Finance and Economy

Another Way of Looking at the Euro Crisis

European Commissioner for Social Affairs, Andor, spoke very clearly in a September speech in Berlin, declaring that Germany was partly responsible for the crisis. With these words he demonstrated agreement with Guillaume Duval, editor in chief of the magazine Alternatives Economiques, who, at the Kick Start Social Europe conference in Brussels (June 2012), analysed the causes of the economic and social crisis.

For decades wages have stagnated in Germany while lower paid employment in the form of mini or part time jobs has increased as in no other EU land. Some 1.3 million people have to supplement their wages with unemployment benefits in order to make a living. According to the 2011 report on social issues compiled by the national statistical office, one in six Germans is in danger of sliding into poverty. Demand in Germany has sunk drastically as the gap between production and consumption has become ever wider. The German economy has remained competitive due to low wages and temporary contracts but has benefited from consumption of its excess production in other EU countries financed by credit.

Fundamentally flawed reforms

The International Labour Organisation has called upon the German government to put an end to the policy of low wages. This would have a positive effect in other EU countries as it would lead to a fairer income distribution, promote consumption and thus help get the economy back on its feet. Chancellor Merkel links bail outs for the crisis countries not just with the introduction of effective anti-corruption measures and new tax policies but also with wage reductions. Greece must “reduce national wage agreement rates by 22 per cent and those for young people by 32 per cent with no exceptions. These conditions require deep wage cuts that lead to social inequality and only serve to intensify the crisis. At the same time, there has been a break with the democratic tradition of the social dialogue and a violation of the Charter on Fundamental Rights of the European Union. Those affected have questioned the legitimacy of the reforms and trust in the EU and democracy has been damaged.

A cover for labour liberalisation

A successful end to the crisis remains elusive: in Greece, local markets have collapsed; economic activity in 2011 declined by 6.8 per cent and unemployment is 21 per cent. Nearly 50 per cent of young people are unemployed. Clearly deregulation of employment has not helped to overcome the crisis. A contribution to the conference debate from Isabelle Schömann of the European Trade Union Institute could not have been clearer. She demonstrated that the crisis was being used in all EU countries as an excuse to make ‘conditions of employment more flexible’ or to put it more plainly, dismantle workers’ rights. The enforcement of these reforms is not leading to increased employment and thus the prospect of debt reduction but rather to more precarious contracts for workers.

It is also incorrect that the crisis is the result of people living beyond their means. The economist Edward Hugh showed that in Portugal the standard of living of the average person had not increased in the last 15 years, while in Slovenia, one EU member state that has been little touched by the crisis, living standards have increased substantially. He therefore cautioned against excessive measures that would so reduce consumer spending power that any potential economic growth would be smothered before it had chance to develop.

Ms Merkel is part of the problem

The stability of the euro is supposed to be secured via the market. The crisis and the current unsuccessful efforts to tackle it have shown that it does not function. The demand for a European economic authority is now acceptable to a majority. But even an economic authority requires transfer mechanisms to overcome crisis situations. The only EU transfer facility to date is the structural funds. In the poorest regions and the crisis regions the EU can contribute directly to investment, employment and income. Now, however, the German government is again endangering this small means of tackling the crisis by demanding a medium term cut of 100 billion in the EU’s budget. This will particularly affect the structural funds, as it is the second largest expenditure in the budget. This undermines the very foundations of Union solidarity, endangers the euro and the credibility of the EU. Mrs Merkel, in managing the crisis with policies geared to national interests, has become part of the problem.

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