Europe needs a pay rise to create decent living standards and boost demand

‘The sharp increase in sovereign debt since 2009 has not been caused by excessive social spending, but by the additional borrowing needed to fund bank rescues.”

This quote, from a group of German social democratic analysts, highlights the continuing struggle over economic and social priorities in Europe and who should bear the costs of adjustment. So far the costs have been piled on taxpayers, labour markets and social cuts, and not on culpable banks.

Alongside the tortuous negotiations on an EU banking union, calls for a “social Europe” struggle to get a hearing. And yet if they are not heard, social democratic parties, which have failed to gain support from capitalism’s crisis, are set to lose out to right-wing populists in next year’s European Parliament elections, and in national polls too.

Existing power structures
Those with a social vision are beginning to articulate it more coherently – and about time too. They come up against the policy orthodoxies binding together existing power structures, many of which they and their parties accepted in the 1990s and 2000s. They have therefore provided a tame and unconvincing intellectual and policy alternative for electorates and activists since the crisis broke.

Neoliberalism prevails – that is, “the belief in competitive markets enhanced by global free trade and capital mobility, backed up by a pro-market, limited state that promotes labour market flexibility and seeks to reduce welfare dependence while marketising the provision of public goods”.

This definition comes from a recent book seeking to explain the enduring influence of an ideology that “presents the state as the perennial problem, the market as the solution – even today, despite the fact that the crisis was caused by the markets, not the state”.

Details of both studies can be found on the Social Europe Journal website at
social-europe.eu.

Speaking in Dublin last week Frances O'Grady, general secretary of the British Trades Union Congress, explored these themes with particular reference to the UK's debate on EU membership (see iiea.com).

British prime minister David Cameron’s proposed repatriation of powers from the EU is about nullifying workers’ rights – on equal pay, pregnancy, working time or agency staff – the very things that convinced the TUC to support the single market in the late 1980s. And this is all to head off the appeal of the UK Independence Party eroding Cameron’s party base.

O’Grady spoke of a crisis in the social democratic model concerning markets. A new model is needed, dealing much more centrally with climate change, energy, industrial, social and demographic change, and confronting ageing, migration and the appeal of radical-right parties.

To deregulate, privatise, cut welfare and impose austerity is not enough. So protecting the euro kills demand and public support. Instead, Europe needs a pay rise to create decent living standards and boost demand, together with a social protocol to create a level playing field for workers and ordinary citizens.

Looking ahead, O’Grady supported “a 21st-century Marshall plan to renew the continent’s infrastructure, decarbonise our economies and get people back to work” that would be financed by eurobonds and a financial transaction tax, as called for by the European Trade Union Confederation.

This is an ambitious vision, but it is gathering too little political traction so far and is badly in need of more public airing, analysis and campaigning in parliaments and on streets. It identifies an increasingly obvious contradiction between systemic integration of banking and economic regulation needed to save the euro, and the lack of the social and political integration required to give it legitimacy. If that gap is not addressed and closed a right-wing populist tide is made more likely.

Policy contradiction
Some of the German coalition bargaining raises these issues; but they cannot be determined in Germany alone, since that state's unwillingness to share the costs is part of the problem. For the Irish Government this raises another policy contradiction – between seeking retrospective funds for its bank bailout from the European Stability Mechanism and rejecting the financial transaction tax that would best expand the fund to afford it.

More pessimistic and critical voices within European social democracy discern a “decision trap” in talk of a social Europe.

Social policy is decided at national level, whereas the European Central Bank’s strict mandate loads the costs of adjustment on taxpayers and labour markets, stifling badly needed investment in human capital.

Until that mindset is broken, little progress will be made and this will remain a zero-sum game between the still-dominant neoliberal ideology and weaker alternatives.

pegillespie@gmail.com