Monday 3 August 2015

Who's really paying for the financial crisis?

John Monks, was head of Europe's Trade Unions and is now a Peer
Interview with: John Monks Head of European Trades Unions in 2010

In a rare moment of summer heat in Brussels Andy Carling sat down with John Monks the Secretary General of the European Trade Union Confederation to talk about workers rights, just how we may get out of this financial crisis without increasing the levels of poverty and things that he and European Commission President Jose Manuel Barroso agree on. The interview follows below.

There seemed to be some unanimity between you and Barroso over the risk of social unrest right across Europe, but you seem divided on how you avoid it.

This is a very, very dangerous period for Europe because the economic crisis was the most severe crisis, and it’s affected the world, rather than specific countries. The costs of the bank rescue have been transferred to the public balance sheet. Within a period of about three or four weeks, the mood in European governments changed, from being relaxed about debt, to panicking.

Greece was the start and it spread to Spain and Portugal and the rest of them dread being in the same position, not least Britain. If Standard and Poor or Moody’s mark you down, that sends your interest rates up and the Greek one is still, on a 10 year market bond, over 10% a year. On a German one, it’s 2.5%.

The power of the markets, which were ironically bailed out by the bank rescues, otherwise they’d have all gone down, has now turned their attention to sovereign debt. They managed to transfer their debt onto the public authorities, who are now in trouble. The initial response to the crisis was quite good, they kept up spending, stimulus packages to varying degrees.

The European approach, since the problem burst on individual countries has been less sure. It took them a long time to deal with Greece and the price of dealing with Greece has got higher and higher. Worse, the terms that Greece has got are penal. The basic message being, if you get into the position Greece was in, Europe will punish you, you’ve broken the rules.

Not only the terms are severe, they’re more severe than the IMF is imposing on other countries, but they’re more detailed. It’s almost a colonial imposition. The German approach is that it’s the rules that matter. We’re going to be tough. Whether the social systems of these countries can stand it, we just don’t know. The real pain will come this Winter. The cuts at the moment have been the prospects of cuts. They’re plans, not operative yet.

Some are arguing for austerity packages as a short, sharp shock? Could that approach have longer term implications?

The question is what kind of short, sharp shocks? Sweden did 50/50. 50% taxes on the rich and comfortable and 50% of public expenditure cuts. They spread the pain in a way that was socially cohesive. Nobody’s talking  50/50 now.

Cameron (British Prime minister), is talking 80/20. 80% public expenditure cuts and 20% tax, not always on those who can afford it. To be fair to him, He’s not Thatcher. He’s very different to her. The very poorest may be protected but those just above will be paying the bloody bills for it.

I think the effects on employment will be harsh. In many areas, especially the poorer ones, 50% are employed through public services. The public sector share of GDP is 50% - 60% in the weaker parts of the UK.

Will we face social unrest?

I’m aware of the pressure from a lot of countries, for Europe wide action. We’re having a day of action on September 29 and that’s building up to be a big thing, there could be 70,000 from Belgium alone.  There will be demonstrations in other parts of Europe and it’s getting momentum.

What effect could these austerity packages have on the European project?

There’s no doubt about it, that Germany, the Netherlands Finland and others believe that you can’t have a sound social system without sound finances. Secondly, they’ve managed more or less to achieve that. If they’re in the single currency zone, that’s got to be the rule otherwise they don’t want to be in the zone. They’re not giving people a free ride.

That is a political reality that the rest of Europe has not yet adjusted to.  The terms for any bailout are getting tougher. Is Europe going to be popular? It’s not, is it? It’s the IMF plus, particularly for countries in the Eurozone. You can understand why somebody in Germany could ask, why didn’t think of that before, but the Euro is a benefit to Europe. God knows what would happen to all the currencies in this crisis, a 1931 type crisis, if we didn’t have the Euro. This is a massive stress test for the Euro.

These cuts being imposed are being imposed, not just in Greece and Portugal, but also in Germany, where they’re obsessed with austerity and I don’t think they need be. I believe in counter-cyclical spending by governments, buy Keynesian economics never went very deep in some parts of continental Europe.

Talking of the 30’s is quite an emotional statement and coupled with Barroso’s reported apocalyptical remarks about the possibility of states losing democracy.

He didn’t quite say that. He did say they could not survive in a recognizable form, which we interpreted as the return of the colonels or something, but he would deny he was quite that lurid. But the mood towards austerity packages is “if you do it you’re in trouble, if you don’t, you’re in a lot more trouble”.

What is your vision of a solution?

We argue that there should be a concerted effort by the EU to spend. 1.4 of EU GDP, which is a hell of a lot of money, on a recovery package, that would be financed, in the main, by Eurobonds, issued to the Euros credit, which is strong, and financial transaction taxes. This would fund investment in sustainable technologies, investment in the young, who are getting screwed most at the moment by the economic situation. Youth unemployment is double the average, and support for the weaker regions.

A fund needs to be assembled, operated by the EIB or EBRD so we’ve got some growth spots and the charge doesn’t appear on the national register.

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