Greece under the Troika

Wolfgang Däubler

An interview with Professor Wolfgang Däubler, conducted by Ciaran Cross, researcher for the International Centre for Trade Union Rights (ICTUR).

Professor Däubler, could you first explain a little about the situation faced by the Greek economy after the 2008 financial crisis?

The crisis made the problems already existing in Greece even more urgent. And, due to the competition between the different countries in the Eurozone, Greece had limited options. When Greece had its own currency, the drachma, there was a possibility of devaluation – one could devaluate the currency if the country was unable to face the competition. But this possibility no longer exists if you are a member of the Eurozone. And therefore Greece had to look for another form of devaluation – internal devaluation. That means they were economically forced to reduce wage costs.

This was done in a very brutal way. Of course, Greece did not choose this of its own will, but under the influence of the so-called Troika [the European Commission, the IMF and the European Central Bank]. By 2012, they had demolished the whole system of collective bargaining and reduced the minimum wage. Today wages are at 75% of the level before 2010, and unemployment is around 24% to 25%. Among young people under the age of 25, unemployment is 50%. That's a catastrophe. 

Global crisis, Neoliberalism, and left alternatives

Alfredo Saad-Filho

The certainties that turned neoliberalism into the “common sense” of our age are melting into the air. Tried and tested policies such as privatisation, marketisation, financialisation and trade liberalisation have lost traction, and established political systems haemorrhage legitimacy. Mass protests spring in unexpected places and take new forms. Even the steadiest political hands have lost their grip on the levers of power, which, themselves, increasingly lack effectiveness. The economic turmoil in global neoliberalism is morphing into a wholesale political crisis.

A dysfunctional economy…
Neoliberalism created conditions favourable for capital accumulation that were unprecedented since the early 1980s. The ensuing economic growth supported a steep concentration of power, income and wealth, in which unparalleled prosperity for the wealthy coexists with old and emerging patterns of poverty and exclusion. Yet accumulation in the “core” countries of the Organisation for Economic Co-operation and Development (OECD) face declining rates of investment and Gross Domestic Product (GDP) growth, mounting instability, and increasingly frequent finance-driven crises, culminating in the deepest and longest economic contraction since the Great Depression. Recoveries have also become increasingly sluggish: a Great Stagnation now engulfs the world economy, with no end in sight.

Issues in the Restructuring of the Korean Shipbuilding Industry

Kim Kyung-Ran

“Restructuring” was the buzzword that defined Korean society and economy in the wake of the Asian financial crisis of the late 1990s. It has returned with similar vigour. This time, the origin is the shipbuilding industry.

The shipbuilding industry has been the star of the Korean economy until now, providing massive exports and employment. At the end of 2014, there were 16 shipbuilding companies in total, with another 5 800 or so businesses of varying sizes tied up in the same industrial ecosystem. Since 2000, the Korean shipbuilding industry has been growing at an astonishing pace, focusing on high-end vessels, taking advantage of cheap and flexible subcontract labour, expanding the non-shipbuilding areas of its business including the development of offshore plants, and increasing offshore production.

The global financial crisis of 2008, however, has hit the industry hard, while the plummeting oil price since 2014 has radically contracted the demand for offshore oil plants. The offshore plant businesses of all the Big Three shipbuilding companies[1] began to produce deficits in 2014 and operating losses over the last three years. The Korean government, which waited for the market to naturally solve the problem, belatedly organised the Industrial and Corporate Restructuring Council, led by the FSS (the Financial Supervisory Service) and other government departments, in October last year. The Council announced the three principles of restructuring[2] in April this year, and began to exert mounting pressure on individual shipbuilding companies through banks. The three principles provide a guise of consistency, but can be reduced to making cuts to facilities and the number of employees.

The Crisis, Structural Reform and the Fortification of Neoliberalism in Europe

Christoph Hermann

The European Commission President, Jose Manuel Barroso, recently made the recommendation that fiscal consolidation (read “austerity”!) must continue in Europe, and that the European Union (EU) member states “should now intensify their efforts on structural reforms for competitiveness”. He specifically highlighted the need for comprehensive labour market reforms as “the best way to kick-start job creation”.[1] The call for structural reform to supplement austerity policies is not new. A number of EU member states have introduced far-reaching institutional reforms during the crisis – several of them under pressure from the European Central Bank, the European Commission and the International Monetary Fund. Structural reforms differ from regular austerity measures since their main goal is to change the country’s institutional framework to allegedly boost economic growth.

In the following paragraphs we summaries major structural reforms that we have found in eleven EU member states that were strongly affected by the crisis.[2]

Austerity and Resistance: The Politics of Labour in the Eurozone Crisis

Andreas Bieler[1]

Europe is haunted by austerity. Public sectors across the European Union (EU) have been cut back and working class gains from the post-war period seriously undermined. In this article, I will assess the causes of the crisis, its implications for workers and discuss the politics of labour in response to the Eurozone crisis. 

The underlying dynamics of the Eurozone crisis

Current problems go right back to the global financial crisis starting in 2007 with the run on the Northern Rock bank in the United Kingdom (UK) and reaching a first high point with the bankruptcy of Lehman Brothers in 2008. Two major consequences of the crisis can be identified. First, states indebted themselves significantly as a result of bailing out failing banks and propping up the financial system. Second, against the background of high levels of uncertainty financial markets froze. Banks and financial institutions ceased lending to each other as well as industrial companies. Countries too found it increasingly difficult to re-finance their national debts. The Eurozone crisis, also known as the sovereign debt crisis, commenced. 

Swiss Referendums on Top Salaries and Minimum Pay

Andreas Rieger

On 2 March 2013 a referendum in Switzerland came out in favour of tougher rules on the setting of managers’ remuneration. 68% of the voters wanted to put limits on “rip-offs” – in other words, the millions handed out in bonuses and severance payments (golden parachutes) to top managers. Coming up are further referendums on limiting top incomes and setting a legal minimum wage.

Since the turn of this century, remuneration packages for top managers in Switzerland have soared to several million francs. The CEOs and Chairmen of public companies, particularly the major banks and pharmaceuticals firms, have been pulling in sums that are really only comparable with those in the USA. Ten years ago, this was already causing strong public discussion. The debates grew even fiercer when the million-franc payouts continued through 2009, despite the financial crash and the collapse of previously good business results.

The Troika and Multi-Employer Bargaining

Thorsten Schulten

How European pressure is destroying national collective bargaining systems
Collective agreements that extend beyond the immediate workplace or company level are rightly seen as one of the unique institutional features of the European social model. No other world region has any comparably well-developed system of multi-employer collective bargaining in which agreements cover not only entire industries but in some cases apply even nationally. The existence of collective agreements with such extensive coverage is one of the reasons why a clear majority of employees continue to be covered by collective bargaining in Europe. By contrast, in countries and regions in which the predominant level of bargaining is at the workplace or company, only a minority of employees have their employment conditions secured by collective agreement.

Although the past two decades have seen a shift to a greater decentralisation of collective bargaining in Europe, the core features of multi-employer collective agreements have remained remarkably stable in most European countries. In Western Europe, only the UK, beginning in the 1980s under Margaret Thatcher, has undergone a fundamental change from a system in which industry level bargaining played a major part to one that is overwhelmingly characterised by workplace bargaining. After 1990, the UK was joined by a number of Eastern European countries in which it has not been possible to construct a system of industry or national level bargaining. However, aside from these cases, multi-employer collective agreements, embracing a number of workplaces or even sectors, have remained the dominant constitutive feature of collective bargaining in Europe.

The ECB’s Misleading Visualisation of the Euro-Crisis

Carlo D’Ippoliti

Two recent articles on the Global Labour Column deal with the European crisis (one specifically with the Italian case). Economists are still divided over the identification of the ultimate causes of the euro-crisis, but a mix of the two leading theses seems to be the most plausible explanation. On the one hand, the Eurozone is a failing attempt at sharing a common currency (the euro) without having a common governance of the economy. Thus, several economists note that the European Union (EU) “federal” budget is tiny in comparison to the task of managing aggregate demand, while common bonds and mutualisation of public debts is off the table; others question the strictly monetarist mandate of the European Central Bank (ECB), whose Statute (or better the mainstream interpretation of it) prevents the ECB from buying European sovereign bonds and mandates to only focus on the growth of consumer prices. On the other hand, a second explanation looks at the growing divergence of the European economies, in particular the sustained Balance-of-Payments imbalances that produced the accumulation of excessive foreign debt in the deficit countries (derogatorily called GIPSIs after the initials of Greece, Ireland, Portugal, Spain and Italy) and huge, possibly nonperforming loans vis-à-vis the GIPSIs in the ‘core’ European countries (Germany, the Netherlands, Austria, Finland).

A Marshall Plan for Europe

Michael Sommer

Proposal by the Confederation of German Trade Unions (DGB) for an economic stimulus, investment and development programme for Europe 

For historical reasons Germany has to be careful with giving advice to other countries. Even more so at the moment considering Germany’s dominant position within the European Union (EU). A ‘know-it-all’ manner is particularly problematic when the advice given is bad - the German government’s insistence on austerity measures as a response to the European crisis is not only unsuccessful in economic terms but socially unfair to a level that endangers democracy and the European integration process as a whole. This is a process for which Germany has a special historic responsibility. Despite some anti-European tendencies that have also evolved here and the media portraying the German population as being tired of rescue packages, the vast majority of the German population is in fact supportive of the Euro. This is a development that is remarkable but cannot be taken for granted. As German trade unionists we know from painful experience of the fascist destruction of the German trade union movement 80 years ago that an economic crisis that does not receive an adequate response has incalculable risks including political dislocations through to fascist dictatorship and war.

Italy from Recession to a new Socioeconomic Identity

Paolo Borioni

The historical sources of the Italian crisis[1]
The Italian economic crisis has global as well as domestic roots. As Italy depends on industrial exports, the country has been deeply affected by the global crisis, and even more so by the depressive results of the EU’s austerity measures.[2]  Mario Monti’s technocratic government has also added to depressive austerity: the Italian internal market shows a negative growth, below -2% in 2013, adding to Italy’s need for exports.

Italy was one the fastest growing industrialised European countries between 1950 and 1990, performing better than Germany.[3]  This was partly due to its newcomer identity characterised by low wages which helped competitiveness at the beginning of this period. The economic landscape was further marked by the presence of a few major enterprises (including Fiat, Pirelli, Olivetti) and big state-owned enterprises (Ansaldo-Breda, Fincantieri, Eni, Enel, etc.). Large companies provided long-term investment and innovation, facilitating the emergence of plenty of successful Small and Medium-Sized Enterprises (SMEs)[4]  in the so-called “third Italy”. The success of SMEs was founded on their embeddedness in a dynamic economy dominated by large firms, whose investment in research and technology also benefited SMEs.

The State as the Employer of last Resort

Cédric Durand

Dany Lang

The great recession the rich economies entered in 2007 has turned into social devastation in Europe. In France, there is every reason to despair the new rulers holding the reins since June 2012; indeed, the abandonment of workers’ collectives to their fate after half-hearted threats of nationalisation is only the tip of the iceberg. Policies implemented by François Hollande’s government include budgetary austerity on a scale unprecedented since World War II (60 billion euros’ worth of cuts planned over five years), the institutionalising of the European “golden rule” which limits structural deficits to 0.5% of GDP, a “competitiveness” plan which offers firms €20bn in tax credits (€7bn of which are to be funded by a VAT increase) without any counterpart, and the transposition into law of an agreement reached between employers’ organisations and minority trade unions aimed at increasing dramatically external number flexibility on the “labour market”. This profoundly neoliberal orientation is based on choices that need to be analysed.

Tackling Unemployment and Growing Public Debt

Anis Chowdhury

Jomo Kwame Sundaram

While global economic recovery remains anaemic, most industrialised countries continue to face growing unemployment and public debt. Average unemployment in the Organisation for Economic Co-operation and Development (OECD) countries rose from around 5% in 2007 to over 8% in 2012. The Eurozone is faring worse, with unemployment over 11%, and still rising in some countries. The unemployment rate in Spain rose to 26% in 2012, with youth unemployment surging to 55%. In Greece, it stood at 26.8%, the highest in the European Union (EU) with youth unemployment edging towards 60%.

After the Great Recession hit developed countries in 2009, the public debt situation deteriorated rapidly. The average public debt in industrialised economies increased from around 70% of GDP in 2007 to about 110% in 2012.

Greece in the deadlock of the Troika’s Austerity Trap

Giorgos Argitis

On 27 November 2012, the Eurogroup reached a new “Greek deal” which once more discloses that there is no political will to address Greece’s debt crisis, as well as the country’s economic and social catastrophe. This fact increasingly makes Greeks think that the sovereign debt crisis incorporates significant geo-economic and geo-political interests at the expense of national sovereignty. Nonetheless, in the pure economic domain, there are two main aspects of the new agreement: first, the Troika’s condition that Greece has to adopt and apply a fiscal correction mechanism to “safeguard the achievement” of irrational and unrealistic fiscal growth and privatisation targets. This mechanism will institutionalise economic austerity and the impoverishment of Greek workers in the private and public sectors, and squeeze to zero the degrees of freedom for national economic policy-making.

The second aspect is the restructuring of creditors’ debt claims as a means for Greece to reduce its financing gap and borrowing needs. This decision, in conjunction with Greece’s public debt tender purchases, is hypothesised to bring Greece’s public debt back on a sustainable path by 2020-2022, which will facilitate the gradual return to market financing. The new agreement between Greece and the Troika is characterised by much fantasy, but little realism. The economic, social, and political environment in Greece remains fluid since uncertainty and lack of credibility continue to surround the course of economic policy-making in Greece and the Eurozone.

Europe at the Crossroads

Steffen Lehndorff

Looking at Europe these days some people (at least of my generation) may remember the lyrics of a famous song of the rock band AC/DC from the late 1970s: “I'm on my way to the Promised Land — I'm on the highway to hell.” More and more countries of the Euro zone are drifting into another recession, and some Southern European countries have been driven into an ever deepening economic depression which has lasted for four years already. The stranglehold of cutting public expenditures is not just blocking the road to economic recovery; this obsession with austerity makes it increasingly difficult to draw lessons from the economic policy failures in the pre-crisis period. These lessons, however, are desperately needed for any re-orientation of socio-economic models (or “growth models”) in the crisis-ridden countries, but equally in the allegedly “healthy” economies. Moreover, European countries are being directed politically into national egoisms which are about to drive the European project to the brink. Europe is being forced into a fiscal dictatorship which suffers from a fundamental lack of democratic foundations for economic governance at the European Union (EU) level and has already begun to interfere with fundamental democratic rights within member states. The complexity of the challenge to find a way out goes well beyond a more appropriate macroeconomic policy.

The economic crisis and job quality in Europe: some worrying trends and worse may be to come

Janine Leschke

Andrew Watt

The economic crisis has had a dramatic and lasting impact on labour markets worldwide. The recent ILO Global Employment Trends report spelled out the damage wrought in terms of the declines in employment and consequent rise in unemployment: globally the employment-to-population ratio fell by one percentage point and unemployment rose by 27 million persons.

But what have been the impacts on the quality of work? We can shed some light on this for the 27 member countries of the European Union using a Job Quality Index (JQI) developed at the European Trade Union Institute. We first calculated the JQI based on 2005 data; see here for the findings. We have now repeated the analysis based on 2010 data; by comparing the two sets of results we can see how job quality has changed on various dimensions over the five-year period and draw some conclusions about the impact of the crisis. The full results will be available shortly as an ETUI Working Paper; here we provide Global Labour Column readers with a brief analysis of the key findings[1] .

Measuring job quality: key features of the ETUI’s JQI

Whether one perceives one’s job as being of high or low quality depends, obviously, on a mix of both subjective and objective factors. And the mix is complex: how can, for instance, a clean and safe working environment be weighed against, say, autonomy at work or the fact that one is working the ‘right’ number of hours? The interested reader will find here a detailed description of the methodology underlying the JQI, our attempt to systematise the numerous factors impacting on job quality. For the purposes of this column the following basic features need to be borne in mind.

What Europe can learn from the South

Nicolas Pons-Vignon

After having caused a massive increase in inequality throughout the world, which led to the build-up of politely called “imbalances” and which fireballed into a financial, then economic, crisis, neoliberal policies are threatening to push many economies into a precipice with unknown political and social consequences. Yet, the European countries at the heart of this turmoil are showing little sign of resistance; the growing social movements opposing bailout and austerity have thus far failed to influence dominant parties and national policies. Instead, it appears that the very same policy mix of austerity and privatization which shattered African, Latin American and ex-communist countries in the 1980s and ’90s is being inflicted on Europe. The irony lies in the fact that most economists now agree that these policies have indeed had disastrous consequences. The belief that what led to a growth collapse and social disaster elsewhere will have positive consequences in Europe is an illusion which is sustained by the mainstream media and by powerful interest groups. Lambert (2012) thus highlights the French media’s predilection for consulting a coterie of economists who are closely linked to (or rather remunerated by) financial interests, and who invariably play down the responsibility of banks in the crisis and the usefulness of taxing finance rather than, say, ordinary citizens through increased value added taxes. In Italy, the “structural reforms” supposedly aimed at boosting growth focus on accelerating flexibilization of the labour market, in a context already marked by very high levels of precariousness.

From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics

Thomas I. Palley

Marshall McLuhan, the famed philosopher of media, wrote “We shape our tools and they in turn shape us”. His insight also applies to the economy which is shaped by economic policy derived from economic ideas, and it is the theme of my recent book which argues the global economic crisis is the product of flawed policies derived from flawed ideas.

 Broadly speaking, there exist three different perspectives on the crisis. Perspective 1 is the hard-core neoliberal position, which can be labelled the “government failure hypothesis”. In the U.S. it is identified with the Republican Party and the Chicago school of economics. Perspective 2 is the soft-core neoliberal position, which can be labelled the “market failure hypothesis”. It is identified with the Obama administration, half of the Democratic Party, and the MIT economics departments. In Europe it is identified with Third Way politics. Perspective 3 is the progressive position which can be labelled the “destruction of shared prosperity hypothesis”. It is identified with the other half of the Democratic Party and the labour movement, but it has no standing within major economics departments owing to their suppression of alternatives to orthodox theory.

EU ‘Austerity’ Deal won’t work – Irish Workers face a grim Future

Frank Connolly

The EU summit on Friday 9 December, during which 26 out of 27 member countries agreed on a new intergovernmental treaty including a “fiscal compact” to enforce budgetary discipline on states which breach the 3% deficit (of GDP) limit, will not provide the growth strategy that is necessary to help deeply indebted euro zone countries out of recession.
 

The fiscal compact proposals will not solve the problems of the euro for the peoples of Europe but will instead “institutionalise austerity” by enforcing an annual structural deficit that does not exceed 0.5% of GDP. A strategy for growth and for a rapid job generating recovery is completely missing. Without such a strategy there is no relief in sight for the stressed countries.

Nor did this summit, dominated by German and French political and financial considerations, include any suggestion of debt restructuring, or euro bonds or any kind of fiscal transfer mechanism to direct resources from prosperous regions to those which are struggling.

The key fact resulting from this European Council is that countries which are burdened by unsustainable debt will have even less prospects of growth. This is certainly the case for Ireland where the European “fiscal compact” will greatly restrict the policy space of future Irish governments. This is perhaps the greatest threat to recovery for an economy that is reeling from the weight of the 2010 EU/ECB/IMF high interest loan facility of €63 billion and an enormous sovereign debt burden following the recapitalisation of the main banks.
 

What role do big corporations play in the economic well-being of the European Union? A non-standard view of Eastern Europe

Ognian N. Hishow

The global economic crisis caused demand in the European Union (EU) to drop to low levels. In order to mitigate the effects of the crisis, stimulus packages were hastily put up in the old member states (OMS). A considerable part of the spending was directed to the financial and banking sectors as it was concluded that these were systemically important. In addition, the core sector of Europe’s industry, car production, also received significant financial support.

Both the banking sector and the automotive industry play a crucial role in the new member states (NMS) of the EU. Hence one would expect that spending on banks and automotive firms in Western Europe, where the OMS are located, is what would have kept Eastern Europe’s economy, where most of the NMS are located, afloat during the crisis. Yet that assumption is wrong; the money that has gone to the big international European corporations has largely benefited them alone. To see why, it is important to consider how the economic integration of the NMS was conducted.

The Costs of the Financial Crisis 2008/09: Governments are Paying the Tab

Sebastian Dullien

One could almost get the impression that the storyline of the global economic and financial crisis of 2008/9 is forgotten. Questions of bank regulation and financial sector oversight are hardly discussed in public anymore and legislative efforts to rein in speculative and highly risky activities seem to have petered out. Instead, the public debt crisis has taken center-stage. Around the world, discussion focuses on cut-ting public deficits, with a strong focus on cutting public expenditure and a secondary focus on raising general direct and indirect taxes. The debate has turned from one about obvious market failures, especially in financial markets, to one about alleged government failure. That is, governments spending much more than they take in as revenue and hence piling up increasingly unsustainable public debts.

However, if one looks into the details of the development of the public debt in many of today’s crisis countries, it becomes clear that it is precisely the economic and financial crisis of 2008/9 which has put the debt levels onto an unsustainable path. Prior to the crisis, countries such as Spain or Ireland and probably even the United States were on a path of (or at least close to) fiscal sustainability. After the crisis, markets now question public finance sustainability even in countries such as France.