LAONDA | il blog di Timoteo Carpita (se non la sai prendere ti fai male)

Abstract

The aim of this work is to explain the Euro crisis either from an economic or from a political approach. The will is to underline what emerged during the several crises that affected the European Union and in particular the Eurozone. From the financial crisis, started in the United States in 2007, Europe has also been affected by a sovereign debt crisis and from a deep lack of legitimacy. All these events have shown how big and how limited is this complex system, which still now does not have any similar examples around the world. The various European issues brought to the surface, during the last seven years, forced “Economics professionals” and “Politics professionals”, always separately in the respective fields, to deal with the problem of a precise moment and to adopt a temporary solution. This paper would contribute to create and to develop the idea that now, mainly “thanks” to the Euro crisis lato sensu, both economics and politics must act to find and to introduce measures which are part of a complete system, already thought and clear ex ante, immediately. It is time to rebuild the European Union and this essay suggests a clear political compact. However, every possible proposal has only one way to achieve it: Economics and Politics working together.

This essay analyses the existing links between economic and political issues which have originated from the European institutional system and that are worsened by the crisis. I examine the European model dealing with the economic and the political side to underline the causes and the effects of the various crises which affected the EU and the Eurozone. My approach is based on the combined use of concepts such economic integration together with another such as compound democracy to delineate a new European institutional system.

          I will proceed as follows: first I am going to describe the European Union and the European Monetary Union in the recent years, and I will focus on the open questions of the institutional building (first section), then I am going to try to explain why and how the Euro crisis, broadly considered, should force Economics and Politics to talk to each other to tackle the European issues (second section). I will discuss Europe as the federal state union where the main economic cleavages would show a need of political solutions (third section).

          I will arrive to the general conclusion that, an approach to the union formed by both economic and political standpoints, does not only explain the cleavages of the EU, but it is also the only way to try to resolve them. Finally, I am going to explain the reason why I consider a political compact the most beautiful challenge anymore avoidable, above all, from an economic point of view.

On the basis of what MMTers say, the increase of public expenditure should stop when the full employment has attained. Hence, data should show high levels of inflation accompanied with low levels of unemployment or vice versa. Actually, we can note:

1. There is no correlation between the two indicators in the countries we have taken into account.

2. Some countries, such as Spain, have had historically a high level of unemployment independently from their level of inflation.

3. Germany cut down drastically its level of unemployment after 2007 as we can see from the change between the third and fourth scatter plot which is confirmed in the last one.

4. Even though there is no correlation, we can identify a cluster of countries, i.e. the United Kingdom, the United States and Japan, which always have low level of unemployment and a relative reduction of inflation rate over the years. In the last plot, we can see that Germany and France add to this cluster, although France reaches a level of unemployment which is almost twice that of Germany.

5. Another element to underline is a liftoff of unemployment in the last period, we have considered, in Greece and Spain. Italy shows a combination of high unemployment and low inflation (if it existed only Italy, the MMT rationale would be approximately confirmed). Unemployment-deficit from 1999 to 2001.

MMTers theorized that unemployment is due to a too low level of public expenditure in order to balance the need to pay taxes and the desire to save money. So, we would find a high level of deficit accompanied with low level of unemployment or low level of deficit and high level of unemployment. From the scatter plot we can note: 

1. Even here it seems that there is no correlation at all between deficit and unemployment: many outliers compare in our sample over the years. For instance, in the last period, Spain and Greece show high unemployment and very low deficit (which is the opposite situation theorized by MMTers. 

2. As for unemployment, the biggest dispersion happened in the run-up of the financial crisis of 2008. 

3. USA seems to be the country which confirms best the MMT rationale (but USA is not the only country in the world!).