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ORIGINAL FRENCH ARTICLE: Une vice de construction

by Gaël de Santis

European Union: a Fault in Construction

Translated Sunday 23 May 2010, by Henry Crapo and reviewed by Isabelle Métral

The faith of the European Commission and of the national governments in the virtues of an unregulated market and free competition has led Europe into an impasse. Independence of the European Central Bank, social and fiscal dumping, and the policies of liberalization, must be called into question.

Despite an nth salvage plan last week, the European stock markets fell again on Friday. Nevertheless, the European leaders never stop wanting to "give a signal to the speculators", or to "reassure the market-places" by promising plans for financial restraint. With this aim, they multiply their "salvage plans". On 7 and 9 May, a plan for Greece and for the states of the euro zone that may encounter difficulties. In October 2008, the plan to refill the banks. In March 2009, a plan of aid for the countries of the eastern bloc. José Manuel Barroso, the president of the European Commission, for all his saying that the crisis comes from the other side of the Atlantic, the truth is that the very architecture of the European Union renders it vulnerable to the machinations of the financial markets. This is what the opponents of the constitutional treaty were already saying in 2005.

Loans at 1% interest for the banks

The present monetary policy authorizes the "investors" to make ends meet at the end of the month at public expense. The statutes of the Central European Bank (BCE) do not permit it to purchase titles to public debt. But they permit loans to banks at 1% interest! The states, then, are forced to turn to the private market for loans. "The dependence on the financial markets, rather than upon the BCE, only aggravates the debt", believes Frédéric Viale, member of the coordinating committee of Attac [1] and author of l’Horreur européene [2]. Constrained by the risk of disintegration of the euro zone, the BCE had to put the brakes on its dogmas, Monday 10 May, by beginning to purchase state debt, but at rates fixed on the private markets.

If the states have such recourse to debt, it is because their fiscal receipts are drying up. The European Union is conceived of as being a free-exchange zone without any real coordination or economic cooperation. In the fiscal domain, dumping has become the rule. The enlargement of the Union to the countries of the east was undertaken without adequate structural funds. Certain of these nations then played with competitive fiscal policies, in order to attract capital. This led to a reduction of tax rates in all European countries.

The Contagion of Social Dumping in the Euro Zone

Policies of free competition lying at the heart of the European project since the Treaty of Rome (1957) have led in recent years to a lesser economic dynamism than that of other continents. By betting on a decrease in labor costs as a means of increasing exports, Germany "has undercut its competitors in their home markets," says Frédéric Viale. Berlin exports most of its production toward the other states of the European Union. The policy of social dumping has contaminated the entire euro zone, putting the brakes on wage increases, preventing the development of internal demand for goods and services.

To top it all off, the cut-back of public spending has been established as dogma, via the pact for stability (1997), which prepared the way for the introduction of the unique currency. But at the same time, all the studies within the European Union, and also in the OCDE [3] show that the aging of the population, the need for training of the youth, and investment in research will push up public expenditures. Despite this, policies for an ever stricter control of national budgets were elaborated in Brussels in recent weeks. The policy that consists in leaving the markets, responsible for the present economic disaster, uncontrolled, risks, if not corrected, to further darken the future of the Old World continent.

[1The Association for the Taxation of Financial Transactions for the Aid of Citizens was founded in France in 1998.

[2Éditions Tatamis, 2010

[3Organisation de coopération et de développement économiques

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