From the TUC

European leaders: still advocating growth through poverty

01 Mar 2012, by in International

The European Union’s leaders are gathering in Brussels today for yet another summit, but this time they’re suddenly all committed to growth, after a couple of years of beggar-my-neighbour backing for fiscal contraction. Of course, they always maintained that cutting public deficits and slashing welfare states would lead to growth anyway (our Government leading the charge for ‘expansionary contraction’). But this time, they say, it’s different. Only, when you look at what they’re proposing, not so much.

As the European Trade Union Confederation has pointed out in its statement ahead of the summit, and as I remarked of David Cameron’s round robin letter with eleven other heads of government last month, the new ‘growth strategy’ is all about structural reform, which means reducing Europe’s already ailing system of workers’ rights. And governments around Europe have actually shifted remarkably little on public sector austerity, cutting deficits before the recovery has started, and reducing unit labour costs (that means workers’ pay, although they are doing precious little to cut unit labour costs where it might help, in the board room!)

The end result of structural reforms, although they take even longer to have an effect than the current cuts in state spending, is still recessionary. It’s theoretically possible to promote growth in an economy by structural reforms which reduce wage costs, but only if you can then sell exports much more cheaply, and to do that, there have to be lots of well off people around to buy them. For Europe, that simply won’t work – our exports sell globally on quality and innovation – because we are among the world’s richest economies: we’re precisely the people that poorer countries can sell goods cheaply to! (And while reducing wages, of course, people suffer – something that people seem to forget when talking about Greece for example.) Instead, Europe needs to increase internal demand, either through investment or consumption, and that means raising people’s wages not cutting them.

So what’s occurring (apart from yet another major economics 1o1 fail on the part of Europe’s political leaders?) Well, as we know it isn’t all about the economy. Europe’s predominantly right-wing leaders don’t just want to cut wages because they genuinely believe there’s a low road to growth. They want to further change the balance between the rich and the rest of us. Structural reforms, like cutting the welfare state, make that much easier: they have an alternative agenda.

But they also realise they are beginning to lose  both the economic and political arguments. The country where they have gone furthest with this strategy, ie Greece, is falling off a cliff in terms of living standards and growth (or negative growth, as they call recessions and depressions nowadays); and the country where they started this strategy, ie Ireland, has just thrown a spanner in the works by calling a referendum on the new EU ‘fiscal treaty’ which will give the Irish people the chance to vote against austerity (something that their General Election, fought as usual between Fine Gael and Fianna Fail really didn’t allow them, despite Labour’s best ever election result). So bodies like the IMF are promoting growth as the main priority; the ECB has begun, through cheap long-term loans to Europe’s banks, begun doing something similar to the quantitative easing it has often rejected; and Europe’s politicians are starting to pretend to care about growth and jobs.

Bernadette Ségol, ETUC General Secretary, is right when she says:

“Deregulation and flexibilisation are often advertised as the royal roads to job creation. These solutions on the contrary risk undermining job security, worsening working conditions and weakening the economy. When it comes to youth employment, recycling existing funds and spreading them thinly will not suffice. Youth employment is an absolute priority and must be part of a broader employment strategy in general. The emphasis must focus on developing new sectors based on a European industrial strategy, on instruments such as a tax on financial transactions and on Eurobonds, as well as on a fairer tax system.

“The European trade union calls for real commitment to active labour market policies that must be geared to quality jobs and social justice. This is what the trade unions demanded forcefully yesterday throughout Europe.”

One Response to European leaders: still advocating growth through poverty

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