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. 

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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.  

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? 

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

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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.