Amartya Sen on Europe

Europe has led the world in the practice of democracy. It is therefore worrying that the dangers to democratic governance today, coming through the back door of financial priority, are not receiving the attention they should.

There are profound issues to be faced about how Europe's democratic governance could be undermined by the hugely heightened role of financial institutions and rating agencies, which now lord it freely over parts of Europe's political terrain.

It is quite hard to see that the sacrifices that the financial commanders have been demanding from precarious countries would deliver the ultimate viability of these countries and guarantee the continuation of the euro. The diagnosis of economic problems by rating agencies is not the voice of verity that they pretend. It is worth remembering that the record of rating agencies in certifying financial and business institutions preceding the 2008 global economic crisis was so abysmal that the US Congress later seriously debated whether they should be prosecuted.

 Since much of Europe is now engaged in achieving quick reduction of public deficits through drastic reduction of public expenditure, it is crucial to scrutinise realistically what the likely impact of the chosen policies may be, both on people and on generating public revenue through economic growth. If the demands of financial appropriateness are linked too mechanically to immediate cuts, the result could be the killing of the goose that lays the golden egg of economic growth. This concern applies to a number of countries, such as Britain and Greece.

As well as a bigger political vision, there is a need for clearer economic thinking. The tendency to ignore the importance of economic growth in generating public revenue should be a major item for scrutiny. The strong connection between growth and public revenue has been observed in many countries, including China, India, the US and Brazil.

There are lessons from history here, too. The big public debts of many countries when World War II ended caused huge anxieties, but the burden diminished rapidly thanks to fast economic growth. The fear of a threat to democracy does not, of course, apply to Britain, since the public expenditure-reduction policies have been chosen by a democratically elected government. But that does not eliminate the need for more discussion. There is also a need to recognise how the self-chosen restrictive policies in Britain seem to give plausibility to the drastic policies being imposed on Greece.

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