As a reaction to the economic and financial crisis, the Member States of the European Union imposed strict budgetary discipline and a reduction of existing debt on themselves. This austerity policy has been reflected in the so-called Fiscal Compact. This week, the European Parliament held lively discussions concerning the integration of this agreement into EU law. However, from the point of view of employees, the discussions should have focussed on another issue: putting an end to neoliberal austerity policy!

The Fiscal Compact, as part of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, is an agreement according to international law between 25 EU Member States (without Great Britain, Czechia and Croatia), which came into force in January 2013. This Compact imposes on the Member States the obligation to observe strict budgetary discipline and a continuous reduction of their national debt. In concrete terms this means a maximum structural budget deficit of 0.5% of the Gross Domestic Product (GDP) per year, a speedy reduction of the national debt up to the reference value of 60% of GDP, as well as the European Court of Justice monitoring that these conditions are being adhered to. The Member States are also obliged to enshrine these regulations in their national constitutions. Apart from that, only those countries that have signed the Fiscal Compact are able to apply for financial assistance by the European Stability Mechanism (ESM).

On request of the EFDD group, the planned integration of the Fiscal Compact into EU law was discussed in the plenum of the EU Parliament. By and large, three points of view emerged during the sometimes emotional debate: representatives of EPP and Alde regard the Fiscal Compact as a step in the right direction. In their opinion, stricter fiscal discipline is urgently required. They regard the integration of the Fiscal Compact into the EU Legal Framework as being positive. The spokespersons of the S&D faction are critical of the Fiscal Compact. According to their argumentation, the Agreement must be revised prior to its integration. Their demand is a departure of the rigorous austerity policy and a focus on the creation of jobs. On the left of the political spectrum, the GUE/NGL and the Greens, and on the right the ECR, EFDD und ENF completely reject the Fiscal Compact. Whilst the former massively objected to the neoliberal austerity policy and demanded a social Europe, the latter were afraid of a further loss of sovereignty by the national states.

Neoliberal austerity policy

The criticism on the Fiscal Compact has not stopped since its implementation in 2013. At fundamental level, the Agreement means a legal establishment of the neoliberal doctrine into European economic policy. The speedy proclamation of a lack of alternative regarding the austerity policy in the course of the economic and financial crisis confirms this and is at the expense of employees. From an economic point of view, the self-imposed austerity policy restricts economic growth and holds countries such as Greece in a debt trap. Based on strict budgetary discipline, Member States are driven towards a unilateral austerity policy and are losing economic room to manoeuvre on a massive scale. Another aspect is the democratically questionable construction of the Agreement. According to this, individual Member States are not able to unilaterally terminate the Agreement. Only a joint agreement by all Member States can dissolve the Fiscal Compact.

The AK has criticised the Fiscal Compact since the start of the negotiations. A misunderstood austerity policy is not a practical path to achieve a wealth-oriented and social European Union. The debate should focus on solving the question of distribution, on further regulating the financial markets and on creating jobs. The importance of a Golden Investment Rule is a key issue as is the introduction of a Financial Transaction Tax.

The departure from a unilateral austerity policy does not only make sense from an economic point of view. Massive investments in social and educational systems, as well as developing the public infrastructure at European level, does not all benefit all people; it would also strengthen solidarity within the EU.

Further information:

Blog Arbeit&Wirtschaft: Austerity policy in the Eurozone: Shooting oneself in the foot

AK WIEN: The Elusive Recovery. Independent Annual Growth Survey 2017

ETUC Declaration on the "Treaty on stability, coordination and governance in the economic and monetary union"