Author: Lara Merling

Lara discovered the legacy of Hyman Minsky and the research of the Levy Institute during her undergraduate studies at Bard College. Lara went on to study post-Keynesian economics at the Levy Economics Institute. She is currently finishing her PhD dissertation at the Bucharest University of Economics, in her home country of Romania. Her goal is to deepen her understanding of post-Keynesian economics and to advocate for a change in how economic policy is drafted. Lara works as a Policy Advisor at the International Trade Union Confederation and is a Senior Research Fellow at the Center for Economic and Policy Research in Washington DC.

Is the new progressive IMF just an illusion?

“The Funeral of Austerity”– that’s how the FT referred to the IMF’s last round of annual meetings. In a radical departure from past approaches, the fund’s glossy publications encouraged countries to increase spending during the pandemic. Managing Director Kristalina Georgieva even talked about the need to ramp up public investment in service of greener and more inclusive economies. It was a big shift in rhetoric, and it earned the IMF stellar press coverage. But was it just rhetoric, or have things actually changed? To know whether austerity really died, we have to look at what the IMF said to its members states, not to the press.

To give credit where credit is due, the IMF did step up to offer emergency loans during the pandemic. Unlike usual IMF lending, they did not carry conditions; countries were not forced to adopt any particular economic policies to get access. By the end of 2020, over 70 countries had taken out such loans, and they provided a lifeline. As uncertainty around the pandemic triggered a massive capital outflow from the developing world, these loans helped alleviate some of the most immediate needs.

But although conditionality was absent, the emergency loans did come with advice. And despite the novel rhetoric at the IMF annual meetings, the advice was business as usual: regressive taxation, “structural reforms” (deregulation, liberalization, and privatizations), and fiscal consolidation. These are the same policies that the IMF has imposed for decades and that have had disastrous results for borrowing countries. Does the Fund really believe they can be relied upon to provide the inclusive and sustainable growth they’ve come to emphasize?

Answering this question required me to better understand the way the IMF justifies its recommendations. In a report for the ITUC, I was able to unpack just that.

This recent IMF research paper gives some clues by tracing the evolution of the Fund’s growth narratives over time. What becomes apparent is that IMF’s narratives have changed response to politics more so than in response to results. The paper asserts that industrialization, manufacturing, and innovation were considered as drivers of growth by the IMF, until the 1980s. The shift in narrative coincides with a push from the Reagan administration to adopt trickle-down economics and make neoliberal ideology go global.

It was then that the IMF’s narrative on what are the main drivers of growth morphed into the “Washington Consensus”, blaming poor economic performance on government intervention and encouraging states to get out of the way. From that premise, privatizing, deregulating, and liberalizing seem like the path to growth. And the now ubiquitous Dynamic Stochastic General Equilibrium (DSGE) models have helped the cause along. With market superiority built into the assumptions of the model, a lot of mathematics can “demonstrate” the justifiability of the policies proposed.

The Washington Consensus policies are what the IMF refers to as structural reforms. The 1980s marked the start of “Structural Adjustment Programs” that had disastrous consequences for the developing world, while the benefits never materialized. Over the last decades, none of the countries that followed the IMF’s advice were able to industrialize and move up the income ladder. The countries that did move up (such as the Asian Tigers) relied on industrial policy.

After a series of high profile failures and a loss of credibility, the IMF officially discontinued Structural Adjustment Programs. However, while additional language was added to its advice, terms such as inequality, inclusive growth, corruption, and human capital started to appear alongside elements of the Washington Consensus. The structural reforms at the core of those programs are still prevalent.

Those shaping IMF policy advice continue to tell a different story, one where structural reforms work, even if they are unpopular. Their work continues to find creative ways to group countries together to claim that its approach works and blame abysmal growth performance in some of their top “reformers” on their own failures.

For example, a 2019 publication that aimed to defend the benefits of such reforms scored countries based on their adoption of structural reforms. While the paper groups countries in a way that allows reporting better growth from more reforms, a look at the entire sample paints a different picture. The best per capita growth in the sample is from China, which is not a top reformer and certainly not a follower of IMF advice, while top scorers such as Ukraine, Russia, and Egypt have amongst the worse growth performances in the sample.

In general, it is well documented, including in the IMF’s own internal review of programs, that the IMF in its programs and projections continues to underestimate the negative impacts of austerity, while overestimating the growth grains from the reforms it pushes.

While those designing policy advice at the IMF might not be fully ready to admit their approach does not deliver on growth, the institution’s own research department published a series of papers on the negative social consequences of many of these policies. There is IMF research that links policies the IMF has imposed for decades to increasing inequality, and higher inequality to lower growth. Furthermore, Argentina and Greece are just two recent examples of huge spikes in poverty caused by the economic collapse that followed IMF-imposed policy approaches.

If the IMF truly means what it says about wanting to support a green and inclusive recovery, it needs to fully revamp its policy toolkit, and reassess all the advice it gives countries. Even if the IMF were to incorporate concerns about inequality and the environment in its current models, they would still be underpinned by the market fundamentalism baked into the DSGE models it uses. The limitations of adding variables to the same old paradigm are already showing when it comes to climate policies. The IMF is suggesting, all based on carbon pricing and the idea that nudging markets can solve the existential climate crisis in a timely manner, an overoptimistic assumption this time with devastating consequences for the entire planet.

As long as trickle-down, supply-side economics continues to shape the core of its advice, the new IMF will be just like the old IMF, now with more gentle rhetoric.

Lara Merling is a policy advisor at the International Trade Union Confederation, which represents over 200 million workers in 163 countries, and is a Senior Research Fellow at the Center for Economic and Policy Research in Washington DC. You can find her on Twitter @LaraMerling

Despite its new rhetoric, the IMF still promotes failed policies

An event titled Income Inequality Matters: How to Ensure Economic Growth Benefits the Many and Not the Few is not exactly what comes to mind when one thinks of the International Monetary Fund (IMF).

Yet, in April, at the latest Spring Meetings, managing director Christine Lagarde, along with the IMF’s chief economist, discussed the urgency of addressing rising income inequality and the need for redistributive policies. While IMF staff in Washington were expressing their concern with inequality, people in Ecuador, Argentina and Tunisia were taking to the streets to protest against anti-worker austerity policies their governments are implementing as part of the IMF programs.

In the 1980s and 1990s, when a series of debt crises plagued the developing world, the IMF lent money to those countries as part of what it called structural adjustment programs (SAPs). These programs, part of what is now referred to as the ‘Washington consensus’, aggressively promoted an agenda of liberalization, deregulation, and privatization, along with sharp cuts to social spending.

SAPs protected creditors and opened the doors for multinational corporations to do business in these countries, while the brunt cost of the adjustments was borne by people.

As the growth and development that was promised as a result of these programs never materialized, the IMF slowly lost some of its influence. The painful memories of the social costs that resulted from SAPs have made the IMF an extremely unpopular institution.

In recent years, the IMF has made substantial efforts to rebrand itself and create the image of an institution concerned with inclusive growth and social indicators. The IMF’s research department has dedicated a significant amount of time and space to the issue of rising inequality. This included research that showed that the fiscal consolidation and liberalization of capital accounts – policies that are at the core of IMF programs – increase income inequality.

The Fund has also examined the effect of the labor market policies it promotes and their contribution to the decline in the share of income captured by labour.

Yet, while its research department tackled questions on how to pursue both growth and inclusion, the Fund’s loan programs have not incorporated these concerns.

In the aftermath of the financial crisis in 2008, the IMF re-emerged as a major player on the global scene. The IMF stopped using the name SAP, but the structure of IMF loan conditions and the policy demands remained very similar, with the failure of previous programs all but forgotten.

To make matters worse, the IMF continues a trend of underestimating the depth of recessions caused by the austerity policies it promotes, which prolongs economic crises and increases debt burdens as economies shrink.

The IMF’s latest loan agreement with Ecuador has the typical features of a structural adjustment program. It demands massive cuts in government spending, which directly target public sector employees, along with a series of neoliberal institutional reforms.

The program continues to impose failed policies that are shown by the IMF’s own research department to increase inequality and have high social costs.

To go along with the IMF’s new image, the program does include a floor on social spending, along with a modest increase in spending on social assistance for the first year. However, the spending floor, which establishes a minimum amount of the budget to be allocated towards social assistance programs is set at a low level, which is unlikely to keep up with the increased needs that will arise from Ecuador’s recession.

The case of Argentina, which entered an agreement with the IMF in the summer of 2018, has already shown the inadequacy of social spending floors. As the economic crisis has continued to worsen throughout the program, poverty in Argentina has skyrocketed, increasing from 25.7 percent in mid-2017, to 32 percent by the end of 2018, a staggering 6.3 percentage points.

Argentina also serves as an example of the failure of IMF austerity programs, where growth projections had to be adjusted downwards by over 3 percent for a single year only 3 months after the initial agreement was signed

An in-depth study of all IMF loans approved in 2016 and 2017 has shown that 23 out of a total of 26 programs imposed austerity measures. The number of conditions attached to loans also continues to increase. Furthermore, the study has shown the inadequacy of social spending floors, which do not provide enough funding, even for the provision of basic healthcare.

The IMF has changed its rhetoric on inequality and social inclusiveness, but its operations continue to impose the same harmful policies of the past. While some symbolic steps have been taken on how to operationalize research on inequality, they have yet to be incorporated into lending agreements.

If the IMF is truly concerned about growth that benefits ‘the many,’ it needs to stop promoting policies that have time and time again hurt working people.

This article originally appeared in Equal Times.

Puerto Rico’s Colonial Legacy and its Continuing Economic Troubles

When Puerto Rico was hit by Hurricane Maria, the island was ill-equipped to handle the storm that claimed thousands of lives and devastated most of the island’s infrastructure, leaving it in the dark for months. Prior to the storm, Puerto Rico’s economy had already experienced two decades without economic growth, a rare occurrence in the history of modern capitalism. Neither a sovereign country nor a US state, Puerto Rico has had constrained ability to respond to negative economic shocks, while only receiving limited federal support. The island’s prolonged economic failure resulted in the accumulation of an unsustainable debt burden, and Puerto Rico’s bankruptcy.

Puerto Rico became a territory of the United Stated in the aftermath of the Spanish-American War of 1898. While residents of Puerto Rico were given US citizenship in 1917, they still cannot vote in US presidential elections on the island and have no voting representation in the US Congress. The UN officially removed the island from its list of colonies in 1953 after the US Congress approved a new name, the “Commonwealth of Puerto Rico,” along with a constitution that granted the island authority over internal matters.

Despite this semblance of autonomy, Puerto Rico continued to be subject to the Territory Clause of the US Constitution, which grants the US Congress “power to dispose of and make all needful Rules and Regulations.” Recent developments have shown beyond doubt that Puerto Rico continues to be a colony, with the island now effectively ruled by a Federal Oversight and Management Board (the Board), created by the US Congress, which supersedes the authority of the island’s elected government.

After Puerto Rico defaulted on its $74 billion debt in 2015, the US Supreme Court struck down a bankruptcy law passed by the island. In 2016, the US Congress then passed the “Puerto Rico Oversight, Management, and Economic Stability Act” (PROMESA), to create a framework for Puerto Rico to restructure its debt. While many attribute Puerto Rico’s accumulation of unsustainable debt to irresponsible government spending, this narrative ignores the fact that much of what led to Puerto Rico’s prolonged economic failure was out of the island’s control.

During the last two decades of the twentieth century, Puerto Rico’s economy more than doubled in real terms as it became an attractive destination for US manufacturing, offering strong legal protections and relatively cheap labor. As the rules of the global economy were rewritten with the creation of the World Trade Organization and the passage of trade deals such as the North American Free Trade Agreement, Puerto Rico became much less attractive as a manufacturing hub.

The island’s economy has not registered any growth since 2005. Puerto Rico did not have the policy tools available to sovereign nations that could have allowed it to more effectively address the shifting global trade environment, e.g., by adjusting its exchange rate. Between 2005 and 2016, Puerto Rico’s economy was shrinking at an annual real rate of 1 percent per year. Investment, which was over 20 percent of GDP in the late 1990s, fell to less than 8 percent of GDP in 2016.

Furthermore, Puerto Rico did not receive the same federal support that US states do, meaning that as the economy worsened, its government had to foot the bill for a large share of social programs. Just in terms of health care, it is estimated that the Puerto Rican government has had to spend more than $1 billion per year more than it would have had it received the same reimbursements from the US federal government that states do.

By 2016, before Hurricane Maria, Puerto Rico had a poverty rate of 46 percent, and 58 percent for children, and had already lost 10 percent of its population to migration. With higher overall living costs than the mainland US, and lower incomes, many Puerto Ricans have chosen to leave the island and seek better opportunities on the mainland. In Maria’s aftermath, Puerto Rico is predicted to lose another 14 percent of its population by 2019.

As Puerto Rico’s economy declined, so did the revenues of the government, which increasingly financed operations through borrowing. Puerto Rican bonds were part of US municipal bond markets, and carried special tax exemptions that made them sufficiently attractive that buyers ignored the island’s macroeconomic reality ― something explicitly mentioned in Puerto Rico’s credit assessments. The bonds were only downgraded to “junk” in 2014 after Puerto Rico could no longer make interest payments on its debt.

PROMESA established a process to reach a consensus with creditors, and, were that to fail, it created a legal path to access bankruptcy court, where the Board would also represent Puerto Rico. As part of the consensus process, the board was tasked with certifying a 10-year fiscal plan that would keep the government operational, provide essential services to residents, adequately fund public pensions, and set funds aside for debt repayment in agreement with creditors.

The Board has taken an austerity approach that fails to address any of Puerto Rico’s long-term economic problems and is likely to exacerbate the downward spiral of economic decline and outmigration. In the aftermath of Maria, despite inadequate relief, the Board is using the increase in liquidity provided by relief funds to set aside more funds for creditors.

Yet many creditors continue to demand even harsher austerity, and the bankruptcy case is currently being heard by a bankruptcy judge in the New York District Court. Ironically, many of the most aggressive creditors are hedge funds that bought bonds at a steep discount after the default, and in the aftermath of Hurricane Maria.

To add insult to injury, the undemocratically appointed Board is setting aside $1.5 billion of the island’s budget for its own expenses, including legal and consulting fees for the next five years. Many of the advisors and lawyers now profiting from the bankruptcy process are the same actors who were involved in issuing the unsustainable debt. Meanwhile, island residents face pension cuts, layoffs, benefit freezes, and school closures. Given that the people of Puerto Rico have no democratic representation or say in this process, it is not surprising that their colonial rulers are ignoring their needs.

This article was originally written for the UN Conference on Trade and Development (UNCTAD) and INET YSI Summer School 2018.

What Money Can’t Buy: The Moral Questions of Market Solutions

Against the backdrop of a society that rarely questions the perceived superiority of “market-based” solutions, Michael Sandel skillfully explores the intersection between markets and morality. In a six-part video series, Sandel teaches viewers a very important lesson: in practice, there is no consensus on what a free market is, and what outcomes are optimal.

The video series “What Money Can’t Buy,” produced by the Institute for New Economic Thinking, takes viewers on a journey which compels them to critically engage with a series of questions that challenge the common perception that untethered markets provide optimal solutions to all problems. While the questions cover a variety of topics, ranging from selling organs to discrimination based on looks, the common thread is to highlight this: in economic terms, what could be seen as an optimal outcome is often not a desirable outcome for society.

By watching the series, one thing becomes evident: there is no clear line that marks where markets should begin or end. Furthermore, each individual has a different understanding of what counts as an optimal outcome. As we come to terms with the lack of clear answers, the perception that unregulated markets always objectively provide a better outcome is shattered.

Economics textbooks teach students that households and firms act as if they are guided by an invisible hand that leads them to desirable market outcomes. As everyone seeks to maximize their own utility, free markets allow individuals and firms to engage in mutually beneficial exchanges, with supply and demand determining ideal price and output levels. Thus, one should simply let markets work their magic — no outside intervention necessary.

However, not even Adam Smith, to whom the “invisible hand” observation is attributed, believed that unregulated markets can lead to the best outcomes for society. As Harvard professor Amartya Sen points out, Smith was aware of the limitation of free markets. He knew resources would be drained and society’s ills would go unaccounted for in the absence of government.

Today, it is largely accepted that governments do need to play some role in setting and enforcing rules that enable markets to operate. For example, it is not controversial that property right and contract enforcement are government actions that enable markets to function, and would not be considered an intervention.

What is less acknowledged by those who oppose regulation under the guise of protecting free markets, is that the boundaries between what is considered a necessary rule and what is labeled as intervention have consistently changed throughout time, along with what our societies have deemed acceptable or not. The idea of what should and should not be sold on the market has constantly evolved.

Cambridge economist Ha-Joon Chang points this out using a simple example: child labor. In our present society, not allowing young children to work is something that seems natural. Yet, in early industrial days, this was a heated debate. Opponents called the ban an intervention in free markets and the infringement on the child’s right to sell its labor.

“What Money Can’t Buy” showcases interviews with a number of prominent academics from across the ideological spectrum, such as Joseph Stiglitz, Larry Summers, Minouche Shafik, and Greg Mankiw, as well as discussions amongst a group of students. Each episode features Sandel asking participants a sequence of questions around a specific theme, leaving it up to each of the respondents draw their own lines on what should or should not be a market good.

The interviews present a variety of responses and arguments both in favor and against allowing markets to operate in various areas of our lives, and whether allowing markets in those areas would lead to better or worse outcomes for society. There is no consensus on what counts as basic regulation, or when a market is no longer “free”.

There are no right or wrong answers to any of the questions. However, this does not mean that the responses offered by participants are not challenged. Sandel consistently asks for further elaboration on the answers, and explanations for the reasoning behind those responses. What makes the series truly thought provoking is the way in which Sandel then asks respondents if they are comfortable applying the same pro-market argument to a somewhat similar, but instinctively more morally questionable situation.

Throughout the series, it becomes clear that often the arguments in favor of having a market for something, such as kidneys, operate in a vacuum which does not take into account the large inequities and power dynamics of our society. For example, Mankiw defends the need to have a market for kidneys by claiming it would lead to more donors, and more lives saved, thus improving outcomes for society overall. Yet, as Stiglitz points out, in our unequal society, would those selling their kidneys do so as a voluntary transaction, or be coerced by their economic despair? Furthermore, selling kidneys in a market would mean the price would be too high for many people to pay, thus effectively letting poorer people die to save those who are wealthy.

What Money Can’t Buy does not provide any concrete answers to the questions discussed, and does not decide for its viewers what is right, or wrong. That is not its goal. Instead, Sandel encourages viewers to engage with the questions and critically think about the role markets play in our lives, how they are structured, and who they inherently favor. As the series makes clear, there is no objective way to define a free market or what counts as intervention, and thus it encourages us to think about morality and what type of society we wish to live in and incorporate those principles in the way markets influence our lives.

Watch the series here.

Austerity in the UK: Senseless and Cruel

As the UK recorded its first current budget surplus in 16 years, the IMF was quick to use this development as sufficient proof to declare the austerity measures, imposed by the UK government in the aftermath of the financial crisis, a success. To the IMF, the UK case of eliminating its budget deficit, while avoiding a prolonged recession, and faring better than other European countries, supports the case for further austerity.

However, this overly simplistic interpretation disregards the long-term structural problems that the UK economy is facing, does not acknowledge the active role played by the Bank of England (BoE) in mitigating the crisis, nor does it attempt to understand what is behind the growing voter discontent that led to the Brexit vote. Furthermore, given that the austerity measures have been linked to 120,000 deaths, it seems rather odd to celebrate this approach.

While at a first glance, one might think the UK economy is in pretty good shape, with low unemployment levels and continuous growth for the last 8 and a half years, a closer look at the data reveals a less optimistic picture. As outlined in this report from the Center for Economic and Policy Research (CEPR) that I co-authored with Mark Weisbrot, the UK economy is facing some serious challenges.

The last decade has failed to deliver any improvement in living standards to most households, with real median incomes of working-age households barely returning to their pre-recession levels this year. Retired household have fared somewhat better, yet are under threat as a target for further spending cuts. While increased employment has meant household incomes reached their precession levels, real hourly wages have not. To make matters worse, a widely cited decline in the gender pay gap is due to a larger drop in male wages, rather than female wages increasing.

One of the most striking and unusual aspects of the recovery is that poverty, by some measures, has actually increased for people of working age. After accounting for housing costs, the percentage of people aged 16–64 with income below the poverty threshold has risen to 21 percent in 2015/16, from 20 percent in 2006/07.

In terms of productivity growth, which is the engine of rising living standards, the past decade has been the worst for the UK since the 18th century. The slowdown in productivity growth means that GDP per person is about 20 percent lower than it would have been if the prior growth trend continued. The problem of slow productivity growth is directly linked to low investment levels in the UK, which has the lowest rate of gross capital formation amongst G7 countries.

The UK currently finds itself in an economy where demand is lagging, and the prospects of Brexit bring significant uncertainty over the future. This is an environment that is unlikely to attract major private investment, especially in the areas it is most needed. There is a clear need for public investment and spending that can grow the economy and improve living standards. More austerity might seem to reduce the government’s deficit now but its price will ultimately be paid through lost output and slower growth.

The negative feedback from the fiscal tightening was undoubtedly mitigated by the expansionary monetary policy conducted by the BoE, which also explains why the UK was able to withstand austerity without deepening its recession and fared better than countries in the eurozone. The BoE started lowering its Bank Rate in October 2008 until it reached 0.5 percent. The rate was further decreased in the aftermath of Brexit to 0.25 percent, only to be raised again to 0.5 percent at the end of 2017.

The most important step taken by the BoE was its Quantitative Easing program, launched in August 2008, to buy bonds and ensure long-term interest rates for the UK remain low. The European Central Bank (ECB) only took similar steps for euro denominated sovereign bonds in July 2012.

While the IMF portrays the UK net public debt-to-GDP ratio as unsustainable high (it was 80.5 percent in 2017), this assessment is mostly arbitrary, especially given the UK’s specific circumstances. The burden on the public debt is best measured by the interest payments on the debt, relative to the size of the economy since the principal is generally simply rolled over. At present, the net interest payments on the debt are about 1.8 percent of GDP, a number significantly lower than in the 1980s when interest payments on the debt were generally above 3 percent of GDP annually, and in the 1990s when they were between 2 and 3 percent per year.

It is essential to note that financial markets recognize there is little risk to holding UK bonds, and the UK government can currently borrow at negative real interest rates. Given that the UK issues bonds in its own currency, investors understand there is no risk of default.

There are many public investments that have a positive real rate of return by increasing the productivity of the economy. Thus, given the current circumstances, it seems rather absurd to focus on reducing the debt rather than growing the economy.

There is no doubt that Brexit is one of the major challenges that the UK faces. However, particularly in this context of uncertainty, macroeconomic policies play an essential role. Unnecessary fiscal and monetary tightening pose an immediate threat to economic progress and the UK’s ability to improve living standards of its residents.

Imposing austerity on an economy where incomes have not recovered from the last recession, there is a large slowdown in productivity growth, an overall lack of investment, and the government can finance its spending at negative real interest rates is senseless and cruel.

For more details, graphs, and complete sources check out the full report.

Greece has a Private Debt Crisis and We Can Blame the Troika

The Greek public debt debacle and the bailout received by the government from the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund (IMF) – referred to collectively as the “troika” – has been making headlines for years. However, very little attention has been paid to the debt crisis in the Greek private sector. An alarmingly high portion of private sector borrowers is behind on their debt payments, and the Greek banking system currently has one of the highest ratios of delinquent loans in the European Union.

This collapse of debt prepayments is a direct result the policies imposed by the Troika and threatens the future of Greek economic growth. After the Greek government required financial assistance from international creditors, it was forced to introduce draconic austerity measures to repay its debt. Cutbacks to state services, collapses in incomes, and an increasingly unstable economic environment contracted spending, therefore, eliminating future cash flows that private entities expected to use to repay their debt. The result has been a spiral of collapsing demand and shrinking growth.

Greece’s accession to the Eurozone was followed by a largely ignored, rapid, and unsustainable build-up in private sector debt. Once the Greek government was forced to impose severe austerity measures and the economy collapsed, the private debt crisis followed. Now, the large ratio of delinquent loans held by Greek banks is adding to the factors hampering economic growth. For Greece to recover, its private debt problems need to urgently be addressed with an approach that offers relief to both borrowers and lenders.

This article was originally published by the Private Debt Project. Read the entire article here.

The full article highlights how the mismanagement of the Greek sovereign debt problems triggered the current private debt crisis. We show the rapid growth in private debt, document the macroeconomic context that pushed to Greece into a depression, and explain how these factors created a private debt crisis. Then, we discuss some of the existing proposals for addressing a large number of loan delinquencies and their limitations, and finally, propose other approaches to tackle this pressing problem.

Denouncing the Flaws of the EU is not Extremist, it’s Necessary

The main takeaway from the French presidential election is that criticism of the European Union (EU), including the eurozone, is not well received regardless of its validity. While Europe might currently be breathing a sigh of relief, the strategy of silencing and ridiculing those who express dissatisfaction with EU policies is dangerous for its future.

Presidential campaigns in France

During the campaign for the first round of the French presidential election, two candidates touted the possibility of leaving the euro: Jean-Luc Mélenchon, representing the leftist France Insoumise party, and Marine Le Pen from the extreme right-wing Front National. Most outlets considered their attacks on the euro to be a political liability with the mainstream electorate. The media slotted both candidates as “anti-European” extremists that should be feared. However, a closer look at the platforms of these two reveals that their critiques of the EU and their desired outcomes bear very few similarities.

Marine Le Pen promised a “France-first” approach and pledged to pull France out of the eurozone and close the country’s borders. Her platform plays on racism and xenophobia, and blames France’s woes on immigrants. It is important to note that she did propose strengthening the welfare state and extending benefits, but only for French people and not foreigners.

Mélenchon’s take on the EU was very different. His platform’s “Plan A” was to push for EU-wide reforms that aimed at bringing growth and strengthening mutual support amongst member states. He criticized the EU for becoming a place ruled by banks and finance, and his goal was to leverage France’s influence within the bloc to end austerity policies in all member states. If these negotiations with other EU members failed, then there was a “Plan B” that called for France to leave the euro and the EU in order to pursue a stimulus plan, which is not permitted under the deficit limits imposed by current EU regulation.

A large part of the media coverage received by Mélenchon centered on personal attacks, rather than on providing an accurate overview of his policies. He was accused of being a communist, both an admirer of Fidel Castro and Hugo Chavez, and a Russia sympathizer. With a significant social media following and energizing campaign, Mélenchon was able to surge in the polls late in the race. However, he did not manage to garner sufficient support to qualify for the second round of the election.

Plagued by scandals and voters’ discontent with the current administration, the candidates backed by the two traditionally mainstream parties in France, the Republicans and Socialists, did not make it past the first round. The run-off election will take place on May 7th between Le Pen and Emmanuel Macron.

Dubbed the establishment’s anti-establishment candidate, Macron describes himself as a staunchly pro-EU, pro-immigration, and pro-globalization centrist. Macron is backed by the party he created in 2016, “En Marche!,” and is successfully managing to brand himself as an outsider candidate. However, it should not be forgotten that as an economy minister in Francois Hollande’s government, who did not seek re-election due to extremely low approval rates, Macron was the architect of labor market reforms that weakened protections for workers and favored businesses. A close look at his program reveals his policies are strikingly similar to those of Hollande, just with different branding and rhetoric.

Macron’s platform consists of neoliberal platitudes that espouse values such as tolerance and acceptance of immigrants, while advocating for austerity and dismantling of social protections under the guise of increasing efficiency and “modernizing” the French economy. Macron pledged to reduce France’s deficit below 3 percent, as mandated by the EU, while also cutting taxes. To achieve both goals, Macron would undoubtedly have to slash government spending, which would most likely have a negative impact on the economy overall.

Macron’s uncritical embrace of the EU has gained him the praise and endorsement of other European leaders. Global financial markets that are reassured by his pro-EU stance are also celebrating the prospect of his victory. While his commitment to structural reforms and budget cuts is likely to please Germany and the European Commission, the question is if he can also satisfy the people of France.

Polls suggest that Macron will now win the run-off against Le Pen. However, concerns are mounting that if his government fails to deliver, the far right will be strengthened by the following election. Given how similar Macron and Hollande’s programs are (despite the different packaging) they are unlikely to deliver a different result.

The failed economic policies of the EU

The French economy struggles with high unemployment rates, particularly for young people, and is facing a decade of economic stagnation. Under increased pressure from the EU for France to abide by its deficit rules and reduce spending, previous governments have implemented harsh pension and labor reforms. These measures have failed to jumpstart the economy, and it seems intuitive that France should pursue different policies that could actually provide the much needed stimulus to its economy.

It’s not just France that is stagnating. Since the 2008 crisis, the entire Eurozone has seen a slow and uneven recovery. Particularly, the worst hit countries such as Greece, Italy, and Spain, are still dealing with the consequences of shrinking incomes and high unemployment. Nobel laureate Joseph Stiglitz showed how the structure and design of the euro were a key factors in holding back the recovery of the EU.

The structure of the euro was established by the Maastricht Treaty which laid down the groundwork for how the EU and the euro area ought to be set-up institutionally. The treaty arbitrarily established yearly deficit limits for countries at 3 percent of GDP. After the crisis, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union expanded the influence of the European Commission, an unelected body, to impose policies on member states. EU institutions have used the deficit limit as justification to dictate a neoliberal agenda, characterized by imposing austerity measures and pro-business structural reforms on member states, with very little consideration on the worsening of unemployment, poverty, and other social indicators.

Considering the shortcomings of neoliberal policies imposed by the EU, perhaps Melélnchon’s “Plan A,” to push for EU-wide reform is not that “extremist” after all. Rather than crucifying him, he should have been given the chance to advocate for reform. The current direction taken by the EU is one that through austerity measures is slowly dismantling the European Social Model, which has traditionally been characterized by a strong safety net.

What the future holds

As long as the EU imposes and encourages a platform that hurts people, far right politicians like Marine Le Pen will continue to tap into those anxieties and gain popularity. The success of the Brexit campaign should serve as impetus for the EU to reevaluate its policies.

Politicians like Macron, who chose to ignore the flaws of the eurozone and advocate for more of the same unsuccessful policies may win popularity now, but set themselves up for failure in the long run. Macron’s unconditional praise of the EU’s virtues is somewhat similar to Hillary Clinton, who under a backdrop of suffering and social crisis, responded to Trump’s slogan “Make America Great Again,” by stating “America is already great!” This strategy failed and Clinton lost, with areas where jobs were under the most severe threats swinging towards Trump.

For the European project to succeed and continue bringing peace and unity to Europe, economic policy reform is necessary and austerity needs to end. Ignoring the economic struggles of the bloc and refusing to recognize the role of EU policy in exacerbating them will continue to fuel the rise of extremist right wing politicians. Calling those who advocate for socially inclusive reforms “extremists” is a strategy bound to backfire.

Female employment rates are rising across the world, but not in the US. Why?

Japan is not exactly the country that comes to mind as a model of gender equality and high labor force participation for women. In 1995, the OECD estimated women’s employment rate in Japan at 56.5 percent, almost 10 percentage points lower than in the U.S., which had an employment rate of 66 percent for women at the time. Between 1995 and 1999, the employment rate for Japanese women grew by less than half a percentage point, while for women in the U.S. it grew by almost 3 percentage points.

However, since 2000 this trend completely reversed. Between 2000 and 2015, the employment rate for women in Japan increased by almost 14 percentage points, while in the U.S. it dropped by over 6 percentage points. Japan’s employment rate for women surpassed the U.S. in 2014. Currently, almost 65 percent of Japanese women are employed, while only about 63 percent of women in the US are employed.

In recent years, Japan has launched extensive campaigns to encourage labor force participation by women. The government took various steps such as increasing allowances given to new parents, subsidizing daycare, and ensuring both mothers and fathers benefit from paid parental leave.

A look at the employment rate for women in some other OECD countries over time shows that other countries had increases similar to Japan’s. The only country besides the U.S. where the participation of women in the labor force has decreased since 2000 is Denmark, which has seen a 1.8 percentage point drop in the employment rate of women. Despite this drop however, Denmark still boasts one the highest employment rates for women of any country in the world.

In Germany, Japan, Canada, France, and the U.K. the employment rate for women has been increasing. In the last 10 years, German women have seen the biggest gains in their employment rate, which increased by 17 percentage points. The increases in the other countries have been more modest: 2 percentage points for Canada, 11 percentage points for Japan, 4 percentage points for France, and 3 percentage points for the U.K.

By 2015 only France had a lower employment rate for women than the U.S. While France still trails behind the U.S., it has made progress in the past 10 years. The employment rate for women is on a steady upwards trend, meaning it could surpass the U.S. in the near future.

What all other countries besides the U.S. have in common is fairly generous parental leave policies for new parents. While in the U.S. new parents have no guarantee of paid leave, in Japan both mothers and fathers can take up to 58 weeks of paid leave. New mothers are guaranteed 58 weeks of paid leave in Germany, 52 in Canada, 50 in Denmark, 42 in France, and 39 in the U.K. For new fathers, France offers 28 weeks of paid leave, Germany, nine weeks, and the U.K. and Denmark, two weeks.

Furthermore, child care costs in the U.S. are extremely high, and are growing at a much faster pace than overall inflation. The rising costs of childcare make it unaffordable for many parents, especially for low-wage workers. The Economic Policy Institute found that childcare costs in some areas can take up more than a quarter of a family’s income. In some states, costs for daycare are higher than for college tuition.

This post originally appeared on the blog of the Center for Economic and Policy Research.