Is the Eurozone establishment changing?

By Vincent Navarro

There is a growing awareness among some international institutions such as the International Monetary Fund (IMF) that policies of austerity and public spending cuts they have been promoting and imposing have failed to achieve their objectives. A recent IMF report even acknowledges that, in the case of Greece, these policies have been more damaging than beneficial.

They have not recognised, however, that these policies have also been detrimental to Portugal, Spain and Ireland, despite the overwhelming evidence that these policies are also damaging these countries.

The most the IMF has come to recognise is that these austerity policies have been applied too quickly in the PIGS countries (Portugal, Ireland, Greece and Spain). But there are no doubts about the correctness of labour reforms, even though these reforms, proposed by the IMF, have had a very negative impact on employment. Indeed, the latest IMF report on Spain continues to demand more reforms that undoubtedly will create even more unemployment. It will take them one or two more years to reach the conclusion that these labour reforms imposed on these countries have also failed, as they failed before in Asia and Latin America.

Given this situation, the reaction of the European establishment is more than disappointing. At best it has come to admit that austerity policies alone are insufficient. They have to be supplemented, we are told, by policies of economic stimulus achieved via reforms. And when these reforms are analysed you find that they are the same reforms that have done so much damage already, just recycled in new packaging. Thus, the alleged measures to stimulate economic growth are deepening labour market reforms that mean dismantling any type of social protection for the employee and worker. The latest statements by Commissioner Joaquín Almunia stressing the need to continue labour market reforms (and pensions) and continue deepening them in order to increase competitiveness, is a case in point.

What the Commissioner Joaquin Almunia and the conventional wisdom that he represents ignore is that these reforms, which aim to reduce wages, are increasingly exacerbating the crisis, hampering the economic recovery of the southern European countries and Ireland.

Joaquin Almunia and the other commissioners (such as Finland’s Olli Rehn, Vice President of the Commission, and President Barroso himself) appear not to have understood anything about the situation in Greece. Alumunia’s faith in a dogma, impervious to the data, is ruining Greece and all these countries.

And I use the word ‘dogma’ because listening to Joaquin Almunia gives me the impression that he believes what he says, which is surprising for a figure who is where he is because of the previous and continuing support given by a socialist party, Spain’s PSOE .

I doubt, however, that Mr. Draghi, European Central Bank President, believes this dogma. Draghi is imposing these policies in order to achieve the dismantling of the European Social Model, as he himself has explained and recognised on several occasions.

The banker said what the banking community believes: the European social model is an obstacle to the development of their interests, which they assume are the general interests of the Eurozone, and this, despite all the evidence shows the opposite. One of the biggest problems facing the eurozone, because of its recession, is the excessive power of financial institutions in the eurozone, starting with the German. Again the evidence is substantial.

For this reason, even if the incompetence is widespread in the European Commission, its biggest problem is not this incompetence but the strings that move it, which are none other than financial capital. His constant call on governments to accept cuts and labour reforms (to which now we must add pension privatisation) in order to calm the financial markets is a case in point.

When in Spain an expert committee on pensions, composed of professionals coming from  banks and insurance companies, proposed more brutal cuts in pensions in Spain than any country has faced in the Eurozone, the Commission, including the supposed socialist, Commissioner Almunia, applauded, as did the rating agency Moody’s.

It is clear that none of the PIGS will be able to exit the crisis within this monetary zone controlled by finance capital. Those who oppose these countries leaving the Eurozone have to explain how they think they will get out of this impasse. Only the pathologically optimistic argue that the Eurozone establishment is changing.

Vincent Navarro Blog 

Translation by Revolting Europe