A series of soundbites and statements have marked the subsequent stages of the recession that followed the 2008 crisis. Early on, the political class stood up against that all-powerful markets that could not be contradicted, said former French President Nicolas Sarkozy. "The idea that the market is always right is a crazy one," he pointed out, referring to the lingering desire to place capitalism on new foundations.
Six years down the road, regulations abound on both sides of the Atlantic. But while the new rules have brought the financial sector under control, the markets regained their role as the authority to judge whether a country is following the right path to escape from recession and restore growth. And there is "only one way forward" to regain the markets' trust, as European leaders took turns to argue.
The "only way forward" meant severe fiscal adjustments and structural reforms. However, this strategy has spectacularly failed to foster job creation and growth in Europe, and has also brought about prolonged stagnation for the highly indebted eurozone economies.
While the European Commission has made timid attempts to amend its strategy, urging growth-friendly fiscal adjustments, a growing chorus of critics is asking for a more determined change of course against the "Talibans of austerity," to quote former Director of Bruegel and advisor to the French president Jean Pisani-Ferry.
According to a group of progressive think tanks, the imbalances behind the current crisis have not been addressed by the policies championed by Brussels, Berlin and Frankfurt. On the contrary, they have been "only displaced, from current account to unemployment, from public deficit to inequalities". Public and private debt ratios are still high, and deleveraging still stands as the only objective, said a report drafted by the Institut fur Makrookonomie, the Economic Council of the Labour Movement and L'Observatoire francais des conjonctures economiques.
Instead, these groups of economists and experts demand backloading austerity by allowing higher public investment, in particular in the green sector, more active labour market policies and fairer tax systems to fight against inequality, a minimum wage across the EU to ward off the risk of deflation and an aggressive monetary policy backed by a credible commitment by member states to public finance stability.
Carlos Sebastian, professor of economic theory at Universidad Complutense in Madrid, Spain, believes that a...