From the TUC

2012: Europe needs a new social compact to challenge the crisis

31 Dec 2011, by in International

European Union countries face a return to recession in 2012, but instead of pro-growth policies from Europe’s political leaders, the European Commission, the European Central Bank and the European Council (ie Europe’s governments) have been pressing on with their plans to lock austerity into the economy by enforcing rules on balanced budgets. As the ETUC’s call ahead of the December European Council, and its response to the outcome make clear, we need a new social compact between governments, employers and unions to combat unemployment and avoid the social unrest and poverty that is spreading through the EU’s ‘periphery’ and could become contagious.

The December statement by Euro area leaders was reported – at least in Britain – through the prism of Cameron’s unlilateral (as it turned out, although clearly he expected to have allies) attempt to veto the agreement over financial transaction taxes affecting the City of London. But it was actually fully in tune with the UK government’s ideological approach to government spending. And the Cameron government has been suspiciously quiet about the attempt by Europe’s leaders to centralise control over member states’ economic policies, suggesting he would be happy with the outcome, even though the process would mean giving up precisely the sovereignty he is pledged to strengthen.

A new fiscal compact

Central to the statement was a new ‘fiscal compact’, adding to existing measures on economic governance, the ‘enhanced’ Stability and Growth Pact, the European Semester and the Euro Plus Pact. The fiscal compact includes a rule “introduced in Member States’ national legal systems at constitutional or equivalent level” that governments’ annual structural deficits should not exceed 0.5% of nominal GDP, and that if they do, automatic correction mechanisms should be triggered. It also includes an enforceable requirement to take action once governments are in deficit by 3%, as well as rules providing for the European Commission to assess governments’ budget plans. Beyond this compact, the conclusions also set out a commitment to “working towards a common economic policy” with major economic reforms planned by member states discussed in advance by the EU.

What all these Orwellian programmes essentially mean is outlawing Keynesian demand management economic policies, where governments borrow and spend to overcome recession (recessions being marked by an absence of private borrowing and spending). They require massive cuts in government spending (not just in countries in crisis like Greece, Ireland, Italy. Portugal and Spain, but anywhere with government budgets in deficit), and are accompanied by attacks on workers’ rights (eg proposals to exempt small businesses) and on pay rates (eg attacks on collective bargaining rights and measures like Belgium’s index-linked pay increases). These are all policies that David Cameron supports in the UK, and has indicated he supports in Europe.

The alternative: a new social compact

The European Trade Union Confederation is developing policies and campaigns aimed at increasing wages (to stimulate demand and reduce inequality), greater investment in creating quality jobs in greener, higher-skill industries and public services (including better provision for education and traning), and social protection floors to protect the vulnerable (such as the unemployed and the low paid). The purpose is to create a European economy that is more socially just, and thus, more resilient to future economic shocks. Further work will be done at an extraordinary ETUC Steering Committee in January, and in planning the ETUC’s campaign against austerity which will be launched in April.

These longer term solutions, however, first require immediate action to tackle the current crisis such as giving the European Central Bank the power to back the debt of Governments under pressure from the markets. ETUI’s Andrew Watt has proposed this and more in his recent SEJ blog.