Tuesday, June 28, 2011

New “austerity rules” won’t do the job

Last week in the European Parliament, Labour MEPs strongly criticised new proposals for what is called economic governance; rules designed to deal with the present economic crisis, by improving coordination of economic and fiscal policy, particularly in the Eurozone.

Not the kind of stuff to get the pulses racing, I agree. But I’m more concerned about getting Europe’s pulse, if not racing, then at least beating a little more strongly.

There is no doubt we need a new approach, unfortunately the new “austerity” rules will not do the job.

Proposed by an over-cautious European Commission, and supported by governments dominated by conservatives, and the right wing in the European Parliament, the plans are based on short-term thinking, with an emphasis on severely cutting deficits, without building in long term growth. They are the “austerity” answer, and will be imposed across the EU, removing the flexibility for national governments to respond with different policies in the future.

That is why Labour and other progressive forces are arguing for something different.

Quite simply, you can't cut a country's debt without making sure that policies are in place to make sure its economy is growing at the same time. In fact, sustainable long-term growth can actually keep national debts falling as a proportion of GDP, as well as being essential to providing jobs and economic well-being, while maintaining high quality public services.

Already we can see that countries following such reckless austerity policies show some of the lowest growth figures. The UK is doing this as government policy, while countries such as Greece, Ireland and Portugal are forced to follow such programmes as a result of conditions imposed on them from outside. An effective economic package should support rather than undermine growth.

Specifically, investment spending should be treated separately from normal government spending in any rules establishing the level of a country’s debt. Putting money into areas like scientific research, essential infrastructure and the new green economy is essential if we are to get our economies moving again. We should not have to cut these back to meet short term targets. Indeed, cutting such spending in times of recession would actually worsen economic performance.

And the proposed new rules must be fair. It is a cruel joke to say, along David Cameron lines, that we are all in this together, when palpably some of us are “in it” more than others! The austerity measures are already hurting low and middle income people the most and it seems unlikely that any new measures will be any better. Meanwhile, the financial sector, the guilty party in this economic catastrophe, is already back to making huge profits, having been bailed out by the taxpayers of Europe.

In short, if we’re going to have new rules limiting spending, we also need new rules on fairer taxes, such as the bank bonus tax applied by the Labour government in 2010. And other innovative measures, already agreed by the European Parliament, including a financial transaction tax, will need to be developed, if there is to be a solid and sustainable recovery.

Last week, the final votes on the various Reports dealing with these matters were postponed. But we on the progressive left are very clear. We need more effective and more equitable ways of organising our economies and the campaign to achieve these must go on.

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