HIGH NOON FOR SOCIAL EUROPE

Address by David Begg to ETUC Conference, Dublin,

It is a great pleasure to welcome this Mid-Term Conference of the ETUC to Dublin.
The conference theme "High Noon for Social Europe" is well chosen. The self-defeating
impact of austerity on growth, when interest rates are close to zero, must be evident to all
but the most irredentist liberal ideologues.
We are meeting today in Dublin Castle which was for centuries the seat of British
administration in Ireland. While the history of the relationship between our two islands is
sometimes contested – thankfully nowadays only on the football field - it can be said with
certainty that the Troika has managed to inflict proportionately more damage on Ireland's
economy and society in four years than Britain ever did in eight hundred years.
But the case against austerity is building steadily. The ETUC's argument for a Social Compact
received a strong boost in a recently published book by the German Sociologist, Ulrich Beck.
He makes the point – perhaps an obvious one to us but less so to others – that the problem
created by a purely economic analysis of the European financial crisis is that it neglects the
more crucial question of a European society.
In this Beck was following the great Hungarian Socialist, Karl Polyani, who held that the idea
of an self-regulating market economy was an unachievable utopia. As he famously put it,
"Laissez-faire was planned". He believed that the economy must always and everywhere be
embedded in society and not the other way around.
How far Europe has drifted from Polanyi's concept of the natural order can be gauged in the
existence of an unemployment rate of 12.3 per cent – 24 per cent for young people –
coexisting with a situation where corporate Europe is sitting on an uninvested cash pile of
€7 trillion. Moreover, as we have seen in recent weeks, many of these same corporates have
developed the most complex and sophisticated systems for tax avoidance.
An article in the Guardian newspaper last Tuesday opened with the following observation:
"Economic prosperity and social progress are key European Union goals. But for the past five
years it has delivered neither. It has been in double dip recession since mid-2011, with
unemployment now at a record high of 11% and no tangible improvement in sight...the
reality of today's Eurozone is far too many people out of work, falling internal demand,
increasing polarisation within societies – and a chasm dividing relatively prosperous core
countries from a periphery destined for depression."
What a damning indictment of the policy of austerity. The extraordinary thing is that it was
not written by a trade union representative, or an economic commentator, or a social
activist, or even a journalist. It was written by a member of the European Commission,
Laszlo Andor and co-authored by Joan Burton, Ireland's Minister for Social Protection.
Those of us who know these people might not be terribly surprised by their views. But even
President Barroso has in recent weeks opined that austerity has reached the limits of
political acceptability. This notwithstanding that he wrapped up the social summit in March
by declaring that the Commission would not recommend a stimulus to the European
economy.
The truth of course is that austerity is now no more than a mantra without meaning. The
intellectual underpinning for it has been discredited. A spread sheet flaw was found in
Rogoff and Reinhardt's much cited paper "Growth in a Time of Debt" which had argued that
Government debt above a critical threshold of 90 per cent can become a substantial drag on
the economy. This was always at variance with the evidence anyway. Italian public-sector
debt in 2002 was 105.7 per cent of GDP and no one cared. In 2009, it was almost exactly the
same and everyone cared.
As well as that the IMF has admitted that it underestimated the multiplier effects of cuts on
the real economy and that capital controls in some circumstances may be appropriate. As
we now know that became a reality in Cyprus.
Again common sense dictates that we can't all be austere together. If a country's public and
private sectors are paying back debt at the same time, then the only way that country can
grow is by exporting more. But if everyone is trying to do the same we can only succeed if
we establish trading relations with the people of Mars. This is the fallacy of composition,
thinking that what is true of the individual parts is true of the whole. That is why the
commonly used analogy of the household budget and the economy is such nonsense.
It also shows how much of an oxymoron the policy of "growth friendly fiscal consolidation",
concocted at the G20 in Toronto in 2010 really is.
Even the Financial Times accepted in an editorial last Friday that, 'the case for a
simultaneous contraction of fiscal policy in Eurozone Member States was based on a
misdiagnosis of the crisis".
The biggest lie of all is to suggest that the crisis is due to excessive Government spending. In
fact average OECD debt before the crisis was going down, not up. What happened was that
banks promised growth, delivered losses, passed the cost on to the State, and then the
State got the blame for generating the debt, and the crisis, in the first place, which of course
must be paid for by expenditure cuts. The banks may have losses, but the citizens will have
to pay for them.
Ireland is the most egregious example of this in Europe. Before the crisis we had a net public
debt of 12 per cent, now it is ten times that amount. It cost €64 billion to bailout the banks
and my grandchildren will spend their lives trying to pay off that debt.
The truth about EMU is that, absent the facility to devalue, and in the event of a macroeconomic
shock, the whole burden of adjustment falls on workers. There is no social
institution to balance the power and independence of the ECB. Paradoxically, the fact that
social policy remains a national competence creates a collective action problem for member
states. Unless there is a serious attempt at institutional reform the problems we now face
will not be capable of resolution.
If you have the time during your visit to stroll down through the city, you may notice in the
main thoroughfare, opposite the General Post Office, a fine bronze statue of James Larkin.
He was the leader if the ITGWU which in 1913 engaged in an epic four month struggle with
the organised employers of Dublin to establish trade unionism in the city. It was a seminal
time in history of the Irish Labour Movement and we are celebrating the centenary of those
events this year.
During the Lockout the Dublin Workers and their families were able to survive only with the
support of the British TUC.
Ultimately the workers were starved into submission and the union movement was routed.
But in time it was able to rebuild and carry on its work.
There are two lessons which we can draw from our labour history. One is to recognise that
solidarity is the cement that binds us together. The other is that no crisis – however severe
– last forver.
Indeed, that loud screeching noise coming from Brussels last week was the sound of a
bandwagon going into reverse. The Eurozone has suddenly backed up in its approach to the
financial crisis. Before it was all about cutting budget deficits. Now Member States are to be
allowed to overshoot the 3 per cent target. But of course they still want structural reform of
the labour market – a euphemism for giving employers the right to sack workers and cut
wages.
Still they know the game is up. Having virtually wrecked the European economy and created
a lost generation of young European citizens, they are beginning to realise that there is a
tipping point. A recent report from the respected Pew Research Centre showed a dramatic
collapse in support for Europe across nearly all countries. This is the manifestation of
Polanyi's second thesis; that a history shows that there will eventually be a
countermovement by workers against economic conditions which oppress them.
The great dilemma confronting the European elite now is that, to save the European project,
they must embark on the most ambitious phase of integration yet attempted in
circumstances of growing public hostility to the idea.
So now is the opportunity for the ETUC to press its case for an alternative approach.
Now is the hour to push for social investment and the construction of institutions of the
social market economy to balance the power and independence of the ECB.
Now is the critical juncture to seek a commitment to the mutualisation of debt.
Now is the time to demand nothing less than the reflation of the European economy.
Gramsci once wrote that:
"Crisis consist precisely in the fact that the old order is dying and the new cannot be born".
The historic task of our generation is to be midwives to the birth of a new more socially just
Europe. The social compact is an idea whose time has come.
I hope that you will enjoy your stay in Dublin.