Why the Green New Deal is a response to the European debt crisis
The global economic crisis has not been overcome; its character has merely changed. For us parliamentarians, its most tangible characteristic is the smoldering debt crisis in some Euro countries. Similar to the crisis in the banking sector, the European government debt crisis is typical of a large-scale financial crisis, the "Second Great Depression," and managing it has to be addressed in this context. If it were only an uncontrolled government debt accumulation in Europe, then it would now be appropriate to simply apply debt brakes to manage the public debt, and to work with stronger sanction options. But would this have prevented the problems in Ireland or Spain? No. The financial crises in Spain and Ireland have absolutely nothing to do with government irresponsibly incurring debt. The government debt only increased when the government had to react to the excessive indebtedness of the private households and banks that it had previously permitted.
The conservative reinterpretation of the debt crisis as a purely governmental debt crisis due to excessive government spending is politically smart but factually incorrect. Drastic austerity programs alone are therefore not very useful in overcoming the crisis. On the contrary, the current crisis policy aggravates the crisis in many areas.
Moreover, we should not forget that we have barely made any progress in coping with the crises of poverty and distribution, or in the crises involving the climate and resources. Climate change has largely disappeared from the headlines, and, in terms of concrete government action, the brakes are being applied to many climate policy questions. Research results, however, show to what extent climate change has advanced and what tipping points are imminent.[1] And, as in 2008, the connection with the strong increase in commodity prices becomes evident, as commodities increasingly become investment targets, with food and energy prices in strong correlation. The bottom billion has not gotten any farther today than it was three years ago, when we deliberately included this problem in the concept of the Green New Deal. It was, and, therefore, is correct to combine these three crises and to show the way out of them with an extensive package of measures, the Green New Deal.[2]
With its three pillars:
- Financial regulation
- ecological modernisation of the economy, and
- new social balance,
the Green New Deal is still the right answer.
However, we must develop our concept further because the situation has changed and new knowledge is now available. It is actually the currently emerging slowdown in real GDP growth, which could soon lead to a recession, forcing us to take a position with regard to stimulus plans or the like. It is also important to place the current European crisis in the context of our response to the global economic crisis. It is my intention to contribute with this text in some way in regard to the financial market situation, the public debt, and the crisis of distribution by first analyzing the current situation in the financial markets, and, based on this, discussing proposals for the solution.
What exactly is going on currently on the financial markets?
The renewed turbulence in the financial markets contradicts all the lies in recent months that pretended that the financial crisis was over. It was actually the Federal Government, who wanted to convince people that it was only a crisis in Greece, Ireland and Portugal. In fact, we still have not overcome the global economic crisis that erupted in 2007. The crisis has simply changed its character. First, there was the bankruptcy of the real estate lenders in the USA; it was called the subprime crisis. Then, when the banks started to wobble, it was called the financial crisis. Later, some industrial companies got into difficulties, unemployment rose – and so it was an economic crisis. Now, governments are wobbling and there is talk about a debt crisis. It remains, in the end, however, one and the same global economic crisis. It is therefore useless to narrow the view on the question about public debt alone, and to focus on public expenditure as the major problem. We need a reorientation of economic and financial policy, not only in relation to public deficits. “Keeping this up” only drives us further into the crisis.
A correct analysis is important in this context. A physician can only prescribe the correct medication by chance if the diagnosis is incorrect. We should therefore discuss the causes of the crisis more in order to know what measures are in fact the right ones to take.
Every financial crisis is essentially a debt crisis: the debt-to-GDP ratio increases markedly and gets out of control. The debt can take on a different form in each financial crisis; in fact, it is quite typical that the debt takes on a new, unusual form, and is at first not perceived as debt at all. At first, it does not matter if the debt lies with banks, with private individuals, with companies, or with government authorities. It has to do with the overall debt-to-GDP ratio of a country or of the global economy.
The full article can be downloaded by using the PDF button at the top of the page.
This project has been funded with support from the
European Commission.
This publication reflects the views only of the
author, and the Commission cannot be held responsible for any use which may be
made of the information contained therein.