Monks: Austerity ‘too much, too fast’

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Eurozone governments panicked at the onset of the Greek crisis and now there is a real risk that austerity measures, hastily adopted, might prompt a double-dip recession, John Monks, secretary-general of the European Trade Union Confederation, told EURACTIV in an interview.

John Monks is secretary-general of the European Trade Union Confederation.

He was speaking to EURACTIV Managing Editor Daniela Vincenti-Mitchener.

To read a shortened version of this interview, please click here

EU leaders met two weeks ago: were you happy with the results?

The summit was clearly overtaken by the Roma issue and these things do happen in the EU from time to time. More immediate issues that are not even meant to be on the agenda can explode in summits and dominate everything. This is clearly what happened.

The Roma is a big issue, as there are 12 million in the EU. It is a minority that has been there for a very long time. I am critical of what France is doing. I've seen the conditions in these camps and they are appalling. Pushing people away is not in line with the best traditions of France, and certainly not of the EU.

The other reason of course is that economic governance is difficult. Despite attempts to paper over the cracks, there is an argument between France and Germany, and Britain outside the euro trying to defend London's role, and those within the euro.

Those within the euro, such as Luxembourg, probably Ireland, don't want to be disadvantaged by extra rules and regulations in the euro zone that could see them lose very lucrative business to London or Switzerland or other places outside the euro zone.

We do have some economic governance [referring to the Greek bailout]. Greece feels sometimes like an EU colony. A senior IMF official described the EU/IMF 'rescue' package as more of a punishment for them breaking the rules, being dishonest about the statistics deployed by the previous Greek government.

So what would it take to have economic governance that works? Many countries have not respected the Stability and Growth pact and have gone beyond the set threshold. Do you think that was irresponsible?

Fortunately, I say fortunately, the Stability and Growth pact was effectively ignored and governments kept up their spending level for the first two years of the recession, with some exceptions (Greece, Ireland).

They resisted austerity measures, they kept welfare spending going. In some countries they added new schemes, Kurzarbeit, which has being quite successful. But Austria, the Netherlands and Belgium had similar schemes and they worked.

They were Keynesians, they ignored the monetarist corsets of the Stability and Growth pact. And this was not the first time that the pact was breached. It was breached by France and Germany well before the crisis came.

For the first two years of the crisis, although we would have liked the EU to have an EU recovery plan with some programmes for young people on green technology and Europe's industries of the future, nonetheless they did keep the welfare spending up, they kept public investiture going.

That all changed with Greece, when the prime minister confessed to the abuses of EU rules. The shape and conditions for EU assistance became clear and everybody started thinking 'we could be next' after Greece. The markets started acting against Spain, Portugal and Ireland in particular.

But there were even rumours about the credit worthiness of France and the UK – suggestions that their ratings might be marked down. Many panicked. Germany and the Netherlands, which don't like to be in the red anyway, did not feel they were in a strong position.

The public pressure to cut their public debt was strong. So now everybody is doing it, with possibly the only exception being Belgium, which is in the fortunate position of not having a government to do it.

Are you saying eurozone countries reacted out of panic, rather than careful analysis?

The Greek situation changed everything. Before that it was a banking crisis, then it became member states' crisis – particularly in the weaker economies of the European Union. When that happened people forgot their Keynesianism and everyone started applying austerity measures. So we've seen the cancellations of new schools, road and hospitals, and the actual job cuts in the public sector will come through this winter and next year. We are only at the start of this.

But we are seeing a slow recovery, also on the job front. According to the Dublin Foundation, in the second quarter of 2010 one job was created for every two lost …

There is a slow recovery, in particularly the first six months of this year. But I think the question is whether or not it is a sustainable recovery.

If you take Austria, for example, their economy is in quite good shape and they have the lowest level of unemployment in Europe. But if you talk to the governor of the European Central Bank, he is very worried at the prospect of a double-dip recession.

The private sector may even fall back, partly because it is beginning to lose orders from public-spending municipalities and central government. And the domestic demand from the private sector might not compensate. That is a major worry.

On Wednesday 29 September you are staging a European day of action to protest against austerity measures. What do you expect to achieve with this demonstration?

This demonstration is to remind governments that they have panicked and gone in for cuts and austerity. We will issue warnings to [European Commission] President [José Manuel] Barroso and Belgian Prime Minister Yves Leterme.

So your prospects for 2011 are not very optimistic …

I'm a natural optimist, but I think that the calculation of the risk is that there is a bigger chance of a recession than there is of us managing to sustain the recovery.

Which policies do you think prove most effective in reducing the human cost to labour markets of the recession? Do you think that short-term measures, such as the stimulus, the short-time work programmes, insurance benefits and job subsidies, should be maintained?

Yes, for the time being. The short-time working scheme hasn't been discontinued yet in Germany and that has kept unemployment down there, as well as in Austria and the Netherlands.

It is difficult to say when to end it. We know that we need to pay debts back, but the austerity programme is too much, too fast, however. We were looking for a more gradual repayment plan over a longer period, keeping employment packages in place and increasing debt. In some countries, such as Greece, debt will increase anyway.

At the moment, our biggest worry is how countries like Greece and Ireland are struggling even with the measures. They are being downgraded by the ratings agencies as they have no growth, partly because they are so busy trying to pay back their debts.

I think European economic governance, provided that the EU is confident the country is following the rules, should be generous and not punitive with its measures. I think that they have not been generous enough with Greece in particular. The fear of being the next Greece is what is motivating Ireland to be so rigorous at the present time.

What policies do you think can accelerate recover in jobs in the long term?

I think that maintaining welfare states and not cutting them would do so, as well as keeping up wages and not looking for pay freezes all the time, which reduces demand. Thirdly, special measures are needed for investment in new industries such as green ones, as well as expanded opportunities for young people. This is a terrible time to be leaving school or college.

Last week, the European Commission proposed one of the flagship initiatives of Europe 2020 – 'Youth on the Move'. The Socialists criticised the paper by saying that it re-branded existing funds in order to help youths into employment. What is your stance on this proposal?

I am not an expert on youth employment plans, but I had a discussion with [Employment and Socail Affairs] Commissioner [László] Andor and told him the 'Youth on the Move' initiative [for enabling youths to find a job or study abroad] looked like a case of re-branding existing funding.

He told me it was just the first step towards a flagship policy and not the end step, so I don't want to make a premature judgement on it.

But for that he would need a bigger budget ...

I haven't seen any proposals for him getting a bigger budget, but if further steps are yet to come then it would be very limited as an initiative, as others have been with regard to employment

How can the roles of collective bargaining, tripartite consultation and social dialogue be reinforced?

One of the most interesting things is that they are not used at European level for initiatives like 'Youth on the Move' or for how long repayment periods for debt should be. I have no doubt that we'll discuss those at the macro-economic dialogue.

Why is this? Are we still stuck in old processes?

My feeling is that finance ministers have captured the economic governance debate with employment ministers being nowhere, and that's reflected by the commissioners who are involved.

I think Mr [Economics Commissioner Olli] Rehn is in a strong but difficult place and Commissioner Andor in a weaker one. If employment ministers are not involved then neither unions and employers are much involved. This is another reason why we want our voice heard and why we will be on the streets in Brussels and Spain and other places.

In the most successful economies – in Austria, the Netherlands and to a lesser extent in Germany – social dialogue is playing a part in producing some agreed approach to the deficit. The Kurzarbeit schemes have come out of that dialogue process. We would like to see it used much more. When speaking to unionists in Greece, I do cite these examples and say that they need to do the same in order to find their way of tackling the deficit.

The most disappointing breach of social dialogue has been in Spain where the government, although committed, has made some announcements on austerity, pensions and on bargaining structures which the unions regard as very hostile and they did not do that in a social dialogue: they were not consulted.

Do you think we are going towards more individual bargaining? Sweden, for example, used to be a very unionised country, but is adopting individual schemes. Do you think this represents a trend?

Individual bargaining is nothing new. It started in the US, was imported to the UK by Margaret Thatcher and has just about reached Spain. Some countries are going for decentralised bargaining to the enterprise level or even to the individual, as in the case of Sweden. It's a way of weakening national and sectorial collective bargaining.

What kind of impact will this have on the labour market?

It's about having 'flexible' labour markets. If the bargaining is on an individual level, between you and me, and I haven't any work for you, then you'll have to work for half the wages I used to pay. It can be the other way around in a boom – you can say 'I'm not working for you, I'm working for someone else'.

It increases inequality. The societies in which collective bargaining has been weakened are the ones that are the most unequal and where wages are the most volatile depending on the economic conditions of the company.

The talented, the persons in demand can do very well under such a system, but for most it is very difficult.

For other people, however, it is always very important to keep a strong system of collective bargaining. It is not 'flexicurity', there is no security in it at all. It is straight flexibility.

The Commission has come out with a pension reform proposal, while across Europe many are protesting against changing the system. What do you think it would take to have win-win pension reforms for employers and employees?

There is a number of ingredients to this. Some countries are doing better than others and have agreements on pensions.

Firstly, we must recognise that a lot of employers don't want to employ all the workers. Older workers are expensive, they are senior and they are not working – particularly in white collar management jobs – until the statutory retirement age is out. Employers want new blood, they want space for younger people to come through.

If employers are honest, that's what they want. They might take older workers in base-level jobs on completely different contracts, like supermarkets do – you see that in the UK or US, it is a little extra job for the elderly as they receive such small pensions. The idea that employers will keep them on, whether they are a bank or factory manager, I think is wrong.

The second problem is that there are some jobs which you shouldn't be doing over a certain age – a steel erector or a bricklayer for example. I'm sure that you can find a local bricklayer at seventy years old. But on big contracts, on the big jobs – these are not jobs for older people.

A much more imaginative way of employing them is required, therefore. I'm less worried about white-collar workers working longer as they don't have the same health problems. But manual workers already die younger and receive a lower pension.

The Dutch have wrestled with this problem and are trying to re-employ older workers rather than just employing them in supermarkets, but generally speaking I don't see any of this in Europe.

I think the Commission's White Paper must have been written in Paris – it was a French government-friendly paper encouraged to support what is happening in France.

I am realistic – when my granddaughter was born, the doctor said to my son that she would have a one in three chance of living until 100. As I said to my son, 'she might retire when she's 60 and be alive for longer than she's working if she starts at 23 like you did!'

We know that things will change. When Emperor Bismarck introduced the world's first pension, only one in eight Germans lived long enough to claim it. Indeed, in my lifetime in the 1960s, the average man in Manchester lived until he was about 63, whilst pensions began at 65.

Would an imaginative way of solving this problem be to go towards sectoral pension reforms?

I think people are entitled to their pension scheme and should be getting incentives to work. If there are changes to reflect longevity rates, then this should be introduced very gradually. The countries offering incentives seem to be the ones making the most progress with this.

What kind of incentives? Do we mean re-training older workers?

That's a cultural shift as well. I think that not so many older workers want to be retrained and many would rather not take jobs in supermarkets that youngsters could do when youth unemployment is so high. I am very aware of that dimension too.

What are the prospects for 2011 and beyond?

I'm an optimist. I hope that the governments don't kill the economy with austerity, but I fear that they will. So on 29 September we will be alerting them and the peoples of Europe as to the risks they are taking with the economies of Europe.

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