Left wing struggles to tackle unemployment in EU

With socialists or social democrats in 13 of 15 European Union governments and 18 million still unemployed within the EU, it is struggling to define a left-wing economic policy that gives top priority to employment. Yet the Maastricht convergence criteria limit the ability of individual governments to do so.

Mr Dominique Strauss-Kahn, the French Finance Minister, has become such an advocate of budgetary rigour that Frenchmen are beginning to question whether he's really a Socialist. In a joint article with the German Finance Minister, Mr Oskar Lafontaine, published in Le Monde on January 15th, the two men wrote that their shared strategy "distances itself . . . from the policy of deficit spending that commentators still too often associate with socialist and social democratic policies".

Three weeks into the epoch of the euro, French economists are calling for new policies to go with the single currency. One of the most vocal is Prof Jean-Paul Fitoussi, the president of the OFCE, the think tank associated with the National Political Science Foundation where he is a professor. Prof Fitoussi is also a member of Prime Minister, Mr Lionel Jospin's economic analysis council.

At the presentation of his new book, Report on the State of the European Union 1999, Prof Fitoussi criticised European governments for indulging in self-congratulations at their "brilliant technical feat" but failing to think how the euro could help their populations. Governments have behaved "as if the euro changed nothing in our conception of economic policies", he said.

European leaders preferred employment deficits to budget deficits, Prof Fitoussi said. "In the past decade, we've grown accustomed to massive unemployment. It's a loss, an enormous waste. What did we make the euro for? . . . History will judge European governments very severely if they don't resolve this problem."

He said conditions had never been more favourable. "They have zero inflation. They are no longer subject to changing exchange rates and they have trade surpluses. These are the conditions our governments said they needed. People must demand of their politicians: `Why don't you do anything about unemployment?' "

The French government's efforts to curb its unemployment rate of nearly 12 per cent have focused on reducing the working week to 35 hours - "rationing work" Prof Fitoussi calls it - and creating hundreds of thousands of "youth jobs". Prof Fitoussi believes there is a simpler, more effective remedy. But it sounds suspiciously like those spendthrift socialist policies decried by Messers Strauss-Kahn and Lafontaine.

European growth is 80 per cent dependent on internal demand. If consumer demand within Europe increases, employment will rise dramatically, Prof Fitoussi says, citing the US example. "My solution is to raise salaries immediately by lowering pay-check with holdings. That would increase consumption, extend markets and stimulate growth." The OFCE's studies show that the economic growth thus achieved would offset lost government revenue within three years.

There is a snag in this happily-ever-after scenario. The Stability Pact agreed at the December 1996 Dublin Summit penalises EU governments whose deficit spending goes beyond 3 per cent. "The Maastricht criteria and the Stability Pact were originally devised to reassure the Germans, who had most to lose from EMU," Prof Fitoussi says. "For this political reason, all European governments accepted to limit their own budgetary policies, and those limits continue." Governments have renounced national sovereignty in budgetary policy, he says, without compensating for it by increasing European responsibility. "My hope is that the Stability Pact will not be taken too seriously," he added.

In his new book, Prof Fitoussi and his staff at the OFCE outline four possible European economic models. The present model is that of separation between economics and society, and between society and Europe. Joblessness is considered a national, not European problem and we are encouraged to believe that people's inability to adapt - rather than a dysfunctional economy - is the cause of high unemployment.

The second model, towards which Europe risks drifting, is economic liberalism, which accepts the exclusion of large segments of society and ever wider inequality. Unless Europe consciously chooses another model, Prof Fitoussi predicts, fiscal and social competition between EU member-states will lead to deflation.

He would prefer to return to the model of national sovereignty, in which national budgetary policies could work unhampered by the Stability Pact, or better still, a European federalist model.