Economic Governance for People or for the Banks?

The Transnational Institute and Corporate Europe Observatory, in cooperation with European Attac Network invite to a public debate.

The European Parliament on Wednesday, 28 September, voted for the adoption of six legislative proposals on EU economic governance, popularly known as the ‘Six Pack’, effectively giving unprecedented power to the European Commission on member states’ fiscal and budgetary affairs. Initially proposed in September 2010, the adoption of the package has since been expedited under the pretext of the crisis.

Austerity pact

The series of votes come amid serious reservations that the proposed legislative changes put overemphasis on reigning in the budget deficit, at the expense of employment, public services and jumpstarting the real economy. The breakdown of the votes reflect a clear division in opinion, particularly on debt and deficit limits that garnered 363 in favor, 268 against, and 37 abstentions.

Since the beginning of the crisis, exacting fiscal discipline across member states has translated to deep cuts in public spending. With the new legislation, the European Commission is expected to introduce even more austerity measures and this time, it will be able to impose sanctions to non-complying member states.

The consequence, according to MEP Jürgen Klute of the European United/Nordic Green Left, is that “countries that are not able to compete with the wealthiest economies in the EU will be forced to follow reform plans drawn up by the Commission. In Greece, we can see where this road leads – deeper recession, social unrest and zero revival of the infamous ‘market trust’.” ¹

Fiscal union by another name

Short of a fiscal union, the Six Pack puts in place comprehensive structural changes to the Stability and Growth Pact plus a mechanism for addressing ‘macroeconomic imbalances’. With its implementation, a mandatory cap of 60 per cent is put on debt limits, and 3 per cent of GDP for deficit. National budgets will also have to be pre-approved by the European Commission before they are voted on in national parliaments. Ignoring recommendations on correcting imbalances will warrant summons from the Commission and overturning sanctions can only be done through a qualified majority of EU member states – 12 out of 17 eurozone countries.

This leaves euro member states with very little room for maneuverability within their own economies.

The overarching goal, purportedly, is to “discourage member states from evading their responsibilities to each other to ensure the stability of the eurozone”², according to Guy Verhofstadt, of the Alliance of Liberals and Democrats.

Ceding powers to the Commission, however, has raised fundamental questions from political and economic analysts and members of civil society as to the responsibility and accountability of member states to their citizens on the issues of economic and fiscal policy. On Wednesday, over 70 pan-European civil society organizations and networks ´deplored the vote as “a blow to democracy”, adding that this effectively institutionalizes “mak[e]ing citizens pay for the excesses of banks and other corporations”. ³

What Alternatives?

The ‘Six Pack’ has been billed by EU leaders as the solution to the sovereign debt crisis, but there are increasing voices, among them critical economists, who have raised arguments to the contrary.

Andy Storey of University College Dublin reminded that “public debt had, in most cases, nothing to do with the genesis of the crisis´. Asked whether the new legislation will bring recovery, “Yes and no”, he replied. “The logic of the of the current situation is that the default is only to happen once as many as possible of the bondholders have been paid off, with as much as possible of the debt being socialised in advance of its being repudiated. So, no, it is not going to bring recovery—for Irish, Greeks or other European people. But, yes, it is working for bondholders.”⁴

Costas Lapavitsas of Research on Money and Finance, a network of political economists, argued that the problem goes deeper, “the biased nature” of the very design of the European Monetary Union “has intensified the disparities of competitiveness among Eurozone members, splitting the Eurozone into core and periphery.” According to Lapavitsas, “there are no easy alternatives…the dilemma faced by [peripheral] countries is harsh. They could acquiesce to austerity, remaining within the Eurozone and putting up with recession, or stagnation, for the indefinite future. Alternatively, they could opt for debtor-led default accompanied by exit from the Eurozone”. ⁵

Voices of protest have also intensified on the streets and squares in several countries with rallies and demonstrations mobilizing broad social sectors including students, trade unionists, professionals and public service workers. In Spain, this protest has evolved as the “Indignados” or May-15 movement. According to Miren Etxezarreta of the Autonomous University of Barcelona and other Spanish economists of the TAIFA (Critical Economy) “the Indignados have continued their protest …they are so different from most of the political and social work taking place until now that it is difficult to assess their future. But for the time being they have reacted, shown their rejection of the present situation, expressed their frustration and anger, but they have also brought us a little hope”. ⁶

Now that the vote at the European Parliament has been counted, marking a major undemocratic shift in power within the European Union, the urgently needed debate can begin.

Notes:

1. Daniel Mason, “Economic six pack approved by Parliament”, Public Service Europe, September 28, 2011. http://www.publicserviceeurope.com/article/915/economic-six-pack-approved-by-parliament (September 29, 2011).
2. “6-pack on economic governance is victory for financial stability and basis for growth” (Alliance of Liberals and Democrats for Europe, September 28, 2011). http://www.alde.eu/press/press-and-release-news/press-release/article/6-pack-on-economic-governance-is-victory-for-financial-stability-and-basis-for-growth-37621/ (September 29, 2011).
3. Kenneth Haar, “No to the Undemocratic Six-Pack of Prolonged Austerity”, Irish Left Review, September 23, 2011. http://www.irishleftreview.org/2011/09/23/undemocratic-sixpack-prolonged-austerity/ (September 29, 2011).
4. Costas Lapavitsas and others, “Eurozone Crisis: Beggar Thyself and Thy Neighbour”, Research on Money and Finance, March 2010.
5. Andy Storey, Interview by authors, September 26, 2011.
6. Miren Etxezarreta and others, “Boom and (deep) Crisis in the Spanish Economy: The Role of the EU in its Evolution” (paper presented at the 17th Workshop on Alternative Economic Policy in Europe, Vienna, September 2011).

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