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...
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 manoeuvring room for active social and fiscal policy...
According to the Maastricht Treaty, the member states must fulfil 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% 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...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 empirically.
Even if you manage to bring budget deficits under 3% in 1998, you will still not have qualified for the Euro. As long as your national debt is above 60% of GDP 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...
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... 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 ecologically harmful infrastructure projects (for example, hundreds of millions of Euros will be spent to build new or expand existing airports)...
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...As the only significant European body making socio-economic policy, the ECB will encounter scarcely any meaningful opposition...As George Soros recently remarked, the economy is too important to leave in the hands of central bankers!
Exchange rate adjustments will of course become impossible once the Euro is in place. And because interest rates will soon be roughly the same everywhere, and 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.
We 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 defence and extension of the welfare state...We are firmly convinced that the greatest danger for Europe lies 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.