A recent IMF paper recognises that the austerity policies imposed on some European countries have been unbalanced, ineffective and biased1.
Endorsed by chief economist Olivier Blanchard but not by the Board of the IMF, the paper repeats previous conclusions by staff members challenging the coherence of the adjustment programmes in Europe. In the cryptic IMF language, ‘new research suggests that large expenditure-based consolidations tend to increase inequality, and that higher inequality can undermine growth’. Yet the IMF, along with its counterparts, the troikas ruling Greece, Ireland and Portugal, is now proposing precisely a new approach to aggravate inequalities: the reduction of the minimum wage and of the value of pensions already being paid.
The targets are young skilled workers who are to accept precarious jobs with reduced pay, lowering the cost of work below the survival level of the minimum wage, and older workers who have paid into the public pension systems. This has led to increasing exploitation and therefore to growing inequality. For the IMF and for the Troika the solution to the problems they perceive, and indeed generated, is to aggravate the very problems. In fact, the problem is the austerity policy itself and the authoritarian way it represents of governing Europe. In what follows, we will evaluate the coherence and results of three years of austerity programmes and present the case for fighting for democracy and social responsibility in Europe.
The Memoranda imposed on Greece and then on Ireland and Portugal, which unsurprisingly share an almost identical wording and disregard the specific characteristics of each economy, were blatant examples of a threat: The social contracts created by democracy are to be reengineered according to the requirements of finance capital.
After some years, the results speak for themselves. First, there was no reduction in financial rents. Indeed, they were increased, as the privatisations delivered the public energy, transportation and postal systems, and large parts of the health systems, to speculators. The future payment flows to the public-private partnerships were not affected, but the provision of public goods was dynamited. Second, the rent obtained on state bonds was protected and enlarged, and the main German, British and French banks were bailed out of the public debt of the countries under attack. Third, the Memoranda unleashed the pressure to lower wages and pensions and degrade the level of social protection and access to common goods: In Greece, the unemployed are not to be treated in public hospitals, and in Portugal more than half of the unemployed have no subsidy.
After a couple of years, the nations subject to the Memoranda are more vulnerable and their societies more unequal. The change has been brutal and rapid: No party or government in any European country would ever have been able to propose these measures and deliver their tragic results in a democratic context without the blackmail and direct intervention of the troikas. This is the yardstick for the success of the adjustment programmes from the point of view of its actual beneficiaries, for its aims were to degrade the social contracts providing protection for unemployment, illness and ageing, and to commodify the crucial goods for democracy – health, education and social security. This is what they are winning. The results are unemployment, since unemployment is the social condition for further reduction of wages, and degradation of pensions, since the social security systems’ funds are the prey for shadow finance.
Furthermore, the aggravation of the interest on sovereign debt, which is the domino effect of the recession triggered by this strategy, provides the tools for long-term pressure and control over these countries. The success of the troikas’ policies is directly related to the failure of the countries in their protectorate.
Nevertheless, public opinion is aware that these social contracts have been the basis of democratic life, since after the Second World War or after the fall of the dictatorships in Portugal, Greece and Spain the workers’ movements won a considerable degree of socialisation of welfare policies. The significance of the conflict over the Memoranda involves the very nature of the democratic life and social rights of our peoples. That is why we are concentrating our struggle of opposition on the Memoranda.
As the collapse of the protectorate countries proceeds, the discourse of the European institutions is that the programme is working and must be resolutely pursued. In fact, the European Central Bank and the European Commission, two vortices of the austerity regime, reject any measure protecting the economies and favouring the creation of jobs against the benefits for the financial powers, and it is obvious that the generals of the speculator’s army will accept no change of direction. The IMF paper and similar examples of second thoughts are simply testimonies of the uncomfortable regret of economists whose world is falling apart: They now know that reducing wages does not reduce unemployment, as the theory promised and the legend went.
If unchallenged, the European Union will go on, defiant of reality and proud of the social engineering it is imposing on the southern countries. For Merkel and the German banks, this means more than 40 billion euros of net gain with debt operations and, furthermore, the political consolidation of the Empress. For the financial sector of Europe, which has just destroyed the claims of a long-promised Robin Hood tax on speculative transactions, this means taming the social aspirations for a responsible Europe. Business as usual prevails at the end of the day, with thirty million unemployed.
As pressure mounts, new constellations slide into place within Europe’s political landscape. The Socialists and Social Democrats, the lonely partners of the right-wing government in Greece, and the surviving military aides of the Pentagon in France, were among the promoters of the privatisation and austerity programmes that led the welfare systems to exhaustion, as they did in Portugal and Spain. Sticking to the Memoranda in the south of Europe, these parties stand against their peoples. The Greens, losing ground in Greece, France, Italy and Spain, and after a major new defeat in Germany, are crying out for the bombardment of Syria and for unified political rule in Europe – in fact, this federalist stance empowers Merkel still more with the powers she is already abusing. Other political sectors are moving to the centre and to the right, as if the only political alternative were to pursue and accept the neoliberal aggression.
Alternatively, the aim of the socialist left, in offering fierce opposition to austerity, is to defeat the troikas. This is the true aspiration of the left – to create a popular camp against capital and to root a left government in a majority for annulling the Memoranda, defending wages and pensions, cancelling debt and nationalising the financial sector in order to reconstruct the system of credit for investment and employment. This requires a surge of energy. A concentration of social forces and intellectual capacities, of will and experience, of concrete programmes – all this is needed for a left government.
A European dimension is essential as well: A left government able to break with the rule of financial authoritarianism, a new challenge Europe has never met, is the sole chance for democracy. Accepting no sacrifice for the Euro or for the rule of the banks, a left government in Europe must be the trigger for a continental mobilisation for solidarity and social responsibility.
This is a historic task. For half a century, welfare protection, the national health systems, the public school and other services, social security and the labour contracts and conventions protecting the poor and reducing inequality were the product of conflict and negotiation among different interests. This balance has been upset and will not be restored since finance has become a shadowy business seeking all these services as an unending source of profit. Now, it is up to the left to defend the people. No one else can do so.
A merciless war was launched in Europe. However, fighting for Europe, respecting democracy in each country, having solidarity as the rule guiding the social movements, we can find common ground for all, for Europeans of all colours and for immigrants, young and old, men and women. Europe is the battleground: It is about profit or democracy, debt or wages, the few or the people.
1 IMF Policy Paper, September 2013, ‘Reassessing the Role and Modalities of Fiscal Policy in Advanced Economies’