‘European Disintegration, Unemployment & Instability’ From TTIP
The problems of TTIP are so many – total lack of meaningful transparency, the unnecessary inclusion of an ISDS chapter, the threat to Europe’s high standards governing health, safety, the environment, labour etc. – that the agreement’s supporters have been forced to fight back with the only thing they claim to offer: money. TTIP, they argue in multiple ways, will take us to the land of milk and honey, boost the GDP massively, and lead to lots of extra dosh for every family in the EU.
But as I’ve explained, none of this is true. Even the European Commission’s own research shows that the most ambitious outcome – that is, one that is already totally unrealistic given the resistance that TTIP is meeting – would produce a boost to Europe’s GDP of 0.5% – just 119 billion euros. However, as I and many others have pointed out, this is after ten years, and therefore represents a *cumulative* boost to GDP, which works out at around 0.05% GDP boost per year on average. Here’s someone else joining that chorus:
at the end of the simulation period in 2027, GDP would be 0.5 percent higher in a TTIP scenario than the baseline, non-TTIP scenario, implying negligible effects on annual GDP growth rates.
That comes from an important new study by Jeronim Capaldo from the Global Development and Environment Institute at Tufts University in the US. It also points out the obvious fallacy with the European Commission’s claim that EU households would gain 545 euros every year:
these estimates are misleading since the studies provide no indication of the distribution of income gains: they are simply averages. With EU wages falling as a share of GDP since the mid-nineties, it is far from certain that any aggregate gains will translate into income increases for households living on income from wages (as opposed to capital).
Or, to put it more bluntly, claiming that any benefit from TTIP would be shared out equally among all families in the EU is only going to happen if communism sweeps across the continent – and about as likely.
Capaldo’s study begins by pointing out the glaring flaws in the Computable General Equilibrium (CGE) model used by the studies invoked by the European Commission. This CGE approach includes the astonishing assumption that employment will not change as a result of TTIP, because somehow the inevitable job losses in some industries will be magically balanced by job creation in others. Morever, as I have discussed before, another huge flaw in the CGE approach is that it ignores the costs it brings. As Capaldo puts it:
the strategy chosen to simulate a “TTIP future” has a strong impact on the results. Ecorys assumes that so-called “Non-Trade Barriers” impose a given cost on trade and that TTIP can remove up to one half of them. CEPR and CEPII borrow this approach, but assume a lower share. These barriers can include what other stakeholders refer to as consumer and environmental regulations. Phasing them out may be difficult and could impose important adjustment costs not captured by the models.
In an effort to avoid these and other problems, Capaldo uses a different model:
To obtain a more realistic TTIP scenario, we need to move beyond CGE models. A convenient alternative is provided by the United Nations Global Policy Model (GPM), which informs influential publications such as the Trade and Development Report. The GPM is a demand-driven, global econometric model that relies on a dataset of consistent macroeconomic data for every country.
You can read the detailed results in his paper, but his title sums things up pretty well: “The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability”. Using a more advanced model, that does not bake in ridiculous assumptions like no job losses, TTIP is predicted to produce the following chilling consequences for the EU and its citizens:
TTIP would lead to losses in terms of net exports after a decade, compared to the baseline “no-TTIP” scenario. Northern European Economies would suffer the largest losses (2.07% of GDP) followed by France (1.9%), Germany (1.14%) and United Kingdom (0.95%).
TTIP would lead to net losses in terms of GDP. Consistent with figures for net exports, Northern European Economies would suffer the largest GDP reduction (-0.50%) followed by France (-0.48%) and Germany (-0.29%).
Thus, even the paltry 0.5% GDP gains of the European Commission’s study prove hopelessly inflated.
TTIP would lead to a loss of labor income. France would be the worst hit with a loss of 5,500 Euros per worker, followed by Northern European Countries (-4,800 Euros per worker), United Kingdom (-4,200 Euros per worker) and Germany (-3,400 Euros per worker).
This contrasts with that illusory 545 euros per household, as claimed by the European Commission. Instead, a typical UK working family would lose thousands of pounds per year as a result of TTIP, according to this analysis.
TTIP would lead to job losses. We calculate that approximately 600,000 jobs would be lost in the EU. Northern European countries would be the most affected (-223,000 jobs), followed by Germany (-134,000 jobs), France (- 130,000 jobs) and Southern European countries (-90,000).
TTIP would lead to a loss of government revenue. The surplus of indirect taxes (such as sales taxes or value-added taxes) over subsidies will decrease in all EU countries, with France suffering the largest loss (0.64% of GDP). Government deficits would also increase as a percentage of GDP in every EU country, pushing public finances closer or beyond the Maastricht limits.
TTIP would lead to higher financial instability and accumulation of imbalances. With export revenues, wage shares and government revenues decreasing, demand would have to be sustained by profits and investment. But with flagging consumption growth, profits cannot be expected to come from growing sales. A more realistic assumption is that profits and investment (mostly in financial assets) will be sustained by growing asset prices. The potential for macroeconomic instability of this growth strategy is well known after the recent financial crisis.
Even if the UK escapes relatively unscathed on the employment front, losing “just” 3,000 jobs according to the new model, it is hit badly in terms of falling Government tax revenues (down 0.39% of GDP) at a time when the country’s national debt is big and getting bigger. In other words, far from being a panacea, a “once in a generation prize”, as David Cameron called it, TTIP would probably fatally wound the European project, not least because it will lead to the economic hollowing-out of the EU – something already predicted in previous models. Capaldo explains:
increases in trans-Atlantic trade are achieved at the expense of intra-EU trade. Implicitly, this means that imports from the US and imports from non-TTIP countries through the US will replace a large portion of current trade among EU countries.
Capaldo’s conclusions make for grim reading:
First, as suggested in recent literature, existing assessments of TTIP do not offer a suitable basis for important trade reforms. Indeed, when a more realistic model is used, results change dramatically. Second, seeking a higher trade volume is not a sustainable growth strategy for the EU. In the current context of austerity, high unemployment and low growth, increasing the pressure on labor incomes would further harm economic activity.
Some will doubtless say this is just one model, and might be wrong. But exactly the same argument can be applied to the widely-cited CEPR study, and yet the Commission is happy to accept its predictions uncritically, as if its figures were certainties.
Whether or not you believe that Capaldo’s model is superior – and that’s a matter for economists to argue about – it would clearly be reckless to pursue the TTIP negotiations without commissioning much more detailed research to explore the agreement’s likely impact, and to get a better idea of its real benefits – if any.
To give up national sovereignty because of ISDS’s supranational powers, and weaken Europe’s high standards in order to remove “non-tariff” barriers, is bad enough. But to bargain them away in return for a flawed agreement that will harm every economy in the EU, and leave families thousands of pounds worse off, is just beyond stupid.