Wednesday, April 6, 2016

R.E.Rowthorn on "Schengen and the European Migration Crisis"

Robert E. Rowthorn, Emeritus Professor of Economics in the University of Cambridge (England) has written an extensive comment on my previous post, which clarifies, strengthens and develops my argument. He has kindly agreed to publish it as a follow-up guest post on my Blog, which I am delighted and grateful to do:  

In his  stimulating post, Mario Nuti considers Schengen area migration policy under three headings:

1.     Free internal travel requires strong external controls,

2.     Free internal travel requires convergence of living standards within the area  (including welfare provisions),

3.     Any attempt at a fair redistribution of immigrants among countries requires the re-establishment of national borders.

He points out that the fair redistribution of immigrants, as demanded by Germany and the Pope, is inconsistent with free travel as laid down by the Schengen agreement. This may not be such an important issue, since the Schengen agreement may be on the verge of collapse.  According to a new survey by French pollster IFOP, 72% of French, 66% of Germans and 60% of Italians are now in favour of repealing the Schengen agreement and reintroducing border checks at least temporarily (Süddeutsche Zeitung, 5 April 2016).   Even if the agreement is not formally repealed, it may become a dead letter as more states unilaterally re-introduce border controls.

Nuti also makes the point that effective control of EU external borders requires the cooperation of neighbouring countries, such as Turkey.  Where this cooperation is not forthcoming effective control may be impossible within normal moral and legal constraints. This is most evident in the case of Libya, where the state is too weak to prevent the departure of migrants to Italy and the country is too unsafe to permit the return of rejected immigrants.  In my own country, the UK, the control of immigration relies heavily on support from nearby countries. The reason we do not get flotillas of migrant boats heading for our shores is not because the UK is hard to reach by sea – it is only 33km from France = but because nearby countries prevent their departure.   The future ability of the EU to control immigration from poorer countries will depend on the ability of the Union to gain and retain the cooperation of its neighbours in North Africa and the Middle East.

Immigration controls, like all forms of legal constraint, involve either compulsion or the threat of compulsion.  Immigrants who have no legal right to remain must be either persuaded to leave or forcibly deported. Failure to remove them will only encourage others.  This is why amnesties are counter-productive.  The need for removals is inversely related to the difficulty of illegal entry.  The easier it is to gain physical entry, the greater must be reliance on removals. This is not a message which liberal-minded people want to hear. As Nuti points out, rejection and forced repatriation are unpleasant and sometimes brutal. But they are a logical consequence of excluding people who have a strong desire to live in Europe.  

The feasibility of repatriation depends on the ability to identify the country of origin of a prospective deportee. It also depends on cooperation of the country of origin. Legally speaking, a country is supposed to accept its nationals who are deported from another country, but this may not always be the case in practice. Thus, it will be important in the future to gain the cooperation of the countries to which migrants are to be repatriated,

The recent agreement with Turkey involves the compulsory return of all migrants entering Greece from Turkey, who are not applying for asylum or whose application is judged to be unfounded or inadmissible. This policy may be illegal under international law but the EU is powerful enough to disregard this provided its own internal courts acquiesce. If it works, the agreement with Turkey may act as a template for future agreements regarding the control of migrant flows and repatriation.

Nuti cites an interesting analysis by Branko Milanovic in Social Europe  (May 2015).  This analysis indicates the difficulty of coming up with a workable policy towards migration from poor to rich countries.  Milanovic calls for a coordinated quota system for allocating would-be migrants between emitting and receiving countries.  He concedes that such a system would not be able to deal with random events such as the war in Syria, but he argues that it should be able to deal with economic migration: “With an orderly quota system, a person from Mali who is considering migrating to France may prefer to wait several years and get an official permission to settle there rather than to pay a people smuggler for an uncertain entry to France”.  

Although at first sight plausible, this proposal does not address the central issue, which is the potential scale of migration under such a scheme. If a quota scheme is to deter illegal migration, the expectation of getting a permit must be high and the expected waiting time must be relatively short. This means that the number of permits given out must be roughly commensurate with the number of people wishing to migrate. The suggested scheme might deter illegal migration but it would be unlikely to reduce the total number of migrants.  Indeed, the scheme might actually encourage migration by eliminating the need to rely on dangerous and costly modes of travel.

To implement even a slimmed down version of the scheme proposed by Milanovic it would be necessary to change public opinion. Even before the refugee crisis, there was widespread concern in Europe about large scale immigration.  According to an international poll taken in the period 2012-14 some 52% of Europeans thought that immigration should be reduced.  Only 8% thought it should be increased (How the world views migration, IOM 2015). The British Social Attitudes Survey reports that immigration has been consistently amongst the five most important topics of concern.  In 2013 of those questioned 56% thought that immigration should be reduced a lot and a further 21% thought it should be reduced by a little.  Such concerns have been around for a long time, but have been ignored by politicians.  However, politicians are now being forced to respond to public disquiet by the rise of anti-immigration parties.

Public disquiet about immigration is intensified by the perception that immigration is out of control. It is not simply a belief that the present level of immigration is too high that motivates this disquiet, but also a fear that the government has no means of cutting back on immigration should the need arise. In countries like Australia, where the government has a firm grip on migrant flows and can raise or lower them as the need arises, the public is willing to accept a high level of immigration.  If Milanovic’s quota scheme is to be politically acceptable, it will have to be accompanied by effective enforcement. Even then, it will be an uphill task to persuade Europeans to accept immigration on the implied scale.

Monday, March 7, 2016

Schengen and the European Migration Crisis

The Schengen Area. The Agreement signed on 14 June 1985 on a boat on the Moselle near the small town of Schengen (Luxembourg), by five of the ten states that formed the European Community at that time, effectively abolished passport controls and any other border control among the signatories thus treating the area as a single country. The Agreement was supplemented by the Schengen Convention of 1990, establishing a common visa policy. Initially the Schengen Area was separate from EU structures, as at that time the initiative lacked general consensus, but its rules and procedures were incorporated into European Union law by the Amsterdam Treaty of 1997, coming into effect in 1999. The five initial signatories (the three Benelux countries, France and Germany), were gradually followed by another 17, thus encompassing all EU member states except Ireland and the UK that opted out, and four others – Bulgaria, Croatia, Cyprus and Romania – who wish to join and are obliged to join eventually but are not yet deemed to be ready. All four EFTA member states – Iceland, Liechtenstein, Norway and Switzerland – are also associated members of the Schengen Area although they are not members of the EU. In addition, three European microstates – Monaco, San Marino and the Vatican City – are considered de facto participants. Today the Schengen Area has a population of over 400 million people.
Net gains. The creation of the Schengen Area was - in principle – an excellent decision. The effective elimination of internal borders within the Area generated considerable savings in terms of travel time and convenience for passengers, expenditure on custom officials and equipment, higher speed and lower cost of commodity transport. A recent study by Germany's Bertelsmann Foundation estimates the cost of the possible breakdown of the Schengen area at between €470bn and €1.4 trillion over the next decade, (roughly 10% of the 28-members EU bloc GDP) due to an increase in import prices of between 1% and 3%. Germany would lose between €77bn and €235bn and France between €85.5bn and €244bn under the two scenarios. The breakdown of the Schengen Area would also inflict a heavy burden on other countries, with a combined loss for the United States and China over the next decade estimated by the same study at between €91bn and €280bn. The European Commission estimated that the permanent reintroduction of border controls would cost between €5bn and €18bn a year because of lower tourism and transport delays. These estimates perhaps may be slightly exaggerated, but there can be no doubt that in the current, long and severe depression of the European economy, the impact of a Schengen breakdown, even if partial, would worsen significantly the growth prospects of the Union, with global reverberations.

Migrations. In the half-century 1960-2010 the ratio of the population working in countries different from that of their birth over the world population (corrected for the displacements which occurred at the end of World War II in 1945) was relatively stable around 3%, though with a clear tendency to accelerate that was much more marked for South-North migrations (see the figure below, where the value of that ratio in 1960 is taken as equal to 1).  
Source: Docquier, Frédéric and Joel Machado (2015), “Revenu, Population et Flux Migratoires au 21ème siècle: Un défi sociétal pour l’Europe” in Studia Oeconomica Posnaniensia, October 2014.
In subsequent years the acceleration continued. In 2015 migrants entering Europe mostly from the Middle East and Africa turned into a veritable flood – the largest flows to take place since 1945 – that put the Schengen arrangements to a most severe test: EU states received 1.3 million asylum applications, especially from Syria. On 24 August 2015 Angela Merkel announced that all Syrian asylum-seekers were welcome to remain in Germany regardless of which EU country they had first entered. She adopted this “open door” policy unilaterally, without EU agreement, after consultation solely with the Austrian Chancellor Werner Faymann; subsequently there were signs of intended policy reversal but tightening up was only slight (for instance preventing relatives joining migrants for at least a year) thus provoking an intensification of the inflow because of the migrants’ expectation of harder times; a recent poll found that 81% of the German population thought that the government had lost control over migration policy. The Bertelsmann Stiftung estimates that by mid-February 2016 an even larger number of Syrians alone had found their way into Jordan (640,000), Lebanon (over 1 million) and Turkey (2.6 million); Pakistan and Iran have taken several hundred thousand migrants from Afghanistan and Iraq respectively. In 2015 migrants crossing the sea from Turkey to Greece increased 20 times with respect to 2014. Last November the EU granted €3bn to Turkey as an inducement to hold migrants there at least temporarily, but three months later 2,000 migrants still cross daily into Europe: in order to take back non-Syrians the Turks are negotiating for more aid and other benefits such as visa-free travel to Europe, which in turn would generate a significant inflow of Turkish Kurd asylum seekers into Europe. Arrivals in Italy decreased slightly in the same period, from 170,000 to 154,000, which still represent a very large intake. For an up to date survey see Breugel, 12 February, and The Economist, interactive graphics, 6 February.
In May 2015 Branko Milanovic wrote a post in Social Europe, “Five reasons why migration into Europe is a problem with no solution”: 1) deep-seated and permanent factors such as political chaos in the Middle East and extraordinarily huge and increasing income gaps between Europe and Africa, with sub-Saharan population poised to increase almost by six times by 2100; 2) lack of an immigration tradition in Europe; 3) European political blunders due to a combination of incompetence and arrogance, such as overthrowing Gaddafi, the ultimatum to the previous Ukrainian government, and the handling of the Greek crisis; 4) the increasing influence of right-wing, populist anti-immigration parties in several European countries, even when they are not in government; 5) the total lack of strategies, policies and ideas at the European level, while the crisis calls for a multilateral solution involving co-ordination among member-states and with African countries and the European recognition that an influx from Africa is dictated by demographic and economic gaps: “Unfortunately, neither of these two conditions is close to being satisfied. So the problem, among permanent political improvisation, will continue to worsen” – he wrote prophetically. (In a post in the same series last January Branko stressed the economic positives and negatives of migrations; see also his forthcoming book Global Inequality - A New Approach for the Age of Globalization, Belknap Press).
The Schengen Area rules include provisions for temporary border controls to be re-established in case of urgency, for up to 2 and 6 months, and for outright suspension for up to 2 years in the case of threats to public order. Since the 2015 summer temporary measures have been already implemented unilaterally by several countries. Hungary closed its borders with Serbia, Romania and Croatia, allowing its army to use rubber bullets, tear gas and barbed wire against migrants. In November Slovenia started building its own fence along the Croatian border; its Parliament recently approved the deployment of the country’s army to manage the migrants’ flow at its borders. An increasing numbers of migrants have been cutting through these barriers to enter the EU.





Warren Richardson, Hope for a New Life. A man slides a child under barbed wire at the border between Serbia and Hungary at Röszke, Hungary, 28 August 2015. (World Press Photo)
Sergey Ponomarev, Russia, The New York Times, The European migration crisis: Refugees arrive by boat near the village of Skala on the Lesbos Island, Greece, 16 November 2015 (World Press Photo)

The closing of Sche­­ngen internal borders has accelerated since the beginning of 2016. In Denmark the government extended passport checks on the German border for the third time, with Sweden keeping similar checks for travellers arriving from Denmark. France is in the process of closing down the so-called “Jungle” migrant camp at Calais, whose estimated 5,500 residents were waiting to smuggle themselves to the UK on ferries, or through the Chunnel in trucks, trains or even on foot; the closure was violently resisted. Belgium reintroduced border controls on its frontier with France, hiring 290 extra-police officers to try and stop the Calais migrants from moving to its coastline. Austria has built a wall at its frontier with Slovenia; in under two months in 2016 it received 101,000 migrants compared with 4,000 in the same period last year, and has introduced a cap of 80 asylum applications per day.  Borders have been tightened between the Republic of Macedonia and Greece, allowing Syrians and Iraqis through but barring Afghans, who then were banned also by Croatia. Towards the end of February over 22,000 migrants were stranded in Greece and were expected by the Greek Migration Minister and Vice-premier to treble by the end of March; the UN estimates their number to be increasing even faster, at the rate of 3,600 per day. The Greek border with Macedonia has been nearly sealed off, threatening to turn Greece into a giant refugee camp – a “warehouse of souls” (Tsipras). 

The EU is planning to provide Greece with €700mn over 3 years (of which 300mn in 2016 for emergency assistance to migrants); reasonable proposals to trade off migrant assistance for Greek debt cancellation have been rejected as a moral hazard risk. On 24 February in Vienna ten eastern European countries – with the much resented exclusion of Germany, Greece and Italy – agreed on tightening up their own border controls with a view to stop the Western Balkan route into Europe, which of course will shift the flow back to the Mediterranean route into Italy. On 29 February at the Macedonian-Greek border “crowds of migrants were beaten back from storming a fence with a salvo of tear gas” (FT, 1 March). The current migration assault is even more serious than the Euro crisis, as Angela Merkel recently acknowledged.
Last November Jean Asselborn, Luxembourg’s Foreign Minister, declared that Europeans had only a few months to save the Schengen system. On 21 February Thomas de Maizière, Germany's Interior Minister, stated that EU member states must agree a common approach to tackle migrations ­“within two weeks if they wanted to avoid the system’s complete collapse. On 4 March the European Commission unveiled a plan, Back to Schengen, “to lift all remaining border controls by December 2016, so as to return to a normally functioning Schengen Area before the end of the year”. The options considered involve sharing out asylum seekers across the EU on a quota basis regardless of where they first arrived, either as a general procedure or only if a country is overwhelmed by a sudden influx. The IX Report on European Security reveals that a poll conducted in early 2016 among 1000 respondents each in Italy, Spain, France and Germany gives a majority of over 75% in favour of the reintroduction of border controls either unconditionally (56% in Italy) or in special circumstances (Repubblica, 7 March).
The Schengen crisis should not take anybody by surprise. The writing has been on the wall for a long time. The introduction of the Euro as a common currency had equally been an excellent idea, which however failed because it was premature before political, fiscal and banking integration; incomplete due to the ECB lacking powers as Lender of Last Resort to the EU and the member states; and because the Eurozone was subject to increasing divergence in the member states’ fundamentals. The Euro crisis was also made worse by austerity policies perversely enforced by the German-led European authorities. Precisely the same kind of criticisms apply to free internal travel within the Schengen Area: premature, incomplete and made worse by country divergence and recessionary austerity. On the impact of austerity on migrations and convergence see Michelle Baddeley, "Convergence, Divergence and Migration in an Age of Austerity", Seminar paper, Cambridge 2016:

“…(T)
he ability for host societies and economies to adapt will be constrained by limits on government spending. Infrastructure investment is needed in the very shortterm, including emergency infrastructure to support the immediate consequences of migration e.g. within refugee and migrant camps. Infrastructure investment will also be essential in the medium to long term to ensure that growing migrant populations have proper access to social infrastructure including housing, schools, hospitals and other medical services. Without this investment, the prospects for growing inequality, deprivation and socio-political unrest are likely to be severe – exacerbating divergences at many levels: between the global South and North, between Northern and Southern parts of the EU, and within countries depending on how different regions’ populations are affected by migration and/or how much access they have to public finance for infrastructure investment.

Three considerations are in order:
1.Free internal travel requires strong external controls. Just like a Free Trade Area requires a common external tariff barrier, free internal travel obviously requires a common external border, with a common Coast Guard, border guards and if necessary a common Army, all provided and paid for centrally. The Schengen external borders, on the contrary, are delegated to national, fragmented, uneven and inadequate controls (in spite of the rudimentary Frontex agency and the recent intervention of NATO ships patrolling the Aegean Sea). Moreover existing controls do not include brutal repression, and this humanitarian restraint is more labour-intensive. Shooting trespassers on sight, as East German guards protecting GDR borders used to do with attempted exits, is not yet reached but arrest and imprisonment in Hungary (and the extra-Schengen UK) have been, as well as the use of tear gas and rubber bullets elsewhere.
Schengen external borders are a sieve that allows through indiscriminately legitimate refugees, escaping directly from persecution and war, and economic migrants, i.e. those refugees who had already reached a safe country, or other migrants who are simply seeking to improve their standard of living. The difference between refugees and economic migrants (both classed here as migrants) is elusive, as even refugees will tend to move towards countries with higher employment opportunities and/or income, thus abandoning their “first safe country” status. This difference is fundamental: refugees are protected by UN regulation on reaching their first safe haven, the others are still subject to national endorsement and control. And even if a policy of completely open doors was adopted towards economic migrants, the speed of the migratory inflow would still have to be subject to national control. In fact the capacity to absorb immigrants into any given territory is limited at any time by short term available resources, by the country’s capacity to integrate immigrants and, as well, by their own willingness and preparedness to be integrated.
Whether or not immigration brings net benefits to the host country is a controversial matter. On balance it probably does in the long term, but the case of very fast, concentrated mass migration should be considered in its own terms. The possibility cannot be neglected of a mixed distributional impact on workers and firms through greater competition in labour markets, both in the short and long term; of significant additional investment cost in new infrastructures, and - at least in the short term - welfare costs, making immigration a public investment competing with alternative forms of public expenditure. Immigration brings possible cultural enrichment but also possible cultural impoverishment, as well as potential cultural, political, ethnic and religious conflict – even leaving aside the possibility, not entirely implausible, of migration being a vehicle of health contagion and terrorist infiltration. These drawbacks have to be set against the benefit of rejuvenation of an ageing host population, which is associated with mass immigration.
Whatever the true net costs and benefits of immigration, the increasing electoral success of right-wing, populist, anti-immigration parties in most of the developed world signals unambiguously the widespread perception – right or wrong – that the current level and/or rate of immigration are excessive: from Matteo Salvini’s Lega to Nigel Farage’s UKIP, from Jimmie Åkesson’s Swedish Democrats to Geert Wilders’ Party for Freedom, from the German Alternative für Deutschland to Viktor Orbán’s Fidesz or Jaroslaw Kaczynski’s PiS, Heinz-Christian Strache’s FPO, Milos Freeman’s Civil Rights Party, Marine Le Pen’s Front National, the Finnish and Norwegian anti-immigration parties, as well as shifts in more standard political parties (see the anti-immigration stance of Boris Johnson, mayor of London and David Cameron’s probable successor). In the US the latest polls show that immigration is fourth or lower on public concerns: the anti-immigration vote is overwhelmed by the economy, anti-Elite feelings and security issues, although Donald Trump’s large-scale wall-building and deportation plans may have something to do with his unexpectedly strong bid for the US Presidency.
When existing external borders are not in a position to identify and register all migrants, to distinguish between refugees reaching their first safe haven (which the 1990 Dublin Convention rules, stricter than the UN rules, regard as the first EU country) and all other migrants, it is unavoidable that each Schengen member state will need to reintroduce effective border controls, including visas and passport checks.
The identification of immigrants has been likened to the marking of prisoners in Nazi concentration camps, but the comparison is improper, even if identification required the use of force. Identification is essential to verify both the right to residence and entitlement to benefits.
The almost 4,000 migrants that drowned trying to cross the Mediterranean Sea, the high monetary cost (steeply rising with the spreading of border controls and obstacles) and exposure to violence and other personal risks of migration make the desperate predicament of economic migrants – running away from famine, destitution, drought, environmental and cultural disasters – very close to that of refugees running away from persecution and war. But the difference is still there: refugees have a sacrosanct right to asylum sanctioned by the United Nations, while all others by migrating place themselves at the mercy of their countries of arrival: economic migrants can be refused entry or be repatriated.
Both rejection and forced repatriation are unpleasant and brutal, but an indiscriminate open doors policy would amount to the pretense that the world in which we live, dominated by private property and territory-based democracy, is instead a non-existing utopia of global democracy and universal communism, though limited to the collectivization of social capital. No wonder such a contradictory utopia was never proposed or theorized by anyone. In the world as we know it international solidarity is necessarily a discretionary concession by those who can afford generosity, which can only be exercised collectively if backed by a majority; it is not an automatic right of those who need international solidarity. 
Moreover a policy of indiscriminate open doors to all immigrants, while reducing international inequality across countries will increase internal inequality within countries because of the greater competition in the labour market in the host countries and the impoverishment of the emitting countries, thus leading to a possible and perhaps probable greater global inequality. (The case for repatriation is developed conclusively by Alberto Chilosi, “On the economics and politics of unrestricted immigration”, The Political Quarterly, 73-4, pp. 431–435, October 2002).
All immigrants, whether or not they can be classed as refugees, should be protected from the risks of their journey, in spite of such risks being to some extent the result of their own actions, just as cancer patients are entitled to treatment even if they are smokers (though some may disagree). Preferably the cost of protecting them should be a charge on all Schengen countries, as it is now for the EU Frontex operations, but even if such cost was born by a single country’s taxpayers as in the case of Italy’s Mare Nostrum scheme it would still be desirable.
The trouble is that repatriation is costly, and should be financed by the Schengen countries as it is part of the cost of abolishing internal borders; it requires the agreement of the country of origin or of the first safe country reached, which may be unknown or might no longer exist or might not honour such an agreement (e.g. Pakistan). Moreover it is doubtful whether “pushbacks”, whereby asylum seekers are returned to a country without their application having had a fair hearing, are consistent with both the Geneva Conventions and the EU asylum code. But the fact that repatriation will not always be possible is no reason for not attempting it at least in some cases, if nothing else pour encourager les autres.  Refugees are in a different position because with the settlement of conflict in their own countries they should return home.
On 27 January Sweden – that last year received 163,000 asylum applications, the highest number per capita in Europe – announced a plan to repatriate 80,000 migrants (subsequently reduced to 60,000 then left undetermined) “over  many years”, using aircraft chartered for the purpose, but the plan is still on paper. In the same week 308 economic migrants were sent back by bus from Greece to Turkey; however Turkey will not accept more unless Europe takes more Syrians off their hands – a vicious circle. Rejection looks like a more viable option: in his current visit of the Western Balkans ahead of the EU-Turkey summit Donald Tusk, on 2 March in Zagreb, said that “Member states should refuse entry to third-country nationals who do not meet the necessary conditions or who, although they were able to do so earlier, did not apply for asylum.” (European Council communique’ 3 March). However, the concentration of rejected economic migrants in border camps is bound to create other problems, while the prospect of future rejections can only speed up current migration flows.
2.Free internal travel requires the convergence of living standards within the area (including welfare provisions). Not unnaturally foot-lose migrants who do not have stronger ties (of language, religion, relatives, friends) to a particular country will tend to choose their ultimate destination on the basis of their perception of maximum improvement in their living standard resulting from migration. Employment prospects are likely to be paramount, indeed traditional migration theory (exemplified by the Harris-Todaro model, AER 1970, 60-1) relates the incentive to migrate to wage differences between the home and destination countries weighed by their respective probability of employment (taken as 1 minus the unemployment rate), to which of course one should add the net improvement in welfare benefits. Potential immigrants may well tend to overestimate their perceived income improvement prospects, as they seem to imagine themselves and their children gainfully employed at top salaries; this is one of the factors encouraging migrations beyond reason. When expected income gains diverge across potential destinations, the more attractive countries naturally will tend to be disproportionately vulnerable to migratory inflows. Hence the incentive for destination countries to raise national barriers, and/or discriminate in welfare benefits against immigrants, or dismantle the welfare state tout court for both nationals and immigrants. Even James Meade – a liberal and enlightened economist who proposed a generous generalised basic income – in order to prevent opportunistic immigration recommended that immigrants should be treated by the principle of reciprocity, i.e. enjoy the same benefits, if any, that our nationals might be granted in the migrants’ country of origin. (It has been objected that such a rule might be applied to countries of the same level of development, such as North-North and perhaps South-South, but not to South-North migrations).
The UK is a case in point. Relatively generous benefits granted to immigrants from other EU countries, including social housing, national health entitlements and payments to relatives resident abroad, have led to Cameron attempting to negotiate “emergency brakes” with the EU, subjecting benefits to time restrictions (excluding immigrants for the first four years residence), or to resident family members (possibly restricting family re-joining). Cameron succeeded in negotiating with the EU these kinds of restrictions only for future and not for existing immigrants, which therefore strengthened the conservative government resolve to reduce welfare benefits all round. Meanwhile non-European immigrants to the UK are subjected to a minimum income to be reached within the first 5 years of residence (which has just been raised from £21,000 to £35,000 from next April), under penalty of expulsion after one additional year. New rules will make UK landlords responsible for checking the documents of their tenants, making it harder to find accommodation not only for unauthorized immigrants but also for the 60% UK citizens who do not possess a passport.
3.Any attempt at a fair re-distribution of immigrants among countries requires the re-establishment of national borders. Last July EU Interior Ministers - outvoting Romania, Hungary, the Czech and Slovak republics strongly opposed to the scheme - imposed a plan to relocate 40,000 migrants (24,000 from Italy and 16,000 from Greece) across the EU. In September an additional 120,000 relocations (16,600 from Italy, 54,400 from Greece and 54,000 from Hungary) were added, raising the total to 160,000 in two years, of which 54,000 were postponed to the following year (FT, 25 September 2015). Viktor Orbán, Hungary’s prime minister, announced a referendum on whether the country should be forced to resettle refugees, on the ground that “Introducing resettlement quotas for migrants without the support of the people is an abuse of power”; he is unlikely to lose that referendum. On 28 February Pope Francis advocated “an equitable re-distribution of the burden of migrants” (thus accepting that immigration is a burden).  However, such kind of a re-location is futile, not to say idiotic, for under Schengen completely free and unrestricted internal travel any immigrant re-located to a country other than his/her preferred destination can at any time, and eventually will, just go there. Indeed we could argue that even the relocation of migrants within a given country might have to be subjected, in order to be done efficiently, to the introduction of internal passports and controls of the kind prevailing in the Soviet Union until 1991, in order to stop immigrants from settling in the capital city and in other metropolitan areas that are already overcrowded and congested and to divert them instead to less developed areas with an abundance of cheap underutilised housing and land.
On 29 February Angela Merkel said it loud and clear: “Migrants may not pick and choose where they are to be settled” (Daily Telegraph, 1 March). She referred to their choice of country, but Germany is indeed unusual in imposing constraints on where migrants can live, both in order to prevent the formation of ghettos in big cities and to direct immigrant flows to the underpopulated regions of the former GDR where there is plentiful social housing and a shortage of young workers. Such a policy had been introduced in the 1990s at the time of a large influx of ethnic Germans from the former Soviet Union and Romania. Immigrants have their welfare benefits cut if they move away from their assigned locations. In the UK immigrants who claim social housing and some other benefits are offered it only in the northern rust belt towns.
This kind of restrictions seem necessary to the smoother absorption of immigrants, but paradoxically the European Court of Justice, ruling on a complaint by two Syrians about their German residence requirements, at the end of February 2016 decided that EU rules “preclude” them even if they are aimed at “achieving an appropriate distribution of the burden connected with the benefits”, though it also said that people granted subsidiary protection could be subject to a residence condition “for the purpose of promoting their integration”. Nevertheless German ministers are preparing a law which would expand the existing residence restrictions to refugees whose asylum requests have been approved, in spite of objections from refugee associations (FT, 1 March).
Disintegration?  At present the EU is being subjected to four centrifugal forces (see Munchau, FT 28 February. and Javier Lopez, “Europe in Multiple Organ Failure”): a North-South divide over border controls; another North-South divide about austerity and the Euro; an East-West divide over migrant re-location; and the uncertain implications of Brexit with possible contagion effects on other member states.
It is difficult to disagree with Oxford political scientist Jan Zielonka (Is the EU doomed? Global Futures, Polity Press, London, 2014) when he argues that “Sadly… at present the EU does not facilitate integration, but impedes it”… “The European Union was widely regarded as the most successful modern integration project, but it has turned into an embarrassment”… “No wonder so many citizens lost trust in the EU, and that the process of disintegration is gathering pace.” But Zielonka’s expectation that “A weakening of the EU and its member states will strengthen other political actors such as cities, regions and non-governmental organizations (NGOs)” is utterly unconvincing: the solution or even the alleviation of both the Euro crisis and the migration crisis cannot rely on a network of de-centralised power centres but will require a deep degree of centralised initiative and commitment to greater integration. See “A Plan for Europe’s Refugees”, The Economist 6 February:
“Creating a well-regulated system requires three steps. The first is to curb the “push factors” that encourage people to risk the crossing, by beefing up aid to refugees, particularly to the victims of the civil wars in Syria and Iraq, including the huge number who have fled to neighbouring countries such as Turkey, Jordan and Lebanon. The second is to review asylum claims while refugees are still in centres in the Middle East or in the “hotspots” (mainly in Greece and Italy), where they go when they first arrive in the EU. The third element is to insist that asylum-seekers stay put until their applications are processed, rather than jumping on a train to Germany.” Unfortunately, “All these steps are fraught with difficulty.”
Prospects might become clearer soon, after the next EU-Turkey summit (7-8 March), the German regional elections (13 March) regarded as a test of Merkel’s immigration policies, and the EU Summit on migration (18-19 March).
There seems to be, however, a constitutional conflict between European and international rules about treaties, revealed by the recent agreement reached by the UK and all the other member states about the special terms negotiated by Cameron for the UK. That Agreement is said to have been deposited within the UN and is therefore subject to the jurisdiction of the International Court of Justice, which operates on rules different from those of the European Court of Justice competent to enforce the European Treaties. Downing Street has claimed that the EU-UK agreement is legally binding and enforceable, but it is not clear whether any country who did not like it might seek to challenge it in the International Court of Justice. A constitutional crisis of this kind is the last thing that Europe needs today.

Note: I thank Carmen de la Camara, Marilena Giannetti, Tonino Lettieri, Ruggero Paladini and Fabio Sdogati for useful comments on an earlier draft of this post. However they should not be held responsible for any errors or omissions, nor deemed necessarily to agree with any of the propositions put forward here.

UPDATE
The EU-Turkey summit of 7-8 March led to a draft deal whereby Turkey would take back immigrants coming from Greece unless they successfully applied for asylum there, while the EU would take in one Syrian refugee for every immigrant sent back. In exchange Turkey would receive €6bn aid instead of the €3bn already committed but not yet disbursed, accelerate its progress towards EU accession and obtain visa-free travel to the Schengen Area for its 75mn citizens.


In the three German regional elections of 13 March Ms Merkel’s CDU Party retained the possibility of forming coalition governments but lost ground heavily, while her PSD coalition Party that had backed her immigration policies performed even worse. The xenophobic right-wing AfD gained record support.


On 18 March after ten days negotiations the EU and Turkey reached a compromise deal that commanded unanimous support, effective from 20 March. Greece obtained 4000 new personnel to process asylum applications. There would be no collective pushbacks, but starting on 4 April Turkey (that received 2.7 million migrants to date) would take back applicants who did not qualify for asylum in Greece, while the EU would take from Turkey “one for one” as many Syrians up to a ceiling of 72,000. In exchange Turkey would receive €6bn instead of the anticipated €3bn, of which 3bn up front and 3bn at the end of the year; the process of EU accession would be tentatively reopened and EU visa-free travel for Turkish citizens would be granted from next June.

The Greek government’s migration spokesman Giorgos Kyritsis declared that implementation of the deal would require more than 24 hours; Turkey will not take back migrants before 4 April anyway. The 4,000 officials, translators, judges and security guards promised by the EU still have to arrive; eight ships with a capacity of 300-400 passengers each need to be provided by Frontex, together with 30 buses. Thousands of migrants (mostly Syrian, but also Iraqis and Afghans) have continued to arrive in Greece in spite of the agreement. Greece is still relocating migrants from its islands to temporary refugee camps on the mainland. From 4 April a number of failed asylum-seekers (750 in the first week, mostly North Africans, Afghans and Pakistanis) from Greek detention centres will board a vessel chartered by Frontex and be taken to Turkey. In return Germany will take an equivalent number from Turkish refugee camps. These deportations might be illegal and have sparked violent protests but will accelerate in April.

There were still strong objections from humanitarian groups, on the ground that the deal violated international law on the treatment of refugees; Turkey is expected to conform its regulations to international standards, but refused to accept a formal commitment to that effect. European reaction has ranged from welcoming “closed borders” to condemning the “shameful deal”. Wolfgang Munchau, FT 21 March: “The deal with Turkey is as sordid as anything I have seen in modern European politics… The EU not only sold its soul that day, it actually negotiated a pretty lousy deal.”  On 22 March the UN refugee agency announced the suspension of its involvement at all closed centres on the Greek islands, on the ground that so-called “hotspots” for the reception and registration of migrants had turned into “detention facilities” in violation of UN regulations. On 23 March Médecins Sans Frontières and the International Rescue Committee also scaled back their activities in the Greek centres. Following terrorist attacks in Brussels Poland now declared that it can now no longer honour the previous government’s commitment to take a quota of 7,000 refugees out of the 120.000 to be resettled across the EU. In the week following the EU-Turkey deal migration inflows to Greece were reduced drastically, though this might be due to adverse whether conditions in the Aegean.


In the last seven months, Hungary’s courts have held 2,189 trials for border crimes (including on 18 March a blind woman and a man confined to a wheelchair accused of interfering with Hungarian borders last November, FT 22 March) leading to an exceptionally high rate of convictions of 99 per cent. Hungarian judges have chosen expulsions and long entry bans from Schengen countries over prison sentences. On 22 March Frontex was reported saying that it was trying to recruit 150 policemen and 50 officials to be deployed on Greek borders, i.e. it had not succeeded yet.

The Greek-Macedonian border will remain closed, blocking the Balkan route to Northern Europe, leaving tens of thousands migrants stranded in Greece for some time, including Syrians who thought they had been invited by Angela Merkel to come and stay in Germany. It is not clear how the 72,000 asylum seekers would be distributed among member states; once that ceiling is reached the arrangement will be "reviewed", though Central-Eastern EU members are committed to stop at that ceiling. 

The closure of the Balkan route will induce desperate migrants and their smugglers to switch to different and more dangerous routes to Europe, via the Black Sea through Ukraine, via Albania and the Adriatic to Italy, via the South Mediterranean to Italy and Spain (the last two routes having continued to be used especially from Lybia; in the first three months of 2016 immigrants arriving in Italy from the Mediterranean route have doubled). France, Switzerland and Slovenia would then be bound to reintroduce border controls, thus cutting off Italy and possibly Spain from the Schengen area; Austria is already closing the Italian border at Brennero. Liberalisation of travel for Turks would lead to an additional inflow of Turkish Kurds. According to a German think-tank refugee flows this year will amount to an estimated range of 1.8m-6.4m (the higher figure being a worst-case scenario including large numbers from Northern Africa).


Incidentally, on the costs and benefits of mass immigration with special reference to the UK, see R.E. Rowthorn’s excellent Report, 2015.

Sunday, September 27, 2015

Can Economic Policy Be Changed?


On 16 September 2015, at the Chamber of Deputies in Rome, there was a seminar on “Greece, the Euro, Alternatives for Italy”. After papers by Giulio Marcon, Mario Pianta and Marica Frangakis there were two sessions on “Can Economic Policy be Changed?” and “Can Politics be Changed?”. In the first session I took the view that European economic policy can be changed, without necessarily having to change the treaties, and presented seven specific proposals and a general proposition. The real problem is whether political forces would support such economic policy changes. 

We could (and should): 

1. Remove public investment from government deficit computation. Any constraint on the fiscal deficit, averaged over a number of years and not applied to its current level, should exclude debt-financed public investments because they do not entail an intergenerational transfer. This is widely and authoritatively recognized: ”The current fiscal stance should not be confused with the capital account… Computing the maximum deficit/GDP ratio as the sum of the current and capital accounts is misleading.” (J. H. Drèze-A. Durré, Louvain 2014). At present only the national co-financing of the so-called Juncker Investment Plan is formally excluded; the principle should be extended to all public investment.

2. Remove from the computation of government deficit any borrowing incurred to finance the payment of government arrears owed to enterprises, taxpayers, as well as the particularly scandalous arrears owed to pensioners. Such borrowing does not result in additional debt but only in a change of creditors: the loans incurred to liquidate arrears cancel out with the liquidated arrears.

Thus it should be recognized that public debt is actually higher than it looks, for it should include not just the cumulated excess of actual payments over receipts but also the accumulation of payment arrears towards enterprises, taxpayers and pensioners. But since the payment of arrears leaves unchanged the amount of total public debt, it should not be included in the government deficit which by definition should be equal to the increase in government debt.

3. Revise the calculation of a country’s structural deficit by the European Commission, which determines the maximum fiscal deficit that a government is allowed. At present this is following a particularly restrictive methodology and should be converted to standard OECD procedures, which would allow a modest but significant broadening of fiscal space.

4. Tighten the existing rule that a EU member country should not exceed a trade surplus of 6% of GDP, restricting it to 4% in line with the limit set to a country’s maximum trade deficit, and actually enforcing it, for instance imposing an equivalent minimum fiscal deficit on the trade surplus country, in place of a token fine. This would stop the surplus country (e.g. Germany at 7% of GDP) forcing its Southern partners to incur higher deficits.

5. Convert the pension system, recently reformed from a PAYE system (Pay As You Earn, i.e. re-distributive, defined benefits) to a fully funded system (capitalized, defined contributions), wholly or partly back to PAYE.

Both systems are potentially viable and capable to deal with population ageing (the capitalized system promotes financial markets but is more vulnerable to economic crises), but the transition from PAYE to a fully funded system makes a pension debt, which is conveniently hidden and buried, unnecessarily surface, equivalent to the present value of current employees’ contributions no longer available to finance current pension payments. (A country’s PAYE pension debt should only include the present value of that part of pensions – if any – which exceeds what can be financed out of pension contributions).

The reversal of such policy, as exemplified in the recent experience of Poland and Hungary, restores a country’s fiscal space to the full extent of the emerged pension debt.

6. Insure member countries against the risk of growth under-performance with respect to the average
 
J. H. Drèze and A. Durré (Louvain, 2014) suggest an ingenious scheme whereby a European Agency like the ECB could costlessly provide such an insurance. Eurozone governments would issue bonds indexed to the growth rate of their country’s GDP. The ECB would purchase a balanced stock of such bonds, thus earning a total rate of return equal by definition to Eurozone average growth. Thus the ECB could compensate below-average growth countries for their under-performance, out of the extra-interest earned from countries that record growth faster-than-average. No cross-subsidization among member countries (Transfer Union) would be involved. (Warning: this scheme would work on condition that no member country defaults on such bonds).

7. Mobilize the present value of the ECB Seigniorage – estimated by Willem Buiter to be of the order of €3,400 bn (sic!) – to gradually withdraw government bonds issued by ECB shareholder countries in proportion to their shares, thus avoiding a transfer Union. Again, no Transfer Union would be involved. 

See P. Paris and C. Wyplosz (2013 and 2014), on their P.A.D.R.E. (Politically Acceptable Debt Reduction for the Eurozone) scheme: the ECB would use seigniorage to pay interest on perpetual bonds issued to replace and retire outstanding Eurozone debt. 

I proposed a similar scheme (on my blog Transition), envisaging Eurozone bonds retirement directly financed by the ECB by securitizing future seigniorage. 

8. A general proposition. Finally, and more generally, economic policy changes require the recovery of quantitative instruments of economic policy, in place of dubious, possibly counterproductive, so-called structural reforms (a euphemism for the destruction of the Welfare State). We need to recover

- monetary policy, which first was delegated to an independent national central banker, then transferred to the ECB in Frankfurt; 

- fiscal policy, i.e. the level and structure of taxation and public expenditure, now constrained by the recessionary straightjacket of EU fiscal austerity rules (Maastricht, the Growth and Stability Pact, the Fiscal Compact);

- the price and investment policy of state enterprises, now largely privatized or in the process of privatization; and even

- direct controls, now abandoned in favour of market forces.

The instruments are there and we know how best to use them. The problem is the lack of political will.


Monday, June 22, 2015

Institutions and Policies


If Institutions are so important, why do we talk so much about economic policies?" This excellent question was the subject of a Round Table of the First World Congress of Comparative Economics, held at the University of Rome Tre, on 25-27 June 2015, with the participation of Josef C. BRADA (Arizona State), Michael KEREN (Jerusalem), D. Mario NUTI (Rome Sapienza), Chaired by Marcello SIGNORELLI (Perugia). The Round Table took place on 26 June, 2.15-4pm, at the Department of Economics, Aula Magna, Via S. D'Amico 77, 00145 Rome.

Immediately afterwards (4.30-6.15pm) at the Congress there was a session on my own contributions to Comparative Economics, organised by my friends Renzo Daviddi (EU) and Milica Uvalic (Perugia). Renzo focused on Utopias, Milica on Participation, other friends: Saul Estrin (LSE) on Socialism, Jan Svejnar (Columbia) on Transition, and Bozidar Cerovic (Belgrade) on Integration (chaired by Saul Estrin). Most of my publications can be viewed and downloaded freely from my website, where the respective PPT presentations will be available shortly.

My views on If Institutions are so important, why do we talk so much about economic policies?" are summarised here.

In any modern capitalist economy the State – i.e. the set of government, other political institutions and the Public Administration - has at its disposal a wide range of instruments of economic policy.  A classic textbook by Ian Tinbergen, Economic policy: Principles and Design. Amsterdam, 1956, 1978, distinguished between qualitative and quantitative policy instruments.


Within the context of our Panel, I regard qualitative instruments as the creation and manipulation of economic institutions: from bankruptcy legislation to corporate governance, from competition policy to health insurance, from unemployment insurance to anti-corruption laws. They include automatic stabilizers (which in truth are only dampeners of economic fluctuations).

Quantitative instruments were classified by Tinbergen under four headings:

1) Direct controls of economic activity;

2) Fiscal policy: the level, composition and balance of government direct and indirect taxation and other revenues and expenditures (including subsidies);

3) Monetary policy: the quantity of money, the associated level and structure of interest rates, credit policy, the exchange rate regime and trends; with the management of government debt necessarily linking monetary and fiscal policy;

4) The price and investment policies of (wholly or partly) state owned enterprises. 

For Tinbergen the structure of the economy could be summarized by a macroeconomic model quantifying the relationships between economic magnitudes, such as consumption, investment, employment, trade balances, the price level, the rate of inflation and so on - simultaneously with the values assigned by the government to quantitative policy instruments. Through the choice of appropriate instruments the government could determine consistent, feasible values of policy targets, while accepting the corresponding values of “indifferent” variables. Tinbergen was a pioneer of such an approach to model-building and economic policy. 

Note: Policy targets are often labelled “priorities”, but this is incorrect, because they cannot be ranked in absolute but only relatively to the trade-off between targets preferred by the government.

For about thirty years from the end of the Second World War this framework can be used to characterize public policy in advanced countries. Thanks to Keynesian policies sustaining demand, employment and growth, we experienced a golden age of unprecedented prosperity: reconstruction, industrialisation and growth, accompanied by re-distribution policies to protect the weaker strata of the population: the unemployed, the aged, the sick, the poor, children. That approach was less successful in keeping under control inflation and/or public debt, primarily because of inconsistency between, on the one hand, high and stable employment and economic growth and, on the other hand, low inflation and/or public debt. 

The 1980s and 1990s, however, saw the demise of Keynesianism and the victory of neo- or hyper-liberalism, exemplified by Reaganite or Thatcherite economic policies. This was due to three major developments:

1)  Margaret Thatcher was elected as conservative Prime Minister of the UK from 1979-1990, and Ronald Reagan was elected as Republican President of the USA (1981-1989, and was influential even earlier as Governor of the State of California); 

2)  the extension of the neo/hyper-liberal model to the countries of the post-socialist transition in the early 1990s, encouraged by foreign advisers, the EU and the international organisations (World Bank, IMF, OECD etc.), and

3)  the passive, mis-timed adoption of neo/hyper-liberalism by several social-democratic governments in the 1990s, such as the Third Way of Tony Blair, Bill Clinton and most European Union governments in the late 1990s.

“Reaganomics" was characterized by supply-side economics, tax reductions expected to promote economic growth, restrictive monetary policies to control inflation, economic de-regulation, reduction of public expenditure, anti-Trades Unions policy, hostility and re-armament against communist countries (the Evil Empire), support for anti-communist movements (Grenada’s invasion).  Although Reagan negotiated with Gorbachev the first Treaty for reduction of nuclear weapons (INF Intermediate-range Nuclear Forces Treaty, 1987).

Other features of the neo/hyper-liberal approach, extended to the post-socialist world include:

- Immediate unilateral opening of foreign trade, frequently revoked and therefore premature;

- Exceptionally rapid liberalization of capital flows, in contrast to the experience of other European economies after World War Two;

- Large scale privatisation, especially (with a few exceptions for instance in Hungary) unprecedented mass privatization through the distribution to the population of free or symbolically priced vouchers, convertible into state assets or shares in state enterprises – a macroscopic experiment in social engineering of debatable effectiveness;

- The demotion of the role of the state, leading to delays or gaps in market regulation, especially in financial markets (see the diffusion of banking pyramids), shareholders protection and corporate governance;

- The dismantling of the welfare state, formerly provided by state firms;

- A costly reform of the pension system from a Pay As You Go, defined benefits, distribution system (whereby pensioners are funded by the contributions of current employees), to a capitalization, defined contributions or funded system (with pensions paid out of the revenue earned on accumulated past contributions);

- A low and uniform rate of direct taxation (flat tax), therefore at best only mildly progressive, on households and companies, mostly without taxation of capital gains but with higher indirect taxation;

- Lack of consultation and concertation between social partners and with the government;

- A very flexible labour market, with weak trade unions and a low incidence of collective bargaining; the principle of market sovereignty was not applied to the labour market, frequently subjected to widespread wage ceilings enforced through punitive taxes;

- A central bank not only independent but exceptionally independent and free from any controls, without coordination with fiscal policy, pursuing a strict policy of inflationary containment and high interest rates, with the pursuit of positive real rates even in the presence of currency appreciation (therefore attracting foreign capital but making the sterilization of the ensuing monetary expansion very costly); 

- In general, a dominant weight of markets as against other institutions. 

The Third Way was characterised by

- The acceptance of the primacy and desirability of markets, both domestic and global;

- Rejection of public ownership and public enterprise, supporting private entrepreneurship and continued privatisation; and, above all,

- Affordability, i.e. fiscal discipline and monetary restraint, rejecting inflation and public deficit and debt. 

In many ways the Third Way approach went too far, in neglecting the increasing inequality involved in market allocation and the dangers of de-regulations (two major causes of the 2007 crisis), privatising on a vast scale (more assets per year in France under Lionel Jospin, in under 2 years 1997-98, than by Thatcher), and in endorsing the EU ruinous policies of fiscal austerity, not to speak of war-mongering and the dereliction of civil liberties. 

In other ways the Third Way did not go far enough, as in pursuing the reduction of the working week for an unchanged wage, resisting the increase in pensionable age in the face of rising longevity, or failing to promote environmental protection and reclamation. And the whole project had an authoritarian bias. 

Such excesses and deficits of the Third Way are at the root of the subsequent current crisis of the Left especially in Europe.

Today the traditional quantitative instruments of economic policy discussed by Tinbergen in 1956 and 1978 have been disabled:

- Direct controls have completely given way to market-determined processes;

- Monetary policy has been delegated by governments to independent central bankers, and completely disconnected from fiscal policy; exchange rates have been left largely floating, while membership of the Eurozone has eliminated that instrument completely for member states; 


- Fiscal policy has been constrained by the straight-jacket of balanced budget over the cycle, indeed of budget surplus “in normal times” (UK Chancellor George Osborne, 10 June 2015; “There is no economic reason for Osborne’s surplus plan. It’s time Labour stopped playing catch up… Osborne is using the budget as an excuse to reduce the size of the state. Labour must not follow his lead”, Simon Wren-Lewis, NewStatesman, 18 June 2015); with heavy penalties and costly automatic provisions for rapidly reducing debt (the Fiscal Compact);

- State-owned enterprises have been privatised or are scheduled for further reduction under pressure from EU and international institutions.
 


Qualitative instruments, on the other hand, today are restricted to the sole adoption of neo/hyper-liberal institutions, under the euphemistic label of “economic reforms”.

A reform should be, by definition, a change for the better, but there is no consensus on desirable reforms: I might regard income re-distribution to the poor as a desirable reform, others might regard the ending of such re-distribution as desirable. In post-Stalinist Soviet-type economies – as Yanis Varoufakis recently noted - there was frequent talk of “reform” to indicate projects of economic and political de-centralization. Today, on the contrary, reforms are an authoritarian design to dismantle the welfare state, reduce pensions, eliminate collective bargaining and labour employment protection, and to privatise state assets at any price regardless of opportunity costs.

Official EU and IMF documents recognise that both austerity and most of these “structural” reforms are at best ineffective (in particular labour market liberalisation, unlike product market liberalisation especially in services) or at worst positively counterproductive (see Amartya Sen, The economic consequences of austerity, NewStatesman, 4 June 2015), but unelected officials perversely persist in forcing their implementation as a condition of their statutory support. And if and when “reforms” might be effective they only operate in the medium-long term, often with adverse short term effects that turn them into investments that are not necessarily attractive. Amartya Sen likens the unholy and unnecessary combination of austerity and reforms to a mixture of rat poison and antibiotics given to a sick person.

The Great Recession that began in 2007 and is still on-going is concomitant with the general crisis in public economic policy. We must re-think and re-found the theory and practice of economic policy, restoring both traditional quantitative instruments and broadening the range of eligible qualitative instruments, either within the constraints of globalisation or shifting away from some of those constraints; we need more and different instruments of economic policy, quantitative and qualitative, i.e. a much wider range of policies and institutions. Otherwise we remain passive victims of chaotic and costly global processes, aided and abetted by rulers who are undemocratic and ultimately destructive.