THE STATE OF THE EUROPEAN UNION. Europe at the political crossroads

THE STATE OF THE EUROPEAN UNION

moreover, make maximal use of its fiscal policy

margins for manoeuvre (Truger 2014).

It must

be said that the main blunder, the wrong reac-

tion to the sovereign debt panic in 2010, is al-

most impossible to correct. It is particularly wor-

risome that inequality inside the society also

increases in the course of the austerity policy

which harms growth.

In order to combat the growth of inequality

within the EU states, a counter strategy should

both contemplate the distribution of market in-

come and improve the effectiveness and effi-

ciency of redistribution. Mostly labour market,

social and tax policies need to be redesigned

(Atkinson 2015).

In order to improve the distribution of mar-

ket income, the labour market regulations need

to be improved so as to reduce the share of low-

paid activities. Statutory minimum wages could

contribute to it. The rights of the trade unions,

weakened over decades, should be reinforced

again. A more aggressive policy towards full

employment would raise the de facto market

power of employees. Competition policy must

Truger Achim:

Austerity cyclical adjustment and the re-

maining leeway for expansionary fiscal policies in the Euro

area

. IMK Working Paper 140, 2014.

Atkinson Richard:

Inequality. What can be done?

Cam-

bridge/London: Harvard University Press; 2015.

control the sectors with high monopoly rents.

The globalisation and the technological pro-

gress, both of which give impulse to inequality,

are not forces of nature, but politically con-

trolled and controllable. In this respect, the state

must place greater value on distribution goals.

The redistribution of market income can

clearly be improved without letting growth and

employment suffer (Ostry

et al.

2014).

11,12

this end, the tax policy must again charge more

on high incomes and wealth, and concentrate

less on regressive taxes on consumption. Such a

policy needs a European, even a global flanking

through measures against tax avoidance and

evasion. Social policy can focus more precisely

on helping poor people and households. As for

now, its effects are often small or counterpro-

ductive, since policies are misguided. For in-

stance, taxable subsidies (i.e. for children and

families) are less regressive than tax deductible

allowances which privilege recipients with a

higher income. Social investments in education

and health raise productivity and employment.

Table 5 above also shows that the effectiveness of re-

distribution between countries presents significant differ-

ences, pointing thus to potentials for improvement.

Ostry Jonathan,

et al

Redistribution, Inequality and

Growth

. IMF Discussion Note Washington; 2015.