For the last five years Europe has launched an assault on ordinary citizens’ living standards. Ordinary people have paid the price for bankers’ irresponsibility and for the market charging unacceptably high interest on government debt.
Wages have fallen in 18 out of 28 member states over the last five years. There are 26 million unemployed, and 7.5 million young people are neither in employment, education, nor training.
European leaders claim there is a recovery. Some economic indicators may look better, but Europe’s citizens have far from recovered. Due to the policies adopted to deal with the crisis – the wrong policies – there is a real danger of deflation and stagnation.
Today’s leaders, both national and European, are obsessed with austerity. Clearly it is necessary to reduce public deficits and debt, but not at any price. Reduction should be over a longer period and achieved through a combination of growth – more tax revenue – and limiting some spending. In the US, where the Obama administration has mixed investment in growth with some public spending cuts, growth rates are forecast for 2.8 per cent compared to the EU’s 1.6 per cent.
"What Europe needs is a plan of national and European investment to drive demand, create jobs, generate growth and reindustrialise"
What is missing from the EU’s economic policies is investment. A diet of austerity alone has failed even to reduce public debt as a percentage of GDP in the euro area between 2010 and 2013 because it has shrunk the economy alongside the debt.
The policies the European commission has imposed on the bailout countries, with the European central bank and international monetary fund, are harsh for the poorest. Minimum wages have been cut in Greece and frozen in Portugal. Collective bargaining institutions have been dismantled in Greece, while in Spain employers have been allowed to unilaterally set wages below the level collectively bargained.
In its recommendations under the ‘European semester’ of economic cooperation, the commission has criticised wage indexation in Belgium and Italy, saying that the minimum wage is too high in France, and told Denmark and Finland to moderate wage agreements.
It is as if Europe ignores the lessons of its own success. The Nordic and German economies, among the strongest in the world, are built on social dialogue: on partnership between employers and trade unions. Workers organisations cooperate with companies to manage change. Instead EU economic policy is about competing with the rest of the world in driving down salaries (of the workers, never the top managers).
But if you cut wages you cut consumer spending. And what drives the EU’s economy? The answer is 17 per cent exports, 83 per cent internal demand. Finally, the commission recognises that Europe’s fragile and limited growth is mainly driven by internal demand. So how will persisting in public spending cuts, labour market reforms and high unemployment increase internal demand?
What Europe needs is a plan of national and European investment to drive demand, create jobs, generate growth and reindustrialise Europe sustainably. Investment is needed in education and training, in research and development in new sustainable industries, in decent public services, in energy efficiency and renewable energy (to cut energy consumption and bills and reduce energy dependence).
An investment of €250bn a year for 10 years would create some 11 million jobs, at a cost far less than the €1000bn spent per year on saving the financial sector, or the similar amount lost annually in tax evasion and avoidance. That is the new path Europe must take after the European elections and the appointment of a new commission.