ZSF Zrenjaninski Socijalni Forum



The economic crisis in Europe – an alternative economic policy


The current political debate in Europe is dominated by the Greece case. The main subject in European policy is  the negotiation between representatives of the European Union and the new Greek government led by Alexis Tsipras after Syriza has won the elections at the end of January. There are very hard and difficult negotiations about the Greek debt and how to deal with it. Greece is one of the most affected European countries by the crisis. In consequence they have a huge public debt, which has not been reduced after having applied the measures required by the so-called Troika, composed by the European Commission, the European Central Bank and the IMF. On the contrary the debt increased significantly: from 120 % of the GDP at the beginning of the crisis to more than 170 %. The new Greek government is not willing anymore to fulfill the “memorandum” the former Greek governments signed with the troika. This memorandum commits the Greek government to severe cuts in public expenditures as a condition to get European money, causing dramatic social consequences and a real humanitarian crisis. Tsipras does not accept those conditions anymore. In addition it has to be taken into account that this money wasn’t used to improve the living conditions of the Greek people, but to save the highly indebted banks. But the European institutions and the majority of the European governments, in particular the German Government, insist on fulfilling the “memorandum”. Hence the negotiations are so difficult. Although both parts came a little bit closer there is no solution in sight. The Greek government only gained some time to elaborate new proposals for a so-called reform program.

I referred to the case of Greece not only, because it is currently one of the dominant subjects of European politics, but is emblematic of the whole difficulty to face the European crisis. In the centre of attention is actually the question how to deal with the debt, the main question, however, concerns the concept of the economic and social policy as a whole. There are two fundamentally different concepts of economic policy. On the one hand the neoliberal approach of the Troika and the majority of the European governments with the politics of privatization, liberalization and deregulation entrusting the economic development to the market. On the other hand an economic policy which focuses on the public and intends an active role of the state.

The dominant European neoliberal economic policy is austerity policy, which cuts off salaries and public expenditure worsening the working and living conditions. In many countries, not only Greece but also Spain for example, workers and trade union rights have been dismantled. A crucial element of this policy is the Fiscal Compact, which oblige member states to introduce deficit limits into national law. This neoliberal austerity policy pursued by the Troika and requested in particular by the German government, which wants to oblige all other members of the European Union to implement a so called pact of competition, caused not only devastating social consequences, but was also counterproductive for the economic development. Once again very emblematic is the development in Greece, where the GDP was reduced by around 25 % since 2008. Also in many other countries there was a considerable reduction of the GDP since 2007 or 2008, when the GDP reached its peak. So in Italy (8,6%), Cyprus (10,5%), Portugal (6,6%) or Croatia (12,6%). Although there was a remarkable growth in some countries like in Poland with 18,8% or in Sweden with 5,9%, the economic situation in the European Union is characterized by stagnation. There is nearly no growth compared to 2007/2008. Last year as well growth was weak. On the other hand there are still high unemployment rates – more than 20% in Greece and Spain. Especially youth unemployment is very high – in Greece and in Spain more than 50 % of the young generation are unemployed, but also in many other countries the rate of is quite high – in Italy and Croatia it is 44 %, in Cyprus 37 % and in Portugal 35 %. The overall youth unemployment rate in the European Union is 21,6 %.

Although we have very different economic developments in the European countries concerning also the labour market, looking at the general economic and social situation in Europe the situation is not satisfying and evidently the results promised by the Troika are not met. The crisis is not over. Europe remains in a state of crisis. Sluggish economic growth has caused the loss of millions of jobs, growing private and public indebtedness, increasing inequality in the distribution of income and wealth. Furthermore this has led to political tensions and anti-European nationalist movements.

The austerity policy of the Troika and the focus on a rigid fiscal policy have not solved the crisis but deepened the crisis even more. The Troika and the majority of the European governments ignore the reasons of the European crisis. It’s not a crisis of public debt as it is said, it’s a bank and financial crisis as a consequence of the worldwide financial and economic crisis. It’s a systematic crisis of capitalist development. Therefore a radical change of economic policy is needed towards a policy facing the reasons of the crisis.

In my opinion there are three elements which are decisive for an alternative approach to the policy of the Troika: democratic control of the financial sector, a different distribution policy and public investment programs for a sustainable growth and the creation of decent employment.

Concerning the financial policy a radical change is required. According to the EuroMemo Group, a group of leftwing economists, the banking sector should be radically transformed, creating units of smaller size offering financial services on the basis of clearly defined and generally applicable rules. And an effective policy framework should be created to address the European shadow banking system and it’s offshore dimension. With regard to the debt issue Syriza and the European Left request a European-wide debt conference in order to restructure the debt and to find a solution. For the most indebted countries like Greece a debt cut is unavoidable. Effective measures against financial speculation are necessary. Financial speculation has to be prohibited. In particular the role and the policy of the ECB has to be changed. It should adopt the responsibility for economic development and employment and should function as lender of last resort. Instead of always pumping more and more money in the financial market this money should be used for public investments.

A second element of an alternative economic policy regards the distribution policy. Instead  of reducing salaries and public expenditure, both should be increased. This would not only be a matter of more social justice, but would also stimulate the domestic demand and therefore the economic development. In particular we need another tax policy with higher taxes for the rich. Since many years we are talking about the “Tobin tax”. Now it’s time to apply the required financial transaction tax. Necessary are also higher corporate taxes, and the tax dumping in some countries should be ended.

The third element concerns the investment policy, the heart of any economic policy. A political shift towards investment in infrastructure, sustainable production and the creation of decent employment is urgently necessary. This requires public investment programs and cannot be entrusted only to the market. Such investments should be integrated in an active industrial policy. After having been neglected for many years the EU is now rediscovering the importance of industrial policy. Since 2008 industrial production has declined in Europe. Now the EU Commission set its goal to raise manufacturing sector’s share in total value creation back to 20 %, against the present 16%. And we have to take into consideration, that the industrial situation is very divergent in Europe. One of the highest shares of industrial activities has Germany with 22 % (after the Czech Republic with 25 %). It’s considerably above the average in the EU of 15 %. This explains by the way why Germany was less affected by the European crisis. A strong industrial sector with advanced technology and high productivity and relatively low wages is the crucial element of Germany’s economic success. On the other hand the situation is not so brilliant as it is often said. We have in Germany a huge sector of precarious work, i.e. insecure work, limited contracts, bad working conditions and very low wages. There are considerable social contradictions, also concerning the distribution of income and wealth. In the most affected countries by the crisis in the south of Europe economic  and industrial activities have been reduced considerably. In these countries industrial policy with comprehensive investment programs are urgently necessary.

The goal of industrial policy is twofold: industrial and general economic recovery and an economic development, which creates decent employment (good jobs) and corresponds to social and ecological needs (social-ecological transformation of industry). There are several programs in this direction. The German Trade union confederation DGB has proposed “A Marshall Plan for Europe”, envisaging a public investment plan worth 2 % of Europe’s GDP per year over 10 years. A further plan in the same direction has been put forward by the European trade union confederation. ETUC proposes “A New Path for Europe”, a plan for investment of an additional 2 % of EU GDP per year in order to stimulate a sustainable growth and to create quality jobs. It’s intended to initiate a social and ecological transformation process providing investments in energy transformation, transport network and infrastructure, education and training, expansion of broadband network, social housing, sustainable water management. Recently also the Commission president, Jean-Claude Juncker, launched a € 315 billion investment plan, which, however, has not the same quality as the trade union proposals, because it’s orientated essentially on mobilization of private participation in investment projects. But nevertheless this initiative shows that there is now a wide consensus about the need for new European investment programs. But the Juncker-plan is inadequate and does not correspond to the economic and social risks currently at stake. What is needed is a policy, that actively stimulates re-industrialization, and a public investment policy, that stops and reverses the deterioration of public infrastructure, which is a problem in many European countries. This concerns also Germany, where as a consequence of the rigid fiscal policy in particular the communities don’t have the means for necessary infrastructure investments. A European-wide public investment program of 2 % of the EU GDP orientated on sustainable development and on the creation of good jobs is an effective alternative to the still dominant neoliberal austerity policy. And if focused on the most affected regions by the crisis, it could reduce the disparities between the countries and regions of Europe.

A further and very important issue related to the European crisis is the question of democracy. The decisions taken by the Troika are not democratically legitimized. The austerity policy is not only socially a disaster and economically counterproductive, but also undermines democracy. The rights of the parliaments are reduced, and also rights of trade unions with regard to wage policy are partly suspended. And even the European Parliament is not really involved in the decision-making process. The decisions are taken by the Troika. Therefore democracy must be at the heart of the politics of the left. An alternative concept of economic policy can’t be designed only as a top down process, but has to be organized also bottom up. Any leftwing economic concept has to consider the specific conditions of the different countries and has to involve the people and their representatives, not only the parliamentarians but also trade unions and movements of the civil society.

Participatory democracy is essential for politics alternative to the authoritarian neoliberal policy. Economic or industrial democracy has to be a key issue in the strategy of the European left. It’s an essential element of an alternative economic policy and in building a society of democratic socialism. We have to refer to a tradition which has been lost in last years. It was the financial crisis with its threats for democracy and its demands for a democratic control of the financial markets, which puts this topic on the political agenda. Economic democracy in my understanding has to be a comprehensive concept, which combines different levels – the shop floor, the company, the regional economy and the economy as a whole. The question of property is crucial. A different ownership structure with cooperatives, public and employee ownership is required. Economic or industrial democracy is more than participation or co-determination, a specific German issue, because in this concept the workers and employees as owners have the right to influence the corporate  policy and strategy directly. Employees ownership in the context of economic democracy means the re-appropriation of the results of the work by those who work. But the concept of economic democracy is even more far-reaching. It means also the political government of the economy, which will not be subordinated to the market, but democratically controlled. The democratic control and the democratic organization of the decision-making process in the economy are a big challenge. It would be certainly helpful to refer to the debate about and to the practical experiences of the workers’ councils as they occurred in the history of labour, socialist and co-operative movements. But also very interesting and helpful are the current approaches of solidarity economics, which emerged in some European regions, but in particular in Latin America. Thus we have a good basis for the necessary further discussion.

Those forms of practical approaches of economic or industrial democracy are essential elements of participatory democracy going beyond the parliamentary system, because they are direct forms of democratic participation. The parliamentary system, however, is a representative system based in particular on the activities of political parties. Always there have been attempts to complement this representative parliamentary system with elements of a more direct participation like referenda. And often social progress was achieved by decisions in a referendum and not by decisions in the parliament (a good example for this is the progress of women’ rights). Today we have a broad discussion to extend those direct forms of democracy, also with regard to the new information and communication technologies like internet, which make information easier. Economic or industrial democracy, however, even exceeds these approaches because the producers themselves are also those who make the decisions.

For the left parliamentary and extra-parliamentary work are inseparable. It’s quite clear that it’s very important to be present in the parliaments and to have strong parliamentary groups, but in the end the success of leftwing politics depends on the existence and the extend of broad social movements, to whose development the left must contribute. To contribute in building broad social movements is part of the strategy to achieve a new political and cultural hegemony against the no-liberalism. Neoliberal politics are still dominant in Europe. But it becomes more and more clear, that such a policy is not able to face the ongoing European crisis and to resolve it. The victory of Syriza in Greece certainly encourages alternative political approaches, although the situation remains very difficult. What we need is a change of the political climate towards alternatives, which are not based on nationalism and exclusion which is the rightwing political concept, but on solidarity and democratic participation. And therefore a broad debate about alternatives in economic and social policy is necessary.

Prof. Dr. Heinz Bierbaum, born 5.12.1946, is member of the Presidency of DIE LINKE and the Chairmen of the International Commission. Since 2009 Heinz Bierbaum is also member of parliament in Saarland and Executive director of the Parliamentary group of  DIE LINKE. He studied Social Sciences and Economy in Freiburg and Berlin. Mr. Bierbaum worked many years for trade union IG Metall, first in the department for economic politics, later as Head of IG Metall in Frankfurt. He is Professor for Business Administration and Director of the Institute for Organizational Development and Enterprise Politics (INFO Institute) at the University for Technical Science and Economy in Saarbrücken (HTW). Main interests: Economic and financial politics, economic democracy, European politics.

Heinz Bierbaum

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