Today, millions of workers across the whole of Europe will engage in an action day against austerity and in favour of jobs and solidarity. There will be general national strikes in Spain, Portugal, Greece and Italy, with sector and company level strikes in other member states. Workers will also be marching on the streets in France, Poland, Czech Republic, Romania and Slovenia. From other member states, solidarity declarations, accompanied by punctual actions, will be made. Here in Brussels, trade unions will hand over the “Special Nobel prize of Austerity” to the President of the Commission.
Workers are more than right to stand up against the Europe of austerity and flexibility. Indeed, what the financial and political elite in Europe have done in the aftermath of the 2009 financial crisis defies all imagination. This elite has actually managed to rewrite the history of the financial crisis and to put forward the view that the crisis was not caused by banks and financial market failure but by public spending and wages spiraling out of control. However, what actually happened in reality is exactly the opposite: High and rising public spending or wages eating up profits did not cause this crisis. The crisis was triggered by capital flows, generating unsustainable housing and financial bubbles in many member states, and thereby saddling these countries up with enormous (private sector) debt loads. When, in 2009, these bubbles burst economies collapsed. Governments in charge had no other choice but to resort to deficit spending to finance the holes in public budgets that resulted from unemployment benefit shooting up and tax revenue falling. Rising public deficits, far from causing the crisis, functioned as the circuit breaker saving Europe in 2009/2010 from entering in a new Great Depression.
Moreover, this reinterpretation of the causes of the crisis has not been limited to a purely intellectual exercise. Most unfortunately, and pressed by a European Central Bank, identifying the sovereign debt crisis as an excellent opportunity to push through its free market biased policy priorities, fiscal policy across the whole of Europe became restrictive.
From Spain to the UK, from Greece to Latvia, from Hungary to Ireland, from Romania to France, member states engaged in sweeping deficit reduction programs, mainly based on spending cuts and hikes in value added tax rates. These fiscal savings, when all of these programs are totaled, amount to hundreds of billions of purchasing power being taken out of the European economy.
This type of policy has been disastrous. What the zealots of austerity have managed to do is to short circuit the recovery and to push the economy back into recession: Economic activity in Europe will shrink by 0,3% in 2012. Moreover, no real recovery is expected to take place and economic activity in the Euro Area in 2013 is expected to stagnate. With economic activity in the doldrums, there’s unfortunately also little hope for the unemployed: Unemployment, already standing at 11,6% in the Euro area (as of October 2012) will continue to rise to even higher record levels.
Despite these disastrous outcomes, the basic response of the financial and political elite in Europe is not to change track but to continue with the policy of austerity. Indeed, according to the Commission analysis, the economy is back in recession, not because there has been too much fiscal austerity but too little!
To arrive at this conclusion, the Commission is once again drawing upon the old argument of confidence. Fiscal cuts, so the argument goes, have clearly been insufficient since they failed to restore financial market trust, thereby also failing to restore the flow of credit to the real economy and hampering investment and economic activity. In other words, the Commission’s view is that if governments would have gone for more austerity, then financial markets confidence would have been restored. Credit would have flown abundantly into the economy and would have allowed a new expansion of economic activity and this despite the massive policy of fiscal austerity that would have been operated.
A look at the facts makes it clear that the Commission’s argument is absurd. According to the latest IMF fiscal monitor, Euro zone governments are engaged in consolidation programs amounting to 3% to 4% of GDP between 2010 and 2012/2013. Put bluntly, by cutting public sector wages, jobs, investments and social expenditures member states have taken €300 to €400 billion of demand and purchasing power out of the economy in only two years.
The key question therefore is that if €400 billion of savings and cuts are not enough to calm financial markets, will €600 or €800 or €1000 billion do the trick? Isn’t it time for the European policy elite to consider that if the patient is dying it may be because he or she has been given an entirely wrong and even deadly treatment and not because the patient did not get enough medicine? The reality is that markets not only care about financial indicators, they also care about the real economy. Markets know very well that when jobs and investment go down the risk of debt default is going up.
Finally, and reflecting an old German saying that ‘if the government does not agree with the people, it should re-elect another people’, the discussion is taking on an absurd and dangerous dimension. For example, over the summer of 2012, a prime minister of one large member state (who himself was never elected), publicly declared that it’s the responsibility of governments, after having agreed to policy decisions in Brussels, to educate their national parliaments on the necessity of these policies. Even worse is the new term of ‘market conforming democracy’, a term that was recently launched in German public opinion by the Chancellor herself. What these two heads of state are actually suggesting is that the competence of national democracies should be subordinated to what the economic and financial elite considers necessary to save the single currency.
At today’s action day, workers in Europe will not only be fighting against the policy of austerity or fighting to safeguard the social dimension. They will also be fighting to save the essence of democracy in Europe from narrow and unbalanced rules being imposed and dictated by a certain elite.