Fabian Lindner
Once upon a time, the European Commission dreamt of making the European economy ‘smart’ – by investing in education, research and innovation -, more ‘sustainable’ – by moving Europe into a low-carbon economy – and ‘inclusive’ – by boosting job creation and reducing poverty. That was in the year 2010, it was the Commission’s “Europe 2020 Strategy”. Then the carnage began. The same Commission that purred about smart inclusive sustainable growth helped impose heavy austerity on Europe and led the continent into a depression that now has lasted longer and has cut deeper than the Great Depression of the 1930s.
Some numbers say more than a thousand words. Between 2008 and 2012, government spending on education was heavily cut, especially in Europe’s crisis countries: by 17% in Greece, 13% in Portugal, 10% in Ireland, 8% in Spain and 6% in Italy. We do of course not know whether all the young people who have become unemployed substituted their costly teachers and professors for the internet and began teaching themselves. But it seems safe to say that such cuts are not likely to make young Europeans smarter. What about sustainability? Government spending on environmental protection was cut even more between 2008 and 2012: By 36% in Ireland, by 30% in Portugal, 25% in Greece, and by 16% in Spain. At least in Italy, expenditures on the environment increased by 4%.
As most readers know, the ‘inclusion’ part of the Europe 2020 strategy was the goal missed by the widest margin. While employment has recently slightly increased in the EU’s 28 member states, it still is 2 % below its level of 2008 – with even bigger employment losses in the crisis countries. Most of new employment is precarious part-time employment and more and more people withdraw from the labor market altogether since they do not see any future for themselves.
Is Europe in any way helping the unemployed? Quite to the contrary. While the crisis is a classic demand side crisis in which firms fire their employees because they cannot sell their products and have to cut back on production, the Commission tries to increase the labour supply by cutting back on workers’ rights, decreasing employment protection, de-centralising collective bargaining and encouraging atypical and precarious employment. All those laws are implemented – often with dubious legal backing – to cut wages and prices and make Europe ‘more competitive’. Never mind that this strategy backfires even in purely economic terms: decreasing incomes and prices lead to an increase in real debts, thus more defaults, lower demand and more unemployment.
But why is there such a discrepancy between what the Commission wanted in 2010 and what it did – and achieved – in 2014? The short answer is: Ideology combined with a lack of democracy. Ideology is deeply embedded in the European treaties that determine European economic governance. According to those treaties and much of European law built on them, the ‘social’ is almost always dominated by the market. The free flow of goods and services, of capital, and of persons is paramount; the ECB shall not fight mass unemployment but maintain price stability and the primacy of fiscal policy is to reduce deficits and debt and not to stabilise growth and employment.
Unemployment and disillusionment is a major issue across the European Union.
From the Maastricht Treaty onwards, there is an austerity bias in European law. ‘Europe 2020’ is a good illustration of this wider principle: While you can read many nice words about smart, inclusive and sustainable growth, all those lofty goals are not backed up by any concrete policies. But fiscal retrenchment is. A hardening of the Maastricht criteria and the introduction of the ‘Fiscal Compact’ to reduce government debt have become hard law with many concrete measures foreseen to sanction governments that do not adhere. To put it another way: If a quarter of your population is unemployed and without hope, Europe does not care. But beware of having a deficit that is one percentage point too high: The wrath of Europe shall be upon you.
This situation is likely to be one of the results of having very little democracy on the European level. This is so for a simple reason: The EU ‘constitution’ – its treaties – does not only contain what normal constitutions contain, i.e. a codification of fundamental rights and obligations of citizens and general rules of how government institutions shall interact and reach decisions. They also contain concrete policies that in normal democracies parliaments should decide on and be subject to change when circumstances and majorities change.
Not so in Europe. The treaties are harder to change than many national constitutions. For instance, in Germany before 1999, the Bundesbank’s independence was subject to an ordinary law that the Bundestag – the German parliament – could have changed by a simple majority. On the other hand, to change the ECB’s independence – and its policy goals – would necessitate the unanimity of all 28 European member states! That means, once you have enshrined policies in the European treaties, there is almost no chance of changing them later on. This is one of the reasons why Europe tends to be stuck with bad policies.
What can be done about this? Sometimes you have to break a law to keep your country from being broken. This is why many countries – for instance France, Italy and Spain – should just shrug their shoulders when the Commission asks them to balance their budgets. Only then will governments be able to increase spending on education, the environment and public infrastructure – all those things that can make Europe really social, in 2020 and beyond. Otherwise, uncanny political alternatives will increase their audience. We know where history led us in the last Great Depression. Better not to repeat it.
Fabian Lindner is a professor of international economics at HTW—University of Applied Science, Berlin.