Austerity and the Implementation of the Europe 2020 Strategy in Spain

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Introduction

Javier RAMOS

Defending the EU in its current form is a bitter task. The course of globalisation, with the centre of economic gravity moving from Western to emerging economies from the East and South, the weak international role played by the EU in international conflicts from the Balkan War (1990) to the Syrian refugee crisis (2015), plus the socio-economic consequences of the credit crunch in 2008, are seriously challenging the European Integration Process (EIP).

While millions of Europeans watch in shock as their wages, education, health, and pension systems deteriorate, especially in indebted southern European economies, European institutions and governments are generously spending trillions of euros bailing out banks at taxpayer expense. It is not surprising that for an increasing number of Europeans, the EU is becoming nothing more than a ploy by bankers to use European institutions for their own interests.

This is the worst possible scenario for Europhiles, and confirmation that there is still a long way to go to reach the “promised land” of a federal, innovative and social union of free and equal citizens that inspires the European dream. It is also confirmation that the real underlying debate in the EU today is not the Grexit, the Brexit, or the European Constitution, but rather, the future of democracy under capitalism.

There is no definitive reason to believe that capitalism and democracy must necessarily co-exist. Capitalism has flourished without democracy for very long periods in the last two centuries, except during the so-called “Golden Age of the Welfare State” after World War II. This reveals a constitutive problem of modernity: the inability to develop an inclusive way of dealing with economic matters (Wagner, 2011).

Capitalism and democracy always operate in a fragile balance, because they synthesize the latent tensions between profits and wages, competition and cooperation, and efficiency and equality that result in periodic bouts of economic depression and social upheaval. Democracy needs efficient mechanisms of production, distribution, and consumption to flourish, ← 9 | 10 → whereas capitalism needs a coherent symmetry between profits and wages to outlast protests.

Alternative combinations of “inefficient democracy” and “exclusionary capitalism” are cyclically subjected to periodical adjustments and crises. As stated by Wagner (2011: 18), whenever capitalism exists without democracy, it will be exposed to a critique of exploitation and injustice, likely to be expressed through calls for redistribution. Yet, when capitalism co-exists with inclusive democracy in bounded collectivities with strong internal social bonds, pressure on profitability can be high and can bring on economic crises.

A political compromise after the Second War World made possible a relatively stable coexistence between capitalism and democracy, with social protection acting as a nexus between profits and wages. It is precisely this integration of economic and social matters that characterised the Golden Age of welfare capitalism

However, the oil crises in the 1970s, the end of the Cold War in the 1980s, the hegemony of neo-liberal doctrines during the 1990s and the sub-prime crisis in the new century have upset the balance between economic and social matters by consolidating large-scale commodification¹, financial liberalization, and the entrenchment of pro-capital distribution policies as the foundation of a new economic order.

This new order has also changed the relations of power. A new ruling class has emerged with enough power to launch a “there is no alternative” narrative that imposes two apparently contradictory demands on governments: “laissez faire” to expand and consolidate competitive free markets, but also strong state intervention to compensate for the risk of default. This is close to what Crouch (2009) has defined as “Privatised Keynesianism”, a new hegemonic economic model whereby power is systematically transferred from politics to markets.

The growing instrumental role of governments and the radical separation between politics and power – now located in global capital flows – are increasingly limiting government capacity for public action (Bauman ← 10 | 11 → and Bordoni, 2014). This separation is what distinguishes the current crisis from the one in 1929. Power is not in the hands of governments, but in the flow of international capital that prevents government from using their public mechanisms of taxation and expenditure to act counter-cyclically.

Financial and political agents developed a deep trust in the technical superiority of deregulated and free markets to encourage more efficient adjustments based on supply-demand balances. They were “true believers” who were driven by a strong emotional impulse and a rather weak rationality that made them “masters of the universe and slaves of the market”, as defined by Bell and Hindmoor (2015).

For Crouch (2005), the consolidation of this new financial and corporate oligarchy is transforming democracy into “post-democracy,” where the “majority rule” that characterises modern democracy is been transformed into the “minority rule” that characterised democracy in the 19^th century. This regression is strongly linked to the triumph of neo-liberalism which, for this author, is not just about free markets but the dominance of corporations over public life.

The ruling class today, as in earlier times, seeks to legitimise its own interests. But, in contrast to previous centuries, when only a minority of property owners had the right to vote (restrictive suffrage), the new financial oligarchy imposes its interests on democracies with universal suffrage.

Obviously, post-democracy is not synonymous with dictatorship, but rather, with a significant regression in the processes and content of democratic practices. Other analysts of democracy are more cautious, suggesting that there is no crisis of democracy as such, but rather, frequent fluctuations in support for democracy (Norris, 2011), or improvements in some dimensions of democracy and deterioration in others (Merkel, 2014).

This democratic regression, fluctuation or deterioration has to do with the process of economic inequality and the concentration of wealth and power that we have suffered over the last forty years and it legitimised by and rests on two simple ideas: the technical superiority of the market to create and distribute wealth, and the impossibility of any other more efficient and realistic alternative to free markets.

This rhetoric of “free-market technical superiority” and “there is no alternative” has easily penetrated the EU, a polity characterised by a “democracy deficit” in the weakness of the European Parliament, the lack ← 11 | 12 → of accountability of the unelected Commission, the absence of a fully developed transnational European party system, and the lack of a real federal executive, among others.

Only the lack of real mechanisms of transparency and democratic control in the EU and the powerful position of lobbyists, together with the erosion of collective worker organisations, allow us to understand the intense process of commodification that European economies have undergone in the last decades.

Although the EU has always followed a distinctive tradition often referred to as the “Social Model”, social policies have not yet found their place in the European agenda, and the social dimension of the EU has been consistently put into member States’ hands (Tausch, Heshmati, Bajalan; 2007). This has brought about a significant asymmetry in favour of policies promoting “market-building” over “market-correcting” policies (Leibfried and Pierson, 2005).

This asymmetry is a question of uneven power and the complex institutional structure of the EU. The conflict between capital and labour has resulted in the predominance of European business objectives in the EU agenda. Decision-making processes, often restricted to national elites and private lobbyists, have evolved with insufficient attention to social policy at the EU level (van Apeldoorn, 2006).

As European Integration proceeds, the balance between commodi­fication and social protection is increasingly tipped far in favour of commodi­fication, and the financial crisis in 2008 has imposed new mechanisms of commodification via austerity packages and internal devaluation under stricter, more authoritarian rules.

In fact, the European Council is already acting as the central steering body to impose austerity policies by threatening sanctions, pressuring disempowered national parliaments, and compelling governments to impose any manner of pro-capital reforms against the resistance of their citizens. This combination of financial crisis and authoritarian austerity is seriously damaging the legitimacy of the EU.

This tension between financial capitalism and democracy is also the starting point and the general framework of Streeck’s view to understand the European crisis. Following Habermas’ explanation scheme of original crisis of legitimation, Streeck (2014) suggests that the current crisis in the EU consists of four interrelated crises: a banking crisis, a state fiscal crisis, a real economic crisis, and a legitimation crisis. ← 12 | 13 →

Similarly, Offe (2013, 2013b) put forward three interrelated components that help to explain the current situation of the EU, namely the political economy of the Eurozone and its dynamics, an inadequate institutional shell of EU polity and its democratic quality, and a widespread public disenchantment with the narratives about what Europe is good for and the purposes that would make further integration intrinsically desirable.

The reshaping of the European Productive model toward a high-value, knowledge based economy has been frequently invoked as the best alternative for Europe to cope with the challenges of globalisation, the consequences of the financial crisis and the risk of economic depression and social upheaval. It is, so to speak, the balm to alleviate the pains of commodification and austerity.

The Lisbon Strategy (2000-2010) and the Europe 2020 Strategy (2010-2020), have been launched to significantly bring about more and better jobs in a dynamic and competitive knowledge-based economy capable of sustaining our welfare systems through a smart, sustainable and inclusive growth pattern. Who in his right mind would oppose this? Yet, is the EU accomplishing this mission?

In what follow we try to respond to these questions by examining the two main challenges affecting the reshaping of the European productive model, namely globalisation and the financial crisis. Subsequently the main policy launched to transform the European productive model, Europe 2020 Strategy is examined in detailed. The final part of the chapter analyses the effects of Europe 2020 in Spain and provide some tentative conclusions.

1.   Transforming the European productive model: The Europe 2020 Strategy facing globalisation and the 2008 financial crisis

Although globalisation is certainly a complex and multidimensional phenomenon, with multiple and contradictory effects for the EU, it is widely held that the implementation of policies under the principles of trade and financial liberalization, privatization of state enterprises, redirection of public spending from indiscriminate subsidies toward pro-growth policies, liberalization of inward foreign direct investment, and fiscal policy discipline are modelling the new economic order of globalisation. ← 13 | 14 →

This new order has brought about a significant reconfiguration of the world economy with noteworthy effects on trade, profits, wages, employment, poverty, and equality at a global scale. The EU has not been immune to this socio-economic reconfiguration. Most of the preferential policies carried out in the EU in the last three decades have been oriented to adapt European economies to the requirements of commodification.

The Maastricht Treaty (1992) and the Stability and Growth Pact (1993), but also the Lisbon Strategy (2000-2010), the Europe 2020 Strategy (2010-2020), and the enlargement of the EU all belong to the internal logic of commodification to respond to the demands of globalisation. Therefore, the European attempt to transform the EU into the most dynamic and competitive knowledge-based economy in the world with greater social cohesion, as proposed by the Lisbon Strategy, or the new attempt to encourage a smart, sustainable, and inclusive growth of the Europe 2020 Strategy cannot be analysed without considering the world economy.

As I show in this volume, globalisation in its current form is creating the conditions for economic integration, profit-making, job creation, and extreme-poverty reduction at the cost of decreasing wages, increasing labour precariousness, and raising inequality. In other words, globalisation is creating good conditions for profits and bad conditions for wages and decent work.

For the EU, the incorporation of economies that are endowed with abundant low-skilled labour, soft labour laws, and nearly non-existent social security systems means that if there are no downward adjustments of wages in low-skilled sectors in European economies, there would be a rise in unemployment as a result of inferior productivity and risk of divestment in the sectors most exposed to international competition. Yet, if wages were fully adjusted, then the result would be a rise in inequality.

This apparent “employment-equality” trade-off is the source of one of the most important challenges that the European economies have been coping with, and the legitimation for a new economy that requires new patterns of production (based on knowledge), employment (flexibility), and redistribution (social innovation) to favour increasing productivity.

This is the main challenge that the Europe 2020 Strategy has to cope with: to overcome this apparently inevitable trade-off between profits and wages through the transformation of the productive model toward a smart, sustainable, and inclusive growth pattern. This is certainly a tough challenge. The expansion of commodification on a global scale has ← 14 | 15 → rested on the “proletarisation” of millions of new workers in emerging economies and the “precarisation” of millions of formerly integrated workers in developed economies (see my chapter in this volume).

Europe 2020 reproduces these patterns of “prole-precarisation” into the EU, reinforcing the assumption that growth and employment constitute the best, and the only way to address poverty and the solution to the employment-equality trade-off.

1.1   The financial crisis and the challenge for Europe 2020

Excessive leverage, feverish granting of subprime mortgages (rated triple-A by agencies like Moody’s and Standards & Poor’s holdings by the banks themselves), CDOs, CDs – all this was made possible by the lack of regulation and the belief that governments would intervene to bail out banks because they were “too big to fail.”

An important reason for this crisis of legitimation and disenchantment is the financial crisis and the European policy response. The Six and Two Packs (STP) launched to cope with the crisis have limited the development of a “social constitution” in the EU, have increased the differentiation of macroeconomic and fiscal policies, the petrification of policy options, and the reinforcement of fiscal discipline and budgetary stability. These policy options are eroding the EU’s capacity for democratic guidance through the crisis (Closa, 2016).

The STP has also imposed wage-setting adjustments as the most-used instrument for correcting imbalance and fostering competitiveness (Schulten and Müller (2015), pushing the EU economy toward a profit-led regime characterised by the implementation of pro-capital policies to cope with the consequences of the crisis (Lavoie and Stockhammer, 2014).