The visible whip of the EU

Alexander Beunder (KSU)
16-4-2011
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Is Europe itself the ‘invisible hand’ that’s forcing us into an era of austerity which dismantles the welfare state? If we are to believe the words of the British journalist Claud Cockburn – “Never believe anything until it’s officially denied” – then we should conclude that it is.

Van Rompuy to Greece: "Dont blame Europe" (Photo: Council of the European Union)

[Nederlandse versie] vertaald door GlobalInfo.nl: De zichtbare zweep van de EU

European Council President Van Rompuy told deputies in Strasbourg recently, after criticism of Europe’s austerity-focused response to the bloc’s economic crisis: “Some people fear this work is about dismantling the welfare states and social protection. Not at all … It is to save these fundamental aspects of the European model.” Not only EU-leaders are denying it officially. Dutch politicians are denying it as well if you listen closely. Last February the Dutch Minister of Finance Jan Kees de Jager officialy denied that Europe intends to dictate member states on pension reforms.

If it is not the case that Europe is dismantling welfare states, why is it being denied over and over again? The most obvious explanation is that many, like the Dutch labour union FNV, are countering the official denials by saying that Europe plans to dictate reforms in member states which should be left to national governments and social partners – on issues like pensions, wages and labour relations. The European Trade Union Confederation explained:

Economic governance, as currently proposed by the Commission, is about nothing else than cuts, cuts, cuts: Cutting wages, cutting jobs, cutting protection against easy firing, cutting social benefits, cutting public services. Workers are being presented with all of the huge costs of the crisis.

And the main instrument for this could be a new European pact that is being designed currently. Before the EU negotiations about this new pact started, we were already warned about it by the Corporate Europe Observatory (CEO). They analyzed the proposals in their January report called “Corporate EUtopia – how new economic governance measures challenge democracy“:

A European version of “shock doctrine” is about to be applied in the European Union. In the wake of the euro-crisis, new EU powers to intervene in labour markets and in member states” budgets, including social spending, will effectively impose a neoliberal straitjacket on national economies. Therefore, it is a crucial moment for proponents of a social and democratic Europe to prevent the Union from further degrading into an unaccountable corporate EUtopia.

The pact under discussion would, according to the CEO, pave the way for more EU-control over it’s member states’ fiscal policies. A simple scoreboard does the trick; the EU would be able to sanction member states when they score too low on some economic criteria set up by European technocrats. When a member state is – according to this scoreboard – suffering from excessive imbalances (for instance too generous wages or social benefits) this just might indicate that a country is in risk of running a budget deficit in the future. The EU-Commission might subsequently demand changes in it’s national policy on wages, labour markets or any macroeconomic issue. If these demands are not met, member states could be sanctioned financially, even before a budget deficit actually arises.

We might be facing an era in which the EU takes increasing control of national fiscal policy as part of a “silent revolution” (Barroso’s words) which would bring the EU closer to being a fiscal union. It seems a logical step after agreeing on being a monetary union, a customs union and many other unions, as well as one european education space by the way. Yes, European cooperation seems good, after centuries of European wars. But then the question becomes what kind of politics will rule it. And currently, it seems democratic accountability and public influence are insignificant at the European level, and big business lobby groups set the agenda, if we are to believe the Corporate Europe Observatory (CEO).

But this was probably to be expected. Some day the European Commission would stand up and say to the Eurozone members; “You’re not living up the stability pact, that you yourselves signed! This is threatening the euro. If you’d grant us more power, we’ll fix the problem.”

The stability pact? It’s not much more than the agreement of the participants to keep their yearly budget deficit beneath 3% of GDP. This might have seemed like a harmless, politically neutral clause at the beginning, but it’s now becoming a major issue in the political arena, as was predicted more than a decade ago. Already in 1997 a group of 70 Dutch economists predicted that the harsh stability-pact of the Eurozone would – in times of economic crisis – lead to severe cuts in social spending of which the poor would suffer the most. Social unrest would be the result. Moreover, it would endanger national economies as investments are needed to grow yourself out of a crisis, not austerity.

The question arises what’s left of national fiscal autonomy in a European Monetary Union. If we’re protesting austerity at the doors of our national parliaments, is there still a chance that they will concede to our demands? Less so, it appears. The significance of the European Monetary Union was explained in 2002 by professor of political sciences Werner Bonefeld as follows:

The importance of EMU [...] is that national states, on their own initiative, will no longer be able to accommodate class conflict through credit expansion or currency devaluation. EMU, then, inscribes the neo-liberal policy of market freedom… through the creation of supranational institutional devices that check expansionary responses to labour conflict.

As many states now indeed don’t seem to be able to keep their budget deficits below the 3%, especially in these expensive times of economic crises and bailouts to the financial sector, countries are beginning to feel the whip of the EU and the stability pact. Especially countries like Portugal, Ireland, Greece and Spain that might in the end all depend on loans from the EU to grow themselves out of the crisis (and as they are so often called number-manipulating ‘PIGS’, mainstream media refrains from looking at any other economic reason for their budget deficits – like European market integration, differences in competitiveness, speculative capital and a global financial crisis).

Greece was the first one to feel the visible whip of the EU. It accepted a much needed EU-IMF loan after investors suddenly deserted the Greek bond market in April 2010 (nobody ever really understands why they do so at certain times in certain places). In exchange it had to agree to a number of harsh demands, like reducing wages, dismantling social benefits and privatizing the economy, which would then, EU-technocrats argued, bring it’s budget deficit under the 3 percent again, some day. That day still seems far away, as the Greek economy is still not showing signs of recovery, and unemployment (especially for the young) has increased dramatically. As should be expected, social unrest is frequent.

As for the others; Ireland also accepted a controversial rescue-package and Portugal is likely to be the next to accept a EU-IMF loan, an offer they can’t (easily) refuse. Spain claims it’s still surviving without this kind of ‘help’. And of course, there are continuously fears that more European countries besides ‘PIGS’ are facing similar deficit problems.

Now is the perfect time for the European Commission to test how far they can go. In these uncertain times, EU states are increasingly facing sudden attacks on their fiscal balance sheets as international investors desert their bond markets and raise their interest rates. It seems easy for the Commission to sell to it’s member states any plan that might bring back some confidence to international capital markets.

The crucial question now is; how much sovereignty are member states willing to sacrifice for the stability pact? Our own Minister of Finance Jan Kees de Jager seems to be very happy with the pact that’s being designed. If we would have done this before, problems like that of Greece and Portugal could have been prevented, de Jager said.

However, the battle is still being fought. There are signs that these “social partners” are turning their anger increasingly towards Europe, besides or instead of at their own national governments. The EUobserver reported that “on 16 March in Bucharest some 50,000 workers hit the streets, according to the European Trades Union Congress and on 9 April in Budapest, Hungary’s six trade unions are to descend upon a meeting of EU finance ministers.” On March 24th around 20,000 workers from trade unions protested at a EU-summit in Brussels against “the imposition of the deepest level of economic integration in the EU’s history – the delivery of ‘economic governance’ in the union that will require wage restraint, hikes in retirement ages, public sector cutbacks and limits on government spending, amongst other stringent measures”.

It is being denied often enough to get suspicious. And as students, workers, the unemployed or any other concerned citizen, we should get suspicious. Seeing the lack of media-attention, these kinds of pacts might just turn out to be too easy to ram through parliaments without any significant discussion, for no politician would suffer reputational damage if nobody’s paying attention (remember how easy the under reported Lisbon Treaty was adopted in the Netherlands, while the almost identical widely reported European Constitution was rejected).

To conclude. ‘Civil society’ should get suspicious, have a broad discussion about the future of Europe and force politicians to vote against the dismantling of the welfare state. Or we might wake up one day in a European state, without welfare.

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5 thoughts on “The visible whip of the EU

  1. Pingback: The visible whip of the EU « Kritische Studenten Utrecht

  2. Great article. “nobody ever really understands why [investors suddenly desert] at certain times in certain places”

    The economist Robin Hahnel put it eloquently:

    There are two rules of behavior in any credit system:

    Rule #1 is the rule all participants want all other participants to follow: DON’T PANIC!

    Rule #2 is the rule each participant must be careful to follow herself: PANIC FIRST!

  3. Also interesting: an article (in Dutch) on mejudice which claims Greek and Irish taxpayers are paying German banks, not the other way around!

    http://www.mejudice.nl/artikel/595/de-mythe-van-merkel-ontkracht-europa-betaalt-voor-duitse-banken

    “De Mythe van Merkel ontkracht: Europa betaalt voor Duitse banken [...] betalen de Griekse en Ierse belastingbetaler dus om te voorkomen dat Duitse banken grote verliezen lijden. Via het eurofonds staat de Nederlandse belastingbetaler garant. Een redenering die haaks staat op die de Duitse pers ons voorschotelt. Maar de Duitsers houden de laatste mythe nog graag in stand.”

  4. Pingback: Do 15 sept. – KSU/Basta! Debate: Europe in chaos, from square to parliament « Kritische Studenten Utrecht

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