marshall-planDebating Europe recently had a suggestion sent in from Paul in the UK, who argued that the strategy of austerity in Europe is not working. Paul argues that what is really needed is a new “Marshall plan” for the EU – a Keynesian approach to growth based on increased public spending and investment. This is also something that Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, recently suggested might help Greece out of its current malaise.

Here’s Paul’s suggestion:

What the leading Europe nations need to do is to float a fund based on euro-bonds based on the whole eurozone, rather than just the weaker countries and so having much lower rates. The deal should include more financial and economic restructuring between the eurozone members. This would give countries, such as Greece, time to re-organise say their tax collecting structure and some of the funding should be to provide support from other countries. The funds should also support weak non-euro economies, such as Latvia, helping them towards euro membership.

During our interview with Daniel Dăianu, former Finance Minister of Romania (1997-1998) and liberal Member of the European Parliament (2007-2009), we asked him for his reaction on this idea.

What Paul has suggested – a Marshall plan – can be seen from two perspectives. One is making it part and parcel of a crisis management strategy, in the vein of what Pier Carlo Padoan and others have suggested. If you impose austerity in Italy, Greece, Ireland and Portugal that can easily backfire, and the whole programme will go down the tube and it will be even worse for the single currency area. And there is a lot of rational behind such a plan. In fact, already I think the European Commission and the Council are moving in that direction, saying these countries should be assisted with additional funds, etc.

But there is another perspective that has to be brought into the picture – and it’s not linked with the current crisis management period. We don’t know how long it will take, but let’s assume that we do get over this current crisis period. The union has to create a more effective range of instruments for fostering convergence, bearing in mind there is, for various reasons, a cleavage between the Northern and Southern fringe of the union. If this cleavage is not dealt with adequately, in due course we’ll see tensions emerging again.

But isn’t there an enormous moral hazard in this approach? Wouldn’t a Marshall plan, in effect, be rewarding states for bad behaviour?

I agree with those who emphasise the moral hazard dilemma. And I agree that there is a need for fiscal rules. But tighter fiscal rules are not the magic formula. There is a need for fiscal rules complemented by EU level policies that should foster convergence. Greater investment financed by eurobonds can be an organic component of a range of tools and instruments which should make up an overall economic policy of the eurozone. But it needs to be a genuine policy of the eurozone – not simply the result of national policies being added, one to another…

So, just imposing fiscal rules is not enough. Let me give an example that demonstrates why: the sovereign debt crisis, to a large extent, has been exacerbated by public budgets taking over the debts of the private sector. Of course, you have the case of Greece, which is glaring – we also have the cases of Italy and Portugal each with large public debts. But if you think about Ireland and Spain, it’s the non-government sector which is the origin of the current public debt. So the discussion should be broader. And if we accept it as a working assumption, clearly just focusing on fiscal rules is totally inadequate. One has to think about how to enhance gains of competitiveness all over the single currency, all over Europe, all over the union.

Moreover, since Germany, the Netherlands and Finland are export oriented, running large current account surpluses, one has to think about EU level policy if we want to maintain the cohesion of the union. You hear people in Berlin who keep saying, ‘why should Germany think about the rest of the pack? The rest of the pack should think about raising their competitiveness!’ But this is not a union. If we think along national lines, we are going to perpetuate the current flaws of the single currency.

What do YOU think about the idea of a “new Marshall plan” for Europe? Is austerity working? Are there limits to how much debt a country can accumulate? Or do we need to kick-start the EU economies with an investment drive? Perhaps you agree with Daniel Dăianu that a “Marshall plan” should not be just a “one-off” policy, but should rather be part of a package of tools available as part of full fiscal union. Or maybe you think we all need to tighten our belts and pay for the good times. Let us know in the form below, and we’ll take your comments to policy makers and experts to get their reactions.

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14 comments Post a commentComment


  1. PF

    What Greece needs is not more austerity or higher taxes. The problem does not stem from the taxes not being high enough, but rather from large scale tax evasion.

    Increasing taxes only affects those who already pay their taxes, the honest, hard-working Greek citizen. It does not affect those who evade paying taxes who are the problem.

    So what’s the solution? Reduce taxes to reduce the burden on those honest enough to pay tax and so increase liquidity in the economy. Then bring in strict financial and criminal punishments for anyone caught avoiding to pay tax.

    • Daniel Mills

      Greece’s problem is about more than just tax evasion. Tax evasion is a symptom – not a cause. The crisis has many causes – but partly Greeks must take responsibility. They cannot keep blaming the politicians who promised didn’t raise taxes and still promised higher public spending, because they elected the politicians. The blame is also partly on the Germans and other Europeans, for lending money to the Greeks and ignoring their budget problems until it was too late – hoping the issue would go away.

    • Joe

      Consider the ‘tragedy of the commons’ – that social dynamic where people, for example, don’t take care of public land that is of some use to them because someone or no-one else will. It isn’t anyones’ property, so there is no compelling interest held by anyone to take care of it themselves.

      The Greek government knew that it could borrow and spend beyond its’ means because the moral hazard put in place by excessive ‘socially based’ guarantees at the time that others would cover them… after all, they were small sums compared to the Eurozone as a whole!

      They percieved that facility to borrow as an untended piece of public land that they could graze on.
      That the triggers of collapse came first from private lenders should come as no surprise. It isn’t the un-communized nature of what they lent and who they were, they were just the first to ask to actually be paid because they don’t have carte blanche over government treasuries unless they themselves go into default.

  2. Christos Mouzeviris

    I strongly disagree..Because of the Marshall Plan, Europe is dragged by the hair by America…The side effects of this plan was that Europe should become open to American goods that would flood its markets…That was the catch..That was the deal…We got money from America, they could sell us anything they wanted and we had to buy it..NO WAY again!

    It is not just Coca-Cola and McDonalds that are forced down our throats, but any kind of materialistic , consumerist, capitalist idea that comes from the other side of the Atlantic. We have been brain washed by their movies, listening to their music, watched their TV programs, adored their stars and celebrities..This is a cultural take over, and we are losing our own culture, heritage and identity!

    What we should be doing, is enriching and enforcing our own way of thinking , culture, heritage and start standing on our feet..Unite, or fall… Create a European economy, not many smaller fragmented ones..Stop leaning either towards East or West for support when we are in trouble…We do not need anyone, just our heads and hearts…

    But our leaders are corrupt and instead of doing this, they listen to advisors and take money from lobbyists, bankers and marketeers…So Europe is anything near what it could be…Pity…

    • Paul Odtaa

      Hi Christos,

      I was not suggesting an American lead Marshall Plan. What we need is as you say the European politicians to wake up, accept that they have made many mistakes in not setting up and regulating the eurozone when it was first set up.

      The trouble is we need time, many years to sort the problem out. The structure should be set up under the 17 countries with membership of the euro. I would suggest a possible name could be Euro Structural Partnership, ESP.

      It would have a number of roles:

      1) Launch a eurobond
      This should be set up quickly and be guaranteed by the whole euro-region.

      2) Stop the speculation
      The first strategy should be to enable the weaker euro economies replace their debt, with money from the bonds. This will immediately stop speculation.

      3) Build a structure to manage the euro
      This has clearly be lacking as even the countries have breached the controls on the zone. I personally prefer a completely integrated single control, but many countries will need convincing.

      Therefore there needs to be a working group and over the years this needs to be strengthened.

      4) Invest in the weaker economies
      We need to help the weaker economies build systems to improve their governmental systems, such as tax collection; build infrastructure; build their economy.

      5) Invest in growth for the whole of Europe
      As Christos said one of the reasons America set up the Marshall Plan was to build markets for its industries.

      We need to build all the eurozone’s economies to build a market for the goods produced. Some of the old industrial towns of eastern Germany need this support as much as say Greece.

      6) Build up potential eurozone members
      We need to build up these economies, some of which have been badly managed, so that they can be readily integrated.

      Euro Structural Partnership
      So the ESP has two short term projects and a number of long term projects.

      Short term
      Set up a management structure and a eurobond issue to prevent debt crises and the talk of defaults.

      Long term
      Set up either an integrated euro financial system or an enforceable monitoring and controls on all euro-members to prevent the series of problems we are experiencing.

      In addition it needs to offer further bond issues to support the weaker economies and to develop growth.

      Long term aims for the euro
      The management of the euro should have the following goals.

      1) Stable – so investors will see it as a good investment.
      2) Safe – so that investors are confident that they will get their money back.
      3) Relatively low value – to encourage exports and tourism and therefore growth.
      4) Potentially a world reserve currency – the dollar can no longer be considered a safe, long term currency because of its deficit and the potentially erratic behaviour of some of its politicians.

      I am aware that some commodity producers, eg oil, have looked at the potential of pricing their products in euros as an alternative to the dollar. My speculation is that the dollar will gradually lose its dominance and that other currencies, including the euro, could be used in some regions.

      Will ESP get support?
      I note that China and some of Middle Eastern Sovereign Funds are, even with our debt crises, looking at investing in the euro as a way of balancing their investments.

      I feel that if we offer a constructive way of resolving the immediate debt problems, with a structure that looks like a reasonable long term strategy for stability and growth the funds will flow into the eurozone as a very safe haven. The risk will be that they may flow too fast risking an over-valued euro.

      Will the German voters buy ESP?
      I personally think that a long term strategy for sorting out the immediate debt problems will gain more support from voters than the continual bail-outs and the threat of defaults etc.

      If this can be done within a framework that will improve productivity and financial stability of the weaker economies and boost growth throughout the whole eurozone, particularly in the weaker areas of even the stronger economies would be easier to sell.

    • Joe

      “dragged by their hair?” Can you get any more self-absorbed?

      They saved Europe from what would have been a century of mediocrity, uncertainty, and the strong chance that that misery and uncertainty would lead back into open warfare between Europeans, and drag the rest of the world into that vile, selfish conflict as they were in World War II!

      If the US wanted to “drag Europeans by the hair” they wouldn’t have forgiven as much debt as they had. They even paid off German debts from the Versailles treaty to France and Britain!

      No, to the contrary, a failure that leaves the world with only ONE course of action, intervention by the United States is a case of the US being dragged into it by their hair, NOT THE OTHER WAY AROUND.

  3. Christos Mouzeviris

    No more austerity…Rather redistribution of wealth…Instead of concentrating most industrial activity in the northern European states, allow every state to develop..Southern States could invest in developing solar energy and/or the components of creating it, and selling it to other regions of the World..

    Allow them to also produce mobile phones, cars, trucks and air crafts, or if not that (we do not want to stress and upset our northern and rich “partners”) at least exploit their natural resources…Allow them to create jobs for their people…How can anyone have a future in a country with no industries and development, and the little that exists flees to China and India due to Globalization?

    Is there any wonder that the Greek people are trying to enter the ever swelling public sector, in order to get a secure job, since there is nothing else left in the country?

    Invest EU money in developing those regions..Industrially..And you will stop bailing them out once and for all..!!

    • Paul Odtaa

      I think looking at technology hubs, based around universities, would work well in Greece.

      Montpelier in France is a good example – a lovely place to live – small technology companies move nearby and soon you are developing many other companies supporting the hard tech ones.

      Then you build up housing, entertainment, art which in turn attracts tourists.

      The attractive area then attracts other service companies, such as finance.

      Quickly the industry spreads to nearby towns.

      In Britain a large area around Cambridge and the area between Glasgow and Edinburgh have attracted hundreds of small companies.

      The Greek lifestyle and the hospitality would be attractive to many people.

  4. Christos Mouzeviris

    Daniel, and who else to blame..? They rule the “system”..It is not the Greek public that is to blame, rather the system that is too slow, and has so many loopholes, and it does not work properly…It allows large rich companies to evade taxes, that just went bankrupt, leaving the state with millions of taxes unpaid..Now it is the ordinary citizen that comes to pay the bill.

    What were our Governments doing all those years, to keep the country’s books up to date? They were making deals or business with them..Now is it time to put the blame on the poor tax payer? If the Germans were allowed by their system to tax evade, believe me, they would do it…But they have stricter laws and if they do, they are made to pay..And who passed those laws in Germany? Their Governments, their Politicians…Why the Greek Governments did not act similarly?

    I live in Ireland, and I see tax evasion here too..People collecting social welfare, but they work as well without declaring it..Tax evasion is not a “national” hobby of the Greeks..Rather an opportunistic attitude that anyone in the same circumstances would do. People find loopholes in the system and the laws and exploiting them..It is up to the Politicians and the Governments to make sure that the “system” works and runs smoothly, but is equal for everyone…Yes?

    • Daniel Mills

      If the law is to blame, then the politicians who make the law must also take the blame. If the politicians are to blame, then the Greek public who elect the politicians must also take the blame.

      There is no point passing the blame and responsibility solely to the politicians – everybody must take responsibility for the crisis and everybody must help to solve it… INCLUDING the German banks who leant money to Greece, knowing that they would struggle to pay it back and including other European states, who have a duty and responsibility to help Greece now.

  5. Christos Mouzeviris

    The thing is Daniel that in Greece, a country with such a turbulent recent history,( two Balkan Wars, two World wars, a Civil War, an Asia Minor disaster, a Junta -backed by the USA) had all its people from the age of 45-50 and over, living in deprivation and poverty for decades…Suddenly they get money during the ’80s booming years, and they go mad.Their Government encourages them to go mad and spend with no control, and so do the foreign Banks…Now they blame them for being greedy and irresponsible..Hello..?? Where were you to manage them all those years..?? That is your role, to lead the nation, preferably by leading by example..

    Greece will heal only when this generation of over 45 leaves the political scene….But then my generation will come into power, that though educated, well traveled and well informed, they will still be living in poverty and deprivation because of the IMF/EU loan deals and the current crisis..Do you see a pattern here…??

    The northerners do not understand what Greece went through the past few decades..Sweden remained neutral during the two World wars, and collaborated with the Nazis in order to do that..They had peace and stability for much longer that enabled them to develop and progress…Now they think of the Greeks of being corrupt and lazy…Well if you had to endure what Greece went through during the Nazi occupation, believe me you would be the same too..

    Corruption is generated by deprivation over decades…And it won’t go away, if we keep impoverishing Greece and make it pay for the benefit of the Europeans…Greece was forced by the Nazis to take a loan in order them to finance their wars, and was never compensated by Germany..That made the country poorer for decades to come..Now Greece is asked again to pay up for the Europeans, in order to save the euro…More poverty and deprivation on our nation so that Europe can benefit…

    How do you expect Greece to ever recover and have stable politics and politicians that work for their people, if the people remain ignorant and poor through hardships? Please tell me…

  6. Christos Mouzeviris

    Then Paul you have me in a complete agreement with all that you say…The banner they put on this topic was misleading… Where would the money to invest in this new plan come from? Hope not from third parties outside of Europe this time…We must learn from our past mistakes..

    Also, the regions or countries that will receive the money, won’t just become what Europe became for America, to their lenders…They money that will be invested, will bring returns tenfold in stability and progress in all the Continent…

  7. Joe

    Just get some growth. Civil society can fix anything that central planners screw up if you give them time and get your boots off of their necks.

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