Fiddling while Europe burns

Paul Sweeney07/06/2012

Paul Sweeney: Today’s Financial Times tells us that in an effort to persuade Spain to accept a bailout, “unlike earlier bailouts for Greece, Portugal and Ireland, the proposed Spanish rescue would require few austerity measures beyond reforms already agreed with the EU and could even dispense with the close monitoring by international lenders that has proved contentious in Athens and Dublin, according to people familiar with the plans.”

It is reported that the oversight of the support to Spain would be dependent on increased outside oversight and faster restructuring of the banking and financial sector.

Why should Ireland and Greece have severe austerity imposed under the Memorandum of Understanding with the Troika of the EU, ECB and IMF while Spain gets off more lightly in comparison?

The answer is of course, size and importance. Ireland is unimportant in the order of things and this hard lesson is being driven home in the wake of last week’s referendum vote. We can be the model of goodness and obedience and the veritable “Poster Child of Austerity” but it still does not matter to the kingpins in Europe.
Not that austerity at this level is working. It is exacerbated by European and world conditions, but still is too severe in such a short time period. Yes we are heading towards target - if not acutely to hit it - on the deficit level, but little else is working. Growth is anemic and at last year’s level of GDP growth of 0.7 per cent, (if it's not revised downwards by the CSO later) it would take 15 years to get back to the level of 2007 GDP. It would take far longer on GNP and a very long time for the recovery of domestic demand to reach the level of five years ago.

Unemployment is at a very high level of over 14 per cent and it is at 25 per cent by the wide measure – officially. Emigration is very high too and participation in work has fallen dramatically especially for women and the young.

It is excellent that FDI continues to flow in and jobs are created. This shows that the fundamental economy in Ireland is working. Indeed it is working very well – very well!

But it is not enough. Domestic demand has fallen massively. And it is not just the collapse in investment (due to lack of confidence but also lack of state-led investment) but especially its main component – consumer spending.

What would help? If the so called leaders in Europe (largely a bunch of conservatives hide-bound by 1920s economics) could get their act together before the whole edifice falls apart, that would be most helpful. The edifice that is collapsing is both the euro, the European Social Model, the Single Market and the European Project itself. They have been fiddling while Europe burns - for four years now.

The election of Hollande has changed the balance, somewhat. The EU is no longer dominated by Germany and France. (It may seem like it is now just Germany, but Merkel is increasingly isolated). This gives some hope. If the left is elected in Germany and Italy within the next year, all may change. But social democracy and socialism in Europe is in crisis too.

Many of the political leaders of social democracy and socialism have forgotten their core values. Instead, they espoused what is now fairly clearly a failed market system. Most have now recognised this. Yet most these leaders still seem immobilised. Intellectually and politically.

The immediate answer should be the message that – “the European Social Model is alive and well. When sustainable growth returns, it will be enhanced.”
It’s a simple message which would give hope to hundreds of millions in Europe. It also needs to be accompanied by policies to stimulate growth, now. For them, it seems the European Social Model is under deep threat. It not just that ECB boss Draghi said the Model is finished, but the conservatives have decided to end the Post-War European Social Contract.

They simply want to keep the money. Sharing is out. The cake is no longer growing. The Soviet tanks are no longer in Germany. The alternative socialist vision is blurred. What impetus is on the elite and owners of capital to share but the minimum, with labour?

The European elite have decided, along with their US cousins, that inequality does not matter. But they are very wrong, as Joe Stiglitz says in the blog below. He says “Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset – its people – is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending.”

In conclusion, it does seem that we are heading back to naked class war in Europe.
If you do not believe me, then why are the European elites and the ECB saving the banks and letting sovereign states sink? Why, after four years, are there still no solutions?

Posted in: InequalityBanking and financeInequality

Tagged with: austerityinequalitybanks

Paul Sweeney     @paulsweeneyman


Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.



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