Forgive the candour of these remarks. They come from an enthusiastic well-wisher of you and your policies. I accept the view that durable investment must come increasingly under state direction. [...].

I regard the growth of collective bargaining as essential. I approve minimum wage and hours regulation. I was altogether on your side the other day, when you deprecated a policy of general wage reductions as useless in present circumstances.

I am, Mr. President

Yours with great respect and faithfulness,

J. M. Keynes.^[XII] deflation in Greece.³ Public debt as a ratio of gross domestic product (GDP) is increasing alarmingly in some Eurozone countries: Italy, Greece and Portugal. As for Italy, public debt in 2014-15 is expected to increase to up to 177 percent of GDP

The gross fixed capital formation growth is expected to recover slightly above the precrisis rate. During the crisis, the Eurozone annual investment growth was negative (-3.2 percent), greater than the annual positive increase before the crisis (2.68 percent), with Germany as a low-performance country, slightly better than Portugal. The invest­ment/ GDP ratio has been declining throughout the Eurozone since 2000, and Germany had one of the lowest ratios in Europe (17.9 percent) in the period 2000-13. In terms of GDP growth/investment ratio, the Eurozone (and Germany) shows a very poor performance.

Finally, the data on the trade balance account for the Eurozone explicitly show the growth strategy developed in recent years by central and north European countries is an export-led growth strategy The value of the trade balance for Germany is still around 7 percent of GDP for the biennium 2014-15, and the same goes for the Netherlands, Denmark, Norway and Sweden.

The evidence confirms that some countries in the Eurozone—the PIIGS—seem to have suffered most from the austerity policies. In particular, the most serious scenario for these countries is the effect on the labor market, which will continue to suffer, with an unemployment rate that will worsen in the biennium 2014-15 even compared to the 2008-13 period, with the exception of Ireland. Moreover, in all these countries produc­tivity remains low, at around a 0.5 percent increase per annum. The two-tiered Eurozone system is dramatically evident: the divergence between the two Eurozones is increasing, and there is no evidence of the miraculous effect of the “expansionary austerity” poli­cies, indeed the opposite holds as usual: austerity lowers GDP growth and worsens other macroindicators, the public debt/GDP ratio and investment, especially that related to the labor market. This detrimental effect of austerity policies is evident in the compar­ison between the Eurozone and the United States, where austerity policies have been avoided since the 2008 crisis. The US GDP growth rate is expected to be more than double that of the Eurozone, employment growth four times that in the Eurozone and the unemployment rate half that in the Eurozone. At the same time, with respect to the Eurozone, inflation is expected to be higher in the United States as well as investments in capital formation, and the US economy seems to rely more on its internal demand, as the negative trade balance figure indicates. The United States is recovering better also in terms of labor productivity.

The evidence from simple descriptive data is clear. Countries in which fiscal consol­idation is in effect are seeing their economies progressively worsen as well as the well­being of their population. As stated by the International Labour Organization (ILO, 2014, 32), we are in the presence of a “lackluster nature of the recovery [...] caused, in part, by the continued pursuit of fiscal consolidation policy in the region.” In addition, the deteriorating conditions in the labor market have increased the risk of poverty and social exclusion, particularly in the European countries most affected by the crisis, but it is the policies that have led to a deterioration of social conditions: in the second phase of the crisis the majority of governments in the European Union coun­tries embarked on fiscal consolidation, with significant cuts to their welfare systems and provi­sion of public services, which disproportionately affected jobless persons and their families as well as those groups of the population that are not covered or poorly covered by social protec­tion systems, such as first-time jobseekers, informal workers, ethnic and migrant groups, sin­gle-parent families and pensioners, with negative consequences for social cohesion and social justice.

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