Heidelberg Institute at the Economic Summit Europe 2018

HI presentation on macroeconomics of mutuality at the Hague

THE HAGUE/AMSTERDAM/HEIDELBERG. From April 12 through 13, 2018, Rosen Ivanov, director of the Heidelberg Institute's Center for Fair Economics & Finance and member of the Board of Advisors at the Heidelberg Institute, took part in the Economic Summit Europe 2018, which was held in the Netherlands.


The Economic Summit exists to promote the dissemination and implementation of new paradigms on finance and economy based on Christian tradition, faith and thought, and transformational businesses generating four-fold capital (human, social, natural and profit) as new models for poverty alleviation and sustainable economies. One of the emerging new ways of doing business is the so-called Economics of Mutuality (EoM), a concept pioneered by Dr. Bruno Roche, senior economist at Mars Inc. and the Managing Director of the Mars Catalyst Think Tank. EoM is a robust methodology to re-position the corporation positively, in ways that reflect the changing needs of society and the environment while unlocking untapped growth and value creation opportunities.

The motto of the Economic Summit Europe 2018 was “Making government and business mutual” as the focus was on the practical applications of EoM in business and management practice as well as in government and public policy. On April 12, the summit took place at the Dutch Parliament buildings in The Hague at the invitation of the political party Christen Unie which is part of the current Dutch government. It was opened by the Dutch Finance minister Wopke Hoekstra who shared his conviction that mutuality should be a key principle for the Dutch economy.

Later on that day, Rosen Ivanov from the Heidelberg Institute delivered his presentation on “Macroeconomics of Mutuality: The Case of the European Union,” and took part in the panel discussing the evolution of the regulatory and legal environment. In his presentation, Rosen talked about some of the necessary pre-conditions for sustainable prosperity of individuals and companies, and thus the economy as a whole. In particular, with respect to individuals, he pointed out that an essential condition is for all people to be able to find paid work. Regarding companies, he noted that private businesses needed to be able to make a profit in order to continue to operate, and thus, money in the private sector should be continuously increasing.

He then recalled that money in modern societies was a creation of the state, and therefore, it was the government which had influence on how much credit-free money would enter the economy. More specifically, the mechanism by which governments increase money in the economy is by running public deficits. Thus, provided this is done under certain limitations, there is actually a big benefit from public debts which are an indication of the amount of money which the government has introduced in the private economy via previous deficits. This is only valid if the public debt is issued in the respective sovereign currency, in which case there is no need in principle to default on such debt.

Keeping in mind this understanding of contemporary money, Rosen then proposed a solution that would satisfy both preconditions. In this solution, following the advice of early Keynesianism, revived under the contemporary school of Modern Monetary Theory, the public sector will create and offer as many jobs paying a minimum salary as needed to employ anyone who is willing to work but unable to find work in the private sector. The primary source of financing for this is to be via additional public debt denominated in the currency of that country. Counterintuitively, calculations show that this may actually reduce the government debt burden as, due to the significant fiscal multiplier effect, the actual debt to GDP ratio, indicative of long-term fiscal sustainability, is expected to go down, especially in the cases of over indebtedness.  

This solution is especially relevant for the rigid Euro Zone institutional framework with the independent but limited in its mandate European Central Bank and the restrictive Stability and Growth Pact. For example, according to different estimates related to the Greek crisis, it is clear that less austere policies, especially if coupled with direct job creation programs, would have led to much lower debt to GDP burden than what materialized in practice. At the same time Hungary, which runs the biggest direct job creation program in the EU at the cost of increased deficits, has seen the most dramatic fall both in unemployment and poverty rates in recent years.

As a conclusion, Rosen suggested that a full scale EU/Euro Zone Job Guarantee Program is introduced or as a minimum the Stability and Growth Pact does not restrict EU countries to run such programs at national level. Or, even more boldly, to ensure steady inflow of credit-free money into the private sector, the Stability and Growth Pact needs to be reversed, i.e. public deficits +current account balances should be at least 3% of GDP.