Brussels, 16/11/2010
President, colleagues, there is an old Irish joke that when a tourist asked a local the best way to Cork, the reply was “you don’t want to start from here”.
Well, we are starting from a place where none of us wants to be. The bankers continue to keep their gains and to democratise their losses. The bonuses will nevertheless flow this year end and the banks will pretend that because that much of the amount will be paid in salary or equity, that they are not really bonuses at all. No-one will accept that. The contrast between private affluence and public austerity will be very evident.
Meanwhile, no-one knows whether the austerity programmes of member states will trigger a double dip recession, or whether the recovery will be sustained despite the reduction in public debt. We fear the former. We have received reassuring remarks from Europe’s leaders, and been told that we are too pessimistic, that things will come good. We hope they are right.
But one thing is already clear. Ireland took the austerity route early. It was the first Eurozone country to do so, and it was widely praised for its prompt action. Wage cuts were agreed, the public sector is relatively small, Ireland was an exemplar in difficult circumstances. But the combination of incontinent banks, propped up by the State and the ECB, clumsy interventions on economic governance from leaders of certain other leading member states, and the “eye wateringly” tight austerity measures already applied have made the patient worse. Ireland looks a bit like a sick woman in the 18th century. She is, frankly, as much at risk from her doctors as she is from the illness.
A question arises immediately. How is the EU going to involve the social partners in its interventions? After all, on the Greek precedent, the EFSF is likely to insist on even tighter budgets and cuts, and it is those in the Irish labour market who are likely to bear the heaviest costs.
A question arises immediately. How is the EU going to involve the social partners in its interventions? After all, on the Greek precedent, the EFSF is likely to insist on even tighter budgets and cuts, and it is those in the Irish labour market who are likely to bear the heaviest costs.
The philosophy of the EFSF appears to be cut expenditure, reduce debt, press down on wages and social spending, and flexibilise labour markets. In fact in the eurozone, it is clear that the orthodoxy is that wages, salaries, pensions and welfare are the main targets of any intervention from outside. Established gains by trade unions are under wide attack.
The consequences in terms of social unrest are likely to be difficult. There are further general strikes scheduled for Greece, Portugal and the Czech Republic.
A first step would be to engage fully the social partners of countries affected in the processes. There was some engagement in the intervention in Greece. Commissioner Rehn has met the Irish Congress of Trade Unions recently. But we cannot be mere spectators in the detailed negotiations. We want to be engaged in the processes if the EFSF at national and European level. I make that request formally today.
More generally, on economic governance, we fear that in order to manage the single currency, the new European approach, perhaps sanctified in a new Treaty, will be deflationary, pushing down on pay and benefits and leading to deflation and a collapse of domestic demand.
How can that relaunch the economies of the periphery? Is it really realistic, or desirable, that all imbalances are to be eliminated, or when some countries are in strong surplus, and will no doubt continue to be, that deficit countries must bear all the costs of adjustment? After all, at the moment, deficit countries, in particular the US, UK and Spain have been, with China, the biggest markets for the exports of surplus countries.
Of course the present position is difficult. It is easy to say that Europe’s leaders are out of their depth. The euro is in trouble.
Of course the present position is difficult. It is easy to say that Europe’s leaders are out of their depth. The euro is in trouble.
Its design faults have become evident in this crisis, a crisis caused in the main, lest we forget, by foolish bankers. But economic governance cannot just be about punishing levels of deflation. It must be about growth, about Eurobonds, about taxes on financial transactions and institutions, about help for the hardest hit, like the young unemployed. Above all, it must be about fairness, common commitment and shared sacrifices, not autistic bankers threatening to emigrate to Singapore or Switzerland leaving the rest of us to clear up their mess.