Social Justice Ireland welcomes the opportunity to address the committee on the social dimension of EMU, which is crucial to the future of the EU and whether it can survive. Most people would be positive about its survival but, as noted earlier, there is a growing and strengthening resistance to much of what is going on. I will step back and take a longer view to put this question into perspective. EMU has been on the agenda a long time. There have been three different understandings of how it could be delivered. The first saw EMU as following from political union. The second saw political union as following from EMU.
The result is that we have a third approach which basically sees economic and monetary union being achieved through a series of procedural governance methodologies and a recalibration of social models to the point where the president of the European Central Bank could say last year that the European social model is dead. He is still in office, which I find very interesting. I do not think any government has supported that view.
The Maastricht Treaty, when it was implemented, led to an imbalance in the institutional structure for economic and monetary union. In the 1990s and the 2000s, these imbalances were corrected in a number of ways. All across Europe we saw the development of social pacts in member states. In Ireland, that took the form of the social partnership process. A lot of strategies were put in place at a European level to deal with the social dimension. We saw the development of the European social dialogue, the European employment strategy, the Lisbon strategy, the open method of co-ordination in the fields of pensions, health and a variety of other areas. In a way then, economic and monetary union had a substantial social dimension to it, even if it was weak, contradictory and, in many cases, fragile. However, in the wake of the financial crisis of 2008 and the subsequent euro crisis, this social dimension has been steadily eroded. Some would argue that it was being eroded from 2004 onwards but that is a debatable point. The open methods of co-ordination, for example, which were used in a variety of different ways were gradually voided of any substance. The European social dialogue was no longer fed and the social goals of the Lisbon strategy were neglected. In fact, the strategy was eventually split in two and the social aspects put to one side. Few European legislative initiatives were taken in the social policy field.
The new approach is already putting more pressure on industrial relations, for example, in terms of wages and decentralisation. It is putting pressure on the welfare state, for example, on issues like labour market policy, pensions, welfare rates and so forth. Member states have put major programmes in place to reduce public expenditure and to introduce structural reforms. Austerity has become the order of the day. However, the austerity approach is based on an inaccurate analysis of what actually happened in 2007/2008. The popular understanding of what happened is very well articulated by Angela Merkel. She suggested that the causes of the crisis were twofold - catastrophic profligate drift in public finances and excessive national debt built up over many years. The argument basically was that because countries had allowed huge drifts in their public finances, had borrowed enormously, way beyond their means and had allowed their national debt to run to dangerous levels, austerity was necessary. That led to reductions in social expenditure and social services and to the financial sector being fully repaid for the loans and so on. Banking debt became sovereign debt and increased supervision of public finances became the order of the day. Sanctions were put in place for countries which missed their fiscal targets. The fiscal compact, the two-pack and the six-pack were put into place, the terms of which will be the order of the day here once we exit the bailout. The ongoing dominance of the financial sector was one of the responses to the crisis.
However, we have a question. Was the initial analysis of the cause of the crisis valid? Was it accurate? Did Ireland, for example, borrow way in excess of what it should have been borrowing in the decade up to 2007? In actual fact, Ireland ran a budget surplus every single year, bar one, in the ten years up to 2007. It ran a deficit in 2002. It is not true to say that Ireland had allowed a catastrophic profligate drift in its public finances. The second question is whether we allowed excessive national debt to build up over many years. In 2007 our debt to GDP ratio was one of the lowest in the world. I would suggest, therefore, that what we are looking at here is a misunderstanding of the problem. The causes being addressed are not the causes of the problem so the solution being applied is addressing the wrong issue. What actually happened was that the financial industry, including banks and bondholders, had run riot. They had gambled to an extraordinary degree and certainly we had a degree of responsibility as a country because we did not regulate the industry properly. However, we were not pumping in the money or driving it. Certainly, at Government level, Ireland did not engage in any of the activities to which Ms Merkel referred. An appropriate response would have been proper regulation, a financial transactions tax, the elimination of tax havens, a tackling of financial fraud, the separation of commercial and investment banking and a variety of other things.
The problem is that at European level, we have been focusing on tackling the wrong cause. As a result, we have structural unemployment, rising poverty levels, sustained child poverty, ongoing adult literacy challenges, high net emigration, lengthening social housing waiting lists and declining social infrastructure. In fact, the latter is being eroded. We would suggest that, in terms of the social dimension of what is happening, this is a road to nowhere. The process of developing economic and monetary union is producing a one-sided and ultimately unviable system. The social component is being undermined. An austerity approach is being imposed which insists that, for example, the cost of health care and pension systems should be reduced; that wage formation systems should be placed within a competitive framework with little respect for those on low incomes and the working poor; that social benefits systems create disincentives to labour market participation and so must be reduced, as if, in some way, reducing welfare rates creates jobs, which does not happen; and that labour costs must be reduced. There may be some structural reforms required in each of those areas but to basically argue that this should be done to get our house in order because these issues were the cause of the crisis is simply to misunderstand the reality and to put an incorrect solution in place. This approach has little or no interest in how social models are intended to reduce inequality and to supply assistance and protection nor does it acknowledge how social models could contribute to the operation of a regulated monetary economy. That is why this is a critical discussion. This is not just about putting social indicators into place. It is about making the social dimension a central component of the European project. We should be developing economic and monetary union with this social dimension at its core. We would argue that until these issues are adequately addressed, economic and monetary union will continue to have a corrosive impact on social services, social provision and the social infrastructure that underpins much activity in our societies. If economic and monetary union is to have a genuinely supportive social component, these are the issues that must be addressed and the current dominant negative trends must be reversed.
In our submission to the committee, we have spelled out in some detail, a five-pillar framework that we believe should be at the core of European development. Economic and monetary development is part of that, but so too is social development. The five pillars need to be addressed simultaneously and not in a linear fashion. We need macroeconomic stability and a just taxation system. We need social protection and the social infrastructure to be strengthened rather than weakened. We need real, effective governance, particularly in terms of issues like policy analysis and so forth. Finally, we need sustainability to be put at the core of the policy-making process. Those are the five dimensions that need to be put in place. When making proposals, suggestions, submissions and so forth to the Commission and the Council about the social dimension of economic and monetary union, these five elements need to be knitted together into a coherent tapestry and all five need to be addressed simultaneously and in solidarity.