When Neo-Liberals drop their Mask

There are those moments when things become very clear. One such moment arrived last week, on the 9 May when the President of the European Commission presented the Commission’s statement for Schuman Day also known as Europe Day.  This statement contains a number of enlightening comments, revealing the real thinking inside the Commission.

First, there’s the exact meaning of the Commission’s strategy of fiscal consolidation. Formally, the Commission advocates continued fiscal consolidation for distressed member states while those with sound public finances are allowed to let automatic stabilizers play. In this way, there’s a glimmer of  hope that the increase in deficits in one part of Europe would cushion the effects of austerity in the other part. However, this hope is immediately crushed by the Schuman Day statement when it explicitly says that for ‘most member states, the correction of excessive deficits remains the priority’. In other words, the Commission is calling upon the majority of member states to continue to engage in cutting deficits and this in the midst of a recession. The outcome is predictable: too much austerity and too little fiscal policy accommodation will produce a deeper, longer recession.

‘Structural reforms’, as we are all aware, are the Commission’s second pillar for accelerating growth. Here, the Schuman Day statement condemns ‘regulated prices in the electricity and gas sectors, adding to costs for end users’. This ignores the experience of member states such as the UK, Belgium and Spain where liberalization and deregulation of utility sectors such as energy amounted to dismantling so-called ‘State monopolies’ and installing private ones instead. With public regulators no longer having any control on the prices being charged, wages and households’ incomes were, and continue to be, squeezed by high energy prices while these privatised energy companies raked in colossal profits. Instead of learning these lessons, the Commission and/or its President seem to continue to believe that unfettered markets  offer major benefits, even if in reality these are essentially monopoly markets.

‘Flexicurity’ provides another example: for years now the Commission has been pushing for ‘flexicurity’, presenting it as a ‘quid pro quo’. Workers need to give up on job security but in exchange would get more security in the form of unemployment benefits., The Schuman Day statement however is brutally clear on this. It simply refers to “stimulating flexibility’ on the labour market without even making the usual symbolic reference to ‘employment’ security. The Emperor’s Clothes are thus revealed: the real agenda is simply to promote labour market flexibility as such.

For those who think that the eternal anchoring of fiscal austerity in a new European Treaty (the ‘Fiscal Compact’) and in national constitutions is the price to be paid for getting the sovereign debt crisis under control by jointly issuing European debt, the Schuman Day statement provides yet another sobering experience. It states that “once a sufficient level of fiscal consolidation has been achieved and the sovereign debt risk has been averted, the EU should give serious consideration to some form of joint issuance of debt for the Euro Area”. This shows that the Commission does not really support or believe in a Eurobond, at least not at this moment, when Europe is most in need of it. It wants to defer any seriously consideration of Eurobonds until much later, when the sovereign debt crisis is actually over. Of course, at that point (and it’s starting to look more and more  unlikely case that this moment would ever arrive), the crisis would be over and then the Commission or others would certainly argue that a joint issuance of debt is not necessary after all. In the Commission’s real thinking , there is no ‘quid pro quo’: member states simply have to tie the fate of their fiscal policies to the Fiscal Compact’s disciplinary rules without getting in exchange a near term perspective on European debt issuance, a perspective many member states urgently need to ward off the financial market attacks that are intensifying as we speak.

Finally, and perhaps most disturbing, is the message that is implicit in the press statement accompanying the Schuman Day statement and in which the President of the Commission clearly reacts to the hopes of many people and workers around Europe triggered by the recent election outcomes in France and Greece. Instead of taking this democratic vote against austerity seriously, President Barroso starts waving the warning finger by saying that ‘after stability measures, after structural reforms, we need to step up investment’. In other words, don’t expect a growth enhancing investment initiative unless the orthodox liberal policy model of , social deregulation and the rolling back of the role of the  state continues to be implemented.

With the Commission’s austerity drive (supported by too many member states) having pushed the economy into recession again, one could at least have hoped for some modesty from its President. A vain hope it appears.

  • George Irvin

    Excellent, informative piece which deserves to be widely read.