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Open letter: It’s time Europe stopped fetishising fiscal discipline

Wojtek Kalinowski , 24 June 2021

[English] [français]

This call has been published here in the Financial Times on 15 June 2021

Our call

Contrary to the argument set out by Wolfgang Schäuble (Opinion, June 3), we believe the social fabric of Europe cannot endure a return to “fiscal as usual” — the failed austerity policies of the past that transformed the 2008 financial shock into a prolonged recession. We need a new approach to fiscal policy, starting with a recognition that too little deficit spending can cause irreversible social, economic and environmental damage.

When the private sector is struggling, “fiscal discipline” can prompt a permanent fall in aggregate demand and output, which unnecessarily stifles employment and household incomes, while leaving future generations worse off.

Europe’s most recent experience of fiscal consolidation failed on its own terms, resulting in higher ratios of debt to gross domestic product due to permanent economic scarring and associated reductions in tax revenues.

Fiscal discipline, not expansion, widens the gulf between rich and poor (particularly in a downturn). Regressive taxes and deep spending cuts in Europe dismantled measures that support equitable growth, resulting in higher levels of poverty and inequality. Cuts to public investment also undermine the “just transition” and the fight against environmental breakdown and can lead to a wide array of environment-related financial losses.

A decade of unconventional monetary stimulus and missed inflation targets clearly failed to raise inflation expectations, indicating the author’s own concerns about inflation are misplaced. Olivier Blanchard, former IMF chief economist, who is unconcerned about possible inflationary effects, went on the record to correct Schäuble. Philip Lane, chief economist at the ECB, has suggested there is no alarm surrounding transitory inflation stemming from temporary supply side bottlenecks (instead of demand overheating).

Moreover, too little government spending can increase company bankruptcies and lead to less investment in research and development, hurting the supply side of our economies — potentially exacerbating inflationary pressures.

The EU has gone through a decade of demand stagnation, performing well below its productive potential. Inflationary forces of the 1970s are no longer intact, not least because of declining labour bargaining power, changing demographics, high inequality and private debt overhang. Without concerted fiscal expansion to scale-up investment and protect the vulnerable, aggregate demand will remain low and standards of living will stagnate.

Instead of fetishising fiscal discipline, we should prioritise more important social, economic and environmental outcomes — like creating well-paid green jobs, lifting millions out of poverty and implementing green infrastructure projects.

If there is one lesson from John Maynard Keynes for Schäuble it is “look after employment, and the budget will look after itself”.


Frank van Lerven
New Economics Foundation, London, UK

Adam Tooze
European Institute, Columbia University, New York, NY, US

Stephanie Kelton
Professor of Economics and Public Policy, Stony Brook University, New York, NY, US

Simon Wren-Lewis
Emeritus Professor of Economics, University of Oxford, UK

Daniela Gabor
University of the West of England, UK

Philippa Sigl-Glöckner
Dezernat Zukunft

Rob Johnson
President of the Institute for New Economic Thinking

Benjamin Braun
Max Planck Institute for the Study of Societies

Shaheen Vallée
Director of the Geoeconomics Programme, DGAP

Philipp Heimberger
Vienna Institute for International Economic Studies

Dirk Bezemer
Professor, Faculty of Economics, University of Groningen

L Randall Wray
Senior Scholar, Levy Economics Institute

William H. Janeway
University of Cambridge

Rohan Grey
Willamette University College of Law

Jonathan Perraton
Department of Economics, University of Sheffield, UK

Dominik Leusder
London School of Economics

Christos Pierros
Senior Researcher, Labour Institute INE-GSEE, Athens Greece

Hanna Szymborska
Senior Lecturer in Economics, Birmingham City University UK

Jan Toporowski
SOAS University of London, Progressive Economy Forum

Steve Keen
Distinguished Research Fellow, University College London

Antoine Godin
Université Sorbonne Paris Nord, France

Michael Jacobs
Professor of Political Economy, University of Sheffield

Ronan Palmer
Director Clean Economy, E3G

Dirk Ehnts
Pufendorf-Gesellschaft Berlin e.V.

James Meadway
Director, Progressive Economy Forum

Sergio Cesaratto
Professor, Università di Siena, Italia

Rafael Wildauer
University of Greenwich

Daniele Tori
The Open University Business School

Andrew Watt
Macroeconomic Policy Institute, IMK

Neil Lancastle
Senior Lecturer, De Montfort University, Leicester, UK

Marco Veronese Passarella
Associate Professor, Link Campus University of Rome and Leeds University

Gracjan R. Bachurewicz
Edward Lipinsky Foundation, University of Warsaw

Andreas Maschke
University of Leeds

Ines Heck
University of Greenwich

José Pérez-Montiel
University of the Balearic Islands

Sue Konzelmann
Birkbeck, University of London, and Council Member, Progressive Economy Forum

Antoni Soy Casals
University of Barcelona

Plamen Ivanov
Lecturer in Banking and Economics, University of Winchester

Thibault Laurentjoye
Associate researcher, Robert de Sorbon Foundation, Paris

Ewa Karwowski
Senior Lecturer in Economics, University of Hertfordshire

Malcolm Sawyer
Emeritus Professor of Economics, University of Leeds

Biagio Bossone
International financial advisor, Rome, Italy

Benoît Lallemand
Finance Watch

Michael Vincent

Stanislas Jourdan
Positive Money Europe

Robert Calvert Jump
University of Greenwich

Nigel Dodd
London School of Economics and Political Science

Felix FitzRoy
University of St. Andrews

Avner Offer
University of Oxford

Andrew Sayer
Lancaster University

Jo Michell
UWE Bristol

Nina Eichacker
University of Rhode Island

Roberto Veneziani
Queen Mary University of London

Jens van ‘t Klooster
KU Leuven

Imko Meyenburg
Senior Lecturer in Economics and International Business, Anglia Ruskin University

Cem Oyvat
University of Greenwich

Thiemo Fetzer
University of Warwick & London School of Economics and Political Science

Eckhard Hein
Professor, Berlin School of Economics and Law

Nikos Paltalidis
Associate Professor, Durham University Business School, Durham University

Wolfram Elsner
Professor of Economics, University of Bremen, Germany

Richard Murphy
Professor of Accounting, Sheffield University Management School

Engelbert Stockhammer
Professor, King’s College London

Roy J Rotheim
Skidmore College, New York

Ettore Gallo
The New School for Social Research

Paul Delaney
Positive Money

Bob Jessop
Emeritus Professor of Sociology, Lancaster University

Alexander Guschanski
University of Greenwich

Trond Andresen
Associate professor, Department of Engineering Cybernetics, Norwegian University of Science and Technology

Rens van Tilburg
Sustainable Finance Lab

Joerg Bibow
Professor of Economics, Skidmore College

Ladislau Dowbor
Catholic University of São Paulo

Marco Missaglia
University of Pavia

Matthias Kroll
World Future Council

Mark Blyth
Brown University

Emanuele Citera
New School for Social Research

Laurence Scialom
Professor of Economics, University Paris Nanterre

Wojtek Kalinowski
Veblen Institute for Economic Reforms

Karl Naumann-Woleske
Ecole Polytechnique Paris

M Kerem Coban
Independent researcher

Rosaria Rita Canale
Università di Napoli “Parthenope”

Peter Blom
Co-chair of the Sustainable Finance Lab and former CEO Triodos Bank

Luis Reyes
Director of MSc Sustainable Finance at Kedge Business School

Abderrahim Taamouti
Professor at Durham Business School

Sara Stevano
SOAS University of London

Irene van Staveren
Erasmus University Rotterdam

Markus Marterbauer
Chief Economist, Chamber of Labour, Vienna

François Morin
University of Toulouse-Capitole

Sheila Dow
Emeritus Professor of Economics, University of Stirling

Carlos J Rodriguez-Fuentes
Reader in Economics, University of La Laguna

Jim Jin
University of St Andrews

Gabriele Pastrello
University of Trieste

Thomas Lagoarde-Segot
Professor of economics and finance, KEDGE BS & SDSN France

Dimitri Papadimitriou
President, Levy Economics Institute of Bard College

Umed Temursho
IOpedia, Spain

Gilbert Achcar
Professor, SOAS, University of London

Jean-François Ponsot
Professor of Economics, Pacte Univ. Grenoble Alpes, France

Mevlut Tatliyer
Istanbul Medipol University, Turkey

Ben Fine
School of Oriental and African Studies (SOAS), University of London

Pia Malaney
Director, Center for Innovation, Growth and Society

Ewald Engelen
Professor of Financial Geography, University of Amsterdam

Sara Murawski
Sustainable Finance Lab and Alternative Trade coalition Netherlands

Wendy Brown
Class of 1936 Chair, Political Science, UC Berkeley

Jayati Ghosh
Professor of Economics, University of Massachusetts at Amherst, USA

Yannis Dafermos
SOAS University of London

Nicolas Dufrêne
Director of the Institut Rousseau, France

Asker Voldsgaard
University College London

Muhammad Ali Nasir
University of Huddersfield

Eric Berr
University of Bordeaux

Fadhel Kaboub
Associate professor of economics, Denison University

Eve Chiapello
EHESS, France

Hielke Van Doorslaer
Ghent University

Mark Sanders
Professor of International Economics, Maastricht University

Elisa Van Waeyenberge
co-Head of Department, Economics, SOAS University of London

Alain Grandjean
Fondation Nicolas Hulot

Ollivier Bodin

Hans Schenk
Emeritus professor of economics and business, Utrecht University

Bruce Littleboy
retired, formerly University of Queensland

Luca Visentini
General Secretary, European Trade Union Confederation

Matthieu Méaulle
Associate member, PHARE/CNRS, University Paris 1 Panthéon-Sorbonne

Luise Wimmler
University of Graz

Arjo Klamer
Emeritus professor of cultural economics, Erasmus University

Marc Lavoie
Emeritus Professor, University of Sorbonne Paris Nord

Jeremy Wates
Secretary General, European Environmental Bureau

Katy Wiese
Policy Officer, European Environmental Bureau

Carl Mühlbach
Chairman, FiscalFuture

Max Krahé, PhD
Dezernat Zukunft and Institute for Socio-Economics, University Duisburg-Essen

Andres Lazzarini
Lecturer, Goldsmiths University of London

Thorsten Beck
Professor, The Business School (formerly Cass), University of London, and European University Institute

Constantin Gurdgiev
Associate Professor of Finance, University of Northern Colorado, USA and Trinity Business School, Trinity College Dublin, Ireland

Andy Denis
City, University of London

Maria Nikolaidi
Associate Professor in Economics, University of Greenwich

Thorvald Grung Moe
Research Associate, Levy Economics Institute

Nikolaos Karagiannis
Professor of Economics, Winston-Salem State University, North Carolina, USA

Alberto Botta
Senior lecturer in Economics, University of Greenwich

Karl Petrick
Associate Professor of Economics, Western New England University

Antonio Fatas

George Evans
Professor of Economics, University of Oregon, and part-time Professor, University of St Andrews

David Cobham
Professor of Economics, Heriot-Watt University

Dimitri Zenghelis
Senior Visiting Fellow, London School of Economics

Andrew Jackson
University of Surrey

Jumana Saleheen
Chief Economist, CRU Group

Greg Hannsgen
Blogger and Economist, Greg Hannsgen’s Economics Blog

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