Reflections on integrated European models for political and economic governance
Thomas Händel, Frank Puskarev
Thomas Händel, Frank Puskarev
Article published in the journal Sozialismus, volume 11/2012
We are currently witnessing the acceleration and increasingly authoritarian nature of the response to the financial crisis. The cuts in salaries and social security, austerity diktats and the orders to sell off public property are a path leading directly to economic recession. The southern European countries are not the only ones hit by the economic downturn: previously prosperous states are already feeling the effects of the devastating austerity policy. Only recently the European automotive industry, usually a good indicator for the overall state of the economy, reported an 11% drop in sales. In crisis-hit southern European countries, the situation looks even worse: Italy has seen a 25% drop, France 17% and Spain 37%. Even Germany, which had previously seen itself as still winning in the economic stakes, had to swallow a bitter pill with a drop of 30% in 2010 related primarily to its car scrapping premium scheme, and must now contend with an 11% slump[1]. If even the engine of Germany’s automotive industry can be heard to splutter, then the economic outlook seems pretty bleak.
Europe is at risk of falling into economic depression and social inequality. In August 2012 unemployment lay at 10.5%, the highest since the European Community was established. Young people are particularly badly affected by the consequences of the crisis. The youth unemployment rate is much higher, at 22.7% Europe-wide, whereas in crisis-ravaged Greece more than half of all young people are without a job. In total around 14 million Europeans under the age of 30 are being denied any reasonable future prospects or life chances. Poverty is no longer simply a problem for marginal groups but is eating its way into the heart of society [2].
Europe urgently needs radical political change if it is to prevent an economic, social, and we fear also a political disaster. The examples of Hungary, Greece and other countries show the direction [3] this could and will take.
In parallel to the crisis in Europe and beyond, lively debates can be heard on the left wing of society – which stretches far beyond the social democratic, green and communist/socialist families of parties – about how the ruins of the capitalist process of value creation and therefore exploitation can either be rebuilt to a social model or immediately superseded by a process of transformation. On the negotiating table are some well- and some less well-substantiated proposals for necessary reregulation and the complete overhaul of the finance sector. The errors committed during the founding of Europe and the European makeup have been discussed and criticised in sufficient detail. What is missing, however, are discussions on integrated models for future political and economic governance in Europe. On the left of the political spectrum at least, there is unanimous agreement that such governance will need to be social, oriented towards employment, and organised sustainably and more democratically.
Faced with the scale of the problem, simply issuing an economic stimulus package will not be enough if everything else continues as before. Also, the simple demand for an ‘economic government’ is, if implemented on the basis of the EU’s current makeup, simply a request to put a new label on a neoliberal institution. Integrating long-term prospects for growth and development is indispensable for any forward-thinking project for Europe.
What is required is the development of an integrated concept for democratically-controlled economic development in tomorrow’s Europe encompassing, building and expanding on existing elements of industry and service-sector policy, as well as structural and cohesion policy. The fact that this cannot, as the S&D group in the European Parliament demands [4], be left to an EU Commission task force seems obvious. The Troika’s policies in Ireland, Greece, Italy, Spain and Portugal are a clear attempt to turn a neoliberal fox into a socialist guardian of geese.
If we wish to leave behind a Europe of competition and embrace a Europe of solidarity or even a Europe of social equity [5], additional elements of strong economic policy coordination and governance are required. These will need to do more than simply improve the competitiveness of countries that have fallen behind so that they ‘can catch up’. Instead, and primarily, these policy elements would have to guarantee social justice, ‘decent work’ and equal living conditions and would have to be transformative in terms of developing a new form of co-existence in society. These elements, this holistic approach is what has to date been the missing link in the European debate.
Industrial policy plays a key role in all this. This was already recognised by the EU Commission in 2005 when it stated that it was necessary to “broaden what is understood by industrial policy [...] to include measures with an effect on the costs, prices and the innovative competitiveness of industry and of individual sectors, but also consider all other types of policy initiatives. [...] This not only includes measures directed at the internal market and trade but also measures directed at the areas of transport, energy, environmental protection, social policy and consumer protection”[6] This would really have been something new, after decades of following the mantra of the prevailing economic policy idea that the markets would find the best (economic) solutions themselves if they were given sufficient ‘freedom’. Seven years later, in 2012, commissioner Tajani who has responsibility for this area conceded that “we would have been obliged to put the real economy at the heart of economic policy. In the past we made the mistake of focusing on finance and services. We pushed industry and companies aside. Yet we should actually be doing the contrary: we should focus on industry and companies and use the financial sector to support the real economy.”[7]
This statement marks two things. In the first place the recognition that the orientation of policy in recent years had completely failed. And secondly that action will now follow this recognition. It seems clear that the European Commission now also recognises the key role played in Europe by industrial firms, which are responsible for a quarter of the total value created. As early as 2005 there had been talk of “tailor-made concepts for every branch, [...] a new industrial innovation policy, consideration of the entire value and supply chain, continued support for the use and marketing of key competitive technologies, and the modernisation of training and education”.
In the aim of saving costs and reducing environmental impact, industry in the EU was to accelerate its transition to a low-carbon, resource- and energy-efficient economy. Yet this did not happen, not by a long chalk. The Commission’s October 2012 report updating this industrial strategy leans heavily on familiar tropes: investment in innovation, better market conditions and cutting bureaucracy, access to capital and human resources, as well as training and education[8]. This is old wine in old bottles mislabelled as ‘New!’ Especially with regard to employment, this “improving the functioning of the EU’s labour markets and ensuring the EU’s workforce has the right skills” may be compatible with the EU2020 strategy, but it can also be likened to setting a child off to take their first steps in ill-fitting shoes. The focus is not on creating good new jobs and social security; these are not even seen as of equal importance to the true focus: the availability of workers with saleable skills.
In spite of all statements to the contrary, social benefits are ultimately not a priority for the EU Commission. Using traditional language, the Commission discusses “[...] opening up new markets, [...] the faster development and commercialisation of goods and services”. The key is “that EU companies are first onto the global market, thereby increasing their competitiveness.” Globalisation is still a concept that is considered, but not in the way that might be expected after the experience of recent decades: “In order to draw the greatest possible benefit from globalisation, the Commission will develop international regulatory co-operation initiatives [...]” states the conspiratorial but basically empty phrase. What such ‘regulatory co-operation’ feels like is currently being felt by African countries. Using more or less neo-colonial methods, Europe is forcing its way into their markets; the struggle for the remaining resources is clearly becoming more aggressive [9].
Important questions are not being asked in the ivory towers of the Council and the Commission. These include possible short term reactions to economic imbalances, how such imbalances can be avoided altogether, as well as the medium- and long term tools to prevent a crash or even how a sustainable, employment-focused strategy could be drawn up and given democratic legitimacy.
This is precisely why these are tasks for the Left in Europe to tackle. To this end approaches for an alternative, employment-focused and democratically controlled plan need to be further developed. Building blocks for such a plan can be found from several sources, but have yet to be assembled, connected and developed into an integrated whole.
Nonetheless, there is already sufficient clarity on at least one central aspect: countries with an export surplus must reduce this through greater household purchasing power, to be achieved through aggressive collective bargaining policy and an increase in social security. Yet it is unlikely that the extent of such measures alone will suffice, at least in the short term. Proposals for a consistent and permanent regulation of trade surpluses and deficits, without which a solution is inconceivable, are remarkable, yet on their own not far-reaching enough. They form a major part of internal European economic imbalances which in the long run would lead the process of European integration to self-destruct.
The debates on EU economic governance regulations show that this issue has at least begun to be considered, even among conservatives. Yet this has not prevented the now firmly-rooted but wholly counterproductive punishment of countries in deficit. But at least this governance regulation process now, after major efforts by the Left, also monitors the countries in surplus. Unfortunately, these countries need not fear any sanctions [10]; further effort is required on this in the coming months.
With his well-founded concept of a ‘clearing union’ [11], Axel Troost supplies an excellent blueprint. Basically he aims to oblige surplus countries to achieve and keep equilibrium in their balance of payments. After permitting a certain level of fluctuating imbalance in the short and medium term, long term trade surpluses would be subject to fines that would flow into a specific fund. The fund would “promote structural change in both surplus and deficit countries, aimed at evening out the balance of payments.”
The above would need to be achieved through investment programmes which would not further increase debt. These would be financed by the European Union within the framework of the development fund described below. According to calculations by the Macroeconomic Policy Institute (IMK) at the Hans-Böckler-Foundation [12], this would lead to a significant rise in growth and thereby make a major contribution to more long-term debt reduction. Nevertheless, this would require “[…] a significant reorientation of economic policy across the entire euro area”.
The necessary funds would certainly not be lacking. Adding up the existing European funding possibilities with the income from a European financial transaction tax, a Europe-wide levy on capital or a tax on millionaires [13], loans at the ECB interest rate from the European Investment Bank and possibly project bonds for larger projects could conceivably make ‘bombproof’ liquidity available even in the short term. Thus the 260 billion euros a year that experts from the German union DGB calculated in a draft proposal [14] as the financing required for a ‘European Marshall Plan’ [15] could be guaranteed.
The proposed measures it contains include, in addition to bolstering the purchasing power of households as described above and the short term economic stimulus this would provide, a policy mix of various measures that would have an effect in the medium and long term. Among these are increased public investment, investment grants and a European future fund. The measures would strengthen and promote modern industries and services as well as provide support for the educational, social and climate policy objectives and qualitative growth targets which society needs.
More than half of the proposed measures are directed at the European energy transition. Investments of 150 billion per year into developing a low-carbon energy supply system will do more than simply induce further investments of 110 billion. In the DGB proposal based on calculations by the German Institute for Economic Research (DIW Berlin) [16], the long-term positive effect on employment will be 6 to 7 times greater than under a scenario based on a comparable supply of energy from oil and gas. Around 11 million new jobs are predicted. Such a development would lead to significantly greater direct and indirect tax revenue, greater social security contributions and less spending on unemployment benefits. In the model it is calculated that the increase in revenue and savings would total 180 billion. According to this model investments will be financed by an annual income of up to 100 billion from a financial transaction tax, by credit subsidies of around 100 billion, and by ‘New Deal Bonds’ worth around 180 billion. Such a bond for the future would require capital resources at the outset which could be financed by a Europe-wide levy of 3% on financial assets of over 500,000 or 1 million euros.
Even Wolfgang Streeck, sociologist and director of the Max Planck Institute for the Study of Societies does not rule out the possibility that the main drivers of the next long-wave Kondratieff business cycle are in place [17]. Carbon-neutral technologies, energy supply and electric mobility are the key platforms on which this would be based. Areas in which the developed capitalist countries of Europe have an enormous home advantage over the continent’s trailing, industrially little-developed countries which face much worse odds. Thus two possible development paths emerge.
Either the little-developed countries are reduced to the status of subsidiarity economies and suppliers of ‘serviceable’ workers, i.e. basically ‘Hartz IV states’ as the editor of the German weekly newspaper Die Zeit Josef Joffe put it recently [18]. After the EU, the ECB and the IMF readily reduced Greece to the level of a newly-industrialised country by the modern means of capital destruction, a limited upswing now even seems possible. German Economy Minster Rösler’s shopping tour to Greece with high profile company representatives in 2011 was a case in point. For some investors, destroyed social security systems and low wages for impoverished working classes who are prepared to accept even the most ignoble job are an indicator that counts. Combined with the key areas mentioned above this would lead to a new capitalism, this time painted green albeit with an authoritarian flourish.
The new procedures to reduce economic imbalances between the individual euro countries implemented by the Council, the Parliament and the Commission, and marketed as tools to adjust competitiveness scores, in fact cut away essential rights from the unions and employees and are thus more like ‘tools for an authoritarian dismantling of the welfare state’ as the labour and economic rights researcher Florian Rödl writes in a report for the Hugo Sinzheimer Institute of the Otto Brenner Foundation[19].
Or perhaps the EU could return to its own treaties for guidance, for example Article 3 of the Treaty on European Union (TEU) and Article 151 of the Treaty on the Functioning of the European Union and their commitment to the welfare state and a harmonisation of living conditions over the long term. This can only be achieved by redefining the European development model. The development of an industrial base that trades – or competes – on an equal footing between the industrialised capitalist centres in Europe is neither economically conceivable nor is it desirable from the point of view of a sustainable policy on consumption and raw materials. Nobody is likely to believe that Greece could realistically develop an automotive or mechanical engineering sector comparable to those of Germany, or even to France’s slightly weaker sectors. Some countries will remain dependent on imports of capital for some time to come. Putting these countries in a position to finance this without national debt from their own revenue sources alone – goods and services with potential trade or a potential market – would be a job for an integrated European economic, financial and industrial policy that takes its own Treaty commitments seriously.
A European cluster policy in the sense of a collaboration between linked companies, sub-contractors, service companies and research institutions would be both conceivable and achievable. At the regional and member state level such policies have already existed for quite some time. However, the strengths of such policies have so far only received political support at these levels. These policies have contributed to the competition between national economies (not only) at European level. Making use of benefits resulting from the shared use of resources and expertise for companies, employees and regions at European level would be an additional tool for the promotion of a more balanced development of industry and trade. This would require more than just better information on the strengths of individual EU member states, better development of existing synergies at European level and new approaches to support, as well as the joint control of such development processes. If these processes are not to be conditioned by austerity measures but instead based on social, employment policy and sustainability criteria, then a different, democratically-controlled model of European economic governance will be required, coupled with the primacy of democratic politics.
A few practical examples should suffice to demonstrate the strong focus on the energy transition: Greece wants to and must take its re-industrialisation into its own hands. Solar energy production is therefore one of the model projects which the government in Athens expects among other things to create 60,000 new jobs and generate around 15 billion in public revenue [20]. Furthermore, this would be connected to a reduction in energy import costs, to which must be added the profits from the export of solar energy. Changing the technical infrastructure would allow around 10 gigawatts of electricity to flow into other European electricity networks via those of Macedonia and Italy.
The Helios project requires investment in plants and transmission routes which, given the more and less well known excesses of austerity, there will hardly be sufficient funds available. Greece would therefore need investment and technology assistance from Europe. The country does not have its own solar industry. Further revenue and employment could be found from wind energy, for which Greece is especially well situated. A decentralised energy supply in the hands of the municipalities and regions has the potential to create further jobs for tens of thousands of people in the region. Additional potential for the development of jobs and tax revenue exists in the Greek shipbuilding industry, in the modernisation of the most important Mediterranean port at Piraeus, in tourism, transport, and in the pharmaceutical industry [21].
Yet a rapid implementation of such a qualitatively new policy is probably not to be expected. Under Chancellor Merkel, Germany is already slowing the Helios project – probably also to protect the interests of the large energy suppliers. There is a lack of political will, the necessary toolkit and the relevant opportunities for influence. Not only are ten Directorates-General responsible for the policy at Commission level, but the Parliament and the Committee of the Regions lack the right to introduce a bill on the matter.
A further obstacle is the question of energy storage technologies. Germany for example lacks sufficient options and relevant technologies [22] to store electricity from renewable sources which is produced when demand is low, or to handle current spikes due to excess generation. Norway has precisely such hydroelectric storage capacity, with storage around 2,000 times greater than Germany’s. This alone could make 60 nuclear power plants in Europe redundant. But the permits to build the necessary transmission line between Germany and Norway have been delayed for years and continue to be delayed by the German government. Shame on anyone who was to suspect the German government was defending the interests of the German nuclear energy lobby!
Nevertheless, a Norwegian corporation now plans to build a line. Besides the fact that a dozen such lines would be required and that they should not be built exclusively by and for the profit of major private investors, these examples clearly show that only an integrated approach bolstered by corresponding public funding will be able to offer a credible alternative to such a combination of political and economic interests.
Good proposals have now also been made on how to use the still-necessary energy transition to create a regional, labour-intensive and democratically controlled energy supply. The detailed master plan drawn up by Die Linke in Thuringia is one good example of such proposals. With a package of measures in three dimensions to establish an energy industry based on renewable energy sources, an energy-saving power plant and a Thuringia-wide energy services structure which is almost an economic stimulus programme, Die Linke has provided a good example of an alternative approach at German regional level[23].
This plan is the most far-reaching concept for regionalisation and bringing the energy supply back under municipal control. Cogeneration, an expansion of solar and wind power capacities, energy saving, the promotion of economic initiatives and research and the creation of jobs within a single concept constitute a proposal which, if allied with European funding subject to suitable criteria should be financed from a European fund similar to the one described above.
An integrated concept for a democratically controlled future economic development in Europe encompassing elements of industrial, service sector, structural and cohesion policy cannot and must not be limited to the energy transition alone. Tasks such as the modernisation of the European transport infrastructure, investments in education and training, the promotion of infrastructure and housing adapted to the age of the population as well as an expansion of public services must be covered comprehensively by any future development plan. As shown in an as-yet unpublished study by Powershift for the GUE/NGL group in the European Parliament on the raw material policy aspects of the necessary development of European industry[24], Europe’s responsibility as a global player comes with complex implications. Taking all of these into account must be a key element of any overarching approach, and would distinguish any such plan from other proposals.
In a study summing up left-of-centre political positions, experts from the Info Institute[25] conclude that preventing de-industrialisation and securing jobs in the manufacturing, processing, trade and other service sectors will require a proactive industrial and service sector policy from the state. The capitalist economic order with its unwavering focus on growth parameters is pitted against the public interest of our society. Turning away from the neoliberal course by no means heralds the end of technological development. On the contrary, a sophisticated industrial policy concept would respond to fundamental requirements, for example for greater social justice, participation, an environmental transformation and sustainable peace policy, meaning that identification in this area seems secure.
Such a concept must not be developed as a new form of ‘green capitalism’, as discussed above. Without clear democratic participatory structures and governance, this development would run exclusively on the existing capitalist rails of profit maximisation, while the interests of those affected, of municipalities and regions, employees and consumers would only come second. That is why the participation of society must be secured at all levels and tools such as bringing back under municipal control, setting up cooperatives or creating energy advisory boards must be integrated into a programme for the future of Europe.
Without doubt the most pressing issue is now to quickly find the right measures to re-regulate the financial markets and stabilise the real economy. So far only the beginnings of this issue have been addressed. Alongside this, a complete strategic realignment is required if we are to come out of the crisis without catastrophic side effects for real economic development and therefore for working and living conditions.
To achieve this, a form of clearing between the Member States is indispensable. This must be built on a solid economic basis. People’s acceptance of the EU, and in particular of further integration, fundamentally depends on a democratic economic order and economic policy. These must promote sustainable and environmentally sound economic development and employment. We will decide how we wish to live and work in Europe in the future.
Decent work, high levels of social security and environmentally and economically sustainable development would be prerequisites for and distinguishing features of a model for the future of Europe that we must promote. At European level this also involves seeking out other majorities in society: these would necessarily be political majorities and would eventually become parliamentary majorities. Such a concept could only be sustained with the European Parliament’s rights of initiative and powers of supervision, with a clear division of responsibilities between national parliaments and the European Parliament, and by granting a monitoring role to the Economic and Social Committee and the Committee of the Regions, as well as legislative and executive bodies largely free of national egotism. In particular, such a concept would also need to be developed for the process of drafting a European constitution which is likely to be forthcoming [26], and presented to the left wing of society so they could advocate it as the project of the European left. Without a sound, credible and therefore convincing concept for Europe proposed by the Left, there is a danger that an authoritarian intergovernmental Europe implements neoliberal and neoconservative policies from above and ultimately safeguards the interests of capital. It can only be hoped that Jeremy Rifkin was wrong when he prophesied that ‘at the end of modernity stands a new barbarism.’[27]
[1] http://www.spiegel.de/auto/aktuell/absatzkrise-hohe-rabatte-fuer-autos-a-861482.html - Consulted 23.10.2012
[2] http://www.spiegel.de/wirtschaft/soziales/jugendarbeitslosigkeit-kostet-jaehrlich-153-milliarden-euro-a-862921.html Consulted 23.10.2010
[3] http://www.rosalux.de/publication/38260/die-krise-in-europa-und-die-erfolge-des-rechtspopulismus.html Consulted 25.10.2012 und Michael Oswald „Rechtsruck in Hellas“, Blätter für deutsche und internationale Politik 10/2012
[4] http://www.socialistsanddemocrats.eu/gpes/media3/documents/3542_DE_cohesion_policy_de_100415.pdf - Consulted 25.10.2012
[5] http://www.axel-troost.de/article/6371.euro-zone-vor-dem-ende-rettung-durch-kurzfristig-entschiedenes-handeln-mit-einer-vision-fuer-europa.html - Consulted 25.10.2010
[6] http://europa.eu/legislation_summaries/enterprise/industry/et0005_de.htm
[7]EURO News Interview of 15.10.2012 http://www.euronews.com/2012/10/15/antonio-tajani-on-smes-strategy-and-new-economy/ 22.10.2012
[8] Communication from the Commission COM(2012)/3 “A Stronger European Industry for Growth and Economic Recovery”
[9] http://www.thomas-haendel.eu/de/article/8133.eu-freihandelsabkommen-galgenfrist-fuer-afrikanische-staaten-verlaengert.html - Consulted 23.10.2012
[10] http://www.guengl.eu/showPage.php?ID=9550&LANG=3&GLANG=1 - Consulted 23.10.2012
[11] http://www.axel-troost.de/article/5211.eine-europaeische-ausgleichsunion-a-8211-die-waehrungsunion-2-0.html - Consulted 25.10.2012
[12] IMK 66/2011
[13] Financial assets and property in Germany are worth over ten trillion euros. This is equal to the debt of all 27 EU states of around 10.5 trillion euros. European private assets amount to around 34 trillion euros.
[14] DGB Confederation of German Trade Unions, Executive Board, Department of Economic, Financial and Fiscal Policy: A Marshall Plan for Europe. Proposal by the DGB for an economic stimulus, investment and development programme for Europe. 3rd draft 20.09.2012
[15] The Marshall plan was a large-scale reconstruction programme after fascism and the Second World War to help Western Europe which was suffering from the aftermath of the war. It consisted of loans, raw materials, food and goods. The plan was passed by US congress on April 3, 1948 and was to last for four years. From 1948 to 1952 the US provided 13.1 billion dollars of aid to European countries in need. Adjusted for price in 2008 this would have been the equivalent of 78 billion euros.
[16] DIW, weekly report Nr. 25 2012
[17] Die Mitbestimmung 9-2012, page 34
[18] ARD Press Club, 16.05.2011
[19] Die Mitbestimmung 9-2012, page 34
[20] http://www.welt.de/dieweltbewegen/article106186532/Griechen-wollen-Strom-ohne-Leitungen-exportieren.html - Consulted 25.10.2012
[21] Financial Times Deutschland, print edition 29.06.2011
[22] http://www.spiegel.de/wissenschaft/technik/erneuerbare-energien-norwegen-will-europas-akku-werden-a-834472.html - Consulted 25.10.2012
[23] http://www.die-linke-thl.de/themen/themen_a_z/e_h/energierevolution/ - Consulted 25.10.2012
[24] Powershift e.V. – “Rohstoff- und entwicklungspolitische Dimensionen einer europäischen Industriepolitik zur Förderung der Elektromobilität und Erneuerbaren Energien” - November 2011
[25] Info-Institut Saarbrücken “Bestandsaufnahme zur Positionsbestimmung ausgewählter Parteien und Institutionen zum ökologischen Umbau von Wirtschaft und Gesellschaft” - March 2012
[26] European Council, Interim Report “Towards a genuine economic and monetary Union” - 12.10.2012, and Reflection Note by the Representatives of the European Parliament “Towards a real Economic and Monetary Union - Building capacity to decide” - 1.10.2012
[27] Jeremy Rifkin, The End of Work, Campus 1995
Europe is at risk of falling into economic depression and social inequality. In August 2012 unemployment lay at 10.5%, the highest since the European Community was established. Young people are particularly badly affected by the consequences of the crisis. The youth unemployment rate is much higher, at 22.7% Europe-wide, whereas in crisis-ravaged Greece more than half of all young people are without a job. In total around 14 million Europeans under the age of 30 are being denied any reasonable future prospects or life chances. Poverty is no longer simply a problem for marginal groups but is eating its way into the heart of society [2].
Europe urgently needs radical political change if it is to prevent an economic, social, and we fear also a political disaster. The examples of Hungary, Greece and other countries show the direction [3] this could and will take.
In parallel to the crisis in Europe and beyond, lively debates can be heard on the left wing of society – which stretches far beyond the social democratic, green and communist/socialist families of parties – about how the ruins of the capitalist process of value creation and therefore exploitation can either be rebuilt to a social model or immediately superseded by a process of transformation. On the negotiating table are some well- and some less well-substantiated proposals for necessary reregulation and the complete overhaul of the finance sector. The errors committed during the founding of Europe and the European makeup have been discussed and criticised in sufficient detail. What is missing, however, are discussions on integrated models for future political and economic governance in Europe. On the left of the political spectrum at least, there is unanimous agreement that such governance will need to be social, oriented towards employment, and organised sustainably and more democratically.
Faced with the scale of the problem, simply issuing an economic stimulus package will not be enough if everything else continues as before. Also, the simple demand for an ‘economic government’ is, if implemented on the basis of the EU’s current makeup, simply a request to put a new label on a neoliberal institution. Integrating long-term prospects for growth and development is indispensable for any forward-thinking project for Europe.
What is required is the development of an integrated concept for democratically-controlled economic development in tomorrow’s Europe encompassing, building and expanding on existing elements of industry and service-sector policy, as well as structural and cohesion policy. The fact that this cannot, as the S&D group in the European Parliament demands [4], be left to an EU Commission task force seems obvious. The Troika’s policies in Ireland, Greece, Italy, Spain and Portugal are a clear attempt to turn a neoliberal fox into a socialist guardian of geese.
If we wish to leave behind a Europe of competition and embrace a Europe of solidarity or even a Europe of social equity [5], additional elements of strong economic policy coordination and governance are required. These will need to do more than simply improve the competitiveness of countries that have fallen behind so that they ‘can catch up’. Instead, and primarily, these policy elements would have to guarantee social justice, ‘decent work’ and equal living conditions and would have to be transformative in terms of developing a new form of co-existence in society. These elements, this holistic approach is what has to date been the missing link in the European debate.
Industrial policy plays a key role in all this. This was already recognised by the EU Commission in 2005 when it stated that it was necessary to “broaden what is understood by industrial policy [...] to include measures with an effect on the costs, prices and the innovative competitiveness of industry and of individual sectors, but also consider all other types of policy initiatives. [...] This not only includes measures directed at the internal market and trade but also measures directed at the areas of transport, energy, environmental protection, social policy and consumer protection”[6] This would really have been something new, after decades of following the mantra of the prevailing economic policy idea that the markets would find the best (economic) solutions themselves if they were given sufficient ‘freedom’. Seven years later, in 2012, commissioner Tajani who has responsibility for this area conceded that “we would have been obliged to put the real economy at the heart of economic policy. In the past we made the mistake of focusing on finance and services. We pushed industry and companies aside. Yet we should actually be doing the contrary: we should focus on industry and companies and use the financial sector to support the real economy.”[7]
This statement marks two things. In the first place the recognition that the orientation of policy in recent years had completely failed. And secondly that action will now follow this recognition. It seems clear that the European Commission now also recognises the key role played in Europe by industrial firms, which are responsible for a quarter of the total value created. As early as 2005 there had been talk of “tailor-made concepts for every branch, [...] a new industrial innovation policy, consideration of the entire value and supply chain, continued support for the use and marketing of key competitive technologies, and the modernisation of training and education”.
In the aim of saving costs and reducing environmental impact, industry in the EU was to accelerate its transition to a low-carbon, resource- and energy-efficient economy. Yet this did not happen, not by a long chalk. The Commission’s October 2012 report updating this industrial strategy leans heavily on familiar tropes: investment in innovation, better market conditions and cutting bureaucracy, access to capital and human resources, as well as training and education[8]. This is old wine in old bottles mislabelled as ‘New!’ Especially with regard to employment, this “improving the functioning of the EU’s labour markets and ensuring the EU’s workforce has the right skills” may be compatible with the EU2020 strategy, but it can also be likened to setting a child off to take their first steps in ill-fitting shoes. The focus is not on creating good new jobs and social security; these are not even seen as of equal importance to the true focus: the availability of workers with saleable skills.
In spite of all statements to the contrary, social benefits are ultimately not a priority for the EU Commission. Using traditional language, the Commission discusses “[...] opening up new markets, [...] the faster development and commercialisation of goods and services”. The key is “that EU companies are first onto the global market, thereby increasing their competitiveness.” Globalisation is still a concept that is considered, but not in the way that might be expected after the experience of recent decades: “In order to draw the greatest possible benefit from globalisation, the Commission will develop international regulatory co-operation initiatives [...]” states the conspiratorial but basically empty phrase. What such ‘regulatory co-operation’ feels like is currently being felt by African countries. Using more or less neo-colonial methods, Europe is forcing its way into their markets; the struggle for the remaining resources is clearly becoming more aggressive [9].
Important questions are not being asked in the ivory towers of the Council and the Commission. These include possible short term reactions to economic imbalances, how such imbalances can be avoided altogether, as well as the medium- and long term tools to prevent a crash or even how a sustainable, employment-focused strategy could be drawn up and given democratic legitimacy.
This is precisely why these are tasks for the Left in Europe to tackle. To this end approaches for an alternative, employment-focused and democratically controlled plan need to be further developed. Building blocks for such a plan can be found from several sources, but have yet to be assembled, connected and developed into an integrated whole.
Nonetheless, there is already sufficient clarity on at least one central aspect: countries with an export surplus must reduce this through greater household purchasing power, to be achieved through aggressive collective bargaining policy and an increase in social security. Yet it is unlikely that the extent of such measures alone will suffice, at least in the short term. Proposals for a consistent and permanent regulation of trade surpluses and deficits, without which a solution is inconceivable, are remarkable, yet on their own not far-reaching enough. They form a major part of internal European economic imbalances which in the long run would lead the process of European integration to self-destruct.
The debates on EU economic governance regulations show that this issue has at least begun to be considered, even among conservatives. Yet this has not prevented the now firmly-rooted but wholly counterproductive punishment of countries in deficit. But at least this governance regulation process now, after major efforts by the Left, also monitors the countries in surplus. Unfortunately, these countries need not fear any sanctions [10]; further effort is required on this in the coming months.
With his well-founded concept of a ‘clearing union’ [11], Axel Troost supplies an excellent blueprint. Basically he aims to oblige surplus countries to achieve and keep equilibrium in their balance of payments. After permitting a certain level of fluctuating imbalance in the short and medium term, long term trade surpluses would be subject to fines that would flow into a specific fund. The fund would “promote structural change in both surplus and deficit countries, aimed at evening out the balance of payments.”
The above would need to be achieved through investment programmes which would not further increase debt. These would be financed by the European Union within the framework of the development fund described below. According to calculations by the Macroeconomic Policy Institute (IMK) at the Hans-Böckler-Foundation [12], this would lead to a significant rise in growth and thereby make a major contribution to more long-term debt reduction. Nevertheless, this would require “[…] a significant reorientation of economic policy across the entire euro area”.
The necessary funds would certainly not be lacking. Adding up the existing European funding possibilities with the income from a European financial transaction tax, a Europe-wide levy on capital or a tax on millionaires [13], loans at the ECB interest rate from the European Investment Bank and possibly project bonds for larger projects could conceivably make ‘bombproof’ liquidity available even in the short term. Thus the 260 billion euros a year that experts from the German union DGB calculated in a draft proposal [14] as the financing required for a ‘European Marshall Plan’ [15] could be guaranteed.
The proposed measures it contains include, in addition to bolstering the purchasing power of households as described above and the short term economic stimulus this would provide, a policy mix of various measures that would have an effect in the medium and long term. Among these are increased public investment, investment grants and a European future fund. The measures would strengthen and promote modern industries and services as well as provide support for the educational, social and climate policy objectives and qualitative growth targets which society needs.
More than half of the proposed measures are directed at the European energy transition. Investments of 150 billion per year into developing a low-carbon energy supply system will do more than simply induce further investments of 110 billion. In the DGB proposal based on calculations by the German Institute for Economic Research (DIW Berlin) [16], the long-term positive effect on employment will be 6 to 7 times greater than under a scenario based on a comparable supply of energy from oil and gas. Around 11 million new jobs are predicted. Such a development would lead to significantly greater direct and indirect tax revenue, greater social security contributions and less spending on unemployment benefits. In the model it is calculated that the increase in revenue and savings would total 180 billion. According to this model investments will be financed by an annual income of up to 100 billion from a financial transaction tax, by credit subsidies of around 100 billion, and by ‘New Deal Bonds’ worth around 180 billion. Such a bond for the future would require capital resources at the outset which could be financed by a Europe-wide levy of 3% on financial assets of over 500,000 or 1 million euros.
Even Wolfgang Streeck, sociologist and director of the Max Planck Institute for the Study of Societies does not rule out the possibility that the main drivers of the next long-wave Kondratieff business cycle are in place [17]. Carbon-neutral technologies, energy supply and electric mobility are the key platforms on which this would be based. Areas in which the developed capitalist countries of Europe have an enormous home advantage over the continent’s trailing, industrially little-developed countries which face much worse odds. Thus two possible development paths emerge.
Either the little-developed countries are reduced to the status of subsidiarity economies and suppliers of ‘serviceable’ workers, i.e. basically ‘Hartz IV states’ as the editor of the German weekly newspaper Die Zeit Josef Joffe put it recently [18]. After the EU, the ECB and the IMF readily reduced Greece to the level of a newly-industrialised country by the modern means of capital destruction, a limited upswing now even seems possible. German Economy Minster Rösler’s shopping tour to Greece with high profile company representatives in 2011 was a case in point. For some investors, destroyed social security systems and low wages for impoverished working classes who are prepared to accept even the most ignoble job are an indicator that counts. Combined with the key areas mentioned above this would lead to a new capitalism, this time painted green albeit with an authoritarian flourish.
The new procedures to reduce economic imbalances between the individual euro countries implemented by the Council, the Parliament and the Commission, and marketed as tools to adjust competitiveness scores, in fact cut away essential rights from the unions and employees and are thus more like ‘tools for an authoritarian dismantling of the welfare state’ as the labour and economic rights researcher Florian Rödl writes in a report for the Hugo Sinzheimer Institute of the Otto Brenner Foundation[19].
Or perhaps the EU could return to its own treaties for guidance, for example Article 3 of the Treaty on European Union (TEU) and Article 151 of the Treaty on the Functioning of the European Union and their commitment to the welfare state and a harmonisation of living conditions over the long term. This can only be achieved by redefining the European development model. The development of an industrial base that trades – or competes – on an equal footing between the industrialised capitalist centres in Europe is neither economically conceivable nor is it desirable from the point of view of a sustainable policy on consumption and raw materials. Nobody is likely to believe that Greece could realistically develop an automotive or mechanical engineering sector comparable to those of Germany, or even to France’s slightly weaker sectors. Some countries will remain dependent on imports of capital for some time to come. Putting these countries in a position to finance this without national debt from their own revenue sources alone – goods and services with potential trade or a potential market – would be a job for an integrated European economic, financial and industrial policy that takes its own Treaty commitments seriously.
A European cluster policy in the sense of a collaboration between linked companies, sub-contractors, service companies and research institutions would be both conceivable and achievable. At the regional and member state level such policies have already existed for quite some time. However, the strengths of such policies have so far only received political support at these levels. These policies have contributed to the competition between national economies (not only) at European level. Making use of benefits resulting from the shared use of resources and expertise for companies, employees and regions at European level would be an additional tool for the promotion of a more balanced development of industry and trade. This would require more than just better information on the strengths of individual EU member states, better development of existing synergies at European level and new approaches to support, as well as the joint control of such development processes. If these processes are not to be conditioned by austerity measures but instead based on social, employment policy and sustainability criteria, then a different, democratically-controlled model of European economic governance will be required, coupled with the primacy of democratic politics.
A few practical examples should suffice to demonstrate the strong focus on the energy transition: Greece wants to and must take its re-industrialisation into its own hands. Solar energy production is therefore one of the model projects which the government in Athens expects among other things to create 60,000 new jobs and generate around 15 billion in public revenue [20]. Furthermore, this would be connected to a reduction in energy import costs, to which must be added the profits from the export of solar energy. Changing the technical infrastructure would allow around 10 gigawatts of electricity to flow into other European electricity networks via those of Macedonia and Italy.
The Helios project requires investment in plants and transmission routes which, given the more and less well known excesses of austerity, there will hardly be sufficient funds available. Greece would therefore need investment and technology assistance from Europe. The country does not have its own solar industry. Further revenue and employment could be found from wind energy, for which Greece is especially well situated. A decentralised energy supply in the hands of the municipalities and regions has the potential to create further jobs for tens of thousands of people in the region. Additional potential for the development of jobs and tax revenue exists in the Greek shipbuilding industry, in the modernisation of the most important Mediterranean port at Piraeus, in tourism, transport, and in the pharmaceutical industry [21].
Yet a rapid implementation of such a qualitatively new policy is probably not to be expected. Under Chancellor Merkel, Germany is already slowing the Helios project – probably also to protect the interests of the large energy suppliers. There is a lack of political will, the necessary toolkit and the relevant opportunities for influence. Not only are ten Directorates-General responsible for the policy at Commission level, but the Parliament and the Committee of the Regions lack the right to introduce a bill on the matter.
A further obstacle is the question of energy storage technologies. Germany for example lacks sufficient options and relevant technologies [22] to store electricity from renewable sources which is produced when demand is low, or to handle current spikes due to excess generation. Norway has precisely such hydroelectric storage capacity, with storage around 2,000 times greater than Germany’s. This alone could make 60 nuclear power plants in Europe redundant. But the permits to build the necessary transmission line between Germany and Norway have been delayed for years and continue to be delayed by the German government. Shame on anyone who was to suspect the German government was defending the interests of the German nuclear energy lobby!
Nevertheless, a Norwegian corporation now plans to build a line. Besides the fact that a dozen such lines would be required and that they should not be built exclusively by and for the profit of major private investors, these examples clearly show that only an integrated approach bolstered by corresponding public funding will be able to offer a credible alternative to such a combination of political and economic interests.
Good proposals have now also been made on how to use the still-necessary energy transition to create a regional, labour-intensive and democratically controlled energy supply. The detailed master plan drawn up by Die Linke in Thuringia is one good example of such proposals. With a package of measures in three dimensions to establish an energy industry based on renewable energy sources, an energy-saving power plant and a Thuringia-wide energy services structure which is almost an economic stimulus programme, Die Linke has provided a good example of an alternative approach at German regional level[23].
This plan is the most far-reaching concept for regionalisation and bringing the energy supply back under municipal control. Cogeneration, an expansion of solar and wind power capacities, energy saving, the promotion of economic initiatives and research and the creation of jobs within a single concept constitute a proposal which, if allied with European funding subject to suitable criteria should be financed from a European fund similar to the one described above.
An integrated concept for a democratically controlled future economic development in Europe encompassing elements of industrial, service sector, structural and cohesion policy cannot and must not be limited to the energy transition alone. Tasks such as the modernisation of the European transport infrastructure, investments in education and training, the promotion of infrastructure and housing adapted to the age of the population as well as an expansion of public services must be covered comprehensively by any future development plan. As shown in an as-yet unpublished study by Powershift for the GUE/NGL group in the European Parliament on the raw material policy aspects of the necessary development of European industry[24], Europe’s responsibility as a global player comes with complex implications. Taking all of these into account must be a key element of any overarching approach, and would distinguish any such plan from other proposals.
In a study summing up left-of-centre political positions, experts from the Info Institute[25] conclude that preventing de-industrialisation and securing jobs in the manufacturing, processing, trade and other service sectors will require a proactive industrial and service sector policy from the state. The capitalist economic order with its unwavering focus on growth parameters is pitted against the public interest of our society. Turning away from the neoliberal course by no means heralds the end of technological development. On the contrary, a sophisticated industrial policy concept would respond to fundamental requirements, for example for greater social justice, participation, an environmental transformation and sustainable peace policy, meaning that identification in this area seems secure.
Such a concept must not be developed as a new form of ‘green capitalism’, as discussed above. Without clear democratic participatory structures and governance, this development would run exclusively on the existing capitalist rails of profit maximisation, while the interests of those affected, of municipalities and regions, employees and consumers would only come second. That is why the participation of society must be secured at all levels and tools such as bringing back under municipal control, setting up cooperatives or creating energy advisory boards must be integrated into a programme for the future of Europe.
Without doubt the most pressing issue is now to quickly find the right measures to re-regulate the financial markets and stabilise the real economy. So far only the beginnings of this issue have been addressed. Alongside this, a complete strategic realignment is required if we are to come out of the crisis without catastrophic side effects for real economic development and therefore for working and living conditions.
To achieve this, a form of clearing between the Member States is indispensable. This must be built on a solid economic basis. People’s acceptance of the EU, and in particular of further integration, fundamentally depends on a democratic economic order and economic policy. These must promote sustainable and environmentally sound economic development and employment. We will decide how we wish to live and work in Europe in the future.
Decent work, high levels of social security and environmentally and economically sustainable development would be prerequisites for and distinguishing features of a model for the future of Europe that we must promote. At European level this also involves seeking out other majorities in society: these would necessarily be political majorities and would eventually become parliamentary majorities. Such a concept could only be sustained with the European Parliament’s rights of initiative and powers of supervision, with a clear division of responsibilities between national parliaments and the European Parliament, and by granting a monitoring role to the Economic and Social Committee and the Committee of the Regions, as well as legislative and executive bodies largely free of national egotism. In particular, such a concept would also need to be developed for the process of drafting a European constitution which is likely to be forthcoming [26], and presented to the left wing of society so they could advocate it as the project of the European left. Without a sound, credible and therefore convincing concept for Europe proposed by the Left, there is a danger that an authoritarian intergovernmental Europe implements neoliberal and neoconservative policies from above and ultimately safeguards the interests of capital. It can only be hoped that Jeremy Rifkin was wrong when he prophesied that ‘at the end of modernity stands a new barbarism.’[27]
[1] http://www.spiegel.de/auto/aktuell/absatzkrise-hohe-rabatte-fuer-autos-a-861482.html - Consulted 23.10.2012
[2] http://www.spiegel.de/wirtschaft/soziales/jugendarbeitslosigkeit-kostet-jaehrlich-153-milliarden-euro-a-862921.html Consulted 23.10.2010
[3] http://www.rosalux.de/publication/38260/die-krise-in-europa-und-die-erfolge-des-rechtspopulismus.html Consulted 25.10.2012 und Michael Oswald „Rechtsruck in Hellas“, Blätter für deutsche und internationale Politik 10/2012
[4] http://www.socialistsanddemocrats.eu/gpes/media3/documents/3542_DE_cohesion_policy_de_100415.pdf - Consulted 25.10.2012
[5] http://www.axel-troost.de/article/6371.euro-zone-vor-dem-ende-rettung-durch-kurzfristig-entschiedenes-handeln-mit-einer-vision-fuer-europa.html - Consulted 25.10.2010
[6] http://europa.eu/legislation_summaries/enterprise/industry/et0005_de.htm
[7]EURO News Interview of 15.10.2012 http://www.euronews.com/2012/10/15/antonio-tajani-on-smes-strategy-and-new-economy/ 22.10.2012
[8] Communication from the Commission COM(2012)/3 “A Stronger European Industry for Growth and Economic Recovery”
[9] http://www.thomas-haendel.eu/de/article/8133.eu-freihandelsabkommen-galgenfrist-fuer-afrikanische-staaten-verlaengert.html - Consulted 23.10.2012
[10] http://www.guengl.eu/showPage.php?ID=9550&LANG=3&GLANG=1 - Consulted 23.10.2012
[11] http://www.axel-troost.de/article/5211.eine-europaeische-ausgleichsunion-a-8211-die-waehrungsunion-2-0.html - Consulted 25.10.2012
[12] IMK 66/2011
[13] Financial assets and property in Germany are worth over ten trillion euros. This is equal to the debt of all 27 EU states of around 10.5 trillion euros. European private assets amount to around 34 trillion euros.
[14] DGB Confederation of German Trade Unions, Executive Board, Department of Economic, Financial and Fiscal Policy: A Marshall Plan for Europe. Proposal by the DGB for an economic stimulus, investment and development programme for Europe. 3rd draft 20.09.2012
[15] The Marshall plan was a large-scale reconstruction programme after fascism and the Second World War to help Western Europe which was suffering from the aftermath of the war. It consisted of loans, raw materials, food and goods. The plan was passed by US congress on April 3, 1948 and was to last for four years. From 1948 to 1952 the US provided 13.1 billion dollars of aid to European countries in need. Adjusted for price in 2008 this would have been the equivalent of 78 billion euros.
[16] DIW, weekly report Nr. 25 2012
[17] Die Mitbestimmung 9-2012, page 34
[18] ARD Press Club, 16.05.2011
[19] Die Mitbestimmung 9-2012, page 34
[20] http://www.welt.de/dieweltbewegen/article106186532/Griechen-wollen-Strom-ohne-Leitungen-exportieren.html - Consulted 25.10.2012
[21] Financial Times Deutschland, print edition 29.06.2011
[22] http://www.spiegel.de/wissenschaft/technik/erneuerbare-energien-norwegen-will-europas-akku-werden-a-834472.html - Consulted 25.10.2012
[23] http://www.die-linke-thl.de/themen/themen_a_z/e_h/energierevolution/ - Consulted 25.10.2012
[24] Powershift e.V. – “Rohstoff- und entwicklungspolitische Dimensionen einer europäischen Industriepolitik zur Förderung der Elektromobilität und Erneuerbaren Energien” - November 2011
[25] Info-Institut Saarbrücken “Bestandsaufnahme zur Positionsbestimmung ausgewählter Parteien und Institutionen zum ökologischen Umbau von Wirtschaft und Gesellschaft” - March 2012
[26] European Council, Interim Report “Towards a genuine economic and monetary Union” - 12.10.2012, and Reflection Note by the Representatives of the European Parliament “Towards a real Economic and Monetary Union - Building capacity to decide” - 1.10.2012
[27] Jeremy Rifkin, The End of Work, Campus 1995
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