Monday

22nd Apr 2019

'New system of European governance' demands deeper austerity

EUobserver reviewed all 27 national recommendation documents. For highlights, scroll to the bottom of the page

The European taskmaster has cracked the whip. However much austerity has been imposed by EU member states, it is simply not enough.

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  • Cilice - a Roman Catholic penitential instrument worn under one's clothes to instill discipline and austerity (Photo: cilice.co.uk)

That is the overriding message from the European Commission that runs through its recommendations for each of the 27 member states in the new, post-crisis system of radically centralised oversight and correction of national economic policies by the EU known as the 'European Semester'.

"We are now implementing the new system of European governance," commission chief Jose Manuel Barroso said in the European Parliament in Strasbourg, heralding the unveiling of 27 detailed - or 'granular', to use the adjective EU officials use - national prescriptions, telling member states what they are getting right and wrong with their fiscal policies and what they must do to 'fix' their economies.

It goes further than fresh call for austerity: it is a recipe for much deeper liberalisation of the European economy than has yet been seen.

From intervening in collective bargaining to cut wages, to making it easier to fire workers, to a shift away from progressive taxation, through the new system, the EU hopes to utterly transform its member-state economies to be more competitive with the likes of the US, China and emerging economies.

Under the new, six-month system repeated annually, the commission in January sketches out a rough idea of what it expects national economic policies to look like for the coming period, a document that is then endorsed by the European Council, representing the member states.

All 27 states then submit their budgets and broader economic plans to the commission - before they are submitted to national parliaments - to see if they are sufficiently rigorous.

Then in June, in the current and penultimate step in the process, the commission gives its appraisal of these plans, setting out what must be corrected, a series of recommendations that must also win endorsement from the European Council.

Over the following 12-18 months, governments must put in place all the changes ordered by the Council-Commission duo.

If countries are in the eurozone, this oversight is backed up by the imposition of stiff fines for delinquent governments up to a maximum of 0.5 percent of GDP. For an economy the size of Spain, such a fine would amount to €5.25 billion.

In announcing its recommendations, sensitive to accusations of a power grab, the EU executive denied that it was replacing national parliaments: "This is not about dictating policy ... National governments retain responsibility for economic policies implemented in member states."

"But the impact of those policies no longer stops at national borders," it continued, laying out its argument as to why such unprecedented centralisation is necessary: "The commission is the only EU institution with the political autonomy, the technical expertise and the pan-European perspective to be able to oversee this process."

The commission did however acknowledge the anger regular Europeans feel at the austerity and liberalisation that has already been imposed in response to the crisis, but argues there is no alternative and that these changes should have been made years ago.

"There is discontent among citizens in several member states," the EU executive concedes in its main document giving an overview of the changes that it says need to be made.

"However, under the pressure of events, many of the changes needed to remedy structural weaknesses, which have often been delayed for years, are now being considered or implemented."

A mantra - whose wording changes subtly here and there, but whose essence is the same - is repeated through all the documents: "Fiscal room for manoeuvre is very limited."

"We know that achieving the goals we have collectively set ourselves means sometimes hard choices. But these efforts, if made seriously and by all, will allow Europe to leave the crisis behind it and safeguard our future prosperity."

Indeed, with just five centre-left governments remaining in the EU after a series of electoral debacles (two of which, in Spain and Greece, are on their last legs), the right, which also controls the three European institutions, feels increasingly confident that the growing number of strikes and protests are an unrepresentative irrelevance. Most citizens approve of the strategy of austerity, they believe.

Speaking to reporters on Tuesday, Barroso, a conservative himself, crowed how in his native Portugal that parties that rejected austerity had been trounced in the recent general election.

'Insufficient ambition, vague, lacking focus'

Overall, the commission's conclusion is that the economic programmes submitted by the member states "broadly reflect" the priorities it outlined in January, but that some countries, according to Barroso: "show an insufficient level of ambition, and others are lacking in specificity."

"Many member states need to show more ambition when it comes to fiscal consolidation," he said. The commission also described many of the proposed measures as "vague, lacking sufficient focus."

The general semester recommendations for all states call for a review of wage-setting systems to ensure that wages keep in line with productivity in order not to undermine competitiveness. They also look to increasing the statutory retirement age across Europe and then automatically linking regular adjustments to this age to changes in life-expectancy. Early retirement should also be phased out.

Such efforts will not be easy to implement in many places. Efforts to increase the French retirement age last year provoked widespread strikes and blockades that paralysed much of the country as critics argued that such changes would hit blue-collar workers hardest and increase youth unemployment.

Governments should make it easier to hire and fire workers, the commission also recommends, although the language deployed is a more technocratic call to "rebalance employment protection."

"Urgent action" should be taken to ease the regulation of companies while payroll taxes should be reduced.

Brussels has also called for taxation in general to be shifted away from labour, where the higher the income, the higher the rate paid, and onto consumption, where everyone pays the same rate, regardless of income levels. Many countries have also been ordered to introduce so-called debt brakes - legislative or constitutional changes to enforce budgetary discipline.

It is not all dour news however: the recommendations in many cases also call for efforts to reduce school drop-out rates, increase the participation of women in the workforce, boost support for vocational training and life-long learning, and achieve greater energy efficiency.

However, the reality is that almost all countries apart from Britain will have to significantly up their game.

The thread running through almost all the recommendations is that the masochism must continue.

Highlights

COUNTRIES UNDER EU-IMF TUTELAGE

NB. Five governments, Greece, Ireland, Latvia, Portugal, and Romania, received only one recommendation: to follow through on the austerity and structural adjustment imposed in return for national bail-outs.

Click on the name of the country to link to the complete semester recommendation.

AUSTRIA

- Accelerate deficit reduction

- Consolidate the health-care sector

- Phase out early retirement

- Increase women's statutory retirement age

- Stricter conditions on pensions of invalids

- Reduce labour taxation and social security contributions

- Further liberalise trades and professions

BELGIUM

- Increase effective retirement age

- More ambition in reducing deficit, further spending cuts

- Reform wage bargaining and wage indexation to match productivity gains

- Shift taxation from labour to VAT and green taxes

- Boost retail, energy sector competition

BULGARIA

- Speed up austerity

- Introduce 'debt brake'

- Speed up pension reform

- Keep older workers in employment longer

- Reform wage bargaining and wage indexation to match productivity gains

- Expand the temp agency market

- Abolish electricity and gas price controls

CYPRUS

- Use any extra revenues for faster debt and deficit reduction

- Strengthen supervision of banks and credit co-operatives

- Extend the years of pension contribution

- Increase water prices

- Link the statutory retirement age to life expectancy

- Reform wage bargaining and wage indexation to match productivity gains

CZECH REPUBLIC

- Further austerity in the event of 2011 revenue shortfalls

- Faster increase in the retirement age than planned

- Promote private pension savings

- Increase availability of part-time jobs

- Link university funding to performance reviews

DENMARK

- Speed up deficit reduction if economy improves

- Introduce debt brakes for local, regional and central government

- Phase out early retirement

- Reform disability pensions

- Review land-use legislation

- Liberalise municipal and regional public procurement

- Reform mortgage rules and property taxes

ESTONIA 

- Reduce taxation and social security contributions

FINLAND 

- Link the statutory retirement age to life expectancy

- Further liberalise the services sector, especially retail

- Use any windfall revenues to reduce the deficit faster

- Further measures to achieve cost savings in public sector

- Introduce structural changes to respond to an ageing population

FRANCE 

- Use any windfall revenues to accelerate debt and deficit reduction

- Further measures to reform the pensions system if needed

- Ease employment protections

- Limit minimum wage growth

- Shift taxation from labour to VAT and green taxes

- Further liberalise trades and professions and services and retail sectors

GERMANY 

- Restructure regional banks - the 'Landesbanken'

- Liberalise professional services and craft sector

- Extend debt brake to regional level

HUNGARY 

- Insufficient austerity

- Use any windfall revenues to reduce the deficit faster

- Ease regulation of business

- Expand the powers of the Fiscal Council, a body of economic experts independent of government that advises on budgets

- Lower labour taxation

ITALY 

- Speed up debt and deficit reduction

- Introduce 'debt brake'

- Reform employment protection

- Reform wage bargaining to match productivity gains

- Make it easier to dismiss employees

- Further liberalise services sector

LITHUANIA 

- Lower social assistance and eliminate "disincentives to work"

- Shift taxation toward energy use and increase energy taxation

- Liberalise "very strict labour regulations"

- Reform state enterprises "prone to inefficiencies"

- Speed up deficit reduction

- Introduce 'debt brake'

- Expand temp work sector

LUXEMBOURG

- Further reduce the deficit

- Discourage early retirement

- Link the statutory retirement age to life expectancy

- Reform wages setting system and link wages to productivity

MALTA

- Further austerity to prevent excessive 2011 deficit if necessary

- Introduce 'debt brake'

- Accelerate the increase in retirement age and link it to life expectancy

- Eliminate wage indexation

NETHERLANDS

- Increase the statutory retirement age and link it to life expectancy

- Raise the effective retirement age

- Prepare a blueprint for reform of long-term elderly care

- Introduce road tolls

POLAND

- Introduce 'debt brake'

- Eliminate early retirement for miners and armed forces

- Raise statutory retirement age for women

- Reform the farmers' social security fund to encourage them to leave the sector

- Streamline construction and zoning legislation

SLOVAKIA

- Introduce ‘debt brake' for central government and social security

- Create an independent ‘Fiscal Council' - a body composed of economic experts independent of government to advise on budgets

- Link retirement age to life expectancy

SLOVENIA

- Introduce incentives to retire later

- Reduce ‘asymmetries' between protections of permanent and temp workers

SPAIN

- Deeper budget cuts if revenues prove worse than projected

- Introduce ‘debt brake' for both national and regional governments

- Warns against the parliament introducing changes to law raising retirement age

- Further measures to raise the effective retirement age

- Warns over role of local authorities in governance of savings banks

- Overhaul the "unwieldy" collective bargaining system, going beyond the current labour market reforms

- Move away from sectoral bargaining to firm-by-firm bargaining

- End automatic extension of collective agreements

- End wage indexation

- Deliver greater wage flexibility

- Reduce employer social security contributions and replace lost revenues with increased or broadened VAT and increased energy taxes, especially fuel taxes

SWEDEN

- Reform mortgage rules

- Reform property taxes

- Reform rent controls and subsidies

UK

- Warns against "slippage" in spending cuts

- Further competition in the banking sector

Parliament approves economic governance ‘six-pack’

After almost a year since the European Commission first proposed a package of laws radically centralising economic decision-making in the European Union, the legislative process approving the so-called ‘six-pack’ of bills has finally come to an end with the European Parliament giving its assent on Wednesday.

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