Global Economics

Europe's Economy 'Returning to 1930s'


With governments slashing budgets to rein in huge deficits, the head of Europe's unions fears the Old World may return to the Great Depression

The chief of Europe's trade union chiefs, John Monks, has warned that the austerity packages being imposed across the bloc will send the continent "back to the 1930s." He reported that European Commission President Jose Manuel Barroso also fears member states will turn their back on democracy—but for the opposite reason.

"This is extremely dangerous. This is 1931, we're heading back to the 1930s, with the Great Depression and we ended up with militarist dictatorship," the general secretary of the European Trades Union Congress (ETUC) said in an interview with EUobserver. "I'm not saying we're there yet, but it's potentially very serious, not just economically, but politically as well."

Mr. Monks reported that Mr. Barroso has similar concerns, but based on diametrically opposed reasoning. He said the commission chief believes the austerity packages will save Europe from returning to the darkest days of the last century rather than precipitating the fall.

"I had a discussion with Barroso last Friday about what can be done for Greece, Spain, Portugal and the rest and his message was blunt: 'Look, if they do not carry out these austerity packages, these countries could virtually disappear in the way that we know them as democracies. They've got no choice, this is it'."

"He's very, very worried. He shocked us with an apocalyptic vision of democracies in Europe collapsing because of the state of indebtedness."

In recent weeks, a wave of enthusiasm for draconian austerity measures has swept the continent well beyond the bloc's most troubled economies, which were forced to embrace such cuts in return for EU-IMF bail-outs. Spain has announced a package of austerity measures amounting to €13 billion.

Greece's austerity package amounts to €24 billion; Italy too is slashing by €24 billion. Germany has announced a whopping €80 billion in such measures and the new UK government has said it will cut spending by £6.25 billion (€7.51 billion), although based on earlier Tory pronouncements, experts believe Westminster will eventually unveil cuts amounting to £60 billion (€72 billion). France, which until this weekend had resisted austerity as a strategy, has said it too will cut by €45 billion.

While the composition of the Dutch governing coalition is so far unknown, the leading party in last week's elections wants to cut spending by €45 billion. Ireland last year introduced measures worth €4 billion and Portugal's €2 billion includes a privatisation of 17 different government enterprises. Hungary's new right-wing government, which campaigned on easing the IMF-imposed austerity measures of the previous centre-left administration has instead announced further cuts of 120 billion forints, while the harshest of Europe's austerity measures, Romania's plans for across-the-board public sector wage cuts of 25 percent and pension reductions of 15 percent, have produced the country's biggest demonstrations since the fall of Communism.

In the Baltics, Estonia's cutbacks worth 10 percent of GDP resulted in a 14 percent contraction of the economy and a jump in unemployment from 11 percent to 19.8 percent; and Lativa's almost identical cuts produced a contraction of 18 percent and a rise in joblessness to 22 percent.

Trade unions, which have so far mounted a number of general strikes and protests in different countries, are intensifying their offensive against the austerity plans despite Brussels' misgivings, and are for the first time beginning to co-ordinate their actions across member states.

Mr. Monks said his executive committee has agreed to call a Europe-wide "day of action" on 29 September, including strikes, demonstrations and meetings with government ministers in all European countries.

The date is scheduled to coincide with a meeting in Brussels of finance ministers.

The ETUC did shy away from calling an outright European general strike, however.

"We're encouraging members to take strike action as part of a menu of different types of activities, but it's not a general strike," Mr. Monks explained. "We can't call Europe's unions out on strike—this has to be done at the national level and different people will react in different ways."

"Some countries have traditions of general strikes and some don't. They don't like the idea, especially the Nordics, Germany, UK, the Netherlands and eastern Europe. Half of the EU countries would not go for it."

In defence of Greece

Mr. Monks said that attacks in the German press and other media on Greek workers and the public sector are unfair.

"The tabloids' description of Greeks as lazy and profligate is just not accurate. They aren't lazy. There may be some good retirement deals, but these are not universal by any means and not across the public sector. It's only a small part of the population that has these sort of deals."

In his opinion, the main problem affecting the country is tax avoidance.

"What's more worrying about Greece is that the rich don't pay their taxes. They don't seem to believe in paying taxes. The biggest challenge for the country now is collecting its taxes from the rich, the comfortable, the bourgeoisie. These classes seem particularly adept at avoiding them."

He conceded some cuts will have to be implemented in the Mediterranean country and elsewhere.

"Some countries have no choice—Ireland, Hungary, the Baltics, but elsewhere, leaders are just panicking, and in the middle of a recession," he said, adding that it is now "the fashion" as much in the strong economies as the weak ones to pay back debt.

"Even healthier economies—the Netherlands, the Germans' desperate wish to get back to a balanced budget by 2016 with the cuts that they are now imposing," he said. He named France as the sole country standing out against synchronised cuts across the EU, but he thinks that even Paris will capitulate sooner rather than later. Indeed, the Friday afternoon interview with the union leader, France has indeed announced austerity plans worth €45 billion.

"Greece obviously does have to change. It does have to tighten up ... the terms of the EU-IMF bail-out are the only terms Greece has got. They haven't got a choice, Greece. They've got to comply with what they've been given."

Best behaviour

He said that if Greece keeps on its best fiscal behaviour for some time, there is hope that Brussels and the IMF will lighten terms.

"I do hope after a period, if Greece shows that it's making a good attempt to fulfill the EU-IMF terms, the EU will not be so stubborn as to not agree to some sort of restructuring of the loans, rescheduling of payments, which is common enough for private companies."

He said he felt that it is unfair that working people and the public sector are bearing the brunt of a crisis caused by others.

"What's happened is a massive transfer of debt from the banking sector onto the balance sheets of nation states. The lords of the financial markets are to blame."


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