Why European treaties are theoretically wrong and empirically a disaster

The Euro area and the European Union have been performing well below world growth since 2000 and they will continue on this track in future years. In the meanwhile, US growth has been below world growth but well above European growth rates.  The paper will present a work in progress; in the first part I will revise the theoretical foundations of the last fifty years on economic growth and the impact of monetary and fiscal policy. Within the endogenous growth theory I will focus on human capital accumulation, education, artificial intelligence and impact on growth, trying to define what might be the limits of growth. Also the relationship between income distribution and growth will be investigated.

In second part I will present the empirical results of an econometric analysis of the performances of EU countries and mainly of the Euro zone over the last 15 years aimed to measure the impact of the Maastricht Treaty and of the single currency within a scheme of contrafactual simulations. I will also try to produce the same kind of analysis in terms of perspective for the next 5 years trying to evidence the need for economic and institutional structural reforms in Europe. Since, the EU is a relevant area within the world economy, in both, the contrafactual and the forecast simulations; I will also try to measure the interrelationships between the European economy and the rest of the world.

To “re-define” the European Union:

1. The ECB statute must control both inflation and economic growth, or, at least, the effect of the Euro quotation on economic growth and it must assign to the Central Bank the role of lender of last resort.

2. Maastricht must become “more rigororous”. It is necessary to introduce into Government Budgets the objective of Current Account Surplus (public savings) and for each 1% of current surplus (self-financing) allow 2-3% of public investments partially financed in deficit: a Platinum Rule more rigorous than the Golden Rule proposed 50 years ago by Robert Solow, which simply asked for leaving government investments out of the deficit account. The Platinum Rule is, indeed, the simple inclusion of solid financial leverage in economic policy decisions, in the same way as companies when they use their profits to finance at least 30 to 40% of their investments and find the rest through loans on the market.