“For real community economic policy”

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FIGAROVOX / TRIBUNE- To combat inflation in Europe, economist Andre Grebbin calls for a strong strengthening of already-launched community strategies while rebalancing national policies.

André Grjebine is an economist, essayist and former research director at Sciences Po Paris.


After the new Prime Minister Elizabeth Borne was reappointed as Minister of Economy and Finance, he said the government’s priority was to protect French people from inflation while curbing public spending. Bet is becoming more difficult as growth is almost zero and France is weakened by the hollowing out of industry.

With import inflation caused by soaring prices of raw materials such as gas and oil, the government can probably only reduce its impact by distributing compensation to households and businesses. Measures that mean an increase in public spending. At the same time, weak growth demands a resumption of the economy, which also entails additional public spending. However, in countries where the share of industry in GDP fell from 24% in 1980 to about 12% in 2021, increased demand leads to increased imports, making exports more difficult. After that, companies try to move production overseas, where production costs are lower. Second, the increase in imports will reduce the number of domestic dealers available for domestic production and accelerate the hollowing out of industry. As Carl Grekou and Thomas Grjebine explain, “As the country’s deindustrialization progresses, production equipment will not be able to meet this excessive demand, so stimulus measures will worsen the trade balance (due to imports).” This deterioration was particularly rapid from 1999 to 2011, but the trade balance has barely recovered since then.

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Improving the trade balance after austerity risks risks being purely cyclical. That is, it will only last as long as this policy is in place.

Andre Gravin

Governments need to ignore demands expressed in all aspects and step up already implemented aid measures for businesses by reducing social spending and production costs, especially by reducing taxes without compensation. mosquito? Assuming that is possible, this policy could certainly help lower inflation, which in turn would improve a company’s competitiveness and thus its exports. However, it risks causing social and political unrest that is difficult to control. Moreover, the conquest of sustainable external outlets does not occur overnight. Improving the trade balance after austerity risks risks being purely cyclical. That is, it will only last as long as this policy is in place. Ultimately, such policies run the risk of damaging the most vulnerable industrial sectors. Apart from some large multinational groups, companies hesitate to invest when they expect weak domestic demand. Many of them prefer debt repayment, dividend distribution, or acquisitions of other companies if they do not repurchase their securities to artificially raise prices.

Germany is said to have relied primarily on exports and for many years to secure sales channels for its business. Except that these opportunities are guaranteed by the growth of our partners. The behavior defined in game theory is the behavior of a “free rider”, that is, the behavior of a person who travels without paying. If the major European Union countries follow that example, it will blame recession and poverty. As Keynes explained, in 1931 demand policy cannot be applied in the long run without measures aimed at neutralizing its negative effects, especially the deterioration of the trade balance.

Does this mean that it is appropriate to leave the euro, which is more or less openly advocated by the National Rally and the rebellious France? We can certainly expect that the sharp fall of the “revived” franc will increase its competitiveness against its partners, especially Germany. However, the subsequent surge in inflation (the depreciation of the currency will increase the prices of imported products and other goods due to transmission) will rapidly make austerity policies inevitable. This is all the more so because the rise in interest rates on French debt in the financial markets makes its financing very problematic, at least as long as this debt is in a foreign currency rather than a national currency. Finally, this economic isolation of a medium-sized country like France will make it even more difficult to reduce its reliance on non-European countries for strategic production.

Nevertheless, the strict application of the “6 pack” seems to be a condition for the survival of the euro area.

Andre Gravin

Alternative solutions consist of “rebalancing” budget policies within the European Union while truly developing community economic policies. On the one hand, each state needs to contribute to support the growth of the zone, depending on the margins its external accounts offer. Keynes recommended imposing other restrictions on surplus countries in parallel with the restrictions that weigh heavily on deficit countries. European rules of operation (known as “6 packs”) have already stipulated that a country must not have excessive external surplus (more than 6% of GDP). This rule has rarely been applied so far. However, its strict application seems to be a condition of the very survival of the euro area.

Along with the readjustment of national policies, the already launched community strategies should be significantly strengthened. With this in mind, eurozone countries will accept the rule of balance of operating budgets to meet the wishes of Germany and subsequent countries in exchange for financing through expanded European budgetary investment aimed at strengthening. prize. Reduce dependence on member countries’ production equipment and Europe’s outside world. This budget is covered by long-term low interest rate credits issued by the European Central Bank. This must be either a permanent debt that exists, especially in the UK, or a credit that will only be repaid if the growth rate in the euro area exceeds a certain level and public income increases accordingly. With inflation already rising, such policies are said to be inadequate. In contrast, within the European Union, price increases are not currently of a monetary nature, but are primarily caused by structural factors, that is, reliance on rapidly rising raw materials. I can answer. Unless you imagine a global recession, this import inflation will continue. The European Union, on the one hand, can reduce this dependence and, on the other hand, increase funding for businesses aimed at offsetting the increased costs of products that are essential for low-income households.

Germany and subsequent European countries recognize the seriousness of the economic, social and political situation experienced by some partners and agree to overcome their resistance and implement bolder policies. Can you expect? Otherwise, if things continue to worsen, it is the very survival of European construction that runs the risk of being at stake.

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