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The Euro Treasury and the Job Guarantee COMPLETING THE EURO: THE EURO TREASURY AND THE JOB GUARANTEE Esteban Cruz-Hidalgo1 Universidad de Extremadura Dirk H. Ehnts European University of Flensburg Pavlina R. Tcherneva Bard College Received on January 7, 2019 Accepted on March 15, 2019 Abstract The problems with the design of the Eurozone came into focus when, late in 2009, several member nations – notably Greece – failed to refinance their government debt. The crisis that followed was not entirely a surprise. When the Euro was launched in 1999, many economists warned that the single currency was unworkable. Even Eurozone optimists argued that the Euro project would eventually need to be completed. More than 10 years after the crisis, unemployment rates remain elevated and continue to threaten the social, political and economic stability of the Eurozone. The institutional constraints of the single currency however preclude bold action to address these challenges. In this paper, we suggest that tackling the twin problems of the Eurozone – its institutional flaws and mass unemployment – could be addressed by creating a Euro Treasury that would finance a Job Guarantee program, which would eliminate mass unemployment, enhance price stability, and foster social and economic integration across Europe. Keywords: Euro, Euro Treasury, Job Guarantee, Monetary Sovereignty 1 [email protected] Revista de Economía Crítica, nº27, primer semestre 2019, ISSN 2013-5254 100 Completing the Euro: The Euro Treasury and the Job Guarantee. Esteban Cruz-Hidalgo et al. INTRODUCTION: ALARM IN THE EUROZONE The Eurozone crisis started in late 2009 when Greek government bond yields spiked and diverged from those of other Eurozone countries. That caused European and especially Eurozone unemployment rates to increase above those of other non-European economies. The Eurozone (EZ) crisis, which was in part triggered by the Great Financial Crisis (GFC) experienced in the rest of the world, is a decidedly European phenomenon, much like the double dip recession that followed in late 2012. The underperforming economy of the Eurozone was subjected to various reforms, both at the European and national levels, none of which (in our view) tackled the essence of the European problem. In this chapter we argue that the economic troubles are macroeconomic in nature and largely stem from the Eurozone design. We propose that they could be corrected by two reforms in the Eurozone (one institutional and one policy reform), namely the creation of a Euro Treasury and the implementation of a Eurozone wide Job Guarantee program. There is an inherent, if not immediately obvious connection between the two policies (the Eurozone- wide Treasury and the Job Guarantee), which resides in the nature of modern currencies. In the modern world, the imposition of mandatory and non-reciprocal obligations (e.g., taxes) by a government and the requirement that they are settled in the very currency the government issues, creates a particular type of 'monetary unemployment'—one where people are compelled to obtain the currency to settle their obligations. Since, normally, nation states retain the monopoly power over the issue of the currency, they have the ability to eliminate this type of monetary unemployment by devising a method of provisioning the currency in a manner consistent with full employment. Even though few nation states have done so (for reasons beyond the scope of this paper), Eurozone nations don't even have this prerogative because they have abdicated monopoly power over the currency. What we wish to stress is that, while monetary unemployment due to deficient aggregate demand and Keynesian liquidity preference constraints exists, there is also a type of monetary unemployment that is due to the nature of the monetary system. For this reason we propose the creation of a European Treasury as a method of correcting the institutional flaw in the unprecedented historical design of the Euro, which gave birth to a stateless currency. The Job Guarantee is a particular method of providing the currency that is distinct from traditional aggregate demand management methods. Even if Maastricht criteria were relaxed and a European Treasury established, long run full employment is not guaranteed through conventional aggregate demand management measures. Indeed, we have observed periods of robust growth that still experience joblessness. The Job Guarantee is a targeted demand approach to solving the problem of unemployment at all stages of the business cycle by an innovative policy design of direct bottom-up employment, which can also address other public purpose objectives such as Green investment. It is also superior to conventional pump priming measures because it acts as a robust Euro-wide anti-cyclical fiscal policy — one that neither creates too much, nor too little spending to produce and maintain tight full employment over the long run. Since the Job Guarantee builds on the idea that money is a creature of the State and that the State is normally the monopoly issuer of the currency, to us it seems a logical step to first introduce a Euro Treasury and then proceed with the implementation of a macroeconomic policy for achieving full employment and price stability in the form of a Job Guarantee. In short, what we propose is for the Euro Treasury to establish a new fiscal institution that would issues sovereign securities. For simplicity, we call these eurobonds. The eurobonds would be eligible as collateral to borrow from European Central Bank (ECB) to the full extent possible. As the ECB is only prohibited to finance national governments directly, it could put its full support behind the eurobonds, meaning that it could promise to buy up as many eurobonds as necessary. Acting as a buyer of last resort it would guarantee that investors would always be able to sell eurobonds at a fair price without creating a large fall in the price of eurobonds. Thus, the ECB would ensure sufficient liquidity in the market for eurobonds. De facto, the Euro Treasury would spend first and tax later, thus removing the Revista de Economía Crítica, nº27, primer semestre 2019, ISSN 2013-5254 101 Completing the Euro: The Euro Treasury and the Job Guarantee. Esteban Cruz-Hidalgo et al. need to finance the European Union's budget by transferring money from the budgets of the Eurozone's member countries. 2 Having reestablished a sovereign currency issuer at the European level, a European Job Guarantee could be put in place. The Job Guarantee would offer all Eurozone citizens who are willing and able to work a job that is funded by the European government and that pays the minimum wage. While not all Eurozone countries have a minimum wage, it is not necessary to require them to introduce one, since the Job Guarantee wage would become the de facto minimum wage. Figure 1 below shows existing minimum wage levels. Denmark, Italy, Cyprus, Austria and Finland have no national minimum wage. The jobs would be created at the community level and offered on demand to anyone who needed one. Assistance with transitioning from the Job Guarantee employment safety-net would be offered to those seeking better paid private sector employment. The program would have key cyclical stabilizing features that are explained below. Source: Eurostat Introducing a Euro Treasury and a Job Guarantee together allows the rate of unemployment in the Eurozone to fall much faster than under current conditions and alleviate social stress caused by joblessness. This is an original proposal, as we will see, different from those that have been launched from within the European Union itself. In the following sections, we first discuss in greater detail the institutions of the Eurozone that were set in in the 1990s and evaluate them in the light of the Great Financial Crisis and the Eurozone crisis. We then explain the Euro Treasury in more detail, adapted to the European Union's institutional framework. This is followed by a discussion of the Job Guarantee, first in general terms and then in terms of adapting it to the European context. The conclusion summarizes our findings and comments on the feasibility of these reforms. 2 This is akin to Lavoie's notion of post-Chartalims (Lavoie 2013). Our point is logical, not descriptive. The fact that to save the self-imposed restriction the support of the ECB can be seen as an introduction of "latent" high-powered money within the banking sector. The money that will be used to buy these bonds from the banks comes from the ECB via open market purchases backed from the beginning. In this sense, the bonds would be involved in public spending. The Treasury spends first. If these bonds were not backed by the Central Bank, there would not be any increase in the money supply, producing only a change in the composition of the financial assets of the private sector (see Tymoigne 2016:1324-1325). Therefore the bonds would not be risk free, which would affect their price. Revista de Economía Crítica, nº27, primer semestre 2019, ISSN 2013-5254 102 Completing the Euro: The Euro Treasury and the Job Guarantee. Esteban Cruz-Hidalgo et al. A DYSFUNCTIONAL DESIGN The European Monetary Union (EMU) was completed in 1999 by irrevocably fixing the exchange rates of the currencies of participant countries. The previous decade of European deliberations, witnessed the emergence of fault lines, not between left and right, but between those whose economic thinking was rooted in monetarism and those who based their ideas on Chartalism (Goodhart 1997, 1998). It seems that by 2019, eleven years after the Lehman Brothers crash and ten years after the start of the Euro crisis, it is now established that those warning that the Euro would not work have been correct. Without the stabilizing role of fiscal policy, unemployment rates and economic growth in general have diverged.
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