The crisis which started in 2007 forced both Europe's member states and the US to use their fiscal policies in the attempt to prevent a long‐lasting recession, or even depression. The US policies have proven more effective, because they were faster, stronger and longer‐lasting. By contrast, the right-wing in the European Commission and Council consistently lagged behind events. Europe's fiscal stimulus was too little, too late and by 2009 ‐ ignoring the lessons of history, driven by a fear of the financial markets and a misreading of macro‐economics ‐ the EU switched dramatically from economic stimulus to austerity, deepening and prolonging the economic and social crisis, in a self‐defeating attempt to reduce public deficits and debt at an unattainable speed.
A more intelligent economic policy must start with an understanding of what went wrong. That is why our alternative strategy has three fundamental aims:
- to achieve a smart fiscal consolidation, which restores confidence, takes full account of the economic situation, taps new revenues, protects essential investment and looks for savings in those areas of the budget which cause least damage to aggregate demand and inflict least social pain;
- within a medium‐term fiscal consolidation strategy, to implement a coordinated European Investment Strategy, focussed on modernising infrastructure, investing in human capital and laying the foundations for a smarter, greener Europe
- to address the problems which caused the crisis, such as regional divergences in productivity, and a growing imbalance between wages and profits, which led to excessive dependence on credit to maintain aggregate demand.