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EU economic policies leading to harsh austerity measures - Morgan

24 June, 2010


Speaking today in the Dáil during the course of the European Financial Stability Facility Bill 2010, Sinn Féin Spokesperson on Finance Arthur Morgan has said that increasing debt for European taxpayers, while cutting Government spending, will create a new European economic crisis. He said that policies being adopted at EU level are leading to harsh austerity measures.

Deputy Morgan said:

“The massive bailout for banks via increasing debts to Europe’s taxpayers and cuts in Government spending are creating the conditions for a renewed economic crisis in Europe.

“The crisis in the EU is badly affecting European economies and societies. The policies adopted to cover its costs have lead to harsh austerity measures that only deepen the recession, encourage the growth of unemployment, and attack labour and pension rights.

"This is not a mechanism of solidarity, it is one of blackmail and pressure and already other countries, such as Spain and Portugal, are taking measures against working people, driving up unemployment and poverty without providing any way out of this crisis. Social dumping has become the only instrument of competition in the EU - this is far from a Europe of solidarity and social cohesion.

“With the combination of budgetary oversight mechanisms and the stringent terms and conditions that will be attached to countries that need to draw down from this Financial Stability Facility, it is clear that economic recovery and growth will be stunted by harsh contraction measures that will not stimulate the economy, create employment or deliver people from poverty. So rather than the creation of financial measures that will actually help ailing European economies, the package that has been put together by the Commission and eurozone Ministers is crippling, both economically and socially.

“We should not be mistaken: the EU Commission will police national budgets and dictate where cuts and savings should be made and unless this dictat is followed, countries will not be eligible to draw down any funding from the EU. If countries do not follow this dictat, they will be punished at EU level.” ENDS

Full Text of Speech as Follows (Check Against Delivery):


What this legislation is about
The EU has now set up a special purpose vehicle under the European Stabilisation Mechanism that will provide funding of up to €440billion to any state or states in trouble. Of course, this SPV is underwritten by the same eurozone countries that it has been set up to protect.

This fund of €440billion will act as a guarantee for sovereign debt issuances by eurozone countries.

Countries will each secure 120% of their share of the loans to secure the highest rating for the debt. The ministers aim for ratings companies to assign an AAA rating to the facility, whose bonds would be eligible for European Central Bank refinancing operations.

The Agency will sell bonds backed by guarantees and use the money it raises to make loans to euro area nations in need.

It seems that the debt crisis is being fought with more debt?

I do not subscribe to this legislation because one cannot treat a debt-fuelled over-consumption problem with a lot more debt. This is an illogical position where eurozone governments are guaranteeing their own debt, before it is even issued.

We are in a position where the ECB are keeping our banks afloat and the eurozone countries are keeping each other afloat through mutual guarantees. And the underlying problem of too much bad debt is still there.

Unfair
The massive bailout for banks via increasing debts to Europe’s taxpayers and cuts in Government spending are creating the conditions for a renewed economic crisis in Europe.

It is the significant size of the banking sector in the ‘core’ European countries and the amount of debt in the peripheral countries that they are holding that is determining who in Europe must be saved and who must make ‘sacrifices’. Since these banks are the recipients of the bailout, their losses have even determined the size of the bailout too.

The Greek ‘bailout’ did not aim to revive the Greek economy but instead was to provide a guarantee against a debt default by Greece and other European crisis-hit economies. It was therefore entirely a bail-out for holders of Greek government debt.

EU Economic and Monetary Affairs Commissioner Ollie Rehn said that any loans from the European Financial Stability Facility would impose the kinds of budget- austerity conditions on recipients that Greece faces as part of a program for receiving quarterly aid disbursements under the May 2nd accord.

The process for providing assistance will be similar to that under the loans to Greece package. The loans are strictly conditional on a programme being agreed to by the country concerned as well as the EU and the IMF. The final decision, however, will be taken by the board of directors of the EFSF.

The IMF has become policeman of the Eurozone. With that decision the only thing that can happen is the strengthening of the Stability Pact to the detriment of smaller countries and the weakest economies. This is not a mechanism of solidarity, it is one of blackmail and pressure and already other countries, such as Spain and Portugal, are taking measures against working people, driving up unemployment and poverty without providing any way out of this crisis. Social dumping has become the only instrument of competition in the EU - this is far from a Europe of solidarity and social cohesion.

Let us not forget the role of the IMF in Ireland’s banking crisis, as highlighted by the two reports published this month. In Patrick Honohan’s report he stated that “The IMF was not strongly or consistently critical of the underlying dynamics of fiscal policy”. The oversight of the IMF failed abysmally and now they are charged with overseeing European financial stability; but in whose interests is this? It certainly isn’t in the interest of ordinary people, for who the IMF is recommending cutting wages, welfare and public services.

Why this legislation is inadequate
European governments are currently repeating their age-old mistake of cutting spending and raising taxes well before the economy has recovered. In the US there is a debate about another stimulus package to ensure the recovery does not prematurely run of out steam. The Europeans are choking off the recovery before it has even started. The premature austerity programmes will ultimately impede debt reduction, as nominal growth remains very weak.

The crisis in the EU is badly affecting European economies and societies. The policies adopted to cover its costs have lead to harsh austerity measures that only deepen the recession, encourage the growth of unemployment, and attack labour and pension rights.

My party are not anti-EU. However, we recognise that the push for strengthened fiscal union is undermining the peoples of Europe. This drive for fiscal consolidation has shown the lack of will among European leaders to deliver a social union: The EU must be more than a single market with a common currency. We need sustainable policies for growth and stimulus that will benefit the peoples of Europe, rather than depress them.

Countries that enter into debt to save jobs and stimulate recovery by investment should not be punished. Taxes that governments rely on to service their debts have plunged and actually led to wider deficits. Feeding the parasitical bank shareholders is killing these economies in trouble. If an economy doesn’t grow but tries to pay back huge debts, it will turn into a debt-servicing agency, which hollows out the productive marrow of society.

Why current measures at EU level will not aid recovery of ailing countries
European finance ministers have resolved to submit draft budgets for the approval of their counterparts and the EU Commission before unveiling them in national parliaments. The ministers agreed to impose new financial penalties on governments that flout EU budget rules. Responding to pressure on the euro following the Greek debt debacle, they also agreed to widen the scope of existing surveillance measures to compel countries with high national debts to reduce their debts.

With the combination of these budgetary oversight mechanisms and the stringent terms and conditions that will be attached to countries that need to draw down from this Financial Stability Facility, it is clear that economic recovery and growth will be stunted by harsh contraction measures that will not stimulate the economy, create employment or deliver people from poverty. So rather than the creation of financial measures that will actually help ailing European economies, the package that has been put together by the Commission and eurozone Ministers is crippling, both economically and socially.

We should not be mistaken: the EU Commission will police national budgets and dictate where cuts and savings should be made and unless this dictat is followed, countries will not be eligible to draw down any funding from the EU. If countries do not follow this dictat, they will be punished at EU level.
So why would I support this legislation that will undoubtedly and unduly punish and penalise the peoples of Europe?

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