4 - Fiscal Austerity and Monetary Largesse

Summary

This chapter argues that the combination of the European economic and monetary constitution with neo-liberal ideology amounts to a straitjacket that is impeding the necessary move towards a more sustainable economy. The chapter explores the limitations on Member State fiscal spending contained in the Treaty on the Functioning of the European Union, and contrasts those limitations with the very broad discretion granted to central banks to conduct monetary policy. Central banks’ ‘quantitative easing’ policies have, as they were intended to, boosted asset prices, skewing wealth distribution in favour of the already wealthy. They have also lowered the borrowing costs facing governments and large corporations, but it is not clear that they have been successful in terms of stimulating economic growth through higher investment and spending. Finally, the chapter looks at the EUs fiscal and monetary response to the COVID-19 pandemic. Does it mark a permanent change that may lead to a more sustainable economy, or, as the pandemic recedes, will the EU return to its constitutional and ideological straitjacket? We fear it will be the latter.