Doing the right thing

European governments have nagged each other to carry out structural reforms for years, without great success. As Jean-Claude Juncker, prime minister of Luxembourg, said memorably in 2007: “We all know what to do, but we don’t know how to get re-elected once we have done it.”

Now, with markets shunning some Euro-laggards, doing the right thing is a matter of survival. Long-stuck dossiers are finally moving. On July 1st the European Commission announced plans to ram through an EU-wide patent valid in all 27 countries (a key demand of European business), after years of delays by Spain and Italy over the status given to their languages.

Earlier this year, EU leaders like José Luis Rodríguez Zapatero of Spain said flatly that market pressure on Spanish debt was a conspiracy. “There is an attack under way by speculators against the euro, against tougher financial regulation of the financial system and of the markets,” he claimed. But with market pressures reaching crisis point in May, Mr Zapatero reversed course, announcing civil-service pay cuts and other austerity measures. He unveiled a (modest) plan to ease Spain’s rigid labour laws, which make older workers almost unsackable, leaving young and immigrant workers on temporary contracts to take the pain when Spain’s property-led boom turned to bust. At 40%, youth unemployment in Spain is not just high; it is a moral indictment of an entire system.

At an EU summit in June, Mr Zapatero led calls for the publication of stress tests on European banks, a long-overdue measure being resisted by some in Germany. While still grumbling about unfounded rumours in financial markets (and he has a point), a more realistic Mr Zapatero argued: “There is nothing better than transparency to demonstrate solvency.”

Crucially for those who believe in a happy ending to this crisis, voters seem made of sterner stuff than politicians feared, and can also see the need for structural reforms. Between 2005 and 2030 the working-age population of the European Union will shrink by 20m, and the number of those over 65 will increase by 40m. Thanks to the focus on crumbling public finances, that demographic time-bomb is now a common part of European public debate. Governments in places like Britain or the Netherlands have been able to propose paying pensions at 67 or even 70, without angry protests.

Even in France, where most voters told an opinion poll in June they considered a proposal to increase the retirement age to 62 “unjust”, few dispute the idea that the current state-pension system faces insolvency. The left and right merely disagree about who should pay to fix this. In Greece, the most disruptive strikes have been staged by hardline Communist trade unions, with larger unions showing some restraint. The press, meanwhile, is filled with commentaries about how the country must live within its means, and how much things must change.

Some of Europe’s most stubborn structural problems involve the misallocation of public spending. Governments have spent years padding civil-service payrolls, unveiling benefits like baby bonuses or early-retirement payments just before elections, and shovelling subsidies to politically powerful interest-groups.

Optimists have grounds for hoping that a squeeze on public spending will bring about some structural reforms by default. Desperate for swift cuts, governments have gone for slashing what they control directly, starting with public-sector pay and government running costs (including, in France, the presidential hunt).

The quest for growth is focusing minds on the most stubborn structural problems. In Belgium members of the government admit it is disastrous that just 35% of citizens between 55 and 64 still work (in Sweden, the proportion is twice as high). In Germany senior figures point to the barriers, such as patchy child care, that keep too many women out of the workforce. Fixing this, they suggest, could do more for domestic demand than deficit spending ever would. Even the old debate about whether Europe needs an industrial policy has been rendered less relevant, as governments lack the cash for picking winners.

The shadow of corporatism

Yet all these elements do not have to lead to a happy ending for Europe. Today’s austerity policies are risky, and may well swell jobless lines in the short and medium term. Politicians fear high unemployment, which can cow the toughest governments.

At the human level, complex interests may undermine reform. Take Spain’s lost generation of unemployed youths. Many of them live with their parents, notes a Spanish economist. In broad economic terms their father’s job for life makes papa an insider, damaging the interests of his “outsider” children. But papa also keeps the household afloat: his children have a keen interest in labour laws that keep their parent unsackable.

Public-sector workers, in particular, may look like privileged insiders. But cuts will make many feel like victims. European state workers are often badly paid, having consciously accepted low salaries and tedium in exchange for job security.

Leading officials in Brussels say they have to convince voters that Europe’s model of open borders is in the interests of the ordinary citizen. The EU must craft regulation that is seen as stopping abuses, especially in the financial sector, or “we will see the rise of protectionism and populism,” says a senior Brussels official. Talk of giving Europe a “social economy” from people like Michel Barnier, a Frenchman and EU internal market commissioner, means something like making capitalism cuddlier: Mr Barnier is, for example, very keen on small local businesses.

The dangers are twofold. First, Mr Barnier and his colleagues are under pressure to propose swathes of crowd-pleasing regulation, especially in financial services. Second, cuddly capitalism has a habit of turning into crony capitalism. Europe has shed socialism as a ruling ideology, with even left-wing governments accepting they have to work with markets. Corporatism, an old European menace (think Mussolini), is a much bigger threat.

In Brussels competition regulators face intense lobbying from businessmen, industrialists and many governments demanding that aid and merger rules be eased, to help European champions withstand global competition. Such lobbying exposes a deep dispute about what the modern-day EU is for.

The EU was once a cosy club of western European countries. Now 27-strong, stretching from the Baltic to Cyprus and taking in ten ex-communist countries, the union’s best justification may be as a means of managing globalisation.

For free-market liberals, the enlarged union’s size and diversity is itself an advantage. By taking in eastern countries with lower labour costs and workers who are far more mobile than their western cousins, the EU in effect brought globalisation within its own borders. For economic liberals, that flexibility and dynamism offers Europe’s best chance of survival.

But, for another other camp, involving Europe’s left (and more or less the entire French political class), the point of Europe is to keep globalisation at bay, or at least curb its power. According to this thinking, single nations are too small to maintain high-cost social-welfare models in the face of global competition. But the EU, with its 500m people, is big enough to assert the supremacy of political will over market forces. For such politicians, European diversity is a problem because it undermines the most advanced (meaning expensive) social models. Such competition must be curbed with restrictions on labour migration from eastern Europe, subsidies for rich-country production and lots of harmonisation—including that old dream of the left, a European minimum wage.

Even in a negative scenario, such voices would struggle to win all their arguments: enlargement has given the newcomers a big say, and they are not about to harmonise away all their advantages. In private even French politicians know they need cheaper eastern manufacturing, too. But if growth does not return reasonably soon, the voices against free markets will grow ever louder.


A Franco-German compromise?

What, then, of the policy solutions being proposed by EU leaders? Although France and Germany do not agree on the vital issue of euro-zone governance, it would be wrong to assume they will continue to disagree for ever. Eventually they will have to find a compromise; though, alas, few of their clashing solutions currently make sense.


Germany’s push for strict discipline is essentially for public consumption. In private, senior EU officials admit that talk of sanctions is nonsense. France and Germany will never accept being fined or denied a vote, says one flatly. Fragile democracies in the east would react horribly to losing their voting rights, undermining all the EU’s hard work to make them more democratic. Freezing funding for EU mega-projects is equally unworkable; such projects often cross borders, so punishing one country leaves others to suffer too.

As for the French-led camp pushing for redistribution to save the euro, whether through bail-outs, common Eurobonds or a “fiscal transfer union”, it has an equally fundamental problem: how to square such integration with Europe’s democratic deficit. Redistribution would require a giant leap towards political union. There is no appetite for such a union just now.

How, then, will Europe try to save its single currency? By muddling through, is the best guess. There will be bail-outs that are not called bail-outs, “temporary” rescue funds for weak euro-zone members that prove very hard to cancel, and semi-formal discussions among member governments about their budgetary plans.

Will that be enough? That mostly depends on economic growth, and whether Europe draws the right lessons from this crisis. An open, flexible, competitive EU offers Europeans the best chance of confronting globalisation. But that is not the only EU on offer: a corporatist, cosy, populist union sounds very plausible to Europe’s ageing, anxious voters. Big choices loom.[/B]

All nonsense. As I have pointed out elsewhere a green economy is the way forward and major research efforts are being made to see how it could work.
Agriculture, many industries and services are highly automated in europe and require little labor. A large proportion the housing stock is good. Major infrastructure such as high speed trains are being completed. Retirement age in many industries has been creeping down. Complementary currency systems are taking off slowly but surely.
http://www.transaction.net/money/comp/
http://21stcenturysocialism.com/article/government_not_the_market_must_shape_the_new_green_economy_01822.html
Government not the market must shape the new green economy
As a new report by Britain's Trade Union Congress explains, the state must play a central role in order to create 'green jobs', reduce CO2 emissions and re-start economic growth.

This is the Executive Summary of Unlocking Green Enterprise: A Low Carbon Strategy for the UK Economy, which was published on 26th February by the Trades Union Congess (TUC):

A low-carbon strategy for the British economy

The UK economy is in recession. There has been a great deal of discussion about why and how this has occurred and about how to stem the worst of the current rise in unemployment. But there has, as yet, been limited debate about how the UK can restart growth. One focus must undoubtedly be the opportunities offered by the 'green economy'. The reason is simple. The green economy has grown enormously in the last decade, both across the world and in the UK, and is projected to grow even more rapidly in coming years. The Environmental Goods and Services sector alone was worth $548bn globally in 2004 and is projected to reach $800bn by 2015.

Of course, the current global slowdown may affect such projections in the short term but the long-term significance of the green economy cannot be doubted given the historical trend for the rising cost of fossil fuels and the growing political will to address carbon emissions. Of course, the economic and political implications of the green economy have only been strengthened by the fact that the world's largest economy is now governed by a president with a clear political commitment to cutting carbon emissions. The opportunities for the UK as one of the United States' closest trading partners cannot be underestimated in this regard.

The UK has certainly benefited from the growth of the green economy but we lag well behind European neighbours such as Denmark, Germany, the Netherlands and Spain. This is particularly evident when the employment records of the sectors in different economies are compared. To take just one example, Germany has managed to generate half a million jobs in its renewable energy sector alone, while the UK languishes on 7,000. The green economy as a whole employs 1.5 million people in Germany, compared to 400,000 in the UK. At a time of rising unemployment these are figures that cannot be ignored.

Government clearly has a key role to play in setting the right policy framework, both for the reduction of carbon emissions and to ensure that UK businesses are best placed to take advantage of the national and global transition to a low-carbon economy. The Government has been active in addressing three key barriers to the growth of the green economy: the low price of environmental impacts; weak investment and demand for green products and services; and system failures that slow the rate of green transformation. Important policies such as the Climate Change Levy, the Carbon Reduction Commitment, the renewables obligation and reforms of the planning system, plus a host of smaller initiatives, are significant attempts to address these barriers.

However, the clear message from industry figures and experts, and from the study of our more successful national competitors, is that greater ambition is needed both in terms of creating a policy framework to cut emissions and to unlock green enterprise.

Four headline policy directions are needed from Government to meet this greater ambition.

Commitment to delivery of environmental policy

The policy framework being developed through legislation such as the Climate Change Act and Energy Act and through developments in areas such as waste management policy, local authority performance evaluation and national planning policy will not in itself be sufficient. Business needs to be convinced that the current emphasis on greening the economy is something that will remain on the policy agenda for a significant period of time. Emissions targets need to be clear and firm and need to reach into a variety of sectors beyond the very high level Climate Change Act targets. Progress towards targets should be reported upon by lead departments and also monitored independently. The Government must be prepared to act swiftly when any shortfall against targets is identified, otherwise credibility will be lost.

A central role for the state

Our competitor economies recognise that the state has a central role in stimulating the green economy. This is not about 'picking winners' but having the boldness to set clear direction and incentives to kick-start a key sector. This is particularly the case with regard to the creation of adequate demand for green products and services. Five policy areas are important in this regard.

Firstly, the purchasing power of the public sector is often underestimated. Coherent and consistent inclusion of environmental criteria in procurement decisions throughout the public sector will help to transform the markets for a wide range of products and services towards greener options.

Secondly, existing financial incentives are too weak to encourage a wide uptake of green products and services. Government needs to make a greater commitment to such incentives. The Government decision to adopt the use of a feed-in tariff is an important step in the right direction in this regard if the detail of the initiative is sufficiently bold.

Thirdly, provision of green information to consumers must be stepped up, constantly reinforced and accessible to all. The roll-out of smart energy metering and innovations like the London Green Concierge Service (which provides a full year of energy efficiency improvement advice to homeowners) are key.

Fourthly, where an existing market framework does not support the development of the optimal environmental solution, Government should be willing to consider intervening to redefine the boundaries of the market. Redefining the energy market to promote competition based on something other than unit price of fuel is one possibility.

Finally, the Government must be prepared to accept that in some cases the market simply will not deliver the transformation required. In these situations, it must be prepared to introduce regulation to require environmental change and thus stimulate green growth.

Increased support for innovation and research and development

Levels of investment in technology, research and development and green innovation in the UK lag behind those in other countries. The detailed targets mentioned above must be developed on the basis of high quality analysis of the technical options so that when they are implemented, green innovators and their investors can have confidence that they will be adhered to and that they are meaningful.

The Government also needs to make far greater use of Forward Commitment Procurement schemes to stimulate innovation that will provide solutions to environmental problems. The mechanism has been used successfully in other countries such as Sweden for many years and could become a useful tool to increase the pace of technological development in areas where the UK could take the lead in international markets. In addition, public sector investment in innovation is far lower in the UK than it is in competitor countries. The Government needs to at least match, and perhaps exceed, the investment levels of countries where the green economy is already growing strongly.

Ensuring we have the necessary skills

Relying on the market to identify skills gaps and develop solutions to them is causing delays in the transition to a green economy. The Government should not be afraid to anticipate future skills needs and to intervene to ensure that these are met. It is welcome that the Secretary of State at the Department for Innovation, Universities and Skills has indicated that skills policy will progressively be moving in this direction but there is a need for more urgent action by Government to rapidly develop a strategic skills strategy to support transition to a green economy.

With a framework based on these key policies, the UK economy will begin to take advantage of the growth opportunities provided by the development of a green economy and the current economic problems will ultimately prove shorter and shallower than may otherwise have been the case.



Source: TUC online

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