[OPE-L:4963] [GEERT] Endorse EMU appeal: urgent

Gerald Levy (glevy@pratt.edu)
Fri, 9 May 1997 14:26:04 -0700 (PDT)

[ show plain text ]

Although the following appeal for endorsements is only addressed to
economists from the EMU, I thought others might be interested in it as
well, e.g. would you like to talk about Neo-Liberalism? Endorsements from
European members should be sent to Geert using the directions indicated
below./In solidarity, Jerry

------- Forwarded Message Follows -------

From: "Geert Reuten - University of Amsterdam" <REUTEN@fee.uva.nl>
To: epe@fee.uva.nl
Date sent: Thu, 8 May 1997 20:05:37 GMT-1

Amsterdam, 7 May 1997

To progressive economists in the countries of the European Union

This is an urgent message concerning the EMU; please forward it to
your colleagues. It has three headings: 1. General Information; 2.
Action to take; 3. Open Letter to the Amsterdam EU summit (1500

Next June at the summit of the European Union (EU) in Amsterdam the
Economic and Monetary Union (EMU) will be high on the agenda. Below
you will find an 'open letter' from EU economists addressed to the
ministers and presidents who are meeting; it expresses our concern
about the current EMU, which is in fact a purely monetarist project.
Our aim is to make known to these politicians and the general public
that economists are far from unanimous about the current EMU project:
we fear that it will have damaging social, ecological and economic
We ask you to endorse the 'general sense' of this open letter. We
aim to publish it on June 12th in the leading newspapers of all the EU
countries, annexing to it the names of those who have signed (note
that until then there is an 'EMBARGO' on the text).

This appeal follows up a similar, local Dutch initiative taken
on by us, which was fruitful. At the suggestion of many European
colleagues we now extend that initiative on an EU scale.


Our goal is to have hundreds of economists sign BEFORE JUNE 5th. If
you agree with 'the general sense' of the letter below, please do the
1. Send an e-mail to: EPE@FEE.UVA.NL, SUBJECT: endorse general sense
EMU letter, with in the body of the message no more than: first
name + family name + academic degree/title (before or after your
name according to the custom in your country) + town +
abbreviation of your country. For example: Reiner Dalten, PhD
(London, GB); or: prof.dr. Ben Later (Bremen, D); or: Antonio
Blake, MA, prof. (Lisboa, P).
2. If you have no e-mail available send a fax to: xx-31-20-525.4254
Dr. Geert Reuten, University of Amsterdam RE: endorse general
sense EMU letter, with in the message no more than: first name,
family name, academic degree/title, town + abbreviation of your
3. Forward this letter AS SOON AS POSSIBLE to at least 5 colleagues
in your own country or another EU country (if you got this message
by fax but would like to forward it by e-mail, send us an e-mail
with no more than RE/Subject: forward EMU letter). All other
correspondence can be sent to the same e-mail or fax addresses, in
which case PLEASE use a different RE/Subject: ......
With regards,
Geert Reuten (University of Amsterdam)
Kees Vendrik (De Balie, Amsterdam)
Robert Went (IIRE and University of Amsterdam)


Open letter from European economists to the heads of government
of the 15 member states of the European Union

Europe, 12 June 1997

On 16 and 17 June you will be in Amsterdam in order to discuss European
integration. You will consult with one another about the progress made
towards the Economic and Monetary Union. Many questions are still
unanswered. Will the EMU begin as planned at the end of this century? Which
countries will take part in the euro from the beginning? Will all the
Maastricht Treaty criteria be met? These are important questions, but they
do not address Europe's essential problems.

You know that Europe is contending at the moment with high unemployment,
poverty, social marginalisation and ecological deterioration. The current
design of Europe's economy does not provide adequate prospects of reining
in these problems. The member states' national policies are clearly
insufficient. The key question is whether the current plans for further
European integration, and in particular for the EMU, will bring us closer
to solutions.

Your economic advisers have told you that the EMU, as laid out in the
Maastricht Treaty (December 1991) and further regulated in the Dublin
Stability Pact (December 1996), will bring Europe more jobs and prosperity.
We, economists in the EU's member states, are afraid that the opposite is
true. This project for economic and monetary integration not only falls
short from a social, ecological, and democratic perspective, but also from
an economic one.

This is a missed opportunity. A single European currency could be very
advantageous and help to find the way to full-employment with good quality
jobs and social security. This and other relevant objectives could be
reached through a common budgetary and fiscal policy favouring sustainable
economic growth, and through the convergence towards high labour standards
on wages, working time and work conditions. But this EMU is not a starting
point for a modern European welfare state; instead it institutionalises the
dismantling of the public sector in the member states and reduces the
maneuvering room for active social and fiscal policy. The following six
points lay out briefly the basis for our concern.

1. According to the Maastricht Treaty, the member states must fulfill
five convergence criteria in order to take part in the euro. Along with
requirements in the areas of long-term interest rates, inflation and
national debt, another norm is that a state's budget deficit may not be
higher than 3 percent of its Gross Domestic Product (GDP). Almost none of
the member states now meets this requirement. Without regard to economic
conditions, they have been put under great pressure to pass the EMU test:
many among you have experience by now with the draconian austerity
programmes that must be put in place in order to do so.
What is remarkable is that this norm, which is doing so much social
harm, has absolutely no economic basis. Not only economists like us see
this. One of your hosts in Amsterdam, Dutch Minister of Finance Zalm, said
in March 1992, when he was still director of the Dutch Central Planning
Bureau (CPB): "The norms for government finances in the EMU treaty have no
solid economic foundation."
The reasoning behind these convergence criteria is drawn from
monetarist doctrines that are not accepted by the majority of economists.
According to these doctrines, reduction of budget deficits leads to lower
inflation, and lower inflation automatically leads to more growth and
employment. Recent economic research by renowned economists such as
Akerlof, Dickens and Perry (1996), Barro (1995), Bruno (1995), Sarel (1996)
and Stanners (1995) shows that this assertion cannot be verified

2. Even if you manage through enormous exertions to bring your budget
deficits under 3 percent in 1998, you will still not have qualified for the
euro. As long as your national debt is above 60 percent of GNP and is not
falling as quickly as is required, you will have to implement still more
austerity programmes. This will certainly be the case if economic growth
continues to be slow, which is not inconceivable given the ongoing spiral
of austerity.
The pressure on your budgets will remain high for still another
reason as well: the Stability Pact that you adopted in Dublin forces
participating EMU countries to reduce their budget deficits still further
in the direction of balanced budgets.
In short, in the years to come all member states will
simultaneously have to adjust their national budgets further. Current and
future recessions will be exacerbated as a result.

3. You may have acted in Dublin under the assumption that the
Stability Pact would leave you some room in which to carry out
countercyclical policies. But it will be many years before you have created
the necessary budgetary maneuvering room: first your budget deficit must be
brought far under 3 percent. Exceeding this 3 percent limit during economic
recessions is virtually impossible: the room left by the Stability Pact for
temporary exemptions is in fact extremely narrow.

4. Although this is often denied, the previously mentioned budgetary
adjustments will take place chiefly through harsh austerity programmes.
Since 'Maastricht' and 'Dublin' included no restrictions on competitive
fiscal policy, tax rates and revenues will be pushed downwards. This
virtually rules out the possibility of member states' reducing their
deficits through additional tax revenues.
Our fear is that policy competition will increase considerably in
other areas as well. The fiscal battles among member states are becoming
steadily fiercer, and the consequences are already visible in the form of
increasingly great income inequality, forced privatisations and social
deprivation. We also foresee in the coming years growing competition in the
area of ecologicaly harmful infrastructural projects (for example, hundreds
of millions of euro's will be spent to build new or expand existing
airports). So policy competition in many different areas will undermine
national revenues and force reorganisation of national expenditures.

5. The policy to be expected from the European Central Bank (ECB) will
worsen the deflationary pressure that results from this merry-go-round of
austerity. The ECB is in fact obliged to aim at price stability, and will
work one-sidedly to watch over the hard euro. The well-known North American
economist Krugman has already expressed fears about the negative effects
that this will have on employment.
As the 'only' significant European body making socio-economic
policy, the ECB will encounter scarcely any meaningful opposition; the
'Stability Council' seems destined above all for a symbolic role.
Parliaments and governments will soon lack any possibility of acting to
correct ECB policies if the bank takes extreme measures to ward off
inflation, because the ECB will act with complete autonomy. As George Soros
recently remarked, the economy is too important to leave in the hands of
central bankers!

6. In sum, the countries that are about to join in a common currency
are giving up important instruments of macro-economic policy. Inside the
Union, this is of course true of exchange rate adjustments, which will of
course become impossible once the euro is in place. And because interest
rates will soon be roughly the same everywhere, the mobility of labour
across European frontiers is (still) slight, and financial transfers have
not been provided for, the countries in the EMU will soon have only one
instrument left at their disposal in order to cushion economic shocks:
government expenditures. But as we have just seen, even that instrument has
been taken out of governments' hands by the Stability Pact. This means that
labour will be handed the bill for economic recessions, in the form of
rising unemployment, falling wages, and still greater flexibilisation.

This EMU is, in short, not a good model for extensive European economic
integration. You may have been operating under the assumption that
economists are in agreement about this EMU, and that all the adjustments
might be very distressing from a social and political point of view but are
nonetheless truly necessary from an economic point of view. This is not the
case. There is no solid, scientific foundation for the EMU, and many of us
have drawn attention to this fact in the past in professional journals and

We therefore call on you to reconsider this EMU project. Not that we ask
you to put an end to European co-operation; on the contrary. A common
currency and monetary policy could offer considerable advantages. But this
EMU is governed by timeless criteria and dogmas. Wise economic policy must
not be replaced by rigid rules, but must be determined essentially by
circumstances. This is also a question of democracy: the framework of the
EMU is wrongly discharging you and your colleagues from your precious
democratic duty to take responsibility for your political choices. Under
the current conditions, this EMU offers no perspective whatsoever of an
adequate response to environmental problems, of improvement in the lot of
Europe's 20 million unemployed and 50 million poor or for the defense and
extension of the welfare state.

As critics of the EMU, we are reproached with putting European co-operation
in danger; we are told that we would do better to keep quiet. We are firmly
convinced, however, that the greatest danger for Europe lies in fact in the
design of this EMU, which has already led millions of Europeans to identify
Europe and the euro with austerity policies and social suffering. It is
high time that politicians realise: the peoples of Europe have the right to
an economy that serves the interests of human beings.

Dr. Geert Reuten (Amsterdam, NL)
Drs. Kees Vendrik (Amsterdam, NL)
Drs. Robert Went (Amsterdam, NL)
The following economists from the EU-countries endorse the general
sense of this letter:
<all names will be included at final stage>