From the TUC

Why equality matters to the Eurozone crisis

15 Jun 2012, by in International

I’m speaking tonight in Birmingham at an event we’ve co-sponsored with the Foreign Policy Centre and the European Commission Representation in the UK, about UK persepctives on EU employment and social law. Here’s some of what I’ll be saying, explaining on the Eurozone crisis is all about equality, and how worker and union rights can help restore European growth.

It’s sometimes difficult keeping up with what’s going on in Europe: and this weekend, with the elections in Greece, is going to be no different. But at the same time, you can’t help feeling that nothing is changing. EU employment and social law certainly seems stuck. Despite the recent publication of the Commission’s employment package, we don’t seem to be getting anywhere. Since the flurry of ECJ rulings generally now referred to as “Viking and Laval” but including several other important cases, the debate seems to have stalled.

Mario Monti, before he became Prime Minister of Italy, suggested a way of taking things further (or as some would say, putting them back) called Monti II, but that now seems to have been rejected by so many Governments that it is dead in the water.  And I seriously doubt whether the answer is Monti III.

Some people may feel that, with the Eurozone imploding and countries like Greece and Spain exploding before our very eyes on the telly, the stalemate on employment and social affairs is hardly the biggest issue we could be discussing. But actually, it is the very heart of the problem facing Europe.

First, the Eurozone crisis isn’t the result of lazy, profligate, tax-dodging Greeks, or corrupt Spanish banking practices, rampant sovereign debt or even the bullying of the bond markets. For a start, most Greeks pay their taxes the same way most of us do, through PAYE, and whilst richer Greeks dodge their taxes just like rich people everywhere, the vast majority of Greek people – before so many of them lost their jobs – were putting in some of the longest working weeks in Europe.

No, the Eurozone crisis is about inequality. Inequality within nations, and inequality between them.

The countries who now face a sovereign debt crisis were not the ones which, before the global financial crisis, had the highest government debt to GDP ratios. The countries facing crisis today were the ones that had the highest net trade deficits: it’s a rash generalisation, but the countries in the south of Europe were borrowing money from German banks to buy the things Germans make.

Why did they borrow? Well, low interest rates certainly helped, but the other reason why people in Southern Europe were borrowing like crazy was the same reason that people in this country have developed some of the biggest personal debts in the world: basically, their incomes weren’t high enough to afford what they wanted – in some cases needed – to buy.

And one of the main reasons that they needed to borrow to do that was because, over the last twenty to thirty years, wages have not kept pace with the growth of GDP.

Indeed, in Britain, before we even entered the so-called lost decade, wage growth had slowed so much that living standards for most of us have been stagnant since 2005. Now we’re not even keeping pace with inflation and people are getting absolutely as well as relatively poorer.

Most Governments across Europe have responded by taking steps to stop people borrowing, but it’s only been borrowing that has kept growth up – take away that borrowing, whether it’s public or private, and the economy grinds into recession, which is what has happened over most of Europe.

I’m not, however, going to argue in favour of borrowing as the best way out of the current situation, although as noted revolutionaries like the FT’s Martin Wolf have said, Governments that don’t borrow when interest rates are so low are pretty much insane.

No, the solution that the European trade union movement wants to see is higher wages. And it’s not just us.

  • The German Finance Minister – a centre-right politician, remember – recently endorsed the German manufacturing union IG Metall’s 6% wage claim.
  • The head of the OECD, the former neo-liberal Finance Minister of Mexico, says that inequality is preventing growth and that progressive tax and benefit systems and wage increases are a key part of the answer.
  • And Christine Lagarde, Sarkozy’s former Finance Minister who now heads the IMF says that “countries with more equitable distributions of income are associated with greater macroeconomic stability and more sustainable growth over the longer term.”

Moving back towards income equality across Europe, by raising wages for middle-income earners and the low-paid, and perhaps trimming something off the top salaries paid to bankers and bosses would do a lot to solve Europe’s crisis in the long-term.

And this is where the EU’s employment and social policies come into play.

You can do a lot to legislate for fairer pay – the minimum wage, for example, or equal pay for women, part-timers and agency workers. The EU has done some of that, and could do more.

You can use the tax and benefit system as well, redistributing money from the wealthiest to the poorest, and those with extra costs because of children – something especially dear to my heart as I expect to be able to start claiming Child Benefit within days!

The EU probably has less of a role there, although the TUC and our sister organisations around Europe are keen to pursue a financial transactions tax – or since we’re in the Midlands, let’s call it the Robin Hood Tax – which the IMF says would be a progressive tax paid mostly by high net worth individuals – which since we’re speaking English let’s call “the rich”.

And you can make it easier for unions to bargain collectively for better wages, and that’s where we come back to restrictions on trade union activity such as the right to strike and the right to bargain collectively, as set out in Viking and Laval.

What unions want to see from Europe is an end to austerity, an end to reductions of workers’ rights, and a new European social model that reverses a generation of widening inequality.