[D66] EU summit adopts Fiscal Pact for European-wide austerity

[Antid Oto]

EU summit adopts Fiscal Pact for European-wide austerity
By Peter Schwarz
3 March 2012

On Friday, the European Union heads of government signed the so-called “Fiscal
Pact” at a summit meeting in Brussels.

The agreement commits EU members to maintain strict fiscal discipline. They are
required to adopt a constitutional debt limit along the lines of the German
“debt brake.” If they exceed the specified budget deficit ceiling of 3 percent
of gross domestic product they can be sued by the European Court, triggering an
automatic procedure for imposing penalties. Countries that do not sign up to the
pact will be ineligible for assistance from the European Stability Mechanism
(ESM), the permanent European rescue fund, presently set at €500 billion, which
is slated to come online in July.

The Fiscal Pact increases pressure on EU member states to cut government
spending. It ensures that austerity policies are continued regardless of
election results and changes of government. It effectively strips parliaments of
their most important power, control over the budget, and deprives voters of any
opportunity to influence fiscal policy.

German Chancellor Angela Merkel described this profoundly undemocratic treaty,
which came about largely on her initiative, as a “milestone in the history of
the European Union.”

Twenty five of the twenty seven EU members have signed up to the pact. In most
countries, however, it has to be approved by national parliaments and in Ireland
by a referendum before coming into force, with a deadline of the beginning of
2013. Only the British and Czech governments refused to sign, not because they
reject austerity measures, but on the grounds that the pact impinges on their
national sovereignty.

The Fiscal Pact will only deepen the crisis of the European economy. Prior to
the summit, the EU Commission issued a report predicting a deep recession in the
euro zone this year. The economy will shrink in 7 of the 17 euro countries and
grow only minimally in the remaining ten, the report said.

The crisis has now reached some of Europe's economically stronger nations, such
as the Netherlands, whose economy is undergoing a sharp downturn. The Dutch
government needs to save an extra 15 billion euros in order to conform to the
deficit ceiling of 3 percent in 2013 and is in danger of collapsing as a result
of the country’s mounting social and political crisis.

The unemployment rate in the euro zone hit 10.7 percent in January—its highest
level since the introduction of the euro. In January alone, 185,000 people lost
their jobs. In Spain, the unemployment rate increased by 2.4 percent in the
space of one month as a result of the austerity measures introduced by the
recently installed conservative government. Unemployment has officially hit 23.3
percent, i.e., nearly one in four Spaniards is out of work. The unemployment
rate for youth is significantly over 50 percent.

The Fiscal Pact will push unemployment still higher—and this is intentional.
Recession and mass unemployment serve as levers to undermine wages, working
conditions and all of the social gains won by the working class over the
previous six decades.

In this regard, there was much talk at the Brussels summit of
“competitiveness”—a euphemism for flexible labour conditions and welfare cuts.
EU President Herman Van Rompuy promised to make specific recommendations for
“creating jobs” by improving business competitiveness. Chancellor Angela Merkel
said that Europe had a future only if it improved its competitiveness.

The model is Greece, where the government has lowered the living standards of
broad sections of the population by up to 50 percent, implementing mass layoffs
in the public services, slashing public and private sector wages and pensions,
and drastically cutting health and social welfare spending.

Unlike previous summits, the Greek crisis was not the focus of attention this
week. Euro group chief Jean-Claude Juncker and German Finance Minister Wolfgang
Schäuble even praised the “progress” made by the Greek government, which has
approved all of the measures demanded by the EU, the International Monetary Fund
(IMF) and the European Central Bank (ECB), operating as agents of the major
international banks.

Last week, euro zone finance ministers agreed to a second financial package for
Greece of more than €130 billion. But so far not a cent of this money has been
passed on to the Greek government. There are strong indications that the EU is
playing for time and plans to drive Greece into bankruptcy once creditor banks
have been provided with sufficient protection to avoid a chain reaction.

On the eve of the EU summit, the finance ministers met again to release those
parts of the financial package intended specifically for the banks. In order to
ensure that the banks write off €107 billion of the nominal value of their
holdings of Greek government bonds (which they have already largely done), they
are being provided with a financial package amounting to €93 billion, which will
add to the total Greek government debt.

On Wednesday evening, the finance ministers awarded €23 billion to Greek banks
and another €35 billion to international financial institutions as compensation
for their losses. A further €35 billion goes to the European Central Bank as
collateral to maintain the liquidity of Greek banks. However, this money will
flow only if at least 75 percent of creditors agree to a voluntary debt
“haircut” by March 8.

The remainder of the bailout package has been withheld. These funds are
intended, among other things, to prevent a default by Greece on March 20, when
bonds worth €14.5 billion are due to be redeemed. This money will flow only if
inspectors from the EU and the IMF determine next week that the Greek government
has implemented 38 specific cost-cutting measures to which it has committed
itself. This means that the money can be stopped at any time.

On the eve of the summit the European Central Bank for the second time since
December opened up the floodgates of cheap loans to the banks. The ECB offered
the banks more than half a trillion euros for a three-year period at just 1
percent interest. This is a massive windfall for the financial elite, which can
invest this cheap cash in government bonds with the certainty of receiving a
four-fold to six-fold return.

Like the so-called “rescue package,” this measure is aimed at protecting the big
banks and investors against a possible default by Greece, even as the cuts
required under the Fiscal Pact drive the continent deeper into slump.

Yet another decision has helped strengthen the position of the banks. The
International Derivatives Association (ISDA) ruled on Thursday that the haircut
for Greek government bonds did not constitute a default. This means the
write-down of Greek government bonds will not trigger payouts on credit default
swaps (CDS) on Greek government bonds. This is particularly important for major
Wall Street banks, which otherwise would be liable to pay off those who
purchased billions of dollars worth of CDS contracts issued by the US banks.

Should Greece actually go bankrupt in the next few weeks, private investors will
be largely off the hook. The losses will be assumed by state treasuries, which
will, in turn, pass the burden onto the working class.

In this process, the European governments can count on the full support of the
trade unions, with which they collaborate in imposing the austerity measures.

In an effort to provide a measure of political cover for the unions in the face
of mounting popular outrage, the European Trade Union Confederation (ETUC)
called a European day of action against the EU on the eve of the summit. The
scattered and sparsely attended actions only underscored the opposition of the
unions to mobilizing the working class against the Fiscal Pact.

In Germany, the protest was confined to a photo-op featuring the German Trade
Union Federation (DGB) boss, Michael Sommer, at the Magdeburg train station plus
a minuscule rally at the Franco-German border near Saarbrücken. Journalists
seeking information on the protests found that most union headquarters were
unaware that a day of action was even taking place.

In Brussels, union officials proceeded after a token rally directly to a
Tripartite Social Summit with EU representatives and employers to demand that
they be consulted in the implementation of the austerity pact. On its web site,
the ETUC declared, “The social partners must be involved in all decisions
concerning the labour market.”

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