News
BackParts of the European Commission apparently want to use the financial crisis in order to cheerfully continue with their neoliberal policy, which they had practiced in the past and which has so miserably failed. The most recent example is the “Public Finances in EMU 2009” report, which was presented in Brussels this week. Its core messages: saving on workers and pensioners, even more money for the banks.
This year, the report annually published by the Commission on the position of the budgets of the Member States, has been devoted to the development of the budgets of the EU-27 during the financial and economic crisis. In a retrospect to banking crises of the past, the Commission reaches the little surprising conclusion that banking crises cost the taxpayer dear. Rescuing the banks during the Argentina crisis in 1980, for example, swallowed about 55 % of the economic output of the South American country; the costs of the banking crisis in Indonesia in 1997 were similarly high. On average, the costs of global banking crises since 1970 amounted to 13% of the Gross Domestic Product (GDP). Less than a fifth of the funds, which the governments had made available to rescue the banks, could be paid back.
Based on the costs of 49 examined banking crises over the past 40 years, the Commission tries to draw conclusions from these and the current crisis, the most serious and most global financial crisis since the end of World War II. So far aid measures for the banks, amounting to considerable 43.6 % of the EU-27-GDP, were made available throughout the entire EU. Actually used were 12.8 % of GDP. The large difference can be explained by the fact that state guarantees account for the by far larger share (more than half) of the entire aid package for the banks and that these guarantees were until now not fully utilised.
Both finance ministers and taxpayers are living in hope that this will not change. Whether their hope is justified will mainly depend on the further development of the crisis. Here, the Commission is applying another lesson it has learned from past crises: in order to overcome the crisis as quickly as possible, the states, which are affected, should put the banks back on their feet quickly, decisively and comprehensively. A reference to the problem of “toxic” assets, which many banks still have on their books and for which they still have not found an acceptable solution. In order for the public purse to buy these papers, as promoted by the Commission, the Member States affected would have to make available even more billions - a politically sensitive undertaking, which would force up the budget deficits even more.
And these are currently high enough already. If the EU Countries in 2007 still had an average budget deficit of 0.7 %, this is now expected to rise to 5.5 % by 2010. The public debt too - the second of the three “Maastricht Criteria” of the Stability and Growth Pact - is rising rapidly. If it was still 58.7 % of the EU-27-GDP in 2007, a value of 79.4 % of GDP is now forecast for 2010. These are the results of the massive collapse of economic growth, the costs of rising unemployment and short-time work and the public aid measures for the banks.
Quite revealing for the politico-economic attitude of the Commission in this situation is its solution proposal, which the report described as “exit strategy”. In troubled times, the Stability and Growth pact would be the compass, says the Commission and initiates so-called deficit procedures against 20 of the 27 Member States. The budget deficits shall be brought under the “magical” 3-percent limit again, and that within a very short period, which in some countries ends in 2010, in others in 2013. Saving during the crisis, at a time, when its development is not yet foreseeable and when its effects have yet to arrive fully in the labour markets.
There is another neoliberal “recipe” of the Commission, which has to be rejected. The report demands a “reform of age-related expenses” - meaning the pension schemes - without any direct connection with the public debt caused by the financial crisis being recognisable. It looks as if the crisis should be used to discredit public pay-as-you-go pension schemes and to restore the tarnished reputation of private, funded pension schemes - i.e. exactly those private schemes, which performed so poorly during the crisis at the expense of pensioners.
From the workers’ point of view, one has to criticise the report for not or not adequately addressing important subjects. This includes above all the inadequate regulation of the financial markets, which for a long time had been promoted and supported by the Commission within the scope of its deregulation ideology and which was the major reason for the crisis and the rise in debt. The still one-sided orientation of the Stability and Growth Pact, which gives the fight against inflation priority over economic growth and employment, is also criticised by AK and many other scientists, organisations and politicians.
Further information:
Public Finances in EMU 2009
Based on the costs of 49 examined banking crises over the past 40 years, the Commission tries to draw conclusions from these and the current crisis, the most serious and most global financial crisis since the end of World War II. So far aid measures for the banks, amounting to considerable 43.6 % of the EU-27-GDP, were made available throughout the entire EU. Actually used were 12.8 % of GDP. The large difference can be explained by the fact that state guarantees account for the by far larger share (more than half) of the entire aid package for the banks and that these guarantees were until now not fully utilised.
Both finance ministers and taxpayers are living in hope that this will not change. Whether their hope is justified will mainly depend on the further development of the crisis. Here, the Commission is applying another lesson it has learned from past crises: in order to overcome the crisis as quickly as possible, the states, which are affected, should put the banks back on their feet quickly, decisively and comprehensively. A reference to the problem of “toxic” assets, which many banks still have on their books and for which they still have not found an acceptable solution. In order for the public purse to buy these papers, as promoted by the Commission, the Member States affected would have to make available even more billions - a politically sensitive undertaking, which would force up the budget deficits even more.
And these are currently high enough already. If the EU Countries in 2007 still had an average budget deficit of 0.7 %, this is now expected to rise to 5.5 % by 2010. The public debt too - the second of the three “Maastricht Criteria” of the Stability and Growth Pact - is rising rapidly. If it was still 58.7 % of the EU-27-GDP in 2007, a value of 79.4 % of GDP is now forecast for 2010. These are the results of the massive collapse of economic growth, the costs of rising unemployment and short-time work and the public aid measures for the banks.
Quite revealing for the politico-economic attitude of the Commission in this situation is its solution proposal, which the report described as “exit strategy”. In troubled times, the Stability and Growth pact would be the compass, says the Commission and initiates so-called deficit procedures against 20 of the 27 Member States. The budget deficits shall be brought under the “magical” 3-percent limit again, and that within a very short period, which in some countries ends in 2010, in others in 2013. Saving during the crisis, at a time, when its development is not yet foreseeable and when its effects have yet to arrive fully in the labour markets.
There is another neoliberal “recipe” of the Commission, which has to be rejected. The report demands a “reform of age-related expenses” - meaning the pension schemes - without any direct connection with the public debt caused by the financial crisis being recognisable. It looks as if the crisis should be used to discredit public pay-as-you-go pension schemes and to restore the tarnished reputation of private, funded pension schemes - i.e. exactly those private schemes, which performed so poorly during the crisis at the expense of pensioners.
From the workers’ point of view, one has to criticise the report for not or not adequately addressing important subjects. This includes above all the inadequate regulation of the financial markets, which for a long time had been promoted and supported by the Commission within the scope of its deregulation ideology and which was the major reason for the crisis and the rise in debt. The still one-sided orientation of the Stability and Growth Pact, which gives the fight against inflation priority over economic growth and employment, is also criticised by AK and many other scientists, organisations and politicians.
Further information:
Public Finances in EMU 2009