“The takeover of the financial sector by the public authorities is necessary” | EUROtoday

Lausterity is again in Europe. The latest “reform” of the steadiness pact retains its important parts, the dogmas of the three% of GDP price range deficit and 60% of GDP for the general public debt in addition to its punitive logic. Massive price range cuts at the moment are introduced in most European international locations. The absurdity of this coverage not must be demonstrated. It is underlined by economists who can’t be suspected of heterodoxy.

Thus, Olivier Blanchard, former chief economist of the International Monetary Fund, declared, on March 4, World : “Reducing the deficit too quickly when activity slows down risks in fact accentuating the slowdown. However, growth forecasts for Europe have just been revised downwards. We must therefore be prepared to further support the economy, even if this implies a larger deficit for a while. »

Already, after the financial crisis of 2008, austerity policies carried out jointly in Europe had led to a generalized recession by reducing demand and had been one of the causes of the increase in public deficits. This observation is now widely shared. What is less clear is the analysis of the roots of this situation. They are of three orders.

Financial market influence on debt

First of all, a deficit is the mark of a gap between expenditure and revenue, which raises the question of taxation. In the European Union, the corporate tax rate increased from 31.9% on average in 2000 to 21.5% in 2021. In France, already in 2010, the Champsaur-Cotis report to the president of the République, Nicolas Sarkozy, had alerted to this problem and explained that“in the absence of reductions in taxes, the public debt would be around 20 points of GDP lower today”.

The scenario has solely gotten worse since then. Measures in favor of the richest households and enormous companies have multiplied, costing the state price range 70 billion euros every year. A tax reform offering monetary assets to public authorities and restoring tax justice which is at the moment underneath assault needs to be a precedence.

The second downside pertains to the affect of monetary markets on the general public debt of France and the international locations of the euro zone, a affect which is the results of a political resolution courting from the Nineties, notably with the Treaty of Maastricht. When actual rates of interest (deducted for inflation) are zero or destructive and liquidity is considerable, which has been the case in recent times with coverage ” unconventional “ led by the European Central Bank (ECB), this downside might be put into perspective.

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