The EUROPP team take a look at some of the latest developments in Brussels and across Europe
Jumpstarting the Eurozone’s economy
Following disappointing economic figures in the Eurozone, Francesco Giavazzi and Guido Tabellini at Vox present a model for jumpstarting the Eurozone’s economy. They argue for a Eurozone-wide agreement to carry out a “five per cent tax cut, an extension of budget deficit targets by 3 or 4 years, and issuance of long-term public debt to be purchased by the European Central Bank without sterilisation”.
Meanwhile, Simon Wren-Lewis at Mainly Macro also writes on the Eurozone. He presents two lessons from the Great Depression of the 1920s/30s. The first lesson is that the Eurozone is suffering from a lack of aggregate demand which monetary policy cannot alleviate, leaving fiscal stimulus as the best option. The second lesson he points to is that trying to correct for Germany’s competitiveness advantage through deflation and cutting wages in other Eurozone states is both difficult and painful. Instead he argues a better solution would be to raise prices in Germany, rather than reducing prices in the states which are less competitive.
French government resigns and the Italian left at a crossroads
On 25 August, the French government resigned following disagreements over economic policy. Charlemagne’s notebook writes that while the resignation was the latest blow to French President François Hollande, it could nevertheless have a positive impact in terms of making a more coherent economic policy possible. The article argues that “France’s tragedy under Mr Hollande has been to waste two years implementing a zig-zagging economic policy” and that the upshot of the government’s resignation “may be a clearer sense of direction for economic policymaking – but along a far more perilous political path”.
Elsewhere, Lilia Giugni at Policy Network argues that the Italian left is now at a crossroads, despite early success for Matteo Renzi’s Democratic Party (PD) in government. The article states that while Renzi has arguably solved the debate over who is best suited to lead the party, the PD is still facing a number of organisational, strategic and ideological doubts.
With the situation in Ukraine intensifying in recent days after accusations that Russian troops are actively involved in the conflict, the European Council on Foreign Relations assesses the response from EU states. The article asks whether Germany has “sidelined Poland” in the debate over Ukraine, noting that the Polish-German relationship is likely to be a crucial aspect of the upcoming NATO summit in Newport on 4-5 September. Judy Dempsey at Strategic Europe sticks with this theme, asking whether German Chancellor Angela Merkel can ‘save Ukraine’ and arguing that if Russian involvement in the conflict is proven then it would demand the strongest action from Germany and the EU.
Note: This article gives the views of the author, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics. Feature image credit: Jean-Marc Ayrault (CC-BY-SA-3.0)
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