REWRITING THE RULES OF THE EUROPEAN ECONOMY A REPORT BY JOSEPH E. STIGLITZ NOBEL LAUREATE IN ECONOMICS FOUNDATION FOR EUROPEAN PROGRESSIVE STUDIES ♦ FEPS IS THE ONLY PROGRESSIVE THINK TANK AT THE EUROPEAN LEVEL. ♦ FEPS ESTABLISHES AN INTELLECTUAL CROSSROADS BETWEEN SOCIAL DEMOCRACY AND THE EUROPEAN PROJECT. ♦ AS A PLATFORM FOR IDEAS AND DIALOGUE, FEPS WORKS IN CLOSE COLLABORATION WITH PROGRES- SIVE AND SOCIAL DEMOCRATIC ORGANISATIONS, AND IN PARTICULAR NATIONAL FOUNDATIONS AND THINK TANKS ACROSS EUROPE AND THE WORLD. ♦ ITS MAIN PURPOSE IS TO NOURISH FRESH THINKING THROUGH RESEARCH, DIALOGUE, SEMINARS AND ITS MAGAZINE, THE PROGRESSIVE POST, AS WELL AS THROUGH OTHER PUBLICATIONS AND INTERACTIVE PUBLIC EVENTS. REWRITING THE RULES OF THE EUROPEAN ECONOMY 1 REWRITING THE RULES OF THE EUROPEAN ECONOMY CONTENTS ♦ ACKNOWLEDGEMENTS 4 ♦ FOREWORD 6 ♦ EUROPE TODAY AND THE PATH FORWARD 8 INTRODUCTION ♦ EMPLOYMENT, NOT AUSTERITY 20 CHAPTER 01 ♦ MONETARY POLICY: PRIORITIZING EMPLOYMENT 36 CHAPTER 02 ♦ INVESTING FOR AN EQUITABLE FUTURE 52 CHAPTER 03 ♦ PROMOTING COMPETITIVE MARKETS: INCENTIVES, REGULATIONS AND PARTICIPATION 64 CHAPTER 04 ♦ TOWARD A FINANCIAL SYSTEM THAT SERVES SOCIETY 78 CHAPTER 05 ♦ TAXATION TO PROMOTE JUSTICE AND GROWTH 94 CHAPTER 06 ♦ POVERTY, INEQUALITY, AND THE WELFARE STATE 106 CHAPTER 07 ♦ A EUROPEAN SOCIAL SECURITY SYSTEM FOR THE 21 ST CENTURY 120 CHAPTER 08 ♦ LABOR MARKETS, GOOD WAGES, AND WORKING CONDITIONS 130 CHAPTER 09 ♦ THE FUTURE OF EUROPE IN A GLOBALIZED WORLD 144 CHAPTER 10 REWRITING THE RULES OF THE EUROPEAN ECONOMY 3 ACKNOWLEDGEMENTS REWRITING THE RULES FOR THE EUROPEAN ECONOMY THIS REPORT WAS WRITTEN BY ♦ Joseph E. Stiglitz, Chief Economist and Senior Fellow, Roosevelt Institute WITH COAUTHORS ♦ Ernst Stetter, Secretary General, FEPS ♦ Carter Dougherty, Communications Director, Americans for Financial Reform ♦ Stephany Griffith-Jones, Professor, IPD Columbia University ♦ Isabel Ortiz, Director, Global Social Justice Program, IPD Columbia University ♦ Jeronim Capaldo, Research Fellow, Global Development and Environment Institute, Tufts University ♦ Daniela Gabor, Professor, University of the West of England, Bristol ♦ Margit Schratzenstaller-Altzinger, Deputy Director, Austrian Institute of Economic Research (WIFO) This book is edited by FEPS with the financial support of the European Parliament ISBN number 978-2-930769-25-7 ▲ CONTENTS WE WOULD ALSO LIKE TO ACKNOWLEDGE THE FOLLOWING INDIVIDUALS FOR THEIR VARIOUS CONTRIBUTIONS THAT HELPED INFORM THIS WORK: Nell Abernathy, Vice-President, Research and Policy, Andras Inotai, Professor, College of Europe Roosevelt Institute Maria Jepsen, Director, Research Department, European Lars Andersen, Managing Director, Economic Council of Trade Union Institute the Labour Movement Lisa Kastner, Policy Advisor, FEPS Bilian Balev, Deputy Chairman and Executive Director, Bulgarian Development Bank Inge Kaul, Professor, Hertie School of Governance Eva Belabed, Economist, former Counsellor, Austrian Aleksander Kwasniewski, Chair, Amicus Europae Representation to the OECD Foundation, former President of Poland Peter Bofinger,Professor, University of Würzburg, former Gerhard Marchl, Head, European Affairs, Karl-Renner- Member of the German Council of Economic Experts Institut Tamás Boros, Director, Policy Solutions Marcel Mersch, Head of Unit, S&D Group, European Parliament Elva Bova, former Senior Economic Policy Advisor, FEPS Vassilis Ntousas, Senior International Relations Policy Advisor, FEPS Udo Bullmann, Member of the European Parliament, President of the S&D Group José Antonio Ocampo, Professor, IPD Columbia University Massimo D’Alema, President, Fondazione ItalianiEuropei, former Prime Minister of Italy Özlem Onaran, Professor, Director, Greenwich Political Economy Research Centre, University of Greenwich Anna Diamantopoulou, President, DIKTIO, former Minister of Education of Greece Paulo Trigo Pereira, Member of Parliament, Professor, Lisbon School of Economics & Management Catalin Dragomirescu-Gaina, Former Senior Economic Policy Advisor, FEPS Poul Nyrup Rasmussen, Former Prime Minister of Denmark, former President of the Party of European Karl Duffek,Former Director, Karl-Renner-Institut, Socialists former International Secretary of SPÖ (RIP) David Rinaldi, Senior Economic Policy Advisor, FEPS Annabel Garnier, Deputy Secretary General, S&D Group, European Parliament Maria-João Rodrigues, President, FEPS Debarati Ghosh, Managing Director, Roosevelt Institute Rocio Sampere, Director, Felipe González Foundation Naman Garg, Research Assistant, Office of Joseph Vivien Schmidt, Jean-Monnet Professor, Boston E. Stiglitz, Columbia University University Paolo Guerrieri, Professor, Sapienza University, College of Jan-Erik Støstad, Secretary General, SAMAK Europe, former Member of Italian Senate Ania Skrzypek, Senior Research Fellow, FEPS Andrea Gurwitt, Editor/Publications Manager, Office of Joseph E. Stiglitz, Columbia University Dimitris Tsarouhas, Jean-Monnet Chair, Assistant Professor, Bilkent University Anton Hemerijck, Professor, European University Institute Frank Vandenbroucke, Professor, Free University of Amsterdam Gustav A. Horn, Research Director, Macroeconomic Policy Institute Kristian Weise, Director, CEVEA Member of the House of Lords Peter Hunt, Managing Partner, Mutuo Stuart Wood, REWRITING THE RULES OF THE EUROPEAN ECONOMY 5 FOREWORD Europe today is in a state of crisis, having experienced Europe needs new institutions and new rules, govern- of stagnation and sluggish economic growth over the ing both economy and polity, based on new ideas. past decade. Some countries, like Greece, Spain, Portugal, and Italy, have grappled with depression or This book outlines a new set of rules for economic, recession for years. Those countries hit hardest after the political, and social governance in Europe that would 2008 financial crisis still suffer from unac- help to recast a prosperous and ceptably high unemployment, especially equitable European Union marked among young people. by peace and solidarity with- in the context of globalization. To be sure, Europe has achieved enor- These ideas flow from a diagnosis mous progress since its founding in 1957. of what has gone wrong, mani- The founders of the European Union fested in the slow growth, rising intended to establish a prosperous and “ inequality, and rapidly increasing peaceful Europe built on a set of com- The European economic insecurity for large parts mon fundamental values, in particular of our societies. This diagnosis freedom, solidarity, democracy, equality, Project will be contrasts sharply with what EU respect for human dignity, the rule of law successful only leaders promised decades ago as and human rights. Peace has been and European integration proceeded remains to this day the main objective of if it ensures apace. Our conclusions are clear: the European Union. incremental policy change will not the wellbeing solve the problems. To improve But the European Project will be suc- of European economic performance and cre- cessful only if it ensures the wellbeing of ate shared prosperity, the rules of European citizens, and a place for Europe citizens, and a the European economy—broadly in a harmonious, globalized world. Every place for Europe understood to include the fun- day, both seem to slip further out of reach. damental policies governing the Economic underperformance brought in a harmonious, EU–must be rewritten. political and social uncertainty, threaten- ing the integrity of the European Union globalized world. The Foundation of European as a whole, causing frustration amongst Progressive Studies (FEPS) is citizens, and encouraging populist move- „ very grateful to Professor Joseph ments around Europe. The prosperity Stiglitz for his willingness to lead the EU promised was supposed to fos- and coordinate the process for ter solidarity, enabling in turn further developing and refining these new European integration; economic failures rules, which has involved a large have undermined the willingness to work team of scholars and policymakers together. Momentum toward broader and deeper inte- from throughout the EU. gration has stopped or even reversed, as the 2016 Brexit vote so vividly demonstrated. This book fits well with his earlier work with the Roosevelt Institute, the New York-based think tank Against this backdrop, the European Union’s political dedicated to carrying forward the legacy and values leadership cannot continue with a business-as-usual of Franklin and Eleanor Roosevelt to restore America’s approach. Europe cannot continue to be a continent of promise of opportunity for all. Scholars associated with peace and broadly shared prosperity without a renewal Roosevelt, including Professor Stiglitz, offered a point- of the vision the EU’s founders had over 60 years ago. ed assessment of what had gone wrong in the United ▲ CONTENTS States. Their book, Rewriting the Rules of the American which he founded, at Columbia University in New Economy,1 provides a detailed analysis of how rules, York. As the only progressive political foundation at institutions, and policies had changed in the United the European level, we are most grateful to the group States over the last few decades, and how, by rewrit- of high-level scholars from all over Europe who took ing those rules, one could restore growth and shared part in a long process of brainstorming, reflection, and prosperity. The goal, as with this book about Europe, debate with the aim of developing proposals for new was not to return