Thursday, December 31, 2015

Is Europe disintegrating?

In this end of year, economic optimism can bring some reason for hope. Most economists and international organizations urged Germany to increase its public investment to offset a dramatic contraction of demand in the rest of Europe.  This is finally going to happen: public expenditure is set to increase  - albeit modestly and too late - not just for boosting European growth but due to the massive arrival of refugees.  

Europe is facing two big crises - the eurozone and the migration crisis that are intertwined . As the president of the Commission Juncker reckoned,  without free movement of people, the single currency that the same people can spend in any part of the euro area does not make sense. The Schengen agreement has been put into question by the massive wave of refugees going from one country to another and by the terrorist threat beyond borders. This argument has also been used by populist parties to call for closing borders to the refugees.

These crises did not just occur in sequence. The long crisis of the eurozone has actually deprived governments of the will and capacity to act as well as their capital of trust and credibility which would be needed today to address the borders crisis. AS Germany plays a key role in both crises, Greece is  again seen as a scapegoat.

But, as P. De Grauwe points out,  the euro and migration crises have common features and flaws . In both cases, Europe's response has been partial. In the first case, the single currency was introduced but national budgets remained separated. During recessions, debt and deficit soar in vulnerable countries and capital flows  move toward stronger countries creating more divergence within the eurozone.   In the case of Schengen, borders were abolished but police and intelligence bodies remained separated and today there are no common coastguards  and border controls  The consequence is that with the euro, governments confronted to uncontrolled capital movements  cannot guarantee economic stability. While regarding Schengen, without a real integration of police forces, the same governments cannot guarantee security to their citizens. Furthermore, the concentration of powers on national governments rather than on the European Commission made decision processes more cumbersome and ineffective. 

Europe's founding fathers assumed that building a process of cooperation among States to resolve common challenges would inevitably lead to a closer integration in the absence of any alternative. But this is what happens today : if these common tasks remained unfulfilled , it does not mean that they will be brought to completion in a near future; it might go into  reverse and  even lead to the disintegration of Europe. 


As Ph. Legrain put it, " .EU leaders are weak, divided, and seemingly incapable of setting out a credible vision of the future benefits that European integration could provide, without which they cannot rally popular support and convince recalcitrant governments to bear their fair share of current costs. In the absence of an effective, common response, Europe’s crises fester, feed on each other, and foment unilateralism". Common solutions require at least four criteria: "a correct shared understanding of the problem, agreement on an effective way forward, willingness to pool more sovereignty, and political leaders able to drive change forward."

As these criteria are now missing, Europe has to reinvent itself . It has no fixed identity and is always remaking itself and will move over time. But the question is whether it will continue deepen its integration process on the road to a federation or alike or go backwards to the predominance of sovereign States. 

Sunday, November 29, 2015

The intricate economics of terrorism

The world has suddenly changed. Our fragile societies realize that ordinary people  have to cope with the fear of terrorist attacks. In Paris, Brussels and other parts of the planet, we are at the mercy of an invisible enemy. But to combat this new global phenomenon, we have to look at the complex economics  behind terrorist networks. 

A few years ago, an Italian economist, Loretta Napoleoni developed the idea of 'rogue economics'  where she tries to explain the connexions between crime and unregulated finance. This new reality of capitalism has been expanding over years on a global scale ranging from drugs and weapons, sex slavery and other forms of human trafficking.

Terrorism is just one aspect of it : it does not just imply an efficient organization but needs substantial financing. For instance, Daesh finances its activity thanks the traffic of oil it controls in a vast territory bigger than Great Britain. 

The big change came with the excesses of globalization and big finance ; deregulation has also facilitated these uncontrolled flows in the form of money laundering. According to Napoleoni, the scale of the rogue economics is about 1,5 trillion dollars, so much bigger than (again) United Kingdom's output. The economic significance is that this money is detracted from productive investment to support growth and jobs. This happens because the States have lost control of their economies. 

The crisis will not end  if unregulated finance and growing criminal markets are not brought under control of the States or any supranational power.


Tuesday, November 3, 2015

Saving Capitalism- notes on Reich's book

The title of Robert Reich's new book is somewhat odd: how can we save a system which is crapped and caused pain to so many people? However, the subtitle is perhaps more important 'for the many not the few'. The book contains a number of  economic and moral arguments as it assumes that the capitalist system is not working as it used to, meaning that it was regulated in a way that it was in equilibrium where it could provide jobs to most of the active population which in turn could buy the goods and services available on the market. Reich makes a valuable point when he argues that the debate is not choosing between market and government as market without government or rules does not exist as a state of nature. This point was developed in the groundbreaking book of K. Polanyi 'The Great Transformation'. 

The whole argument is how to make the system work for the middle class, that is pursuing the right policies to give it more purchasing power, for instance increasing th minimum wage to an acceptable level to avoid 'working poor' class and extending the rights of people for health care and education. If we compare the US in terms of social progress, it lags behind many advanced countries with a more progressive welfare system and wider redistribution among social groups. In this regard, it has been quite anomalous relative to 'the 'social market economy' which has prevailed for at least five decades in Europe. 

The other point which is worth noting is the rising influence of the ruling class in politics. Is this a distortion of the political system?  The issue is how to prevent that oligarchs change the rules to their advantage. These trends are also present in some European countries. This wave of populism has endangered the basic foundations of democracy based on the 'one person, one vote' rule using scapegoats such as the invasion of immigrants taking the jobs of  national workers or the rise of supranational powers such as a European federation. 

Reich's optimism for the future derives from historical experiences such as the Great society in the sixties which actually led to a compression of income disparities and the emergence of a vast middle class. This is quite an unambitious and perhaps view of how the American society should become. The driving forces of globalization and technology (combined with demographic change) have changed the nature of capitalism into a 'Stateless' or an unregulated system where big corporations have an unprecedented power of influencing legislation and tax systems.  The very idea to restore a 'normal' state of capitalism is utopia - can we really change its inherent logic which is to maximize profit by any means? 

Keynes raised  in his concluding notes to the 'General Theory' a number of questions : 

"Is the fulfilment of these ideas a visionary hope? Have they insufficient roots in the motives which govern the evolution of political society? Are the interests which they will thwart stronger and more obvious than those which they will serve?

He never responded to these questions, showing how difficult it was to put in place an alternative to the 'laissez faire system'. His ideas went through  and inspired  policy makers at least for some decades. We also hope that Reich's ideas will be applied despite the current state of affairs, and lead to a better economic system to th mutual advantage of all. 

Sunday, October 11, 2015

The Pope's Moral Lesson

The Pope's address to the US Congress has a historic significance as he spoke to the most powerful country to remind the congressmen their duties and responsibilities. Most of his words derive from the Church's social doctrine.

His main message is summarized in this part of the speech, where he recalled the pursuit of common good as the mission of politics.

All political activity must serve and promote the good of the human person and be based on respect for his or her dignity. "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness" (Declaration of Independence, 4 July 1776). 
If politics must truly be at the service of the human person, it follows that it cannot be a slave to the economy and finance. Politics is, instead, an expression of our compelling need to live as one, in order to build as one the greatest common good: that of a community which sacrifices particular interests in order to share, in justice and peace, its goods, its interests, its social life" 
P.S:  The Pope expresses a progressive view of the world and its modernity and without him the world would be much worse. 



Sunday, July 19, 2015

Germany's self interest

For decades Germany saw its role as the driving force and beneficiary of Europe's unity which combines its sense of guilt of its past history and self interest.  The rest of the Continent came to rely on it as the country that could be trusted to keep the European project moving forward.

But with the handling of Greece's bailout package agreed at the Euro summit on 12 July, Germany has lost this trust. By taking an aggressive and punishing attitude toward Greece, the German leadership may have undercut its moral authority. By advancing the idea that Greece should leave the euro, Germany exhibited its national interest more openly than in the past and made it clear that there are  limits to its willingness to put European unity first.

Jurgen Habermas, a pro-European German philospher argues that Ms Merkel and her political coalition " have gambled away in one night all the potential capital that a better Germany had accumulated in half a century"while previous governments had displayed 'greater political sensitivity and a post-national mentality".  For much of the German post-war history, patriotism was considered shameful and the national interest coincided with Europe. 

But with the reunification of the country and the creation of the largest member country of the European Union, Germany became more open to use its power to defend its national interest. the big change began when Germany pushed for a more rules-based system to manage the euro area. 

In the past, Germany was willing to provide the money or arrange deals to hold Europe together and go forward. History shows that European unification has progressed only through crises from the ashes of WWII to economic stagnation of the 80s. But the enlarged Europe resembles to a 'conglomerate' of States defending their national interests. Coming to Greece, Ms Merkel fought to keep Europe united with little conviction as few people expected a deal on Greece with such high economic costs.

There is much to argue, as many economists do, about the need for austerity policies in times of recession. Even the ECB and the IMF called for debt relief to make the Greek debt a bit more sustainable; this did not work out due to the inflexible position of the Germans supported by a large coalition of countries, including the Netherlands, Finland and several Eastern countries. 

But the brutality of the negotiations over Greece has damaged the reputation of Germany inside the European Union. Moreover, it has reinforced an anti-German sentiment among European citizens which also reflects a growing rejection of the European Union with Germany being at the heart of it..

This will represent a turning point in Germany's role in Europe. The latter will appear as a different bloc than the one the founding fathers had in mind or even the creators of the single currency (namely Jacques Delors). The fight over Greece's bailout will, as Hans Kundnani (author of the book " the paradox of German power") put it , lead to a "more German Europe and a more coercive EU".

Beyond the apparent unity on the deal, the Greek crisis has highlighted a split within the Eurozone. Germany and its allies believe that that economic orthodoxy  with a strong Central bank are needed while another group led by France and Italy argue that budgetary and economic policy has to be driven by politics, not just rules. 

Since the reunification, Germany always wanted the euro area to resemble itself  and the euro to the D-Mark while solidarity depending on everyone playing by the rules. May be we need to change the rules (" no bail out", no " default" )which have largely been inadequate to  address the debt crisis, not only in Greece. 

P.S: Ms Merkel and Mr Schauble are federalists in their own way. Of course, they reject the idea of a European federation of  States. But in their view federalism means not an open ended commitment to rescuing other States (as it happened in the US with California's default), but a willingness to abide by agreed rules. On the other hand, Mr Hollande has relaunched the idea of a government for the euro zone with its own budget and with democratic control by the European Parliament which will be pushed forward by a 'vanguard' of 7-8 countries.  




Saturday, July 4, 2015

The endless crisis

The Economist re-examines the Greek crisis since 2009 and highlights the mistakes made by the creditors. I quote : "As rising bond yields threatened to push Greece to default, creditors botched the first bail-out in 2010 (see chart 1) by imposing too much austerity too quickly. For all of their railing against austerity, Greek leaders mostly cut deficits instead of promoting growth. For too long, the ECB resisted any notion of imposing losses on private bondholders even when it was obvious that Greece was bust. When haircuts for bondholders, known as “private sector involvement”, were agreed on in 2011 they were too late to do the trick'.


In 2012, the issue of debt sustainability was not addressed and debt now stands at 177% of GDP. This inaction led to the brink on which Greece is now without much hope of recovery. The referendum will not be decisive on the future of Greece, because there is not much choice between accepting another bailout and probable chaos. 

The Greek crisis is the expression of  Europe's crisis and this is not solved yet . None of the bailed out countries returned to their pre-crisis levels.  But the crisis hit Greece harshly with Greek GDP shrinking by 25% over 4 years, unemployment rising to 27% and youth unemployment to more than 50% . 

Here is a graph published by the Economist which describes the evolution of the crisis :





 
If we look at the evolution of domestic demand, it has started growing in the US and Japan after the collapse resulting from the 2008 crisis, while in the euro area it has strongly declined since 2011.     


 Do we need more evidence that austerity is not a cure for the crisis? Just the ideologues of the euro zone want us to believe it.  

Quid prodest? 






Sunday, June 28, 2015

Our Common Home

The recent papal encyclical by Pope Francis  Laudato Si : On care for our common home highlights that climate change is one of the principal challenges facing humanity and a moral issue requiring respectful dialogue with all parts of society. 

The encyclical warns of an "unprecedented destruction of ecosystems" and "serious consequences of all of us" if humanity fails to act on climate change. It takes a holistic approach where climate change cannot be separated from poverty and global inequality. But it also draws on solid scientific evidence showing significant warming of the climate system and that most of global warming in recent decades is mainly the result of human activity. 

“Climate change is a global problem with grave implications: environmental, social, economic, political and for the distribution of goods. It represents one of the principal challenges facing humanity in our day. Its worst impact will probably be felt by developing countries in coming decades. Many of the poor live in areas particularly affected by phenomena related to warming, and their means of subsistence are largely dependent on natural reserves and ecosystemic services such as agriculture, fishing and forestry. They have no other financial activities or resources which can enable them to adapt to climate change or to face natural disasters, and their access to social services and protection is very limited.” (Pope Francis, Laudato Si': On Care For Our Common Home, no. 15)

 It is a moral issue which requires respectful dialogue with all parts of the society.  But it also requires an imperative for action. The pope condemns the egoism of nations when he says " international (climate) negotiations cannot make significant progress due to positions taken by countries which place  their national interests above the global common good.  On this position, the UN secretary general , Ban Ki Moon called on governments to place 'the global common good above national interests and to adopt an ambitious, universal climate agreement" at the UN climate summit in Paris this December. 

The Pope's message is not only  addressed to the Catholic community but to all communities and other faiths to act together. His words are powerful and transcend all kinds of divisions:

"We need to strengthen the conviction that we are one single human family. There are no frontiers or barriers, political or social, behind which we can hide, still less is there room for the globalization of indifference.”  

P.S: Sign the petition to demand world leaders a strong agreement  at the Paris climate summit


Sunday, April 5, 2015

A modest proposal for resolving the eurozone crisis

Since 2008, we are still meddled in the euro zone crisis. But the state of affairs is far from being reassuring for the entire European community and its actors. Although the 'ethos' of the crisis seems to be alleviated, it has aggravated  public debt to limit the risks of deflation caused by the overwhelming financial crash in 2007 and the current  threat which persists on the public debt of 18 countries sharing the same currency.  

There is however little consensus on how to drive the crisis. The EU did not have the mechanisms and procedures to handle it. Most of the crisis management  was left to improvisation 

In 2013, the current Greek Finance minister, Y.Varoufakis wrote a paper with J.Galbraith and Stuart Holland on how to resolve the eurozone crisis.  It was entitled A Modest Proposal for Resolving the Eurozone Crisis” . The proposal is far from being modest: "While broad in scope, the Modest Proposal suggests no new institutions and does not aim at redesigning the Eurozone. It needs no new rules, fiscal compacts, or troikas. It requires no prior agreement to move in a federal direction while allowing for consent through enhanced cooperation rather than imposition of austerity."

The proposal departs from the triple nature of the crisis - banking crisis, sovereign debt crisis, under-investment crisis and provides three policy responses to the eurozone crisis. It also takes for granted existing political constraints - no ECB purchase/monetisation  of sovereign debt; no joint guaranteed euro-bonds; no proper European Treasury. 

First, it deals with the banking crisis through a banking Union area. The Europeanization of the banking supervision is a step forward toward  a better functioning monetary union. It is proposed that the banks are restructured and recapitalized through the European Stability Mechanism (ESM). The aim is to break the link between sovereign debts and banks losses as it happened in most countries. 

Second, the conversion of member States sovereign debt in compliance with the Maastricht Treaty (up to  60% of their GDP) into a debt issued by the European Central Bank. This would mean a partial 'mutualization' of debts but still respects the principle of 'non-monetisation' of debt (no purchase or guarantee of sovereign debt). This action can be pursued in accordance with tart.20 of the Treaty whereby "reinforced co-operations aim to the realisation of the objectives of the Union, to preserve its interests and reinforce its process of integration". At the same time, the ECB would continue its Outright Monetary Transactions (OMT) programme under which it makes purchases in secoindary sovereign bond markets under certain conditions of bonds issued by Eurozone member States. In fact, the ECB has gone further with its recent QE programme to buy financial assets from banks or other financial assets to stimulate the economy. 

Third, an investment led recovery and convergence programme financed by the European Investment Bank (EIB). This programme would be financed through bonds issued by the  (EIB) to capture the excess of savings in Europe and outside Europe to direct it toward European regions most in need. the new investments would then enable the provision of  goods and services, such as infrastructure, education and other public goods to bridge the gap in terms of competitiveness and generate income to reimburse most urgent debt in weaker countries. In this regard, the Juncker Plan, with the creation of the European Fund for Strategic Investments is an important step in that direction.   

Furthermore, these measures will be accompanied by a vast programme of social solidarity and emergency to combat the humanitarian crisis in certain countries where poverty has soared at unprecedented levels. Two specific actions are foreseen in the 'modest proposal' : a programme of 'food stamps' like in the United States and a European programme ensuring minimum access to energy. 

None of these proposals seems out of reach, nor unrealistic. They are part of a progressive economic policy based on concrete measures which do not require any major change in the current European institutions. Only political will is missing because any step toward a more integrated Union would put in question the authority of  national leaders without any vision for Europe. 






Sunday, March 1, 2015

The European common good

There are diverging views about Mario Draghi, the man and his action. Some would regard him as an 'homo economicus" acting rationally as explained in economic text books. Others would see him as a man with a vision, driven by politics  in the sense that he puts the economy at the service of the common good. This may sound a bit idealistic, but this judgement is not completely wrong.  

 Political economy originated in moral philosophy with Adam Smith as a precursor. But in its current approach, after the advent of economics in the 19° century with Marshall, it explains how the political institutions, the political environment and the economic system influence each other. thus becoming intrinsically interrelated. In the classical meaning, economics' main rationale is the pursuit of self interest while ethics is about caring for the others. In its original significance, Politics is about linking economics and ethics and avoiding that one prevails over the other. 

M. Draghi has used all instruments at his disposal to stimulate growth but also as development of EU institutions towards the goal of a federal State. In other words he puts economic means at the service of political goals. 

As planned, the European Central Bank (ECB) will launch on 2 March a massive intervention  to buy public bonds. The effects on the market are already evident  with a further rise of asset prices and a narrowing of spread relative to the Bunds and an almost parity of the exchange rate of the euro relative to the dollar bringing immediate benefits in terms of increased exports. 

There is one important point to mention: the bulk of the operations (80%) will be made by national central banks and the remaining part (20%) directly by the ECB. As a result, part of these bonds will be owned by the European Union because there will be in the balance sheets of the ECB, as an European institution whose capital is held by all member States of the European Union. This means that one fifth of national debt becomes European debt. 

In this regard, there is some resemblance between Draghi'  and Alexander  Hamilton, the Treasury secretary of the United States under George Washington. What he did is bit similar, making the debt of each State of the Union as federal debt.  Draghi's plan is a step in that direction.

The political consequences of this operation is that this 20% of mutualized debt leads inevitably, in particular with the Banking Union, to the partial  transformation national debt into European sovereign debt with the common guarantee of bank deposits, European supervision of banks, and therefore a significant step toward the transfer of fiscal sovereignty and a genuine budget of the monetary and political Union. Some of these measures are already launched and others will be necessary for the constitution of a federal State. This will be a long and difficult process, but is there an alternative to it? 




Sunday, February 22, 2015

Europe's turning point


The European Central Bank's grand plan to purchase massively government bonds - around a trillion at the pace of 60 billion a month until September 2016- will certainly help prevent deflation. But Draghi's manoeuvre will not be enough - it needs to be accompanied by reforms and a realistic investment plan to revive the European economies. In the meantime, the euro has reached almost parity with the dollar, boosting exports especially in the southern economies. 

It is a turning point.because it raises the issue of eurobonds and a common fiscal policy. The EU treaty explicitly says that the EU should have a political configuration by means of transfers of sovereignty of the single states.

Germany should take the initiative and if it does not, the other States should force it to do so or go ahead without it. The only problem is that national leaders are reluctant to adopt such decisions. This does not look good for the future: in a global economy, continents are competing, not single States, most of which are irrelevant without an integrated space. But for the time being, the European Central Bank is leading the recovery process in Europe, clashing with Germany's interests. . 


P.S: The querelle  between Greece and Germany has led, temporarily to a satisfactory outcome. Greece has obtained 7 more billion euros of loans but in turn will have to commit to reforms. The issue is which reforms: those of the Troika"s memorandum or Tsipras's electoral promises? 




Sunday, February 1, 2015

Tackling inequality involves more State, maybe a different one

The Davos World Forum has shown  consensus about  inequality as a global issue and that governments should find ways to tackle it. This has little to do with generosity or equity issues. it is juts the recognition that economy recovery cannot happen if income inequality is not reduced substantially in order to increase aggregate demand. The problem is that there is wide disagreement on how to tackle inequality and the role of the State.  

Liberal optimists think that open markets are the best remedy against inequality using as their best argument how globalization contributed to lift out from poverty hundreds of million people. This is of course arguable as many economists believe that unregulated markets have produced - before and after the financial crisis of 2007-08- brought wages down and increased poverty. 

However, much of the discussion concerns the role of redistribution - through many instruments, including taxation of the wealthy people or more public spending for the poor, or even a combination of both. Classical redistribution should not be ruled out to combat poverty and alleviate the social crisis for the middle classes.    

In a critical note to Piketty's work, R.Haussman, Harvard academic and former Venezuelian minister, argues that redistribution is "just  palliative, not curative". He's right: productivity is the problem - and all firms are not equal in terms of productivity and therefore the income they can distribute varies too. 

Given productivity constraints, the inequality problem has to be addressed  by investing in people, providing them with the right skills and creating job opportunities. The issue is to connect poor places (countries or regions) to inputs but this requires means to reduce existing economic disparities. It is a matter of  policy trade-offs. 

There may be more innovative redistribution policies such as the ones suggested by Mazzucato and  Rodrik. In substance, governments should finance their spending from the earnings in investing public venture funds. It means, however, a bigger role of the State in investing in funding new technologies and  to socialize the gains from innovation for citizens. 

Wednesday, January 7, 2015

The Piketty moment

Piketty's book , 'Le Capital au XXI si├Ęcle" has become a reference point in the current economic debate. It has revived the issue of economic inequality and brought it into the policy agenda. But no book has been so divisive among economists. 

The main point of the book is that governments should put in place a progressive wealth tax for the purpose of income redistribution and correct growing inequalities. In other words the rich should pay more so that the poor (or the impoverished middle class) could get more disposable income and spend more in goods and services. The consequence of inaction would be a return to the situation which prevailed in the early 19th century where the big fortunes concentrated most of total wealth. This happens, according to Piketty when the rate of return of capital is durably higher than the rate of growth of an economy creating a situation of disequilibrium which aggravates economic disparities. As heredity of capital becomes more important relative to labour, the big fortunes continue to grow almost mechanically while the wealth of the middle class tends to erode. To avoid this perverse mechanism, our societies has social institutions which aim to reduce such inequality but today these institutions are becoming more fragile and less capable to respond to such challenge. 

In our societies hardly hit by the crisis, rising inequality threatens the values of social justice which are at the heart of democracy. In past years, a neo-liberal discourse has prevailed, putting aside the issue of inequality and focusing on growth, which is good per se and in theory should benefit to all. The evidence shows that this is not true since not all or even a small fraction of the population actually benefits from growth. Orthodox economic policies based on sustained deficit reduction  led to a prolonged recession which has even widened the economic inequalities within societies, with the poor becoming poorer and the rich becoming richer. 

European governments, in particular France and Germany, have showed inaction to combat the crisis and its consequences in terms of social disruption. Is it a folly to argue that there are alternatives to current economic policies and that we should wait for the return to growth. History tells us that austerity does not contribute to  debt reduction bit in turn plunges the economy in a recessive or prolonged low growth cycle. The return to nationalism becomes the expression of the anger of the population which feels threatened by markets and globalization. 

Since the main inequality is unemployment which affects primarily the young, it is necessary to abandon austerity policies and pursue pro-growth policies. But they have to be coordinated at the European level which implies a stronger integration between economic policies and institutions. If we want to pursue progressive economic and social policies, we need to rebuild EU institutions around the euro area to make economic decisions more effective. 

Another source of inequality is on taxation: big multinational companies pay less taxes than the small and medium ones. This requires better coordination of tax policies along with the introduction a wealth tax as proposed by T.Piketty. It is obvious that such measures have to be taken at the supranational level with permanent exchange of information between States to avoid fraud and capital relocation for fiscal reasons. 

Furthermore, there is not enough investment into education, which increases the disparities in access to culture. the rich can afford expensive schools and universities making the education gap with the poor wider. In some counties, in particular in Italy, the amount of interests on debt represent 6-7% of the GDP while expenditure for university is less than 1%. This means compromising the well being of future generations with widening gaps in education and culture. 

While there may be an issue of high debt and States have less and less resources, it is also evident that collectively European economies have never been so rich in terms of  economic output. But private wealth has often become much larger ( in Italy the ratio is one to 7) than public wealth as a share of the GDP. If part of this wealth can be used to reduce inequality, this will also be a powerful engine for more growth as it will stimulate demand and reduce the appetite for financial investments. 

This is a matter of political choice and democracy. It is a pure illusion to think that a market economy can work without polity and ethics, rules and institutions.