How to save Europe for the many, not the few - by SP Chakravarty

The president of the European Central Bank, Mario Draghi, calls for EU leaders to demonstrate vision (Report, 1 June), but the bold thinking needed for that is unlikely to be found among political classes advised by technicians indoctrinated in the anti-inflationary rhetoric of the banking establishment over some 30 years.

A small decline in output in a rich economy, even over a sustained period, need not lead to the distress now facing European countries in recession. The reason is that small declines are not shared evenly. Even a small fall in national output of less than 1% is often accompanied by double-digit increases in income of the strong and powerful and double-digit decline in the living standards of the less well-off. Some industries and regions take a much bigger hit than others, some of which may even prosper. If austerity is the only prescribed cure, a point may be reached when those losing out rebel in ways that can bring further miseries even on themselves.

When the unwritten social contract that evolves at a time of sustained prosperity, when we come to believe that we are in it together – whether or not we are – suddenly breaks down, bold measures are needed to contain the potentially destructive distributive conflict that emerges. One way to contain the destructive forces inherent in that struggle is to effect redistribution through inflation. Inflation now would also provide a way of apportioning cost of the large debt overhang between borrowers and lenders. The mountain of debt, much of which in some countries is the cost of bank rescue, was not only created by the borrowers. The horror stories of runaway inflation in Germany and Latin America in the last century should not blind us to the success stories of managing high rates of inflation as a means of ameliorating social conflicts and preventing the precipitous collapse of democratic institutions elsewhere, including in the UK in the 1970s.
Read more: Letters: How to save Europe for the many, not the few | Business | The Guardian