Laszlo Andor, former EU Commissioner for Employment, Social Affairs and Inclusion.Demotix/Pedro Benavente.All rights reserved.Over the last five years leaders
in Brussels have focused their attention on the fiscal deficits of member
countries that increased dramatically after 2008. It is no exaggeration to say that the central
focus of policy and most EU summits has been supporting the euro through what
austerity advocates euphemistically call "fiscal consolidation". Misdiagnosed and incorrectly
measured, fiscal imbalances have simultaneously diverted attention from and
highlighted far more important deficits in the European Union, of governance
and social protection.
The manifestation of these twin
deficits include 1) the continued stagnation of the euro zone economies; 2) the
ongoing conflict between the Syriza government and the EU; 3) xenophobic fears
of migrants; and 4) the appalling level of unemployment in several of the euro
zone countries.
A few days ago yet again came
news that the euro zone perhaps had finally
begun a sustained recovery, though scepticism
outweighed enthusiasm in most reports. What passed for recovery was an annualized growth rate of 1.4% for the
first quarter of 2015 (quarter-on-quarter
rate of 0.4%). Prior to the crash of
2008 a growth rate below 1.5 would have been identified for what it is, near
stagnation, below what in a more enlightened time we called the "natural"
rate of growth of an economy (productivity change plus the rate of
population increase, usually estimated at 2.5-3% for advanced market economies).
This unimpressive growth rate is
not a recent failing of the euro zone, as the chart below shows, covering the
years of the currency union (introduced as a
unit of account in 1999). For
comparison the chart includes the two largest advanced market economies, Japan
and the United States, and the largest non-euro EU economy, the United Kingdom.
Prior to the crash of 2008 the
countries of the euro zone grew substantially slower than both the United States
and the United Kingdom, outpacing only notoriously
stagnating Japan, a country weighted down in the 1990s and 2000s by a
massive private debt overhang. Since the
crash the comparison is even worse for the euro zone, stagnation more severe
than that suffered by Japan before or after 2008.
If current projections, recently
downgraded by the IMF, prove accurate, at the end of 2015 the euro zone will be
at its 2008 level, while the UK and Japan will rise four percent higher, and
the USA eleven percent higher. Except
for those ideologically committed to fiscal austerity, the explanation of the
modest-to-poor performance of the euro zone is obvious — monetary union
without a common fiscal policy, disastrously aggravated by a troglodyte vision
that public budgets must "balance".
On the same day that much of the
media reported a possible euro zone recovery, the head
of the European Central Bank warned during a meeting with the director of
the IMF that the economy of the currency union was too fragile for him to bring
"quantitative easing" to an end.
For her part, Christine Lagarde reminded Mr Draghi of the obvious, that
little progress would come via monetary intervention without fiscal policy.
Euro
zone, UK, Japan & USA, Level of GDP compared to 2008 (percentage point differences)
Projections for 2015. Numbers in legend refer to 2015
values. In order to include non-EU countries, the source is OECD, Economic Outlook
Far more serious in the immediate
term than the deficit of policy instruments is the governance deficit evidenced
in the conflict-filled negotiations between the Greek government and the
finance ministers of the other euro zone countries. Whatever judgement one makes about the wisdom
of either side in the argument, a few central facts cannot be contested.
First among these is that in
January of this year the Greek electorate chose a new government, because it promised to reverse the
policies of the previous government. The leaders of the EU both national and in Brussels refuse to accept
this electoral mandate as binding, either on themselves or on the new Greek
government.
To put the matter simply, the EU
has no governance procedure to manage conflicts between national and
supra-national rules and decisions, which casts doubt upon the role of the
democratic process at the national level — at least for the smaller countries
of the euro zone.
This governance deficit is all
the worse because of the ad hoc
procedure for achieving the so-called bailout agreements between the EU and
Greece (and also Ireland, Spain, Italy and Portugal among others). Once it became clear in late 2010 that such
agreements would prove frequent, some specific legal guidelines should have
been established. At the least
agreements so fundamentally affecting national policy making called for greater
participation of the European Parliament.
It is not relevant to argue that
other governments in the euro zone have implemented austerity programmes, so
the Greek government deserves no special consideration or concessions. In Greece for
the first time the EU authorities demand a government complete a programme
that it has neither designed nor has a democratic mandate to implement.
Xenophobia manifest in debate
over immigration combines with high unemployment to demonstrate the other EU
great deficit, the absence of a coordinated system of social protection. To my knowledge the only substantial EU-level
program of social protection is the youth guarantee scheme
championed by former Commissioner Laszlo Andor (see his SEJ article).
The absence of EU social support programmes
reinforces perceptions at the national level that the main function of the
"bureaucrats in Brussels" is to issue edicts that intrude upon
"business efficiency" and "national sovereignty". These myth-ridden misperceptions are likely
to overwhelm rational debate in the British referendum on EU membership
promised by Prime Minister David Cameron.
Media reports indicate that a majority
of Conservative MPS may favour withdrawal. The front-runner for the Labour Party leadership, Andy Burnham,
announced that he supports
holding a referendum as soon as possible (though he favours continued
membership). The stage is set for an
acrimonious campaign in which far-right UKIP will thrive.
It is unlikely that a majority of
voters in Britain or elsewhere will support EU membership because euro zone
finance ministers zealously pursue reductions in national fiscal deficits — on
the contrary. However, a very large
number of people in Britain and elsewhere may abstain or favour withdrawal
because of the collateral political damage caused by the governance deficit and
the social support deficit.