By Emily Macintosh

Campaigners from Corporate Europe Observatory (CEO) marked the NGO’s 15-year anniversary by holding a special conference to discuss the draconian waves of austerity measures currently being imposed on European people. An array of activists and progressive economists spoke to over 300 participants at the two-day ‘EU in Crisis: Analysis, resistance and alternatives to corporate Europe’ event, which was co-organised by the Transnational Institute (TNI).

CEO’s main aim is to keep a close eye on the often cosy relationship between EU institutions, European governments and corporate and financial industry lobbyists. At the outset, CEO activists have witnessed policymakers, heavily influenced by these lobbyists, promote the de-regulatory policies and market liberalisation that led to the banking crisis.

Now these same policymakers are serving up austerity measures as the only viable medicine for the sovereign debt crisis, a crisis that was not caused by bloated public spending as those who subscribe to the ‘we all partied now we have to pay’ line would like us to believe, but by national governments bailing out the very banks that got themselves in troubled waters through speculative frenzies in a deregulated market.

Yet despite the fact the European Commission has never been held accountable for its role in this mess, it is now getting its powers extended through new economic governance rules introduced last year as well as through the new ‘Treaty on Stability, Coordination and Governance in the economic and monetary Union’, (Stability Treaty for short) or as its opponents describe it, the ‘Austerity Treaty’.

And with 60.29% of Irish voters who turned out for the 31 May referendum on whether the Treaty should come into force there saying ‘yes’, the need to strengthen the arguments for viable alternatives to the status quo and to insist on the illegitimacy of the poor bearing the burden of the debt has never been stronger.

How we got here

At the conference, CEO Research and Campaigns Coordinator Olivier Hoedeman set the scene by discussing the ‘corporate capture’ of the European Commission and the part it played in the crisis:

“The EU and the European Commission have a strong responsibly for the crisis as it was sparked by the financial crisis, by the bubble economy and the bubble that collapsed. And that bubble was allowed to develop because of the regulation of financial markets being far too lax. This regulation both in the EU and in the US was proved inadequate and in Europe those were EU rules developed by the European institutions, with the first proposals coming from the European Commission. This regulation that was developed throughout the 90s was designed with the help of expert groups, and these expert groups were dominated by banking lobbyists. At the start of the crisis no less than 84 of the members of these expert groups were from banks and investment funds.”

Hoedeman described the huge imbalance between the number of business lobby groups in Brussels compared to the number of trade unions (60 times more business lobby groups: 2350 compared to 50) and the ‘revolving door’ concept: the conflict of interest that arises when a senior European decision-maker leaves their post to take up a top post in a lobby group or private firm, or equally when a former lobbyist joins one of the EU institutions. As he put it:

“Industry does enjoy privileged access to influence, and this influence is given to it by decision makers. Industry spends millions of Euro every year on lobbying,” Hoedeman continued. “The dominant ideology prevalent in the European Commission is that what is good for big business is good for Europe.”

Highlighting the real causes

Economist Trevor Evans, from the Berlin School of Economics and the European Economists for an Alternative Economic Policy in Europe group, led an excellent detailed plenary session on the causes and impacts of the economic crisis. He stated that:

“From our point of view Europe’s focus on fiscal deficit is completely mistaken, as the fiscal deficits in the EU are the result of the crisis and not the cause of the crisis.”

He also pointed out that there was no significant government deficit in 2007 as a percentage of GDP in the different Euro area countries and that Spain actually had a surplus. He cites the huge increase in deficit as a result of the bank bail outs and the resulting collapse of credit in the Euro and downturn in European economies, explaining how:

“At the end of 2008 and the beginning of 2009 the European economy suffered its most serious recession since the 1930s,” he says. “At the start of 2009 all governments started increasing their spending to try and limit the size of the recession. With the onset of the recession the tax income for all governments fell sharply, it was rescuing the banks, trying to counter the recession, and the sharp fall in tax revenues that led to a fiscal problem. So this sharp rise in 2009 [of government deficits as a percentage of GDP] is the result of the crisis and not the cause. Four countries in particular [Greece, Spain, Portugal and Ireland] have deficits of 10% or more but every country has sharply increased its deficit, and the figure for the Euro area as a whole was over 6%.”

Portuguese Economist Mariana Mortágua also spoke about the importance of countering the myths propagated about the crisis to make Europeans accept austerity, the most common one being that we all lived beyond our means through bloated social security systems and high salaries and that now we have to pay.

“Portugal’s debt problems started with the financial crisis yet suddenly the story is told in such a way that we forget that the financial crisis caused the debt, the leaders erased that part of the story and now we believe that the crisis exists because of public debt and not because the financial crisis created the public debt. This myth needs to be deconstructed.”

Role of the European Central Bank

One problem highlighted was the fact that the European Central Bank (ECB), arguably the most undemocratic and unaccountable EU institution, is not allowed to lend money to EU governments. Although the United Kingdom is a major capitalist economy with its own financial woes, it is not facing a financial crisis on the same scale as the Eurozone as when there is a government deficit the central bank can intervene in the bond market. The ECB on the other hand has no power to do this; despite the fact it can give money to banks, it has no jurisdiction to intervene in the government bond market.

Trevor Evans explained how it is this flawed design of the Euro project and lack of fiscal integration that has led to major imbalances between different countries:

“There is no example in history of a monetary union [i.e. common money, same interest rate, same exchange rate] succeeding unless you also have fiscal integration, an integration of government spending and a coordinated wage policy. A whole series of imbalances in the Euro area has emerged as a result of having a common monetary policy but no coordinated fiscal or wage policy.”

Before highlighting how:

“The deficit of southern European countries very closely measures the surplus of Germany and a couple of other Northern countries. If these countries in southern Europe had not been in the Euro area they would have depreciated in value, which would have helped their exports and they wouldn’t have built up a comparable deficit. How is it possible for Spain, Portugal and Greece to run these deficits? The answer is that banks form northern Europe, in particular Germany and France, lent them money. So at a time in Germany when demand was not growing because wages were flat, German banks lent money to southern Europe to buy German exports. This was a model that was extraordinarily profitable for German business, but brought nothing for the majority of German workers and left the southern European countries in this very weak position today. The problem for these countries is that the way the euro is set up means they are effectively borrowing in a foreign currency.”

Trevor Evans also pointed out that although current policy promotes fiscal discipline in countries with a deficit there is no comparable obligation for countries with a trade surplus to eliminate their surplus.

The Austerity doctrine

To deal with the sovereign debt crisis, bailouts from the ECB, the International Monetary Fund (IMF) and the European Commission, or the ‘Troika’ as the trio are more commonly known, have been given to countries in debt. These bailouts however are not for funding the provision of public services, but are for the purposes of helping governments pay their creditors and force a standard set of policies on the ‘bailed out’ government in question.

Since the sovereign debt crisis began, the EU has pushed through a whole series of measures designed to ‘strengthen economic governance’. These include the Euro Pact, adopted in March 2011, which outlines that the solution to the crisis lies in austerity and low wages as a means to achieving competitiveness. To implement this Euro Pact, the European Commission then set out binding measures in the form of Five Regulations and one Directive, the so-called ‘Six-pack’, which came into force on 13 December 2011. These effectively reduce national governments abilities to set their own budgets.

All these measures have trickled through the European decision making process with relatively little noise, helped enormously by the right-wing majority in the European Parliament which supports these plans.

The latest measure is the Stability Treaty, signed by 25 EU Member States on 22 March 2012. The Treaty binds Eurozone countries to accepting ‘proposals or recommendations’ submitted by the European Commission and it states that countries undergoing excessive deficit procedure must put in place a ‘budgetary and economic partnership programme’ that will correct excessive deficit. And if countries don’t abide by these rules the European Commission will impose hefty fines.

This Treaty represents one of the most dangerous trajectories in the history of European integration and looks set to reduce the quality of life for people all across the European Union as governments’ room for economic manoeuvre is further constrained and prevailing right-wing ideology is enshrined into law.

Some might argue that opposing the Treaty is anti-European, but in fact it is the very opposite: rejecting it is giving a thumbs up to the ideals the European Union was supposedly founded on and a thumbs down to the neo-liberal direction it has taken of late.

Debt justice for the ‘developed’ world too

For years, debt justice campaign groups like Jubilee Debt Campaign have focused on highlighting the immoralities of debt repayment in the global South. Ironically, these groups are now vigorously campaigning to shed light on the unjust nature of the bailout packages being dealt out here in Europe too. Throughout the 1980s and 1990s developing countries in Latin America were punished for the reckless loans lent to them by banks in rich countries in the 1970s. They received loans from the IMF and the World Bank to keep them from defaulting, however this money didn’t do anything to improve people’s lives as it flowed directly back to the pockets of the creditors in rich countries (banks, insurance companies and investment funds) in the form of debt payments.

Then there as here now, bailout packages come with strict ‘structural adjustment’ conditions in the form of austerity and market-liberalisation measures: welfare systems are privatised to slash public spending and wages are kept low, all in the name of improving competitiveness. Greece is selling off everything from water services to railways, for example.

Far from quelling the crisis, ironically, not only does this type of strategy do nothing to alleviate poverty or reduce unemployment it also leads to economic stagnation.

“There is no way we can pay this debt even if we wanted to! How can we pay a loan if the adjustment programme that comes with it is destroying our economy?” asked Mariana Mortagua. “They are attacking consumption, public spending and investment, which account for 90% of GDP and [yet] they want the country to grow. You would have to export the whole country to compensate for destroying consumption, spending and investment. It’s a race to the bottom: you implement austerity to reduce debt, debt causes recession, recession increases debt, so you implement more austerity to reduce debt and that causes more recession which causes more debt so you implement more austerity.”

So as bailout packages keep money flowing back into the financial system and allow investors to profit from the public sector being carved up, human welfare is sidelined as people are left to their own devices with less money to pay for necessities such as healthcare and a shadow of a social welfare system to support them when they are out of work.

Alternative solutions

Bringing the financial sector under control through more legislation and imposing taxes on financial transactions are options that many groups such as Attac have long been campaigning for. Although the European Commission has made moves to implement such measures by presenting a draft directive for the implementation of a Financial Transaction Tax (FTT), the final proposal, which still needs to be approved by the Council of the European Union, was quite watered-down (no doubt in part due to the influence the business lobby has had on the final text) and omits a specific commitment to fight speculation as well as remaining vague on how any tax revenues would be used, ignoring civil society campaigners pleas that a share of the revenues be used for development or the environment (see page 35-36, transform! EuroMemorandum 2012).

Alternative solutions suggested at the CEO conference included having all the debts in European countries properly audited so that they are truly transparent and the public can see exactly to whom in the financial sector they are paying. Better still, all illegitimate debt could be cancelled and a thorough financial transaction tax imposed.

This type of action would put an end to punishing people who are not to blame for this mess and put in place better regulation of the financial system that served so well those who are. In Ireland, for example, the taxpayer is picking up the tab for the bondholders who lent to the Anglo/INBS bank, and paying this debt is set to cost the country EUR 85 billion by 2031, according to figures from Debt Justice Action. Other options discussed include socialising the banks and making credit rating agencies public.

Where now?

“These policies are alienating citizens more and more, people are angry about the blind austerity push and the damage that is being done to the welfare state,” said Olivier Hoedeman. “But a reason for hope is that we see a new wave of progressive activism in Europe. We have seen strong resistance emerging on the national level and the emergence of new movements like Occupy and the Indignados and they are demanding real democracy as they think our societies shouldn’t be run by big business.”

Getting the message heard and carrying out effective coordinated action is as ever the hard part, and what fundamental change can we realistically expect within the current political system and with a conservative majority in all three major European institutions?

But the CEO conference finished on a positive note with the launch of a ‘new pan-European network committed to opposing the European Union’s Austerity Treaty’. While the unjust consequences of the crisis and this attack on democracy may be complex and shrouded in economic legislation, they also serve as an opportunity to bring together many progressive movements under one umbrella to fight for a fairer distribution of wealth, as austerity affects every facet of society. We need to incorporate environmental issues into the discussion too, as while we grapple with how to organise ourselves fiscally the devastating effects of climate change won’t disappear.

It comes down to a question about what kind of world we want to live in, as long-time social justice activist and TNI fellow Susan George emphasised when she described the human rights doctrine as being completely incompatible to the financial one.

Susan also perfectly captured the mood of the conference and the energy for taking action it inspired in one single phrase:

“It’s time we stopped being so polite.”

The Brussels Business, a film produced by a CEO that puts the spotlight on the lobbying culture in Brussels is currently showing at the Cinema Vendome in Brussels.

For more info:

Corporte Europe Observatory (CEO)
Transnational Institute
Jubilee Debt Campaign
Debt Justice Action Ireland