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austerity, debt, EU, politics, public sector strikes, recession, trades unions

Europe’s trades unionists have won the argument even if they haven’t won the streets

 Last week’ pan-european strike was the biggest show of trade union solidarity since the creation of the European Union. 40 trades unions in 23 countries took to the streets in protest at the austerity policies being pursued by European countries under the direction of the IMF and the European Central Bank. The organisers should be very pleased with the response, even though it largely passed Britain by.
The turnout demonstrates that, even though the vast majority of workers in countries like in Spain are not members of trades unions, it is possible to mount an effective protest against austerity across southern Europe at least. However, protest is all it was. This was not a general strike or anything like it, and we shouldn’t exaggerate its impact. The EU bureaucrats are not exactly shaken to the core. Nor is Angela Merkel likely to open the coffers of the Bundesbank because of a few clashes with police. The demonstrations will make very little difference to the fate that awaits a generation of young people as Europe languishes in economic depression.

This is despite the fact that in many ways the unions have won the argument. The intellectual case for continuing with the austerity measures in the eurozone has been seriously undermined by the deepest economic contraction in  since the Second World War. Greece’s economy has shrunk by 25% since 2009, and the contraction is accelerating: Greece shrank by 7.2% in the Third Quarter of 2012, which is unprecedented in any European country in peacetime. Countries like Spain, where unemployment is now running at 25%, are caught in a ruinous fiscal trap: cuts lead to economic contraction, which leads to more unemployment, which leads to collapse of tax revenues, which leads to more debt and more cuts. It is a vicious spiral the significance of which the northern eurozone countries seem unable to grasp – even though Germany is now beginning to feel the consequences as its exports to the rest of Europe dwindle.

The German Chancellor, Angela Merkel, in her recent tour of the debt-stricken Iberian countries, could offer only another five years of pain. That’s how long she thought it would take to squeeze the debt out of the eurozone. But she knows, and everyone else knows, that this is a false prospectus, because even if countries like Greece do manage to meet the draconian budgetary targets set by the ECB they will still be left with ruined economies. Even the International Monetary Fund accepts that austerity is now making the recession worse.

Europe is caught between two conventional wisdoms. One, favoured by the Northern Europeans like Germany and Finland is that, “you can’t solve a debt problem by creating more debt”. The other, favoured by the South is: “you can’t cut your way to economic growth”. This contradiction is difficult to resolve because in their own ways both statements are true. If countries like Greece don’t reduce spending, then their sovereign debt will increase to levels that are simply unsustainable because the cost of servicing the debt – paying back the interest on it – would be so large that almost the entire tax revenues of the country would be consumed by it. If you ignore the debt it doesn’t go away; it just gets bigger.
However, in cutting the debt, by cutting spending, governments undermine their own finances by throwing people out of work. If there are no alternative jobs for them, they end up depending on state benefits and not paying taxes. They stop spending in the high streets too, which throws many private sector workers out of work. The collapse in consumer demand is the biggest underlying economic problem facing European countries right now: incomes have been squeezed for a decade, and the burden of private debt is so great that households are retrenching, as they did in the 1930s.
However, the UK government believes it has the answer: a million new private sector jobs have, according to George Osborne, been created in the last two years, though this is disputed by Labour. This is supposed to mop up those made unemployed by the shrinkage of the public sector – and the policy has been working after a fashion in the UK, which is why  headline unemployment has been falling ( though in Scotland the jobless figures have risen largely because of the delayed impact of public spending cuts). These are mostly very poor quality jobs – low paid, part time, insecure – but they are jobs. Unfortunately,  the Governor of the Bank of England, Mervyin King, rained on the government’s parade  by forecasting a further downturn next year.  There is already talk of a “triple dip recession”.
This is classic depression economics, and it can only be solved by some form of economic stimulus that forces the economies of Europe to collectively shake off their torpor, and their debts, and start growing again. This can happen in a number of ways. The Second World War provided a massive economic stimulus which lifted America and Europe out of economic depression – though no one in their right minds would argue for that as a solution to the eurozone crisis.. The Marshall Plan after World War Two, when America effectively rebooted the economies of Europe through a massive financial transfer, is a rather more sanguine solution, though America has its own $16trillion debt problem and is in no position to bail out Europe right now. Many economists hoped that  the newly emerging economies collectively called the BRICS – after Brazil, Russia, India, China and South Africa – would provide the tractor to pull the old world out of depression. But the bad news is that growth is slowing rapidly there also.
Which throws the ball straight back into the lap of the European Union. Only by harnessing the collective might of the greatest economic bloc in the world can Europe solve the debt problem and stave off another Great Depression. Whatever you think of the EU, and its undemocratic bureaucracy, the nations of Europe have no choice but to pool their debts, mobilise their fiscal resources, and blow away the clouds of economic depression. It really is only a matter of time before they do the right thing, after having exhausted all the alternatives.That’s the message from the streets to the politicians. 

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


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