An authoritarian neoliberal Europe

This summer the eurocrisis has reached a worrying new level. Yet the official response continues on the same trodden path towards economic disaster with neoliberal policies becoming more and more embedded in the EU institutions. This is clear from recent events and the latest EU summit. What social movements must conclude seems obvious.

The euro crisis is escalating this summer. In Spain, huge protests denounced another round of deep cuts by the government, and few believe it’s the last blow to welfare. There will be more, and not just in Spain. Yet the previous cuts have not been effective in containing the crisis. As for the stability of the euro, the latest cuts coincide with what looks like the lowest point so far. There have been intensified talks on a Greek exit (or expulsion), and the Spanish interest rate has gone through the roof, crossing the 7 per cent limit that according to conventional wisdom will trigger a bail-out.

So what will governments do about it? And what about the Commission? What vision does it have for addressing the eurocrisis, in the light of the failure of past formulas? Actually, there is a vision developing, but it’s certainly not a vision that promises an end to the eurocrisis, and much less one that will spare us for harsh austerity measures. It’s more of a strategy towards a European Union that will deal a fatal blow to welfare and democracy.

The best source is the conclusions from the EU Summit at the end of June. It was supposed to adopt major plans to confront the eurocrisis. Whereas some of the Summit agreements are work-in-progress, and much remained unclear, the Summit did deliver rough plans for a banking union, a first sign on the road to a fiscal union.And it dealt with some urgent matters for Italy and Spain in a way that was presented as groundbreaking. While most media presented the summit as a step forward, at closer reading the documents reveal the emergence of a major challenge to social movements , underlining the dire need for a progressive counter strategy and an alternative vision.

Seven observations stand out and qualify as problems activists of social movements have to realise and build their response on.

1. A fig leaf for Hollande: but growth pact is no sign of renewal

Some would say: finally! A European pact for growth and jobs, to go hand in hand with the austerity measures. A new turn of events, and a move that brings in classical Keynesian measures to deal with the crisis in a more socially responsible way? No. The new agreement, the Compact for Growth and Jobs1, is not a sign of a new direction. For a start, the money is little more than petty cash.

The new effort for growth is backed up by 120 billion euro. In itself not particularly impressive given the scale of the problem. The ECB has lent out 1 trillion euros on very favourable terms to Europe’s troubled banks. Moreover, the 120 billion is not new money. Except for 10 billion euro that’s to be put into the European Investment Bank, it’s unused EU funds that would have been spent anyway, plus financial engineering of various sorts.

The Compact might satisfy some of those who believe the present austerity policy is basically a good idea, if coupled with initiatives for growth. But it will not make up for the disasters created by the austerity push. In fact, the Compact for Growth and Jobs is about changing the image of EU policies, not the reality. It’s an attempt to obscure the fact that EU crisis policies are about austerity and attacks on social rights. And it’s supposed to provide the French President Francois Hollande with a fig leaf given his criticism of EU austerity policy in general and the Fiscal Compact/Austerity Treaty in particular during the French election campaign.

2. There will be a new push for deregulation

Actually the Compact could event turn out to be a curse in disguise. Since December several EU governments, the UK and Italian governments prominent among them, have pushed for a renewed effort to ‘deepen’ the Single Market. This will include new attempts to “open up competition in network industries”, which could represent a challenge to public services. Single Market rules are also to be enforced with more impetus in the future, and there are quite radical ideas around as to how to do that. Not least, there is the proposal put forward by the Italian Prime Minister Mario Monti to empower the Commission to decide on specific cases - conflicts on the application of the rules of the single market - with a pen stroke.2 A chilling perspective given that the rules of the Single Market have moved far into the territory of social rights over the last few years, such as the right to collective bargaining. Imagine, for instance, if the right to collective action in Sweden and Germany, was challenged by private companies – referring to ‘the right to provide services’ in the Single Market. Then imagine the Commission could simply side with the employers and decide on the matter.

The pact also promises even more deregulation through further efforts to “reduce the overall regulatory burden”. This year the Commission has presented a controversial proposal to exempt small and medium size enterprises from 21 pieces of legislation to introduce a lighter regulatory regime. They include rules on safety at work, employee consultation, rules on parental leave and on energy efficiency. And many in the business community would like to see even more outrageous initiatives. The European Roundtable of Industrialists, for instance, is calling for a complete “discontinuation” of existing legislation that does not help big business, and a moratorium on any new legislation that harms business interests – and the exclusive group of chief executives has started lobbying for specific proposals to that effect.3

3. Nothing effective will be done to calm markets

News that ‘Super Mario’, the Italian PM, had forced the German Chancellor Angela Merkel to accept a compromise on eurozone government bonds seized attention during the summit. And many important newspapers were full of admiration for the senior technocrat’s negotiating skills. He had played the game so well that Merkel caved in and gave major concessions.

The issue was not the pooling of debt, or mutualisation of risk in the form of Eurobonds. Such a general sign of common responsibility is clearly unthinkable in the face of staunch German, Dutch and Finnish opposition.

What was decided was to allow the bailout fund, the European Stability Mechanism (ESM), to buy government bonds to bring down yields, ie. the cost of loans for governments. A decision widely hailed as a groundbreaking move to calm markets.

But there is nothing new about this idea. It will certainly not require a change in the statute of the ESM for it’s already there as an option. And using the ‘firepower’ of the ESM is of little significance. In fact it might destabilize markets even further.

Indeed the Belgian economist Paul de Grauwe argues that as Italy and Spain alone have outstanding bonds to the sound of 3 trillion euro and the ESM amounts to 700 billion, if the ESM spends a couple of hundred billions on Italian and Spanish bonds, speculators will be able to see the bottom of the ESB treasure chest, and will most likely respond by getting rid of bonds. As a result prices on loans will go up.4

Surely governments must know this. But the key governments – the strongest Eurozone economies, namely Germany, The Netherlands and Finland – are emphatically not prepared to make the only concession that could put an end to the upward spiral of borrowing costs. If the European Central Bank was to move in and print money, as is the case in the US, Switzerland, the UK and elsewhere, the threat of the dynamics of the financial markets running Spain and Italy and others into the ground would vanish. It would not be a magic cure for all ailments, but it would provide an immense relief. But it will not happen.

4. There will always be strong conditionality and no solidarity

Much of the excitement about the intervention at the summit of Super Mario and the Spanish Prime Minister, Mariano Rajoy, was that apparently they managed to wring loans out of the ESM “with no conditions”. Certainly not. The statement from the Euro Area summit says that direct loans to banks, or any purchase of government bonds will rely on conditions formalised in a ‘Memorandum of Understanding’.5 There is no real sense of social solidarity at the EU level, and the belief that countries in deep trouble simply brought it on themselves thanks to wasteful public spending and too generous wage policies, is still the dominant dogma, and as a consequence there will always be strings attached. In many cases with significant popular support, due to the success of the official spin on the crisis.

5. Every summit adopts new strict disciplines

In 2011 we saw the European Union walk into new territory in many ways. The basic idea seems to be that member states aren’t really fit to control their budgets, and when they violate rules on debt and deficits, their budgets should come under the control of the Commission and the Council. Labour laws and wages should be checked by Commission bureaucrats, and if found too high, bureaucrats should be able to intervene with the help of the Council. The so-called ‘six pack’ of new EU legislation was a quantum leap. Other less onerous measures for all member states were also adopted, such as an annual discussion on all member states’ draft budgets, and the adoption of recommendations, the so called European Semester.6 While it was certainly new for all budgets to have to be reviewed at the EU level, the recommendations for those in compliance with threshold levels on debt and deficit were exactly that – non-binding words of advice.

But at the June summit these recommendations were given added weight under the European Semester. When a member state seeks support for the recapitalisation of its banks from the ESM, the conditions will include recommendations made under the European Semester (as is already the case with the adopted support package for Spanish banks), opening the door to any disposition on member state budgets, and any kind of legislation on the labour market, social rights etc.

Another step was taken at the summit in the same direction. The infamous Europlus Pact7 that made hundreds of thousands take to the street in protest, was to be a kind of promise to follow strict austere policies, but again just a promise. Now, a strategy paper on the development of a common EU fiscal union expresses a wish to make the Europlus Pact “more enforceable”.8 The paper was drafted by the Council President Herman Van Rompuy, the President of the European Central Bank Mario Draghi, Commission President Manuel Barroso, and the President of the Eurogroup Jean-Claude Juncker – sometimes referred to as ‘the gang of four’.

6. Banking union cannot make up for lax regulation

How do we cut the link between bad banks and public budgets? That question has been key since the beginning of the financial crisis back in 2008. Banks are in trouble all over Europe. And the collapse of banks is spreading to other banks and across borders. The proposed banking union will provide European supervision of banks under the leadership of the European Central Bank, a common approach to resolutions and possibly some sort of pooling of money for bailouts, paid by the banks themselves.

Are we in the clear, then? Will this be the end of massive financing of banks? Hardly.

For a start, the sum for bailouts seem timid compared to the money spent on bad banks in the last few years. The ESM is already being suggested as a “fiscal backstop to the resolution and deposit guarantee schemes.” Also, it seems ironic that the same summit gave a preliminary rubber stamp to an aid package for Spanish banks to the sound of 100 billion euros. Again, public money to save banks.

Yet, the biggest problem may lie in the proposal on how to prevent banks from going bust in the first place. The Commission and the Council have agreed on rules on capital requirements (money a bank should keep to make it robust) that are far from the step forward expected after the crisis in 2008, and which even fall below the lax international Basel III standards agreed two years ago.9 Giving the European Central Bank the power to supervise will not change the fact that the rules it’s to uphold are weak.

7. There will be nothing progressive about the fiscal union and common economic policy

In the Council and the Commission it’s been a mantra for more than a year that what is basically needed to save the euro is a fiscal union – common rules on fiscal policies, on budgets, and some sort of common administration of funds. And indeed, for the past two years a substantial number of reforms have been adopted to centralise decision making on key fiscal and economic policy matters.

But what will a more fully-fledged fiscal union look like? Nothing is lacking in ambition. The ‘gang of four’ suggest in their report the development of a ‘fiscal body’ at the euro area level, including a treasury office and a central budget. The steps towards a fiscal union are to be presented in October.

The basic message is that a fiscal union is to be an extension and a reinforcement of existing rules.

While the summit has been presented in some media as a sign of new times ahead with new elements to EU policies, more than anything, it confirms the direction taken during the past two years. Rather than changing course, the speed is to be increased. We’re heading for a greater institutionalisation of neoliberal policies in important areas such as member state budgets, social expenditure, and labour laws. It will be all about finding effective ways of enforcing austerity and mounting attacks on social rights.

In fact, considering the pressure on Merkel and her closest allies in the Council to accept some sort of solidarity, it’s surprising to see how firmly the core of the Eurozone set the agenda. While Italy, Spain and France each in their way were pushing for some sort of common responsibility for the debt, either in the form of loans on benevolent terms or some sort of mutualisation, they got nothing. According to the ‘gang of four’s’ proposals, common debt or joint liability, is something that can be ‘explored’ or discussed later, but might never happen, even in a fully developed fiscal union.

Strategy, resistance and alternatives

You don’t even have to look closely to see that governments and EU bureaucrats are nervous about the next steps and the political effect they will have. In a report on ‘the future of Europe’ by 10 Foreign Ministers, the word “legitimacy” appears five times, and in the ‘gang of four’ report, “legitimacy” is used four times.10 They are fully aware that the kind of authoritarian neoliberalism they’re suggesting for the future of the European Union will not be received kindly by the majority. They’re on the look for something that can make us swallow the bitter pill with no strong counter reaction. They are fully aware that their ideas could spark further revolt, and certainly create deep resentment towards the European Union.

But the next moves towards an authoritarian neoliberal regime in the EU bring opportunities as well. There will be quite a few occasions where this project might be derailed, provided social movements meet the challenge. To be ready for that challenge three things are needed:

1. Greater European networking and mobilisation on EU policies. For obvious reasons there have been impressive movements against austerity and in defense of social rights at the national level in many countries. But there is very little coordination, practical cooperation or mobilisation at the EU level/between member states. That is a formula for defeat by division. Our opponents at the steering wheel of the European Union may not even fear a general strike in Greece or mass demos in Spain, unless they’re combined with a concerted European effort that challenges the legitimacy of the policy of the institutions, and even the institutions themselves. This would entail both an increased mobilization outside the most affected countries, and for the role of the EU to become a centerpiece of protests and demands, not just national governments.

2. Putting the real issues on the agenda. There were two elephants in the room at the summit. One is the the inability of governments and the EU to rein in speculators because of fundamental flaws in the financial system. The second is the imbalance between eurozone economies which derives from flaws in the construction of the Economic and Monetary Union (EMU), dividing eurozone countries into (northern) winners and (southern and Irish) losers. Those two elephants – which represent the root causes of the eurocrisis – must be at the centre of our attention when we contest the EU’s flawed and dangerous responses to the crisis, which have been engineered by those who always saw the European Union as an ideal vessel for right wing neoliberal economic policies, and who – with the support of big banks and big business – are seeing their dream come true.

3) Develop strategy and alternatives. As easy as this may sound, little progress has been made since the crisis broke in terms of European convergence.

Luckily there will be several opportunities this autumn to move forward, including the encounter in Florence in November, and the Altersummit in 2013.11


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French translation
Musée de l'Europe

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