Article first published as Welfare State System at Stake in European Austerity Measures on Blogcritics.
As a result of austerity measures, proposed as part of the bailout package offered by the IMF and European Union, the workers throughout the European Countries are increasingly joining in strike actions. Ever since the Greece debt crisis surfaced, the European governments as well as financial analysts and economists talked and wrote about the need of maintaining fiscal discipline and reducing deficits and debts. The IMF has been the one that is pressurizing the European nations, particularly the countries under monitory union to implement austerity measures like spending cuts, jobs cuts and tax increases.
When George Papandreou’s new socialist government came to power in Greece and revealed that the Greece’s budget deficit was actually 12.7 (again modified to 13.6 percent by Eurostat in April) percent of GDP, more than twice the previously published figure by the previous government, the market began to panic. Doubts rose whether Greece could meet its debt commitments in time.
The problem was aggravated with the top three credit rating agencies –Fitch, Moody’s and S&P- went on to threaten investors by downgrading sovereign debt ratings of Greece, Portugal, Spain, Ireland and Hungary. By the end of April 2010, Greece’s government debt was downgraded to junk status. Weather the actual situation led to downgrading or downgrading prepared the ground for the so-called fiscal discipline measures remains a matter of concern.
Meanwhile a sense of urgency of fiscal consolidation was instilled through print, audio and visual media into the minds of the people. The markets and the people were so prepared by the frequent media news and analyses that everyone from common person to top investors began to believe that some drastic measures were inevitable.
Aid (Debt) Package
The run up for the announcement of the joint aid package by the EU and IMF for Greece as well as the Euro Zone was a big fiasco that equaled the stage plays scripted by the great “Bard of Avon.” Greece Prime Minister Papandreou repeatedly requested for a guarantee from the EU to prevent the rising sovereign debt costs. On one hand, Germany hesitated to announce any package; the reason said was that it feared it would have to bear major part of the aid package and that it would have to face severe opposition from its people. On the other hand, bond yields demanded by the investors to invest in Greece debt, peaked to more than 22 percent (on 2-year note) at one point.
At last on May 2, with the pressure from France and the so-called markets, the EU under the leadership of Germany, announced 110 billion Euros of aid package to be disbursed over three years, a third of which was agreed to be shared by the IMF. In fact, it was not an aid package but a debt package. It was a debt trap that added more debt to the debt-ridden Greece in the name of aiding it to come out of fiscal burden. The IMF is already notorious for its deadly strictures to debt-ridden third world countries so as to make their economies subservient to the interests of the United States of America. The same conditions were stipulated to Greece while granting the aid package.
But, markets were not satisfied. Fresh doubts were raised whether Greece could deliver the required austerity measures along with spending cuts and tax increases. Their doubts extended over other euro zone countries. They continued to demand more profits from the sovereigns of the other highly indebted euro zone countries. Again, discussions, meetings, deliberations, conferences, analyses, pressures, statements, promises and warnings followed.
Another stage play reached to its climax on May 10 with the announcement of 750 billion euros (nearly equal to one trillion dollars) of emergency financial safety net for the euro zone to calm financial markets and to avert contagion from the Greek crisis. With this safety net, the ECB is buying sovereign bonds whenever demand for bond yield soars.
Along Came the Spider
Aid package had a big and long tail of austerity measures, cuts and increases. Generally, it is the dog that wags the tail, but in the present case, it is the tail wagging the dog. A country means the people, and production through their labor. Without their labor, there is no wealth. The wealth made markets (of course, markets made wealthy). Therefore, the people and their needs have to decide what the market is and how should it behave.
It was actually the people to be taken into consideration without of whom the markets did not exist. Ironically, their interests were totally ignored for consideration while talking about the steps for fiscal discipline. Even more irony is that they were the ultimate bearers of this fiscal discipline.
Starting from January, Greece has been continuously announcing stability programmes, cutting programmes and tax increasing programmes to convince the markets that it would not default so as to sell the sovereign debt. Setting a target of fiscal deficit to 2.8 percent of GDP by 2012, Greece passed a package of public sector pay cuts and tax increases in March first week to save an extra 4.8 billion euros. It froze state-funded pensions in the same vein. Greece was stipulated to save an extra 30 billion euros over coming three years while getting aid package from the EU and the IMF. So, it continued to pursue more savings and approved another installment of austerity on May 6.
Pay freeze for all public sector workers, some pay cuts, laying-off public sector contract workers, bonus caps and cuts were implemented in Greece from May 2010 onwards. Legal layoffs in private sector allowed per month were increased from 2% to 4%. Pension commutation was reduced from final salary to average working pay. As part of tax reforms, VAT was raised by 2% and indirect taxes by 10%. Privatization of public sector by decreasing public payroll and encouraging private companies was planned for long term.
Greece unveiled additional spending cuts including 9.2 billion euros of deficit reduction measures for 2011 on October 4 triggering a nation-wide strike on Oct. 7. State workers’ union ADEDY representing 700,000 civil servants led the strike paralyzing government services like schools, public hospitals and air traffic. The union said wage and pension cuts have sliced 25 percent of incomes
The Saga Continues
The programme of austerity measures continued with countries one after another falling in line to cut their budget deficits and debts. These measures almost were the same as implemented in Greece. Ireland raised pension age from 65 to 66 years in its December 09 budget and announced savings of 4 billion euros. Spain announced a plan to save a whopping 50 billion euros that envisaged spending cuts equal to 4 percent of GDP and 4 percent public sector pay cut as early as January ending. It proposed in first week of February to raise retirement age from 65 to 67 triggering massive protests.
Portugal’s ruling and opposition parties’ leaders approved steps to slash the budget in second week of May, including public sector pay cuts. They targeted 4.6 percent fiscal deficit for 2011 from 9.4 percent recorded at the end of 2009. The Portugal parliament approved another austerity package in second week of June. Italy approved 24 billion euros worth austerity package aiming reduction of deficit to 2.7 percent of GDP by 2012 from 5.3 percent at the end of 2009. Putting into practice its January plan, Spain won parliamentary approval for 15 billion euros worth austerity package by a single vote on May 27, but the next day, its rating was cut down by Fitch showing its massive debt as the reason.
Giant Germany’s Giant Austerity
Germany’s ruling coalition agreed a package of budget cuts and tax increases on June 7 to bring its deficit within EU’s limit of 3 percent of GDP by 2013 that stood at only 3.3% by then. The package aimed to deliver savings of 80 billion euros ($100 billion) over next four years. Germany’s fiscal deficit was expected to be around 5 percent (3.5 percent in Aug 2010) of GDP in 2010 and its debt was recorded at 77% of GDP at the end of 2009. France announced reform of its pension system on June 16 that included raising retirement age from 60 to 62. This decision caused outrage among French people, provoked workers to observe two strikes in September 2010.
Welfare Concept at Stake
One should wonder why the austerity is implemented in every European country from Greece to Germany. If Greece has the problem of public finances, why should Germany and France go for austerity? The answer is very simple for those who can understand the dynamics of the capitalist economies.
It is an opportunity for ruling classes of European countries, who work for the interests of the big business and finance houses, to withdraw welfare state measures like unemployment benefit, child benefit, pension benefit, health benefits, insurance benefits and so on…, that too, in the name of saving countries’ economies. Operation success, doctor’s pocket fills but the patient dies. So what, several patients are in queue.
Just a week back in October first week, England announced a plan slapping tax on child benefits for high-income earners from 2013. Accountancy firm PwC revealed that almost one million jobs could be lost in the UK because of government cuts in public spending.
One should observe the decreases in the basis amount for pension commutation, decreases in retirement ages in several EU countries and the reduction of scope of job creation in public sector. One should also notice the conspiracy of destroying and erasing the concept of welfare states proposed by WW-II time economist Keynes and successfully implemented by all the matured capitalist economies from west to east. The conspiracy is carefully crafted by the European elite business houses in the name of passionate and convincing terms like fiscal discipline, fiscal consolidation and stabilization, to amass more people’s money into their capitalist coffers.
Welfare States
The above-mentioned are the numbers aimed for achievement documented in the records of the European governments and the IMF. The governments already began the implementation of the approved austerity measures promptly. But, these numbers are proving to be devastating for the European people, from public sector employees and self-employed to unemployed people.
Welfare measures, achieved over decades of struggles by the workers, are being withdrawn one by one under the cover of austerity. The concept of “welfare state” is being liquidated slowly by injecting into the people’s minds that the austerity measures are inevitable to save the countries’ future.
But, the austerity measures are nothing but the measures aimed at withdrawing welfare state principles. Welfare state envisages the welfare of the people with government support, pushing the interests of the greedy private conglomerates to the back burner, at least to some extent.
These principles were not the result of the magnanimity of the ruling classes but brought into being by the hard fought struggles of the workers for decades against the capitalist oppressive and exploiting rule. Now, such welfare measures that fed the working class, that gave birth to new middle class and built a strong consumer market to be exploited by the same rich classes for six decades, are finally coming to an end, thanks to theoretical help extended by the IMF.
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