THE CONTINUING STORY OF THE EUROPEAN CRISIS

November is a true European crisis month. It started on November 14 with a day of action of the ETUC. In different capitals in the European Union strikes were held, demonstrations and manifestations against the austerity measures. For the occasion, the ETUC has issued a statement:

“The European trade union movement has for years been denouncing austerity measures. They are dragging Europe into economic stagnation and even recession. The result is that growth has stalled and unemployment continues to rise. Wages and social protection cuts are attacks against the European social model and increase inequality and social injustice. The International Monetary Fund (IMF)’s «miscalculations» have had an unbearable impact on the daily life of European workers and citizens. It brings into question the whole basis of austerity policy. The IMF must apologize. The Troika must revise its demands. Europe has a social debt, not just a monetary debt. The promised recovery has not happened. Twenty-five million

Europeans are out of jobs. In some countries, the unemployment rate for young people is over 50 per cent. The sense of injustice is widespread and social discontent is growing. We want action for sustainable growth and jobs. Not just words. The social situation is urgent.”

The ETUC proposes:

* Economic governance at the service of sustainable growth and quality jobs,

* Economic and social justice through redistribution policies, taxation

and social protection,

* Employment guarantees for young people,

* An ambitious European industrial policy steered towards a green,

low-carbon economy and forward-looking sectors with employment

opportunities and growth,

* A more intense fight against social and wage dumping,

* Pooling of debt through Euro-bonds,

* Effective implementation of a financial transaction tax to tackle

speculation and enable investment policies,

* Harmonisation of the tax base with a minimum rate for companies

across Europe,

* A determined effort to fight tax evasion and fraud,

* Respect for collective bargaining and social dialogue,

* Respect for fundamental social and trade union rights.

However, these proposals are still far away to be accepted. The Nordic European countries are resolutely opposed to the pooling of debt through Eurobonds. Great Britain rejects the idea of financial transaction tax as an intent to destroy London city as world financial centre. London city accounts for about 9% of the British gross national product.

The three important players in the European crisis. Left Mr. Europe the Belgian Herman van Rompuy, President of the European Council of European leaders. Next to him the French Cristine Lagarde, Director General of the IMF. On the left the Portuguese José Manuel Barroso, President of the European Commission.

In the meantime the so-called Greek debts crisis continues its own story. This month Greece needs another credit of  € 44 billion to keep its national economy going on. However, IMF and the EU don’t agree about the next steps. One agrees that the given time is too short for the reduction of the Greek debt to 120% of GDP. Therefore Europe is prepared to give Greece more time but this means extra money.  Who has to pay this? The IMF wants no more delays and calls for further debt cancellation. The European politicians find this unacceptable because, as they say, their voters do not want to spend a penny more on Greece.

The story continued Thursday 22 November with a strike of several thousand European officials. They don’t agree with the impending cuts in the EU budget 2014-2020. The officials are worried that the result will be a severe reduction of their wages. The unions point out that the cost of  Europe for its citizens amounts to only  67 cents per day while only 3% of the EU budget goes to salaries. According to the unions there has been savings since 2004 for an amount of  € 3 billion. Another 5% will be saved from now until 2020. The public has difficulties to take serious the strike of the European officials because they earn a lot compared to the officials in most European countries, while at the same time they pay only about 12% tax.

This week, European leaders negotiate the aforementioned European multiannual budget. Until now one could not agree on the budget increase to about €1000 billion. Net fee payers to Europe such as England, Denmark and the Netherlands are opposed. England and Denmark have already threatened a veto. The countries that receive more from Europe than they pay as fee want a budget increase. One wonders what will be the outcome.

If the budget does not increase, Europe will not be able to stimulate economic growth. As we know now this means another defeat for the ETUC that wants Europe to stimulate economic growth more than before.

CHRONOLOGY OF THE EURO CRISIS

 The New Europe

1. In December 2009 the Eurozone countries discovered that the Greek government debt amounts 300 billion Euros, ie almost 113% of the total government budget.

2. In January 2010 it is determined that the Greek deficit is not 3.7% but 12,7%. In the Eurozone, Greece is invited to reduce the deficit. Corrective measures are announced. In February, an IMF/EU mission goes to Greece: it predicts more economic and financial misery, a higher deficit and a recession of the Greek economy.

3. In March 2010 the Greek government announced an austerity package: VAT goes up 2%, the bonus in the public sector goes 30% down, taxes on fuel, tobacco and alcohol go up and pensions are frozen. At the European summit, without going into details, one talks about a possible aid package to Greece.

4. In April 2010 the Eurozone presents a support package: a 30 billion loan facility from the EU and a 15 billion loan facility from the IMF. It is based on a 3-year financing with an interest charge of 5%. The same month, Greece asks for the promised loans.

5. In April 2010 the rating institute Standard & Poor's lowers again the creditworthiness of Greece, and then also of Portugal. One begins to worry about infecting other countries like Spain and Italy.

6. In May the Eurozone, the IMF and the Greek Government create an emergency plan for Greece of 110 billion euros. Greece promises to reduce its expenses by 30 billion.

The EU agrees on a package that will ensure financial stability. It agreed to a "special purpose vehicle", later called the European Financial Stability Facility (EFSF) of 440 billion euros. The EFSF should be used for, among others, recapitalization of the banks. The EFSF should be able to act on secondary markets to prevent contamination. It seemed to bring calm, but that is short lived.

The European Commission also announced measures that should prevent deficits in the national budget, the so-called six pack. Also sanctions are laid down in European legislation that makes it possible to punish the budget sinners.

7. In the same month Spain and Portugal announced budget cuts with the aim to restore the confidence of the financial markets. The European Central Bank (ECB) starts with interventions and buys bonds from weak countries for a total of 165 billion euros. Maintaining confidence in the financial sector the European Summit announces a stress test for banks. Of the 91 banks tested, 7 banks do not meet the criteria.

8. In the summer of 2010 it becomes clear that Ireland also has problems. This is mainly due to the mortgage loans from banks. A second Lehman debacle threatens.

9. In November, Ireland received an aid package of 67.5 billion Euros. A blueprint for a European Stability Mechanism ESM is designed that will start functioning from 2013 onwards and which is open for private sector participation.

10. In March 2011, the European Summit establishes rules for the ESM. Also the six pack prevention measures are decided to which President Sarkozy and Bundeskanzler Merkel are less strict than the European Parliament, the European Commission and the Finance Ministers from the Eurozone.

11. In May a rescue plan is set for Portugal of 78 billion euros.

12. In June the European Parliament approves the package of preventive measures.

13. In June 2011 the Greek Parliament votes in favor of a drastic austerity package.

14. In July 2011 another stress test for banks is held. Now eight large banks failed to meet the requirements. A new emergency plan for Greece is setteld, worth 109 billion euros. It is decided that the financial private sector should also contribute in addition to the 109 billion euro.

15. The ECB buys more and more Italian and Spanish debt (34 billion) and thus stretches its role to prevent the interest on the Spanish and Italian debt continue to widen.

16. In October 2011, the Greek problem again is larger than expected. However, the country has cut back a lot. The 1913 budget will be balanced. But the interests charged for loans are an excessive burden. The economic downturn is much larger than anticipated. Privatisations are going to slow and do not generate enough money. Instead of 109 billion euro, one need 250 billion and when things go even worse than about 444 billion will be needed on top of the 110 in July 2010. The choice now is a "haircut" of debts or a bankruptcy for Greece. But volontary amortization of financiers (banks) can bring them into trouble too.

17. The debt of Greece will be reduced to 120% of the national budget, to get there in 2020.

The EFSF with its 440 billion Euro in guarantees from which after contributions to Ireland and Portugal remains 290 billion Euros, will be increased to 1000 billion. Private investors are invited to participate in the  Stability Fund. The exact termes have to be worked out.
The banks have to write off 50% of the money loaned to Greece. This will require 106 billion Euro. Banks will initially look for this money through the market, if it is not possible, they can borrow money before the EFSF.
As of July 2013 or possibly earlier the European Emergency Fund will have an amount of 80 billion euros. The European Commission investigates the possibility the release of eurobonds.

It has been agreed that each country adheres to the Stability Pact. Italy is committed to a balanced budget in 2013 and a surplus in 2014 so government debt will be reduced to 113% of the budget.
President of the European Council Van Rompuy, President of the European Commission Barroso and President of the Eurogroup Juncker prepare treaty changes. These are aimed to guarantee more financial stability and to promote more economic cooperation.

Thanks to the European Parliament member Ria Oomen-Ruijten