Austerity Europe

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Campaigning for the alternative

European developments

March 2011

This document summarises developments in the economic policy of the European Union, the threats to trade unions and workers' living standards, and the actions which the European Trade Union Confederation (ETUC) is taking to address these challenges.

In a series of documents and decisions, the European Union is promoting rules and approaches which will reduce wages - especially through reducing the influence of collective bargaining, minimum wages and automatic upratings - undermine pension and benefit systems, and promote cuts in the public sector. These changes, as well as attacking trade union rights and workers' terms and conditions, also run the risk of provoking nationalistic, euro-sceptic responses.


In response to the economic crisis, the European Commission and the European Union are adopting a number of approaches which are causing serious concern among trade unions across Europe. Although some initiatives are being taken or discussed on finance sector reform and finance sector taxation (including the possibility of a Financial Transactions Tax at EU level, which the TUC would strongly support), many of the initiatives being agreed or proposed would have the effect of making ordinary workers pay the costs of an economic crisis which they did nothing to cause. Overall, these constitute an austerity package that would seriously damage the future economic health of the European Union, creating either a generation of stagnation or even a spiral of reducing demand and increased unemployment especially among the young.

In particular, the TUC would identify four key issues where the European Commission or Council of Ministers are heading in the wrong direction:

  • the conditions for 'bailing out' Greece and Ireland;
  • the September 2010 package of proposals on Economic Governance;
  • the First Annual Growth Survey published in January 2011; and
  • the competitiveness pact discussed at the European Council in February 2011.

Bail outs: the packages agreed between the IMF and the European Commission for Greece and Ireland went far beyond what was reasonable given the parlous state of the public finances in both countries.

In Greece, the mismanagement of the previous right-wing administration (which had effectively lied about the country's economic position) has been used to justify deep cuts in the welfare state, excessive privatisation and liberalisation, and reductions in living standards which could last for a generation. Greek unions have led demonstrations against these measures, and have called for alternatives such as higher taxes and measures to combat widespread tax evasion. Finally, even the PASOK government snapped when IMF advisers urged them to go faster and deeper in cutting government expenditure, with the Prime Minister insisting that the IMF cease to interfere in Greece's internal decision-making.

In Ireland, it appears that the European Commission took the lead in demanding cuts to government spending and wage levels, including, for example, a cut in the minimum wage which the new Fine Gael/Labour coalition has, thankfully, agreed to rescind. The European Commission has imposed swingeing cuts on the Irish Government, and a penal rate of interest on the loans offered which led the ETUC General Secretary to accuse the Commission of treating Ireland like a vassal state or a colony, as well as abandoning the Commission's support for social dialogue as a key component of national economic policy. The new coalition government is committed to renegotiating key elements of the bail-out package, although deep cuts are still likely.

The package of proposals on Economic Governance adopted by the Council of Ministers in September and now being forced through the European Parliament adopt the model of these bail-outs for the EU as a whole, although formally applying only to the Eurozone. The legislative package is made up of six pieces of legislation: four proposals deal with fiscal issues, including a wide-ranging reform of the Stability and Growth Pact (SGP), while two new regulations aim at detecting and addressing effectively emerging macroeconomic imbalances within the EU and the euro area. For Member States in the Eurozone, the package includes automatic sanctions for countries in breach of their commitments. The six measures are (the language is that of the Commission):

  • a Regulation amending the legislative underpinning of the preventive part of the Stability and Growth Pact to ensure that EU Member States follow prudent fiscal policies in good times to build up the necessary buffer for bad times. The Commission may issue a warning in case of significant deviation from prudent fiscal policy for the euro area Member States;
  • a Regulation amending the legislative underpinning of the corrective part of the Stability and Growth Pact meant to avoid gross errors in budgetary policies;
  • a Regulation on the effective enforcement of budgetary surveillance in the Eurozone - a new set of gradual financial sanctions;
  • a Directive on requirements for the budgetary framework of the Member States - minimum requirements to be followed by Member States for the objectives of the SGP to be reflected in the national budgetary frameworks,
  • a Regulation on the prevention and correction of macroeconomic imbalances - the Excessive Imbalance Procedure (EIP) is a new element of the EU's economic surveillance framework. It comprises a regular assessment of the risks of imbalances based on a scoreboard composed of economic indicators (which unions feel are unrepresentative and flawed); and
  • a Regulation on enforcement measures to correct excessive macroeconomic imbalances in the euro area - if a Eurozone Member State repeatedly fails to act on Council EIP recommendations to address excessive imbalances, it will have to pay a yearly fine equal to 0.1% of its GDP

A key element of the package is that Member States will be required to share their budget plans with the European Commission even before they are presented to their national Parliaments - a move that seems guaranteed to enrage Euro-sceptics in particular, except that they will often be in sympathy with the Commission's use of this mechanism to encourage government expenditure cuts.

The Annual Growth Survey is a new initiative which is part of the process of co-ordinating Member States' macro-economic, budgetary and structural reform policies known as the 'European Semester'. This document attempts to broaden the interference and intervention proposed in the Economic Governance package to a more widely and generally applied set of principles across all EU Member States (and therefore includes the UK). The survey will be an annual evaluation of the EU Commission view of the economic situation, highlighting the main challenges the EU must address, and making recommendations to Member States.

The survey seeks to prescribe swingeing austerity medicine beyond countries facing rescue packages to the entire EU. There are major concerns with this document:

  • the suggestion of doubling consolidation of debt and eliminating excessive deficits urgently in the current climate will mean there is no possibility of growth. This endorses the position taken by the UK government that the main economic problem facing Europe is excessive government debt, when in fact it is the combination of debts incurred to prevent the global economic crisis becoming a global depression, and the reduced domestic and global demand which has resulted;
  • the survey urges Member States to apply strict and sustained wage moderation including the revision of indexation clauses in bargaining systems, undermining the autonomy of the social partners in this area and attempting to rob trade unions of their core role, and potentially extending the period of suppressed domestic demand;
  • the survey attacks welfare and unemployment benefit systems, and insists on greater incentives to work, despite the absence of jobs. It also attacks public sector pension systems, promotes a universal increase in retirement age and a reduction in early retirement schemes. Furthermore, it seems to promote private savings over occupational pension schemes;
  • it promotes further liberalisation of the service sector, already suffering from dangerous deregulation, casualisation and job reductions, but only 'healing the financial sector' rather than holding it vigorously to account with strong regulation; and
  • it makes no mention of the significant imbalance in growing inequalities between top pay rates (many in the financial sector) and average wages, nor the rising share of profits and falling share of labour, nor low investment in skills development, research or innovation.

Finally, the Competitiveness Pact which is now being promoted especially by the French and German governments fails to register that Europe's main problem is not competitiveness but lack of productivity. The Pact - although only available in draft, and not yet agreed - repeats much of the analysis of the Annual Growth Survey, for instance in holding down wages (especially in the public sector); decentralisation of wage bargaining; promotion of liberalisation; reduction of pension and other social benefits and raising retirement ages; although it does also refer to creating a common corporate tax base and unspecified measures to promote research and development.

Campaigning for an alternative

Most of these proposals are going virtually unremarked across Europe (with the exception of the penal terms for Greece and Ireland) and in several countries this is no doubt because they go with the grain of existing Government policies. There is some concern, for example, that the UK government is claiming not to be involved in much of this because we are not in the Eurozone, while using it to justify their deep cuts in public expenditure on the basis that, contradictorily, the EU is demanding them.

A key element of the ETUC response, therefore, is to make people more aware about what is being discussed and implemented. Although many decisions have already been made, there is always the possibility of reversing them should popular opposition be sufficiently aroused. The ETUC is therefore continuing its anti-austerity campaign with renewed vigour, and there are demonstrations planned for Brussels on Thursday 24 March ahead of the next European Council, and in Budapest on Saturday 9 April, because Hungary holds the EU Presidency for the first half of 2011. The TUC demonstration on Saturday 26 March is fully in line with those protests, and will be used by the ETUC as a further example of popular opposition to austerity measures.

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