Though Cowards Flinch

Today the European Commission release their (Reuters-leaked) report under the ‘excessive deficit procedure’ warning the UK that it needs to get its deficit down towards 3% of GDP quicker than the government is currently planning. 

Stephanie Flanders has a good article setting out the way in which the Tories have been talking a good game about all of this, while actually being a lot less specific about how they’ll do it than Labour have.

Here, though, I’ll focus on why the European Commission is producing this report, and what this tells us about the European Union as a whole.

This, from the European Central Bank, sets out the excessive deficit procedure, established under the Maastricht treaty, in a nutshell:

Treaty provisions

The second indent of Article 121 (1) of the Treaty requires:
“the sustainability of the government financial position; this will be apparent from having achieved a government budgetary position without a deficit that is excessive, as determined in accordance with Article 104 (6)”.

Article 2 of the Protocol on the convergence criteria referred to in Article 121 of the Treaty stipulates that this criterion “shall mean that at the time of the examination the Member State is not the subject of a Council decision under Article 104 (6) of this Treaty that an excessive deficit exists”.

Excessive deficit procedure

Article 104 sets out the excessive deficit procedure. According to Article 104 (2) and (3), the European Commission shall prepare a report if an EU Member State does not fulfil the requirements for fiscal discipline, in particular if the ratio of the planned or actual government deficit to GDP exceeds a reference value (defined in the Protocol on the excessive deficit procedure as 3% of GDP), unless:

either the ratio has declined substantially and continuously and reached a level that comes close to the reference value; or, alternatively,

the excess over the reference value is only exceptional and temporary and the ratio remains close to the reference value;………….

Got that?

Now, that might have seemed all very well in 1992, when to a large extent you could argue that budget surplus/deficit was largely to do with how much countries spent on things like public services, in relation to how much wealth it created.  This was something, you could argue, was under governmental control in the first place and therefore something on which governments might be held to account.

In 2010, though, that’s not the case.  Everything is changed because the deficit is caused by the 2008 meltdown (see Tim Worstall’s interesting comment at Paul S’s place on the ‘real’ reasons for this), and governments’ need to bail out failing banks in the interests of avoiding ATM-free social chaos, and then the need to pump massive amounts of QE cash into the system to make it ‘liquid’ again.

To what extent such steps were warranted, and to what extent they have been effective, is not a matter for here – read the excellent essay at Bad Conscience, and all the QE stuff at Freethinkinng Economist, to explore that.

The issue for here is that a process of technocratic economic management signed into law under the Maastricht treaty, under a particular set of economic conditions which the then policy makers assumed would last for ever, is now adding to an already considerable burden on people who did not make the crisis, and did not gain from the booms that caused it.  

As a result there is a real possibility of major social unrest in many European countries, including explosions of racial hatred as workers take it out on themselves; this is the antithesis of what the European Union is supposed to be about.

That, fundamentally, is the stupidity at the heart of the European Union, and reflects the key problem with it.

The European Union is wholly based on the entrenchment of neoliberal norms of which the validity is now widely questioned, but which are set out in permanent form in the Lisbon Treaty and the treaties which preceded it:

‘For the purposes set out in Article 3 of the Treaty on European Union, the activities of the Member States and the Union shall include, as provided in the Treaties, the adoption of an economic policy which is based on the close coordination of Member States’ economic policies, on the internal market and on the definition of common objectives, and conducted in accordance with the principle of an open market economy with free competition.’  (Article 119 of the Lisbon Treaty)