding seems to be to increase the European Investment Bank capital by €10bn, which it is claimed would boost the lending capacity by €60bn and overall investments by €180bn and use the remaining €11.5bn in the European Financial Stability Mechanism (EFSM) as initial capital to be leveraged in the private sector.
Does George Osborne, so clear that the Eurozone crisis is the cause of the new UK recession, endorse this Keynesian scheme to mitigate the pain of austerity? Well, as high speed rail proves, he is not averse to pump-priming infrastructure projects at home. And the Marshall Plan would be an EU scheme rather than just a eurozone one with proportionate access and funding. This also means that as a contributor to the EIB and EFSM, the UK would have to be involved in the whole thing which would awaken the beast that is Bill Cash in Westminster. Worse still for Numbers 10 and 11, Parliament is yet to vote on ratifying the permanent euro bailout fund (European Stability Mechanism).
As the government tears its hair out at the prospect of another European bust-up, Nucleus sees this as an opportunity to practice and preach the growth agenda in Europe to avoid the impression of British powerlessness over the Eurozone car crash. So far, we have half the EU supporting Dave’s single market letter. Now, it must be time to put flesh on the bones of the European message by supporting Eurozone growth in order to avoid stagnation at home. Even Open Europe says:
“In principle this could be a positive idea for Europe – we like the focus of the investment and if it is conducted in the right way, it could be worth the UK participating. However, it’s hard not to be slightly sceptical about how Europe tends to go about these kinds of schemes, which could instantly undermine that case.”
Back to Gramsci: the new cannot be born unless the morbid symptom is cured. This is no time for the luxury of being ‘slightly sceptical’ when the answers are obvious.