Monday, 1 March 2010

EU 2020 Strategy

Paul Sweeney: The European Commission’s Europe 2020 Strategy is an important long term plan. It replaces the Lisbon Agenda, another long term plan. The latter had the ambition of making Europe the most competitive economy in the world. While there was much success, most commentators agree that the Lisbon Agenda did not meet its targets and that new priorities kept being added, deflecting from the achievement.

It is good that the 2020 Strategy is long term: we need to revert to planning to help sweep up the debris of short-termism.

The 2020 Strategy recognises:

- the depth of crisis
- the importance of the state in the economy – if only to bail out the banks
- the Social Market economy
- the need for reduction in unemployment
- environmental issues
- importance of education & technology
- the Green economy
- the need for a Common Vision & agreed priorities in Europe.

It is worth reminding ourselves that this deep crisis throughout the West was caused by economic fundamentalism. This was only challenged by a few, and even Social Democratic Parties fell under the spell of the market fundamentalists, under which many of these parties still find themselves. It was de-regulation, privatisation, and in Ireland’s case, pro-cyclical tax-cutting, tax-shifting and tax-subsidies to wealthy property investors which caused our deep recession.

Ireland had one of the largest falls in GNP in the world. It will fall by a staggering one-fifth or 19.9% this year, on 2007. This is a €32bn cut in national income in just 3 years.

The successful “exit strategy” can only be achieved by a stimulus.
Not by deflationary regressive policies like this Irish government pursuing, i.e.:

- wage cutting,
- welfare cutting,
- public services slashing,
- pouring cash into Zombie banks - which could be used as a stimulus

The speech to the Institute of Taxation by Mr Lenihan on Friday 26th February, in which he claimed that European stimulus packages were failing, was chilling. It was chilling in that he was declaring that he is a true believer in deflationary policies. Below the front page report of his speech in the Irish Times was a report on retail job losses and firm wipe-outs – partly the result of this government’s policies to date.

The proposal in the Strategy to “empower people in inclusive societies” is welcome but flexicurity should mean that workers’ rights must be strengthened, not reduced, especially with regard to precarious work. A Fair Labour Market must mean good wages, stable contracts and good benefits for those unemployed. The reference to Atypical jobs should spell out that they are to be the exception, not the rule, in the EU. Investment in skills and the elimination of poverty and exclusion should be key.

The plan recognises the need to create “a competitive, connected and greener economy, with greater productivity.” However, as most economists on this blog have pointed out, “competitiveness” is not just about short term movements in wages. This is in contrast to the restricted view of the subject of too many influential Irish economists.

Per the 2020 Strategy:

1. Creating value by basing growth on knowledge

- well-resourced European Research Area
- digital economy.
- innovation and creativity

2. Empowering people in inclusive societies

- Flexicurity – but as stated above, workers rights must be strengthened especially around precarious work
- A Fair Labour Market – must mean good wages stable contracts and good benefits for the many out of work.
- Atypical jobs should be the exception not rule in EU
- Skills
- Deals with poverty and exclusion. In my view, there should be a major 'make poverty history' drive by 2020. Why not?

3. Creating a competitive, connected and greener economy

- Productivity
- Competitiveness - not just short term movement in wages
- Broadband: the ideologically driven privatisation of Eircom has been a disaster
- Invest in Public transport
- Energy
- Industrial policy – indigenous industry

4. Fully exploiting the single market

- Does this mean that there will be tax coordination? What are the implications for Ireland’s myopic obsession with its maximum 12.5% CT rate?

Reading the Europe 2020 Strategy plan, I wondered - does it have a major flaw? When it said it was “supporting growth through full use of the Stability and Growth Pact”, I thought - what??

Has not a coach and four been driven through the Stability and Growth Pact by many states, including this one? Will Ireland still meet its 3% target by 2014? Especially with deflationary policies? Have the EU Commission and institutions like the ECB not recognised that, in a deep recession like this, the pact is, in practice, suspended.

Without some form of fiscal union, such as an EU tax body, is monetary union – the euro and ECB - not akin to one hand clapping? The major fiscal crises in the Eurozone, especially the Greek crisis, have exposed this flaw.

Can Monetary Union work if we do not have greater political union? Surely we must now raise much more taxes centrally (to bail out the banks after the next crash, to bail out the odd country and to meet other crises, e.g. climate disasters)? Thus we must go further than mere EU tax coordination. And even that idea causes palpitations in Merrion Street and in Irish corporate boardrooms. Low company taxes represent virtually the only industrial strategy in the cupboard of many Irish conservative policymakers.

We don’t even have a European Bank Regulator. We don’t have “a mechanism to safeguard the financial stability of the Euro area as a whole” as was stated by Ecofin recently. What about a Eurobond for Euro countries?

A major issue in the next decade, the period of the plan, should be radical reform of Corporate Governance. This means a shift from shareholder value to stakeholder interests, in company law, in EU law and in corporate morality - if that is not an oxymoron. This must be sooner rather than later, and must and be in both the private sector (especially), but also in the public sector. Subsidiarity must be the priority in public sector governance, combined with modern management information and people managment systems.

On the issue of governance, there are some hopeful signs. An international agreement on the Transaction Tax is likely at the G20 in June. Further international rule-making and cooperation on finance and banking is on the cards. It is imperative that it is not “back to business as usual” in firms and in Governments, otherwise, we will soon be back to recession.

It seems to me that we need more effective EU institutions. We also need EU leadership which is more responsible to its people. Neither are in this plan. But the European people gave the conservatives the majority – even after the collapse of a virulent form of liberalism espoused by those conservatives.

President Barroso said that “we need a new much stronger focus on the social dimensions in Europe at all levels of government.” This is not, regrettably, reflected in this 2020 vision.


John Madeley said...

I agree. There should be a major 'make poverty history' drive by 2020. I write about this in my new book Beyond Reach? which tells the story of the Make Poverty History campaign in 2005 in a novel way. There are details on
Royalties from the book go to agencies working to eradicate poverty.

Paul Hunt said...

"But the European people gave the conservatives the majority – even after the collapse of a virulent form of liberalism espoused by those conservatives."

Oh dear. We must elect a new people; this lot is deluded.

And as for conservatives espousing liberalism, these labels, when used pejoratively by the left, have lost relevance. Think elites and "insiders" using every device or intellectual construct to advance their hegemony. The union movement, up to Dec. 2009, has proved quite adept at this in Ireland via "social partnership".

Oliver Vandt said...

@Paul Hunt
Irish civic society is arguably much more tolerant of establishment failure than in the 1950s. In the 1950s there was the then traditional economic stagnation but the public finances were stable as was the banking system. Our current establishment's failure is vastly greater: the COLLAPSE of the economy AND the national finances AND the banking system. In the 1950s our current government would have been summarily run out of office. Whereas 60 years later, in the second decade of the twenty first century, the newspapers are full of discussion about whether Brian Cowen can at last transform the government through his reshuffle. What? His government have destroyed the country. To talk like this is insanity.

In Ireland we endlessly congratulate ourselves on how much more advanced we are than in the 1950s. The evidence just doesn't support this. The unions, the media, civic society even the population generally actually have hugely LOWER standards than their equivalents in the 1950s.

Paul Hunt said...

@Oliver, your point about standards is well made, but I think what's at issue here is the way labels and terms like "conservative", "Liberal", "free markets" are bandied about to avoid consideration of how economic power is secured and exercised by various aligmments of government, the "permanent government", the quangocracy and established elites and special interests. To be ejected from the cosy consensus of "social partnership" when the interests of more privilged and more long-standing "insiders" had to be protected must have been very, very hurtful for the unions.

It should be time to wake up and smell the coffee, but the unions think they can cut a deal with this Government; and Labour thinks it might be able to form a government at the next time of asking with a suitably decapitated, rump FF.

Dream on.

Oliver Vandt said...

@Paul Hunt
The unions should have spoken out repeatedly and strongly against the lending bubble. They have quoted statements/proposals they made at the time about cooling the economy. It must be stressed too that they weren't the government, who drove the boom, let alone the opposition, who were not constrained by pay negotiations with the government but spoke out little. Nevertheless, going back into social partnership with FF, The GW Bush Republican party, as if the destruction they have caused hadn't happened, cannot be the answer. The scale of the economic devastation the government are responsible for is only comparable to the loss of a war. Now we know where those missing WMDs were - the Galway Tent.

Paul Hunt said...

@Oliver, it looks like we're just talking to each other. This kind of discourse doesn't engage the other "free thinkers" on this site. Switching back to the EU2020 Strategy, rather than pursuing some evil neo-liberal agenda, the EU in the shape of the Council, Commission, Parliament and pan-EU lobby groups resembles the government - permanent government - special interest group alliance in most member-states. Tri-partite arrangements, similar to Ireland's social partnership are common in many member-states. The unions are happy to do their deals with governments and employers that protect insiders and bypass parliaments. As a result, left-wing parties decline as the unions can cut out the middleman.