By Christakis Georgiou
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Austerity will drive the crisis deeper

This article is over 10 years, 1 months old
The summit of European Union (EU) leaders last week marked a turning point in the development of the euro crisis. Their previous attempt to fix the crisis in late October ran out of steam just two days after it was agreed.
Issue 2283

The summit of European Union (EU) leaders last week marked a turning point in the development of the euro crisis. Their previous attempt to fix the crisis in late October ran out of steam just two days after it was agreed.

Then Greek prime minister George Papandreou announced he would put the agreement to a referendum. His move wreaked havoc across financial markets and exposed how splits between national governments undermined their attempts to solve the crisis.

A month and a half later, EU leaders—except David Cameron—have agreed to set up a mechanism of mutual surveillance of national budgets. The agreement will be signed in March. It will formalise the generalised austerity drive and closer integration of economic policy in Europe.

The new treaty will force governments to adopt legislation that makes balanced budgets mandatory. It will also place sanctions almost automatically on governments that break the rules.

These were key demands of the German government. They ensure that EU governments won’t retreat from attacking their workers.

This will raise the political pressure on southern European governments to implement austerity and “structural reforms”.

Last October EU leaders agreed that governments would have to show the European Commission (EC) their budgets before presenting them to national parliaments. Now the EC will have the power to decide whether these budgets comply with the new rules—and can overturn any budget it doesn’t approve of. This will generalise what Greece, Ireland and Portugal have all been subjected to since their bailouts.

Something similar is now the case in Italy—where EC, European Central Bank and IMF officials supervise economic policy.

The new treaty also rules that in the future the value of sovereign bonds held by private holders won’t be reduced to help ailing governments.


The euro crisis spread to Spain and Italy in August this year. This followed EU leaders agreeing, on German insistence, to impose a “haircut” on private holders of Greek public debt.

These measures are the first step towards much closer “fiscal union”. As soon as the crisis erupted, many commentators pointed out the dilemma for the EU was either to integrate further or to disintegrate. Disintegration not being an option, the question was on whose terms integration would happen.

This is the source of the splits among EU states. The last two years have seen an enormous amount of open wrangling between governments. There are broadly two camps pitched against one another—France and the deficit countries on one hand, Germany and the surplus countries on the other.

The French-led camp has argued for inter-state “solidarity” as the main solution. The German-led camp says the deficit countries will have to commit to carrying out vicious attacks on their workers before any “solidarity” can be envisaged. It has had the backing of the ECB on this.

Of course, the ruling classes of the deficit countries are perfectly happy with the idea that their workers should pay to fix the euro crisis. They even see it as an opportunity.

What they are horrified about is the political crisis generated by austerity. They’d rather have the ruling classes in Germany and northern Europe bail them out than deal with opposition in the streets, workplaces and the ballot box.

But now that the German-led camp has had its way, the focus will shift to the class struggle in individual countries.

In the past month new Italian leader Mario Monti announced brutal austerity measures. The new conservative government in Madrid rushed to make similar pledges soon after it won the general election.

The French government announced its second austerity package in two months. And all this is happening just as the “recovery” is petering out and signs of a new recession are multiplying. The political crisis in Europe is set to get much deeper.

Christakis Georgiou is a member of the NPA anti-capitalist party in France

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