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Reaffirm the Post-War European Social Compact / Paul Sweeney

By Fri 1 Feb 2013May 10th, 2017Future of Europe, report & speeches

• Economic and social progress in Europe since the war has been remarkable. Living standards and improvements in housing, health and peoples’ security have been excellent. There had been a consensus with conservatives that national income and wealth would be shared, but with the prolonged crisis, growing numbers of conservatives no longer want to share. The cake is no longer growing – thanks to their policies – and they want to keep more of it for themselves.

• But the best way to grow national income is though social solidarity, education, investment, efficient public services and equitable incomes.

• Europe is under the control of neo-liberals both politically and in the Commission. This neo-liberal vision is myopic and totally at odds with that of the Conservatives in the past who had an inclusive vision for Europe. They are focused on completing the Single Market, on bailing out the private banks and on 1920s balanced budgets which impose great austerity on working people and are singularly failing to work.

• Re-building the European Social Model must be the priority of all progressive forces in Europe. Many Europeans fear that governments are neglecting citizens and are obsessed by appeasing the financial markets; have a very narrow view of “competitiveness”; and with fiscal rectitude. This means that the Post-War European Social Compact appears to be dying or dead for increasing numbers of European citizens.

• Green Party failed on this. The previous government tried an experiment in Internal Devaluation because there could be no devaluation in a single currency area. Fortunately, this strategy failed. Had it worked, the recession would be even worse. It would have sucked more demand out of the economy. Overall, the average employee who remained in work saw no decline in real hourly earnings from the beginning of 2008 when the Crash began. For some workers, in the export and other dynamic sectors, there have been small wage rises. The real losses were the considerable numbers (a huge 14 per cent fall) who lost their jobs. A recent study of how employers dealt with the total wage bill found that there had been cuts, but “however, these cuts were primarily achieved though employment reductions with relatively low contributions at the aggregate level from changes in average hourly earnings and average weekly paid hours.”

• Apparent confirmation of its death was given by the key unelected European leader, Mario Draghi, who said “Europe’s vaunted social model is ‘already gone’.” Thus a clarion call for all progressive parties must be that the European Social Model is very much alive. Not alone will it continue to be a core objective in progressives’ policy implementation in government, but we should guarantee that the Social Model will be enhanced in line with economic and social progress.

• The prolonged ineptitude of European leaders, predominantly conservatives, in dealing with the crisis effectively has undermined public confidence in the European project. The failure of austerity measures has led the same leaders to pursue them with more vigour, instead of learning from their mistakes. The Fiscal Compact will exacerbate the problem. Mr. Draghi also argued that “austerity, coupled with structural change [code for cutting low paid workers wages and welfare benefits], is the only option for economic renewal”. Like ancient Greek priests, appeasing the gods with sacrifices, he wants to feed even more of our living standards to the markets, saying “Backtracking on fiscal targets would elicit an immediate reaction by the market.”

• On top of this deep crisis, there are great challenges with ageing populations straining pensions, rising health costs, environmental issues and much more. There is a hollowing out of the middle with the growth in “Cool Jobs and Crap Jobs” worldwide. Solid pensionable jobs like banking, computing, parts of accounting, engineering etc. are being de-skilled and outsourced from Europe. The polarisation of jobs is a vital area which has to be addressed. Some of these challenges may mean doing things very differently, but all can be overcome. Revitalising the Social Model is the key to rebuilding confidence in Europe. One step in this direction is to have a clear understanding of one of the most abused concepts in modern economics – “competitiveness.”

• Ireland’s economic collapse in 2008 was not due to poor competitiveness, nor to public sector profligacy, but to gross irresponsibility by a small elite in the private sector, operating within what had become an ultra-liberal economic system. It was the private banking collapse, which the government foolishly under-wrote which brought Ireland down. Commissioner Rehn demanded, in Latin, “pacta sunt servanda” and in English that the Irish taxpayers “respect your commitments and obligations”. But these debts are not ours, but those of the private defunct banks, which our sacked government guaranteed, in our name, without our consent. Prior to this, European banks queued up to lend to our reckless banks, while the ECB looked on benignly. Tax policy – cutting direct taxes on incomes and profits, tax breaks especially for property investment and tax-shifting – also contributed substantially to Ireland’s current economic crisis. The third factor was de-regulation.

• Today Irish taxpayers are repaying the bank creditors (EU banks and hedge funds) of the six Irish banks which were socialised. This is an impossible task for 1.8 million people at work, where GDP has collapsed by over 13 per cent between 2008 and 2011, GNP by over 16 per cent and domestic demand by a staggering 24.9 per cent and is still in decline. Unemployment is at 14.6 per cent. When discouraged workers, those who would like to work full time, are included the official figure rises to 25 per cent. Youth unemployment is soaring and long term unemployment is 60.3 of the total.

• When the Trade Unions first met the ECB, EU, IMF Troika in late 2010 when Ireland was placed in Examinership, we pointed out that Ireland has many core strengths, but that the bailout package agreed by the Government with them made the economic recovery very difficult. We said that the deflationary impacts of the measures in the package are such that growth has little chance of reviving. This has been proven to be correct.

• Nor should we entertain the idea of a “two speed” Europe, which could allow an inner core to move towards closer economic and political union supposedly to “to protect the Union as a whole.” To move in that direction is to abandon solidarity and to miss this opportunity to build a cohesive Europe.

• The share of national income going to wages has fallen considerably in most developed countries since the early 1970s. The issue of the decline in labour income share involves equity, social cohesion and personal income distribution, longer-term wealth distribution, macro-economic stability and the composition of aggregate demand. The fall in labour’s share of national income was driven by globalisation, accelerated by technology, falling prices in transport and instant communications. In turn, these trends were accentuated by liberalisation of borders and markets, especially labour markets. The decline of Trade Unions and the paucity of vision and lack of ambition in progressive parties, which should be counter-forces to such trends, also facilitated the stagnation of incomes of the majority, in spite of economic growth and growth in labour productivity.

Fall in Labour Share of National Income:
                      1973        2011        Fall
France           62.2         58.7           3.5
Germany        63.2         57.9*         5.3
Italy                67.3         55.1         12.2
Ireland           65.3         52.5         12.8

*West Germany only until unification.
Source: Ameco

• A Common Fiscal Policy is key to addressing inequality, sorting out the banks and boosting demand by underwriting an EU wide stimulus programme. It may begin with a small budget overall, but a small budget in EU terms is still a lot of cash. I would go for tax co-ordination rather than harmonisation where member states can set rates, within bands, though a common tax base for companies makes sense in a single market. This means that Ireland’s low Corporation Tax regime must be negotiated as part of the deal on the socialised bank debts as we move towards greater fiscal union.