Daniel Albarracín
February
2016
The 2015
Greek episode was a clear demonstration of the limits of the Euro System, and showed
how the current economical design of the EU cannot guarantee the proper
development of the peripheral member countries.
The
EU has developed fragile, tangled and twisted economic instruments, and they
are not adequate for the job. The Fiscal Policy and the Spending Policy are not
strong enough. The European Semester coordinates national macroeconomic policy
management, focusing on the public deficit and debt control, the fiscal
consolidation. The European Semester has tried, largely unsuccessfully, to make
each country follow its problematic guidelines, regardless of any entailing
social injustice and inefficient economic outcomes. Some countries, mainly the
richer ones, have tacitly refused to follow the guidelines, while other
peripheral countries are economically unable to follow the guidelines.
There
is a serious investment crisis in Europe. We have only a small budget for
investment. The contributions from member countries are at present inadequate.
In addition, when taking into account the differing personal economic income
averages by country, we find the contributions are highly uneven, with some
wealthy members contributing less that they should. Moreover, the total
national contributions from all countries accounts for only 1% of EU GDP. This,
coupled with a weak and problematic investment plan, Plan Juncker, is not nearly
enough to deal with the present economic and financial crisis.
The
EU is also unable to address the problems of disparity arising from the increasing
concentration of power, income, and wealth within the core regions and elites,
and the continuing loss of economic power within the peripheries and working
classes.
Thus
far, the EU´s most powerful instrument has been the monetary policy deployed by
the ECB. However, beyond the problematic ECB design and the applied financial orientation,
the monetary policy has gone too far. In addition, ECB policy is presently also
unable to foster investments and ineffective in preventing clear deflation
trends[1]. Macroeconomic
evolution has been caught up and stifled in the web of the liquidity trap. We
can see how the Quantitative Easing programme has been taken to an unreasonable
extreme. This particular kind of expansive monetary policy, which serves the
private banking sector interests, has shown itself to be unable to provide
financing or credit to the productive sector in such a way to trigger sufficient
and balanced development.
In
fact, it has achieved scarcely anything beyond delaying the onset of the next recession.
Financial instability, economic stagnation, and deflation are still with us, and
are more serious problems than ever, and it is likely their worst consequences
have yet to materialise.
Consequently,
the EU institutions are being pushed to bring about some important changes in
order to attempt to address a new and broader banking crisis. A new adjustment
project for Europe is being put in place. Central to this streamlining,
completion, and enforcement of the economic tools of the EU is The Five Presidents' Report.
The Five Presidents' Report puts
forward a more developed model of Neoliberalism of State, based on the
recentralisation and federalisation of additional powers in Brussels. Drafted
by European Commission President Jean-Claude Juncker, with the collaboration of
presidents of other prominent European institutions: Donald Tusk, Jeroen
Dijsselbloem, Mario Draghi, and Martin Schulz, it consists of a plan made up of
three stages. The first part has been formally underway since last October, and
the full plan, looking at the streamlining of the European project, is to be
implemented over the next ten years. The
Five Presidents' Report integrates various inter-governmental instruments
and agreements within the European Treaties. Inasmuch as the TTIP and CETA are
the most important external trade policies, The
Five President´s Report is the most important internal initiative regarding
the EU, and is at least as important as the Maastricht Treaty.
The
ruling classes are looking into ways of dealing with the problems that will
arise from the impending widespread bankruptcies in the financial sector.
Banking union reform is the first step they wish to take before any other
measure regarding economic growth can get underway. In particular, Merkel
absolutely prioritises the banking union reforms over everything else, mostly
to protect the private financial corporations of Germany and Germany´s
alliances with central and northern Europe.
In
the view of the elites, the banking sector is the backbone of the economy, and its
needs take precedence over everything else. Nevertheless, the bureaucratic body
of the EU institutions is aware that a more ambitious project, looking to more
than just needs of the banking sector, is required. Such a project is what is
drafted in The Five Presidents´ Report.
The
measures to be put in place go further than mere banking union reforms. They seek
to complete the economic architecture of the EU, enabling far greater control over
macroeconomic management. The project envisages a type of fiscal union to be
introduced once the banking union is wound up, in order to complement monetary
policy, macroeconomic coordination and economic governance (European Semester).
The Financial Union, an initiative very strongly supported by Germany, is
the first to be put in place. The Five
Presidents´Report will incorporate within the EU Treaties the European
Stability Mechanism, the well-known financial whip that has scourged many
peripheral countries. This juggernaut of a financial instrument, until now an intergovernmental
institution, would be put in a position to extend the experiences of Portugal,
Ireland, Spain, Cyprus, and Greece onto any country in banking difficulties.
The
Brussels bureaucracy states that the ESM was conceived with the aim of
stabilising the Eurozone. However, in fact it has been primarily applied to
impose adjustment measures against the people in exchange for financial aid for
the banks.
The
ESM is a tool to facilitate a kind of debt mutualisation under the control of
the core countries which direct this fund. But the high cost of this fund (80
billion Euros as a public guarantee, capable of mobilising up to 700 billion Euros
after issuing bonds[2]) has led core countries to
push for a particular model of Banking Union aimed at minimising any threat to
their own banks from any peripheral banking crisis.
In the
event that peripheral banks experience solvency problems, the scheme defines restructuring
procedures that are to be carried out before any use of the fund is made. In
our opinion it seems the fund is intended mainly to bail out ‘too-big-to-fail’
banks in the core countries, and not to assist peripheral banks.
There
are a number of new supervisory institutions working to evaluate the medium-sized
and large banks, and they are very close to the ECB, both in the way they
operate, and physically, all of them being located in Frankfurt. They are the
Single Supervisory Mechanism, the Single Resolution Mechanism, and the European
Systemic Risk Board. One of the more controversial proposals is the Guaranteed
Deposit System, which aims to protect the interests of individual depositors.
At this stage it looks as if it will be rejected by the governments of the richest
countries.
In
order to engage and facilitate private investors in acquiring these public
bonds, a more flexible capital market regulation – a capital market union – is also going to be established.
The Five Presidents' Report, in
short, poses a particular federalist project for the EU. The report´s diagnosis
is that the weight of Member States is so heavy it prevents improvements in
efficiency, and restricts better coordination of the economy. Beyond this, the
aim of the reforms is to set the recovering the profit rate over national sovereignty
– at least the sovereignty of peripheral countries. The project does not
include any new progressive tax regimes or social policies aimed at mitigating
the social inequalities within the European economy.
The
consequence of this will be that democracy in decision making will ultimately
be eroded. The Eurogroup would be included as an EU institution, losing its intergovernmental
condition, and the powers of its director would be enlarged.
The
project reinforces the economic governance established so far. The incompliance
of the Stability and Growth fact is going to be more difficult from now to the
future. New bodies are going to be established – Competitiveness National
Authorities. They are going to be in charge of streamlining the national
economies in order to maximise the competitiveness and profitability of the European
market. These Authorities have to approve any new budgetary, fiscal reform, or
wage policy proposal before it may be implemented. The Member States must
follow the instructions of these Authorities, dependent on the Commission and
the Council, in order to decide any fiscal regime changes, and new wage policy
or public budgetary matters. There are clear points claiming to prevent
progressive tax reforms, increasing the tax burden, and high public expenditure
and deficit.
The
salary evolution also has to be aligned below labour productivity, and those agreements
reached by employers' associations and trade unions would be subordinated to
this pattern. Any collective agreements on labour regulation are to lose their
main powers.
In
summary, the fiscal and salary devaluation are going to be deepened. Most of
all, it is more clear in a single currency framework without a distributive
social policy, progressive fiscal regime, or proper market regulation.
The
chapter about the Economic Union pursues
the reinforcement of the powers of the ECB with some manner of fiscal union. A
Single Treasury is not envisaged from the very beginning, although the
integration of the ESM into the Treaties will be the means by which such an
instrument is to be created. It has demonstrated its power to impose adjustment
policies and hard conditionalities to entire countries and their public sectors,
in order to bail out and restructure their private banking sectors.
Although
it is not fully defined, the future Single Treasury, likely the EU Budget and the
ESM sum, does not imply a tax burden increase, insofar as the aim is to reduce the
tax burden at national level, while the European level would increase its own
resources. Basically, it means a higher centralisation of resources in the EU, and
a lessening of national decision making. The Budgetary Union is to the detriment of National Budgets in this
context. Combined with the National Competitiveness Authorities, it allows national
governments very little room to manoeuvre.
Furthermore,
the project envisages the nomination of a Eurozone single external
representative in order to defend the euro role as one of the main
international world currencies.
An Alternative Is Possible.
Beyond
the tensions between Germany and the Brussels' Bureaucracy, which stress the
likely problems with implementing all the foreseen steps, The Five Presidents' Report implies the federalisation and the
recentralisation of competences in the UE. But far from being a real convergent
project, it does not point to more redistribution, nor more democracy. On the
contrary, it gives more powers to the financial elites and the European
autocracy.
In
fact, this is a huge project to extend the socialisation of private debt, after
the turning of it into public debt throughout a neoliberal of state model (the public
sector rescuing the capital and punishing the tax payers, the productive
sector, the working classes and those more vulnerable people). It is far from a
political union and fiscal union under a democratic process.
Fortunately,
there is some atmosphere of hope. Some left parties, and political
organisations close to the popular classes have shown they can reach and affect
governments, making them put up some resistance to these initiatives, and it
likely others will achieve similar success in the future.
There
are also some interesting initiatives at international level, learning from the
Greek experience, which warns against isolated initiatives. The Plan B
Conferences (Paris, Berlin, Roma, Madrid,...) are a good debate space to stimulate
reflection on how to fight austerity and promote democracy. Whatever intergovernmental
or federalist projects there are have learnt that mutual support and
cooperation at supranational level is a necessity. In all cases, social
movements are taking into account the fact that certain points must be faced. Austerity
is the common enemy. The debt and the current institutions that build the
architecture of the single currency are what are behind social conflict in
modern times. The challenge is to promote a broad organised movement at
international level to fight the "austeritarian" policies. Likely,
after winning this battle, we will see the blossoming of a new society on the
horizon.
[1] According to the OECD, in June 2015 inflation
in the EU disappeared, and in October the IMF calculated inflation at roughly
0.2%, following data registered by the European Parliament, November 2015 (Key Macro-economic Indicators in the Euro
Area and the United States).
[2] In any case, an
amount completely insufficient to tackle the bankruptcy of several systemic
banks at the same time.
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