“The eurozone must find economic growth without State aid”

Some experts say that “austerity measures don’t work”, and last Monday Bill Gross said that “the United Kingdom and most of Europe have been wrong to believe in austerity as a solution. In the short-term fiscal austerity is not the way of generating real growth. You have to spend money”. What is your take on this? If austerity does not generate growth, what should we do?

Austerity measures were not taken to foster growth but to contain public expenditure and to achieve a reduction of the fiscal deficit of the eurozone that was (and in some cases is) too high. If you cannot deal with fiscal imbalances, your creditors (those who lent their money in the past to foster growth) would stop trusting our ability to pay your debts. This caused a sharp rise in risk premiums in many European countries with the consequent increase in funding costs that these States and their own businesses needed. Therefore, it was and is necessary to restore confidence of our creditors back and take certain austerity measures.

As a result of their implementation, growth has suffered. It is an effect that, although undesirable, we insist it was necessary. Now the question is, should we keep these measures? From our point of view it would be good to gradually reduce them, as they risk premiums are lowering, in order to promote growth. However (and this is very important) these measures do not have to come from public expenditure (more government spending). We believe that it is necessary to carry out another type of policies and reforms in the European economies that make it more dynamic and efficient to return to the path of economic growth. The eurozone cannot grow under the auspices of the State. The State should not be the motor that makes an economy grow but rather promote people and companies that generate value, that generate wealth.

Will it be enough to relax or postpone the deadlines for the deficit targets or something else needs to be done to promote grow and boost the economy?

Delaying deficit targets is a point to keep in mind to avoid stressing economies too much (those with or without problems (f. eg, Germany, which is not immune to what is happening to its European partners) but alone will not be able to solve the problem. Along with relaxation in the commitment of the marked periods some policies should be implemented to help boost the economy (aid to SMEs, reducing labor costs, wages) and, on the other hand, monetary policies such as lower interest rates to encourage new credit (funding should flow to companies).

Something crucial would be reducing “superfluous” public spending. In the same way private agents (individuals, families, companies…) are required be efficient and “supportive”, European States with fiscal imbalances should be efficient. So far the austerity measures have affected much more citizens than to the States themselves. And when the States have implemented public spending cuts some necessary aspects that could have generated growth such as education have been affected. On the contrary, some unnecessary spending remains.

Austerity was necessary but we should not reduce citizens’ pocket money (with higher taxes or fewer social benefits) but public entities’ privileges (national, regional or local).

Some voices claim that “it is too late for Europe” so the continent is “heading for a long period of stagnation”. Do you agree with this? If so, what could we do to rectify?

It is not too late for Europe. We should remember the U.S. experienced the beginning of this crisis while Europe went on with its development until the contagion was evident and finally hit us in the way that today all we know. Now the United States begin to see hints of recovery while Europe suffer the effects austerity policies taken later.

In this regard, we believe that Europe still may have months of gridlock ahead, but we do not think that it is going to be a “long period of stagnation” for the continent as a whole (may be in certain periphery countries). Implemented measures need some time to see the light and, little by little, the economies will be see growth.

Former ECB Chief Economist Juergen Stark, said that “to preserve the integration of the core countries of the European Union, the weaker countries should leave the euro”. Statements like this create major divisions between the European core and peripheral Europe. Could there be a real break from the Union instead of a two-speed Europe?

I don’t think it’s decisive. In Europe there have always been divisions between rich countries giving money and poor countries receiving grants. We believe that “reconstruction of Europe” cannot be stopped, in spite of politicians. Europe must remain united to leave the crisis behind. Leave the euro can be tempting for many economists and citizens, but we believe that it’s so cold outside the euro. We need to be efficient and competitive inside the euro framework (with internal devaluations). The eurozone needs to show companies legal certainty, keeping closer commercial ties with the United States (there is this offer by the US President to create a US-EU free trade zone that we have called Euroamerica) and creating a real fiscal and monetary union. Then we will emerge from the crisis.