Europe's "Southern Question"

Antonio Mosconi
Research Department, Robert Triffin International

Javier Ramos Diaz and Esther del Campo (eds)
Austerity and the Implementation of the Europe 2020 Strategy in Spain. Re-shaping the European Productive and Social Model: a Reflection from the South
Brussels, 2017 (P.I.E. Peter Lang S.A.)

A concise exposition of the theses presented in the book is made easier by the masterly introduction by Ramos, who interconnects the various essays with a coherent guiding thread. Globalization, the shifting from West to East of the world’s center of gravity, Europe’s weakness in international conflicts and the social and economic consequences of its financial crisis – Ramos underlines – are a challenge for European integration. The populations of the indebted countries of the South witness, with growing resentment, the deterioration of achievements that seemed consolidated: employment, salary, education, health care. On the other hand, the European institutions and national governments spend trillions of euros to save the banks. The real debate in Europe does not concern Grexit, Brexit or the European Constitution, but the future of democracy under capitalism. Latent tensions between profits and wages, competition and cooperation, efficiency and equality, only subsided in the golden age of the post-war period, with social protection as a glue. History, on the other hand, teaches that inefficient democracy and/or an excluding capitalism may cause serious crises. The events that followed one another at the end of the golden age (oil crisis, end of the cold war, neo-liberal doctrines, financial crisis) gave rise to a new world regime based on commodification, financialization, liberalization and distributive policies favorable to capital. The mix called “privatized Keynesianism” by Colin Crouch.

The free movement of capital prevents the adoption of national anti-cyclical policies. Economic inequality and the concentration of wealth, no longer corrected by politics, cause a regression of democracy. At the continental level, the democratic deficit in the functions of the European Parliament, the consequent deficit in accountability of the Commission, the weakness of the European parties and the lack of a true federal Executive make it so that austerity and internal devaluations are damaging the legitimacy of the EU. The “Lisbon Strategy” (2000-2010) and the “Europe 2020 Strategy” (2010-2020) aim to create jobs in the knowledge-economy in order to support the welfare systems with a smart, sustainable and inclusive development. Does the EU correspond to that mission? The book aims to answer this question, especially considering the challenges of globalization and the financial crisis.

All European choices respond to the logic of commodification in order to compete in globalization, but this, in its current form, may create the conditions for economic integration, profit, job creation and the reduction of extreme poverty only at the cost of reduced wages, precarious work and increasing inequality. The proletarianization of millions of workers in the emerging economies and the precariousness of as many millions of workers in developed economies create favorable conditions for profits, but not for wages and a decent work. The “Europe 2020 Strategy” reproduces this model within the EU.

The financial crisis and the answers given to it have caused a historical shift from the tax State to the debt State (Streeck) and, in order to support the debt, to the austerity State (Offe). Austerity is a policy that has been applied in Europe to all without distinction, while the causes of the indebtedness of each country were very different. Thus the already potential tensions in the incomplete structure of the economic and monetary Union have come to light: on the one hand, the tension between the exporting and creditors countries of the North, who reject more transfers, credits, guarantees and mutualisation of debts, and those of the South, that reject new fiscal and financial restrictions; on the other, the tension between the preference, by the economic and financial world, for exclusionary development models and the interests of a large part of European citizens.

In this context, people question the adequacy of the “Europe 2020 Strategy”. The main reason for skepticism concerns the subordination of the objectives of poverty reduction and social inclusion to the achievement of the Austerity Packs objectives. So, the ideas of development and inclusion, indicated in the Strategy, combined with the exaltation of individual entrepreneurship, are successful in the countries of the North, but not in those of the South, accentuating the distance between them.

Spain, after joining the EU, has experienced a decade of extraordinary development and employment growth that has allowed the socialist government to align the country with the European welfare systems. However, the Spanish economy has not become more productive and more competitive. The easy credit encouraged by European policies has massively gone to real estate speculation, already favored by other factors, through the cajas de ahorros (savings banks). These banks found themselves exposed when the real estate bubble collapsed. Spain, not supported by competitive exports and not being able to devalue the currency, had to choose between default and a long period of stagnation and high unemployment. The socialist government committed itself to the second path. The conservative government, in office since 2012, further exacerbated the austerity and reform program in order to make the labor market more “flexible”. Spain is one of the countries where inequalities have increased the most during the crisis. The EU calls for greater doses of austerity and internal devaluation. Under these conditions, can Spain reach the objectives of the “Europe 2020 Strategy”? Let’s examine them one by one.

Objective 1: employment. The drastic reductions in public spending and wage deflation have not solved the problems: temporary and precarious work, job volatility, ineffective labor policies. Instead, domestic demand must be sustained with strong unemployment benefits, wage increases and – according to some authors of the essays – the repositioning of the Spanish production model from the homeconstruction and tourism sectors to others with greater added value.

Objective 2: investments in R&D. The greatest effort was produced by the socialist government (2004-2011). Then the lack of funds and the austerity plan resulted in a severe reduction in public and private investments, despite the Conservative Government’s effort to consolidate the results already achieved. Only the small and medium-sized enterprises were successful with the Horizon 2020 SME Instrument, demonstrating the growth of entrepreneurship in Spain. Spain now spends 1.2% of GDP in R&D, compared to 2% forecast by the new national plan and 3% called for by “Europe 2020”.

Objective 3: climate and energy. The Green Economy offers real possibilities for productive innovation, economic development and employment. However, the conservative government moves in the opposite direction, with cuts to incentives for renewable energy, taxation of energy production for self-consumption, and privatization of public areas of social and environmental interest. This policy makes it impossible to achieve the already not very ambitious objectives of “Europe 2020 Strategy”, in particular with regard to the level of renewable energy and the reduction of emissions. Only for energy saving did Spain exceed the European average. One of the experts of the book advocates the need for an alternative strategy of ecological transition, capable of increasing both efficiency and democratic participation.

Objective 4: education and early school dropouts. School is one of the sectors that is most affected by changes in policy. Current emergency measures to rationalize spending include a 20% increase in the number of students per class, an increase in the number of hours per teacher and other measures that postpone or cancel commitments contained in previous laws. The University has also been hit and lawsuits are pending before the Constitutional Court for violation of regional powers in this area. Spain is basically in line with “Europe 2020 Strategy”, but with differences between the different school levels and between the Regions. As for the skills (measured by PISA), Spanish students are close to the target, but the early school dropout level is the highest in Europe and the unemployment rate among young people with higher education is among the highest. Training programs are mostly devoted to those already well-educated, employed by big companies, rather than to those with a low level of education. The crisis has accentuated this dichotomy.

Objective 5: poverty reduction. Spain has historically lower levels of welfare expenditure than other Member States, and it is concentrated on pensions. Despite limited family policies, it is the main safety net for unemployed and low-income workers. The measures taken since 2010 have further weakened the Spanish welfare state, slowed down its rebalancing with the European levels and distanced the citizens from Europe, seen as an instrument of the austerity policies. Although it is not yet certain how much these policies have contributed to the suffering of society, it is likely that they have increased inequality, vulnerability and poverty. “Europe 2020 Strategy” was foreseeing a reduction of 1.5 million poor people in Spain. This goal cannot be achieved, despite the increase in employment. Specific policies should be a priority for combating child poverty, youth and long-term unemployment, and for developing and consolidating minimumincome schemes. Austerity, instead, has placed the fight against poverty in the background.

So far Ramos, whom I hope to have represented faithfully despite the tyranny of space. We cannot be surprised by his desperate conclusion: “Europe 2020” condemns the indebted countries to a more peripheral productive role, and an increasingly strong dependence on the surplus countries financing their debt. Spain will remain among the countries with low productivity, and its population will be condemned to live with unemployment, precariousness and poverty. Remedies are impeded by the austerity policies, but the EU is always recommending the same medicine, painful and useless.

I will try now to let some rays of sunshine filter through such desolation.

I believe that it is not indelicate to recall how the liberation of Spain, Portugal and Greece from the fascist regimes was possible only thanks to the existence of a Community, with all its defects, ready to receive them and to finance their catching up. The same could be said for Italy’s ability to repel repeated attempts at coups d’état, politically-motivated killings and terrorism.

Some attribute to the EU and specifically to the countries of the North the responsibility of a crisis that is instead completely of American origin. In other words, people refuse to recognize that the existence of the EU, even if imperfect and incomplete, is the only bulwark that has allowed us: 1) to compete in the presently unregulated globalization, wanted by the American neoliberalism and accepted by the European nation states; 2) to survive the attack on European savings carried out by Wall Street with toxic securities spread all over the world, thanks to the unfair privilege of the dollar, a legacy of a war lost by the whole of Europe (including winners) over seventy years ago.

Perhaps the nation States (not the EU) have spent trillions of euros to save their banks, but then the European Central Bank has also spent even more to buy the bonds of the member States and avoid a much more serious recession. Furthermore, anyone, before making judgments on the convenience or not of belonging to the EU, should check on the ECB’s website the balance of their country in the TARGET II clearing system. I have never inquired about the balance of Spain, but I know that of my country. Would we be better off if the European institutions did not exist? If every country were called to immediately reestablish the balance of its own public budget and its trade balance with foreign countries? Do not people realize that Target II creates an internal European economy, and that the qualification of “foreign” applied to member countries is only the legacy of a ruinous past?

The jeremiads of the Southern countries, which we know very well in Italy, are sometimes ungenerous. For example, when the austerity policy, codified in the Fiscal Compact, is denounced, people omit to remember that it is the counterpart to the creation of the banking union and the European Stability Mechanism (ESM), a fund with a firepower three times higher than that of the IMF. The excessive debt of some countries is not due to the implementation of investment policies consistent with the EU cohesion objectives, but to the banks’ real estate speculation, as in Spain, or the insufficiency of the tax levy with respect to a public current expenditure never seriously contained, as in Greece and in Italy. Therefore the claim to charge the burden of that to other member countries would be disruptive for the political cohesion of the Union, already subjected to tensions. Suffice it to recall that, when Germany was the sick man of Europe, its Chancellor, the Social Democrat Schroeder, lost the elections and abandoned politics for his resolve to implement the necessary measures to put the country back on track.

The need for the Member States to commit to their financial and macroeconomic rebalancing does not mean, on the other hand, that no investment for development and no anti-cyclical Keynesian policy should be made at the Union level. Only at that level, in fact, the cost of money is the lowest and the ability to control how the money is spent is the highest, as demonstrated – for example – in the long history of the EIB. We federalists have been supporting the need for a New Deal for Europe (ND4E) for some years and we have judged the Juncker Plan to be a good start. It has opened a new phase, strengthened by President Macron’s proposals and by the new plan presented by the European Commission for the completion of the Economic and Monetary Union. In fact, only at the level of the Union can the subordination of the “Europe 2020 Strategy” to the Fiscal Compact be resolved. 

Translated by Lionello Casalegno