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The world economic recovery, permitted by a massive injection of public spending into the economy, is fragile but real. One continent lags behind, Europe. Finding again the path of growth is no longer its priority policy. Europe has embarked on another path: the fight against public deficits.
While American states whose economic weight is greater than Greece’s, such as California, are virtually bankrupt, financial markets have decided to speculate on the sovereign debt of European countries. Europe is in fact caught in its own institutional trap: states must borrow from private financial institutions, which obtain cheap cash from the European Central Bank. As a consequence, the markets hold the key to the funding of the states. In this context, the lack of European solidarity gives rise to speculation, all the more so when the rating agencies’ game accentuates the mistrust.
In order to “reassure the markets,” a stabilizing fund for the Euro has been improvised, and drastic as well as indiscriminate plans of cuts in public spending have been launched all over Europe. These measures are irresponsible from a political and social perspective, as well as a strictly economic one. As economists, we are appalled to see that these policies are still on the agenda, and that their theoretical foundations are not reconsidered. The arguments which have been used during thirty years in order to guide European economic policy choices have been undermined by the facts. The crisis has laid bare the dogmatic and unfounded nature of the alleged “obvious facts” repeated ad nauseam by policy makers and their advisers. Other choices are possible and desirable, provided that the financial industry’s noose on public policies is loosened.
We offer below a critical presentation of ten premises that still inspire decisions of public authorities all over Europe every day. These are pseudo “obvious facts” which are in fact unfair and ineffective measures, against which we propose twenty-two counterproposals.