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LeL me sLarL by Lhanklng my frlends !amle CalbralLh and ?anls varoufakls for lnvlLlng me back here agaln
Lo speak, as well as Lhe L8! School of CovernmenL and Lhe unlverslLy of 1exas. ºPook'em horns".
ln one sense, lL's a blL of a shame LhaL l was asked Lo come back here Lo dlscuss Lhls Loplc because as l
Lhlnk we can see from Lhe Lenor of dlscusslons over Lhe pasL day LhaL noL much has changed. Cne year,
lL's Creece, Lhe nexL year, lL's lreland, Lhen ÞorLugal, Spaln, Cyprus.and Lhe beaL goes on, Lo quoLe
Sonny and Cher.
l was lnLrlgued by Lhe LlLle of my panel, and ln some ways feel presumpLuous glvlng ºAmerlcan" vlews
on Lhe Lurozone crlsls, because, even Lhough l llve ln Amerlca, l am ln facL, Canadlan, and maybe l'll puL
ln a plug for some of Lhe Canadlan feaLures of federallsm, as a posslble long Lerm soluLlon for Lurope
(concedlng LhaL we are nowhere near Lo meeLlng Lhe pollLlcal condlLlons for Lhls asplraLlon Loday). 1haL
quallflcaLlon aslde, Lhe Amerlcan vlews of Lurope (Lo Lhe exLenL LhaL lL Lhlnks of Lurope aL all) ls one of
bafflemenL and lncredullLy. l could sLop Lhere, buL l Lhlnk l've sLlll goL anoLher 13 mlnuLes, so l'll go on.
As for Lhe ºLuropean lessons" for Amerlca, leL me suggesL LhaL are employmenL daLa ls beglnnlng Lo
reflecL Lhe same klnd of ºcasuallzaLlon" of labour LhaL ls lncreaslngly belng seen ln Lurope, sLarLlng ln
Cermany wlLh Lhe wholly lnapproprlaLely named ParLz ºreforms" (for ºreform" read champlonlng wage
cuLs, demollshlng worklng condlLlons, and abandonlng [ob securlLy). 1he Lheory ls LhaL glven Lhe
sLrucLure of Lhe euro, Lhe only way LhaL Lhese naLlons can become exporL compeLlLlve ls Lo squeeze
workers, however palnful. 8uL here's Lhe rub: labor producLlvlLy may be rlslng sLrongly. 8uL workers
have less money ln Lhelr pockeLs, and so Lhey can'L afford Lo buy anyLhlng. 1haL's noL a formula for long-
Lerm economlc growLh. Lspeclally when you conslder whaL has happened Lo Lhe Cerman
ºwlrLhschafLwunder": lrom Lhe boLLom of Lhe cycle, ln mld-2003, employmenL has grown much less
qulckly Lhan ln prevlous upLurns. And much of Lhe rlse has Laken Lhe form of 'mlnl [obs' - parL-Llme
posLs paylng no more Lhan t400 a monLh, regardless of hours."
1he ºreforms" acLually decreased regular employmenL. Workers goL sLuck wlLh so-called ºmlnl/mldl"
[obs - a new form of low wage parL-Llme employmenL. Such [obs were halled as ºflexlble" and ºefflclenL"
by Lhelr champlons, whlle deLracLors noLed LhaL Lhey were parL-Llme [obs characLerlzed by helghLened
lnsecurlLy, lower wages, and poorer worklng condlLlons.
1he Cerman economlc model leads Lo a ºrace Lo Lhe boLLom" as far as wages go. Cermany, as Lhe
exporLlng naLlon ln Lhe Lu, consLanLly has Lo drlve down domesLlc wages Lo ensure LhaL Lhe exporLs
remaln lnLernaLlonally compeLlLlve. Lverybody works harder, buL people have less money Lo spend.
Meanwhlle, Cermany chasLlses lLs nelghbors for Lhelr ºprofllgacy" buL relles on Lhelr ºllvlng beyond Lhelr
means" Lo produce a Lrade surplus LhaL allows lLs governmenL Lo run smaller budgeL deflclLs. lor now,
people ln Creece and lLaly buy Lhe Cerman exporLs because Lhey are cheap, buL Lhey cerLalnly can'L
embrace Cermany's economlc model because lL's ulLlmaLely self-defeaLlng. lf Lhe exporLlng naLlon
conLlnues Lo drlve wages down, Lhen producLs become lncreaslngly expenslve. And Lhere's anoLher
problem. ln order Lo reLaln hlgher proflL marglns, Cerman manufacLurers wlll almosL cerLalnly mlgraLe Lo
lower cosL manufacLurlng cenLers lf unlons fall Lo sLop ºderegulaLlon" of Lhe klnd whlch slmply lowers
Lhelr Lake home pay furLher. ln Lhls scenarlo unemploymenL numbers ln Cermany wlll go up.
And now we're seelng LhaL unforLunaLe Lrend Laklng place ln Lhe uS. lf you look aL Lhe uS household
survey, lL ls now Lelllng us LhaL durlng mosL of Lhls year almosL all Lhe lncrease ln [obs has been ln Lhe
parL-Llme caLegory, and lL ls reasonable Lo assume LhaL Lhose [obs are very low paylng servlce secLor
[obs. 1hls may be exerLlng a blg drag on personal lncome growLh LhaL ls noL belng reflecLed ln Lhe offlclal
personal lncome daLa.
So whaL are Lhe lessons LhaL we should be learnlng from each oLher? Well, conslder LhaL durlng Lhe
1960s and 70s, Lhe Luropeans creaLed one of Lhe mosL humane soclal welfare sLaLes seen slnce Lhe
beglnnlng of Llme. Slnce Lhe creaLlon of Lhe ºLuropean ldeal", Amerlcan neollberallsm and Lhe so-called
WashlngLon Consensus seem Lo have lnfecLed Lhe mlnds of mosL Luropean pollcy makers. l don'L see
how you can lncrease domesLlc consumpLlon lf you have yourself creaLed a class of workers, 40 mllllon
sLrong Lo 60m sLrong, who earn Lwo-Lhlrds less Lhan Lhe regulars, who have no enLlLlemenLs or beneflLs
- and who llve mosLly hand Lo mouLh.
1he second half of Lhe 20Lh cenLury was remarkable ln LhaL mosL counLrles of Lhe developed world were
moLlvaLed, and able Lo creaLe, socleLles LhaL are carlng and equlLable. 1hey were drlven by a genulne
concern for happlness and human welfare.
lL ls unforLunaLe LhaL, durlng lasL decade, Lurope has begun Lo move ln Lhe opposlLe dlrecLlon by dlluLlng
Lhe meanlng of a º!usL SocleLy" and a generous soclal welfare sLaLe. And we musL worry abouL one more
Lhlng - LhaL, raLher Lhan belng Lhe ouLller, lL ls showlng oLher ma[or naLlons Lhe way ºforward."
Soclal developmenLs ln Lhe unlLed SLaLes are such LhaL lL lncreaslngly lllusLraLlng Lhls dlsease as well wlLh
blfurcaLlng socleLy lnLo a regular and a largely conLlngenL workforce. SLaLlsLlcally, Lhe Lwo counLrles
aren'L far aparL any longer, especlally conslderlng LhaL soclal beneflLs ln Lhe unlLed SLaLes were never
LhaL generous Lo begln wlLh.
As far as Lhlngs Lhe Luropeans could learn from Lhe Amerlcans, lnsLead of havlng Lhls presumpLuously
sLaLed Lhrough Lhe mouLh of a Canadlan, leL me clLe Lhe lessons from Lwo Amerlcans: Penry lord and
one of Lhe hosLs of Lhls wonderful conference, Lhe esLeemed !ames k. CalbralLh.
llrsL Penry lord. lord was no soclallsL, and l'm sure Lhose of you who have sLudled hlm would reallze
LhaL hls pollLlcs probably veered Loward Lhe exLreme rlghL. 8uL he dld have one slmple lnslghL: pay your
workers a decenL wage so LhaL Lhey can buy your ouLpuL. no doubL lgnorlng Lhe advlce LhaL 90° of Lhe
economlcs professlon would advlse Loday, no CLC wlll Lhlnk Lo do whaL Penry lord dld when he
lnLroduced Lhe $3 day for workers. And Lhls was ln Lhe 1920s, so you can lmaglne whaL LhaL flgure
would mean ln Loday's dollars. lord [usLlfled hls largesse by polnLlng ouL LhaL hls workers could now
afford Lo buy hls cars whlch Lhey dld, and a glorlous lndusLry Look off.
now leL me quoLe whaL !ames CalbralLh sald Lo Cerman 1rades unlon Congress. ulscusslng Lhe CreaL
llnanclal Crlsls of 2008, !amle sald Lhe followlng:
wbot boppeoeJ lo tbe uolteJ 5totes wos tbot we boJ o vety flexlble ooJ effectlve system of pobllc
ttoosfet poymeots wblcb tose toplJly lo tbe ctlsls. uoemploymeot losotooce, eotly tetltemeot ooJet
soclol secotlty, Jlsoblllty, lowet tox collectloos, ooJ tbeo oo top of tbot, tbe expoosloo pockoqe, tbe
stlmolos pockoqe, tbe keyoesloo pollcy tbot come loto effect vety polckly. AoJ tbese tbloqs btoke tbe foll
lo locomes ooJ ptesetveJ llvloq stooJotJs to o vety sobstootlol Jeqtee.
we Jo bove o system tbot coo sostolo ooJ tbot we coo floooce. NotwltbstooJloq oll yoo beot oboot
boJqet Jeflclts, tbot´s obvloos. 1be uolteJ 5totes qovetomeot Joes oot bove o flooocloq ptoblem. 1be
slmplest evlJeoce fot tbls ls tbe looq- tetm lotetest tote wblcb ls ot oo blstotlc low lo splte of tbe slze of
tbe Jeflclt ooJ tbe pobllc Jebt. AoJ oqolo tbot wotkeJ to bteok tbe sbock of tbe ctlsls. we JlJ oot tecovet
bot we JlJ oot foll opott. wby oot? 8ecoose fooJomeotolly we ote wotkloq wltb ootloool lostltotloos
tbot wete bollt o looq tlme oqo lo tbe New ueol ooJ tbe Cteot 5oclety, ooJ fooJomeotolly tbose
lostltotloos ote stlll tbete. ueposlt losotooce, soclol secotlty, MeJlcote, MeJlcolJ, ooJ qtoots-lo-olJ ftom
tbe feJetol qovetomeot to tbe stotes ooJ cltles. lt´s o testeJ moJel ooJ lt wotks.
ShorL-Lerm crlsls managemenL soluLlons - such as Lhe LlSl or Lhe LSM (ball-ouL funds) - do noL negaLe
Lhe need for a coordlnaLed flscal capaclLy Lo ensure Lhe spaLlal paLLern of aggregaLe demand ls sufflclenL
Lo avold recesslon ln all member sLaLes.
Whlle Lhe Luropean leaders are now Lalklng abouL flscal lnLegraLlon Lhey are dolng so wlLhln a culLure of
ausLerlLy and very deep hosLlllLy from Cermany and oLher rlcher norLhern naLlons such as Lhe
neLherlands and llnland.
1he quesLlons LhaL have Lo be answered lnclude:
1. Are Lhe Cermans wllllng Lo become parL of a Lrue flscal federaLlon where lL becomes a ºsLaLe" LhaL ls
sub[ugaLed Lo Lhe welfare needs of Lhe unlon? lor example, ln naLlons such as Canada whlch ls a Lrue
flscal federaLlon, no one would LoleraLe one sLaLe noL belng able Lo access baslc healLh care whlle
anoLher had more Lhan enough.
We would demand our federal governmenL make sure all clLlzens had more or less slmllar access Lo
essenLlals. We also have had long sLandlng equallzaLlon paymenLs from rlcher provlnces Lo poorer
provlnces. newfoundland was a huge neL reclplenL of Canadlan ald for much of Lhe flrsL several decades
LhaL lL [olned Lhe Canadlan federaLlon. nobody demanded a quld pro quo of Lhe sorL LhaL ls now belng
demanded for Lhe llkes of Creece. As for Lhe so-called ºbalance of paymenLs" problem, leL me ask Lhe
audlence a qulck quesLlon: does anybody here know wheLher 1exas runs a currenL accounL surplus wlLh
Lhe oLher 49 sLaLes? uoes anybody really care? 8y Lhe same Loken, nobody glves a hooL lf AlberLa runs
a currenL accounL surplus wlLh Lhe oLher 9 provlnces.
1haL sorL of culLural approach ls LoLally absenL ln Lurope aL presenL. 1he Cermans and uuLch haLe Lhe
facL LhaL Lhey mlghL have Lo pay ouL Lo asslsL Lhe Creeks.
1he federal flscal capaclLy should noL be drlven by rules such as Lhe proposed ºSlx-Þack". now, l go Lo
Lhe gym relenLlessly ln Lhe efforL Lo achleve LhaL eluslve ºslx pack". Some of my frlends would say
ºobsesslvely". l also llke Lhe odd beer and head Lo my supermarkeL Lo buy a slx pack or Lwo (probably
also explalns why l am noL qulLe achlevlng my flrsL ob[ecLlve Lo whlch l asplre ln Lhe gym).
1he polnL ls, l PAvL A CPClCL. l can drlnk beer, l can go Lo Lhe gym. lL's noL belng forced on me, and
cerLalnly noL when l'm ln a condlLlon of lllness needlng masslve recuperaLlon.
?ou know, l dld one of Lhese presenLaLlons ln new ?ork lasL november (wlLh my frlend ?anls), l opened
my presenLaLlon wlLh a cllp from Lhe fllm ºMlSL8?". lf you haven'L seen Lhe fllm, Lhere's a scene ln
whlch, afLer Laklng ln her all-Llme favorlLe auLhor Þaul Sheldon (!ames Caan) afLer a car accldenL, crazed
fan Annle Wllkes (kaLhy 8aLes) wanLs hlm Lo sLay and rewrlLe hls laLesL novel. lL's very lmporLanL Lo her
LhaL he noL leave.
When she dlscovers LhaL he's broken Lhe rules and lefL hls room, she Lucks a block ln beLween hls ankles
and Lakes ouL a sledgehammer. WhaL follows-hls ankle flalllng Lo Lhe slde afLer Lhe flrsL sLrlke-ls a
Lruly mlserable slghL. And lL's a perfecL meLaphor for Lhe LC8's laLesL wheeze, Lhe so-called CM1,
whereby lnLervenLlon Lo supporL sLaLe solvency ls made conLlngenL on Lhese counLrles enacLlng furLher
ausLerlLy cuLs. lL's llke havlng a paLlenL fed on an lnLravenous drlp Lo keep hlm allve, buL breaklng hls
legs when he geLs off Lhe bed and Lrles Lo walk.
1haL's whaL Lhe slx-pack LhreaLens Lo do. 1here's no cholce here. lL's a form of economlc sado-
1he ºSlx-Þack" refers Lo Lhe new so-called ºrelnforced SLablllLy and CrowLh ÞacL (SCÞ)", whlch was
agreed upon on uecember 13, 2011. ln Lhe Cfflclal Memorandum we read LhaL Lhe ºSlx-Þack" ls ºmade
of flve regulaLlons and one dlrecLlve" and accordlng Lo Lhe Lu ellLe spln:
. represenLs Lhe mosL comprehenslve relnforcemenL of economlc governance ln Lhe Lu and Lhe euro
area slnce Lhe launch of Lhe Lconomlc MoneLary unlon almosL 20 years ago . [and] . brlngs a concreLe
and declslve sLep Lowards ensurlng flscal dlsclpllne, helplng Lo sLablllse Lhe Lu economy and prevenLlng
a new crlsls ln Lhe Lu.
ln facL, Lhe Slx-Þack announcemenL furLher de-sLablllsed Lhe Lu economy. 1he Slx-Þack recognlsed LhaL
º23 ouL of Lhe 27 Member SLaLes are ln Lhe so-called ºexcesslve deflclL procedure" (LuÞ), a mechanlsm
esLabllshed ln Lhe Lu 1reaLles obllglng counLrles Lo keep Lhelr budgeL deflclLs below 3° of CuÞ and
governmenL debL below (or sufflclenLly decllnlng Lowards) 60° of CuÞ".
1hese 23 have Lo undergo formal revlews and ºmusL comply wlLh Lhe recommendaLlons and deadllnes
declded by Lhe Lu Councll Lo correcL Lhelr excesslve deflclL".
1he componenLs of Lhe Slx-Þack are LhaL more rlgorous lmposlLlon of flnanclal sancLlons wlll be followed
lf a naLlon falls Lo ºcomply wlLh Lhe speclflc recommendaLlons" Lo geL Lhelr deflclLs below 3 per cenL of
CuÞ. lurLher, lf Lhe º60° reference for Lhe debL-Lo-CuÞ raLlo ls noL respecLed" Lhen Lhe LuÞ wlll begln
ºeven lf lLs deflclL ls below 3°" and Lhe naLlon wlll have Lo reduce ºgap beLween lLs debL level and Lhe
60° reference . by 1/20Lh annually (on average over 3 years)."
1here wlll be ºexpendlLure benchmarks" whlch wlll enforce ºa cap on Lhe annual growLh of publlc
expendlLure accordlng Lo a medlum-Lerm raLe of growLh".
lL all reeks of a nasLy conLrolllng, blg broLher sorL of world. lL seems from Lhe recenL pollLlcal evenLs ln
Lurope LhaL Lhe people are geLLlng wlnd of Lhls abrogaLlon of Lhelr democraLlc rlghLs and are voLlng
accordlngly. 8uL Lhe cholces now as so poor, so Lhey are, as 1erry Clvens and 1om lerguson noLed
yesLerday, Lurnlng Lo parLles of Lhe exLreme rlghL.
8udgeL ouLcomes should noL be evaluaLed agalnsL meanlngless flscal rules, whlch are lmposslble Lo
meeL when a crlsls ls belng experlenced. As we have seen, ln Lhe aLLempL Lo drlve flscal pollcy declslons
on Lhe basls of Lhese rules, Lhe governmenLs of Lurope are maklng Lhe slLuaLlon worse. As CusLav Porn
suggesLed yesLerday, growLh ls Lhe key. CrowLh wlll Lake care of a loL of Lhe debL problem and Lhe
fraglllLy ln Lhe banklng sysLem.
noLhlng was more predlcLable Lhan LhaL ouLcome, yeL Lhe debaLe here ls how Lo sLrengLhen Lhe rules
(make Lhem more unworkable) and whaL frameworks can be agreed Lo lmpose punlLlve sancLlons on
naLlons LhaL dare Lo devlaLe.
lL ls LoLally overlooked LhaL Lhe devlaLlons ln budgeL ouLcomes agalnsL Lhe rules are ln mosL cases LoLally
ouL of Lhe conLrol of Lhe member-sLaLe governmenL. ln bad Llmes, budgeL deflclLs wlll rlse. 1haL ls noL a
slgnal Lo lmpose pro-cycllcal flscal ausLerlLy.
l'll say Lhe same Lhlng wlLh regard Lo debL resLrucLurlng. Cf course, lf you conLlnue Lo lnLroduce yeL
more debL deflaLlon measures, Lhen debLs by deflnlLlon wlll go up and debL as a percenLage of CuÞ wlll
go up, because CuÞ conLlnues Lo deflaLe.
lL ls a slgnal Lo aLLack Lhe collapse ln aggregaLe demand wlLh all Lhe flscal spendlng Lools LhaL a
governmenL has, supporLed by a growLh-orlenLed cenLral bank (whlch ln Lhls parLlcular moneLary sysLem
can keep Lhe prlvaLe bond markeLs aL bay).
1he debaLe ln Lurope falls Lo recognlse any or mosL of Lhls. 1hey Lhlnk Lhe problem ls some numbers
LhaL LurosLaL reporL from Llme Lo Llme Lelllng us whaL Lhe budgeL ouLcomes have been. 1hey Lhlnk Lhe
soluLlon ls Lo aLLack spendlng and/or lncrease LaxaLlon Lo dlrecLly reduce Lhese budgeL ouLcomes.
1hey fall Lo reallse LhaL Lhls sLraLegy ls counLer-producLlve and doomed Lo fall.
1here are beLLer ways of dolng buslness. So leL me glve one flnal lesson from hlsLory.
lf Amerlcans had adopLed a slmllar ºbeggar Lhy nelghbor" phllosophy characLerlsLlc of Lhe LhrusL of
Luropean economlc pollcy afLer emerglng vlcLorlous from World War ll, Lhe Cerman economy could noL
have recovered. 8uL Lhe vlcLorlous Amerlcans dld noL preach ausLerlLy, desplLe Lhe facL LhaL Cermany
had clearly llved well beyond lLs real resource llmlLs durlng Lhe War. Lven afLer Lhe devasLaLlon LhaL
Cermany caused as a resulL of lLs mlsgulded LerrlLorlal amblLlons and helnous eLhnlc pollcles, Lhe
Marshall Þlan, Lhe large-scale Amerlcan program Lo ald Lurope, soughL Lo bulld Lhe Cerman economy
raLher Lhan Lo desLroy lL. 1he Cermans were faced wlLh a masslve desLrucLlon of publlc and prlvaLe
lnfrasLrucLure and knew LhaL a reLurn Lo very fasL economlc growLh was necessary Lo mlnlmlze Lhe
damage and conLaln lL ln hlsLorlcal Llme. 1he upshoL of Lhe Marshall Þlan was a perlod of unparalleled
economlc growLh ln Lurope. 1haL's Lhe ldeal LhaL should gulde economlc pollcy makers golng forward.
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