This is a link to an open letter by the European Trade Union Institute to European Policy Makers (the EU Commission). It contains an analysis of the EMU crisis that is completely absent in the Irish public sphere. It outlines four causes of the Greek fiscal crisis:
- The inability to develop sustainable tax revenues as a percentage of GDP, as witnessed in other EU states, coupled with statistical manipulation of its fiscal figures.
- Above average unit labour and price costs.
- The external shock of the economic crisis on its banking system
- An interest rate cost burden on Greek government bonds, facilitated by misinformation and speculation
The letter outlines why the final three are European problems, directly associated with the EMU. It argues that Greece, Ireland, Portugal and Spain experienced above average labour and costs since the EMU in 1999. This increased demand for exports from Netherlands, Austria and Germany. This demand expansion in the Eurozone led to increases in employment and labour market performance in the latter countries. In turn there has been an asymmetrical problem in nominal wage and price setting across the EMU. There has been a centre-periphery divergence. Nominal unit labour costs increased by 30 per cent in Ireland, Greece and Portugal but just 8 percent in Germany.
The ETUI argue that nominal labour costs must fall in the peripheral countries but for the EMU to exit recession it simultaneously requires an increase in nominal labour costs in Germany et al. “Germany’s aggressive wage moderation policies are deflationary, export unemployment and threaten to explode the Monetary Union“. This coordination from centre and periphery is the only way the Eurozone will avoid a deflationary spiral. The policy response by political actors in Europe has been blind to this Monetarist constraint and totally reliant upon national austerity strategies that threaten to implode peripheral countries at the expense of a European wide strategy.
Lending public money to Greece as the ETUI argue, is not charity. It is in recognition that a Monetary union has interconnected responsibilities. Europeans need to start thinking in a Federal not a Nationalistic manner. In short, the large central European economies have a responsibility to the Eurozone to avoid a deflationary spiral in its peripheral countries. This can only occur if they start coordinating a fiscal stimulus aimed at enabling Ireland, Greece, Spain, Portugal to grow their way out of recession. They need to increase domestic demand for the exports of peripheral countries in the same way the peripheral countries did for the centre since 1999. This balance is necessary for fiscal and financial stability across the Eurozone.
In the Irish case, policy makers, analysts and most importantly the media need to wake up and engage with this European reality. We are Europeans and our fiscal stimulus needs to come from Brussels and Frankfurt not Dáil Eireann. Constant rhetoric of ‘we are a small open economy’ are premised on assumptions of Ireland as an independent player in the world market. This mentality encourages a begger thy neighbour strategy – not a he who devlaues first but he who cuts first. We are not an isolated economy with our own cuurency. We are a regional economy of the Eurozone, and this needs to be at the centre of a Euro-Ireland recovery strategy.