Dr. Jörg Bibow is Professor of Economics at Skidmore College and a Research Associate at the Levy Institute at Bard College. His research focuses on central banking and financial systems and the effects of monetary policy on economic performance, especially the monetary policies of the Bundesbank and the European Central Bank.
Slowly but surely a new consensus is emerging emphasizing the need for Europe’s currency union to organize public investment as a means to overcome its crisis, by now in its seventh year; the outlook being truly grim. Back in July President-elect of the European Commission Jean-Claude Juncker called for a €300bn public-private investment program. ECB president Mario Draghi lent his support to the idea in his Jackson Hole speech, finally acknowledging that the eurozone is suffering from deficient aggregate demand.
Former EU Commission President Mario Monti too has recently thrown in his voice, observing that public investment has been crushed by the Stability and Growth Pact and relentless austerity drive undertaken across the continent in its name. In its latest World Economic Outlook, the IMF highlights that at the current juncture public investment is as close to a free lunch as it ever gets: countries renege on their grandchildren’s possibilities by not going for it. For far too long the debate in Europe was exclusively focused on the liability side of the public ledger: debt. But it is the asset side, the public investment undertaken, or not, which is far more relevant in shaping our future.
Today, embarking on a joint public investment initiative represents a special opportunity for the eurozone, a chance to fix the euro regime’s ultimate defect: the lack of fiscal union. The scheme proposed here is simple and straight forward. The idea is to create a Euro Treasury as a vehicle to pool future eurozone public investment spending and have it funded by proper eurozone treasury securities. The Euro Treasury would allocate investment grants to euro member states based on their GDP shares. And it would collect taxes to service the interest on the common debt, also exactly in line with member states’ GDP shares. The arrangement amounts to a rudimentary fiscal union, not a transfer union though, as benefits and contributions are shared proportionately. Nor would the joint public debt issued for investment purposes mutualize any existing national debts. Instead, the Euro Treasury securities would provide the means to fund the joint infrastructure spending which is the basis for the union’s joint future.
This article has been published in the Social Europe Journal.
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