“We had to destroy the village in order to save it”.


The disastrous insistence on “contractual arrangements for competitiveness”.

The above quote purportedly was given by a US officer in an interview to correspondent Peter Arnett after US bombers razed the city of Ben Tre in 1968 during the Vietnam War.

True or not, it might well serve as a description of the EU’s failed crisis policy which has been pushed by the Commission and strongly supported by Germany’s Chancellor Angela Merkel, and others. Austerity has been the buzzword, spreading its sinister effects, not only on the “program countries” Ireland, Portugal, Greece and Spain, and Italy, but also on the Eurozone and the EU as a whole. Five years after the start of the crisis, total GDP is still below its previous peak in 2008 – in contrast to e.g. the US where the crisis started. Unemployment is 5 percentage points higher (at 12%), in some countries reaching up to 25%, while youth unemployment, the most important “future” indicator of wellbeing and political cohesion has reached more than 50% in a number of countries. Poverty is increasing all over Europe, trust in the political system eroding, to the benefit of anti-EU populist parties.

The renewed deepening of the crisis in 2012 has caused the EC and the Council to extend the deadline for reaching the ominous 3% deficit ratio for some countries by up to 2 years. The EC claims that this deferment shows that they are not pursuing “austerity” single-mindedly. A very weak proof, if you ask me. The tightening of public budget austerity by means of the “packs”, Sixpack and Twopack, the legal requirement for countries to put austerity instruments into law, preferably into the constitution of member states, the threatened sanctions, the infamous “troika” conditionality for program countries, where severe budget cuts are required as a precondition for receiving due financial solidarity – all these point to a single-minded, ultra-orthodox (some say neo-liberal) supply-side oriented understanding of how the economy works. For the layperson: stringent budgetary consolidation plus a further liberalization of labor and product markets are supposed to pacify the jittery financial markets, thus re-establishing the conditions for renewed growth.

The persistent crisis, the non-existing growth, the increased unemployment, the still parlous state of European banks’ balance sheets – all these, and more, point to a failure of this strategy. Growth has not arrived, budgets have not been consolidated, the debt ratios of many EU countries keep rising…..

And now, Angela Merkel and friends want to saddle the European citizens with yet another “contractual arrangement”, this time pursuing “European competitiveness”. The most recent EU summit (Oct. 25/26) agreed on such legally binding arrangements in principle, the details are supposed to be worked out by the heads-of-state meeting in December, if possible. In these pacts, countries would have to make commitments, complete with timelines, to further liberalize their factor and goods and services markets, again with non-compliance threatened by financial sanctions and possibly other instruments, e.g. (temporary) withdrawal of EU funds. These arrangements are supposed to be concluded between member states and the Commission.

While it is without doubt that in all EU countries market rigidities exist (to various extent) which might impede growth, I have stated, together with many economists, that such structural reforms by themselves will not, I repeat, will not generate growth. Economic growth, as far as it is desirable and necessary,  is generated by consumer, investment and other countries’ demand for the goods and services of the respective country/region, but does not spontaneously arise from the freeing of markets, from the dismantling of labor, health and safety protections, from cutting wages – or devaluing the currency. Without private or government demand, no growth will come about, especially not during a severe crisis. The deplorable state of the EU economy 5 years after the outbreak of the crisis is proof of that. How much more proof do our politicians need? Even the much-praised German economy, Europe’s largest economy, is hardly growing, incomes are still falling, businesses do not invest, poverty is increasing.

The second problem, apart from it being the wrong economic policy prescription, is that such contractual arrangements severely diminish national sovereignty, because they will circumvent national parliaments, once they have been put into law. Now, I do agree that the further integration which the common currency requires, also necessitates giving up national sovereignty, but not in order to transfer this highly political instrument to an appointed European Commission, but rather to the European Parliament which would have to vote on individual steps, sanctions and other instruments applied.

Such arrangements are reminiscent of the recent request for “fiscal councils”, technocratic bodies appointed by governments to take binding decisions on national state budgets. After much criticism, such bodies, where they exist, have been given only advisory powers, not decision-making ones. But Merkel’s and Dijsselbloom’s (Eurozone President) contractual arrangements would sideline both national and EU parliaments. Why don’t we appoint philosopher kings to single-handedly run our countries in the way absolute monarchies (which ended with the French Revolution) did? Are we sliding back into pre-democratic states, when the call for more citizen participation becomes stronger every minute? When more and more people request that politics should once more become the dominant force over the economy and business interests?

We all need to vehemently oppose this faulty and non-democratic development by lobbying our governments and convincing them of its destructive forces!

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Filed under Crisis Response, European Union, Fiscal Policy

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