Amidst the fallout over Cameron’s decision to walk out of EU negotiations to deal with the economic crises, one point has been missing from from much of the coverage – both the EU Commission and the Conservatives are wedded to catastrophic spending cuts. These cuts, whoever imposes them, will continue to harm living standards for the majority of the population and will prevent stimulation of the necessary growth to pull us out of the situation. Labour’s task remains championing a challenge to austerity.
Some on the left have sought to highlight the dangers contained in the agreement.
In a blog for the New Statesman on Friday, Owen Jones put it bluntly – under the EU agreement, “economic stimulus is forbidden – because the treaty has buried Keynesianism.”
The effect of the agreement, as Larry Elliott has written, is that it “condemns Europe to permanent deflation and high unemployment.”
The mechanism by which this is imposed is that the structural deficits of the 26 countries will not exceed 0.5% of GDP, which will require handing enormous power to the EU Commission, which will have prior oversight of the national Budgets.
At Socialist Economic Bulletin Mick Burke explained how this will work:
“They must either hugely increase household savings even though incomes are declining; that is, household spending must fall even faster than incomes. Alternatively, businesses must reduce investment to well below the level of its income, which could only lead to a further reduction in competitiveness and a renewed widening of the current account deficit. This is the downward spiral that countries like Greece have already entered.”
Both Cameron and the Agreement are wrong. Cameron is damaging relations with Britain’s biggest market that damage jobs and growth. The agreement is entrenching austerity.
Owen Jones is correct to state this agreement is a catastrophe for the left in Europe. Jobs will be lost, wages will be cut, welfare slashed. So it is welcome that Francois Hollande, the French Socialist Party’s Presidential candidate has pledged to renegotiate the Treaty.
Cameron’s only objection was what he saw as a potential threat to the City of London’s pre-eminence as Europe’s financial capital, no surprise given the recent reminders that the Tories are the party of hedge fund managers, but he may not have been successful even in that limited aim. He is just as keen, if not more so, on spending cuts. As Burke has said, Cameron is already, “cutting public spending by a greater proportion of GDP than any major country which has not been in receipt of EU/IMF funds for its creditors”, namely Ireland and Greece.
Separately from the European project, Cameron will continue with dismantling the welfare state, whether that is the huge assault on the NHS still going through Parliament, or last night’s vote to cut benefit payments to families with disabled children, and an alternative needs to be proposed.
Where Cameron and the Commission have sought to bury Keynesianism, Labour must give it life. In arguing for jobs and growth, we need also to argue why austerity is economically illiterate. With the Five Point Plan it has potentially turned a corner, but that should just be the start of a whole new debate.